| | | Form of Registration Rights Agreement, by and among the Company and the investors set forth on the signature page thereto (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed with the SEC on July 20, 2020). | | | First Amendment to 2014 Omnibus Equity Incentive Plan (incorporated by reference as Exhibit 10.3 of the Company’s Current Report on Form 8-K filed with the SEC on July 20, 2020). | | | 2020 Omnibus Equity Incentive Plan (incorporated by reference to Exhibit 10.4 of the Company’s Quarterly Report on Form 10-Q filed with the SEC on November 16, 2020). | | | Form of Purchase Agreement (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on January 4, 2021). | | | Form of Registration Rights Agreement (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed with the SEC on January 4, 2021). | | | First Wave Purchase Agreement (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on January 8, 2021). | | | First Wave License Agreement (incorporated by reference to Exhibit 10.1 filed with the Company’s Current Report on Form 8-K filed with the SEC on January 13, 2021). | | | Form of Purchase Agreement (incorporated by reference to Exhibit 10.1 filed with the Company’s Current Report on Form 8-K filed with the SEC on March 10, 2021). |
|
| Subsidiaries of the RegistrantAt The Market Offering Agreement, dated May 26, 2021, by and between AzurRx BioPharma, Inc. and H.C. Wainwright & Co., LLC (incorporated by reference to Exhibit 21.1 filed with1.2 of the Company’s Registration Statement on Form S-1S-3 filed with the SEC on July 13, 2016)May 26, 2021). | |
| Settlement Agreement, by and between the Company and Fortis Advisors LLC, dated November 15, 2021 (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on November 16, 2021). | | | Form of Waiver (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on February 7, 2022). | | | Employment Agreement by and between First Wave BioPharma, Inc. and Sarah Romano, dated February 14, 2022 (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on February 17, 2022). | | | Form of Purchase Agreement (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on March 1, 2022). | | | Subsidiaries of the Registrant. | | | Consent of Mazars USA LLP. | |
| Certification of CEO as Required by Rule 13a-14(a) or Rule 15d-14(a). | |
| Certification of CFO as Required by Rule 13a-14(a) or Rule 15d-14(a). | |
| Certification of CEO and CFO as Required by Rule 13a-14(a) and Rule 15d-14(b) (17 CFR 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code. | 101.INS* | | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).
| 101.SCH* |
| Inline XBRL Taxonomy Extension SchemaSchema. | 101.CAL* |
| Inline XBRL Taxonomy Extension Calculation LinkbaseLinkbase. | 101.DEF* | | Inline XBRL Taxonomy Extension Definition LinkbaseLinkbase. | 101.LAB* | | Inline XBRL Taxonomy Extension Label LinkbaseLinkbase. | 101.PRE* | | Inline XBRL Taxonomy Extension Presentation LinkbaseLinkbase. | | | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).
|
* Filed herewith. # Certain portions of this exhibit (indicated by “[*****]”) have been omitted as we have determined (1) it is not material and (2) is the type that the Company treats as private or confidential. ## Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company hereby undertakes to furnish supplementally copies of any of the omitted schedules upon request by the SEC.
† | Indicates a management contract or compensation plan, contract or arrangement. |
ITEM 16: | FORM 10-K SUMMARY |
ITEM 16: FORM 10-K SUMMARYNone.
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, there unto duly authorized. | AZURRXFIRST WAVE BIOPHARMA, INC. | | | | March 31, 20212022 | | | | By: | /s/ James Sapirstein | | | Name: James Sapirstein | | | Title: President and Chief Executive Officer | | | | | By: By:
| /s/ Daniel SchneidermanSarah Romano | | | Name: Daniel SchneidermanSarah Romano | | | Title: Chief Financial Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons on behalf of the registrant and in the capacities held on the dates indicated. Signature | | Title | | Date | | | | | | /s/ James Sapirstein | | President, Chief Executive Officer and Chair of the Board of Directors | | March 31, 20212022 | James Sapirstein | | (principal executive officer) | | | | | | | | /s/ Daniel SchneidermanSarah Romano | | Chief Financial Officer | | March 31, 20212022 | Daniel SchneidermanSarah Romano | | (principal financial officer and accounting officer) | | | | | | | | /s/ Edward J. Borkowski | | Director | | March 31, 20212022 | Edward J. Borkowski | | | | | | | | | | /s/ Charles J. Casamento | | Director | | March 31, 20212022 | Charles J. Casamento | | | | | | | | | | /s/ Terry Coelho | | Director | | March 31, 2022 | Terry Coelho | | | | | | | | | | /s/ Gregory Oakes | | Director | | March 31, 2022 | Gregory Oakes | | | | |
/s/ Alastair Riddell | | Director | | March 31, 20212022 | Alastair Riddell | | | | | | | | | | /s/ Vern L. Schramm | | Director | | March 31, 2021 | Vern L. Schramm | | | | |
/s/ Gregory Oakes | | Director | | March 31, 2021 | Gregory Oakes | | | | |
First Wave BioPharma, Inc. Index to Consolidated Financial Statements REPORT OF INDEPENDENTINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of AzurRxFirst Wave BioPharma, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of AzurRxFirst Wave BioPharma, Inc. (the(f/k/a AzurRX BioPharma, Inc; the “Company”) as of December 31, 20202021 and 2019,2020, and the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity, and cash flows for each of the two years thenin the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2021 and 2020, and 2019, and the consolidated results of theirits operations and theirits cash flows for each of the two years thenin the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
Emphasis of a Matter
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has incurred significant operating losses and negative cash flows from operations since inception. The Company also had an accumulated deficit of approximately $95.4$153.9 million at December 31, 2020.2021. The Company is dependent on obtaining necessary funding from outside sources, including obtaining additional working capital funding from the sale of equity and/or debt securities in order to continue theirto execute its development plans and continue operations. These conditions raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters also are described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform an audit of the Company'sCompany’s internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company'sCompany’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Impairment Assessment
Critical Audit Matter Description
As discussed in Note 2 to the consolidated financial statements, the Company’s goodwill and long-lived assets arose as a result of the excess fair value over book value, and acquisition of certain intangible assets from prior business combinations. Goodwill and long-lived assets are tested for impairment at least annually. The determination of the fair value requires management to make significant estimates and assumptions related to forecasts of future revenues and expenses and discount rates.
Considering the significant estimation, judgement, and subjectivity required by management in determining the future cash flows and current fair value of assets, our audit of the impairment assessment of goodwill and long-lived assets required a high degree of auditor judgement and subjectivity.
How the Critical Matter Was Addressed in the Audit
Our audit procedures related to the intangible asset impairment included the following, among others:
Evaluated and verified the events and circumstances described in management’s qualitative analyses of intangible and goodwill impairment.
Tested and assessed the reasonableness and appropriateness of assumptions used in management’s analyses including sales volumes, sales prices, operating margins, discount rate, and growth rates.
Tested and verified the mechanical and clerical accuracy of management’s projections and calculations.
Tested the completeness, accuracy, and relevance of underlying data used by management in the discounted cash flow model
Equity Classification and Valuation
Critical Audit Matter Description
As discussed in Notes 12, 13, and 14 to the consolidated financial statements, the Company issued new Series C convertible preferred stock along with private placement and pre-funded warrants. The classification between debt and equity of these instruments requires management to make significant and complex judgements in evaluating the characteristics of these instruments including the redemption features, voting rights, collateral requirements, covenant provisions, creditor and liquidation rights, dividends, conversion rights, and exchange rights. The valuation of these new instruments requires management to make significant estimates and complex judgements in determining the fair value of and relative fair value allocation amongst the original instruments, conversion options, and beneficial conversion features. Considering the significant judgement and estimation required by management in determining the proper classification and valuation of these equity instruments, our audit of the new equity instruments required a high degree of auditor judgement and subjectivity.
How the Critical Matter Was Addressed in the Audit
Our audit procedures related to the equity structures included the following, among others:
| • | We tested the Company’s determination of the fair value for the equity transactions, as well as the respective relative fair value allocations for instruments that required bifurcation. Our testing included recalculating the fair value and allocations and assessing the reasonableness of certain assumptions used by the Company, as well as the completeness and accuracy of the data utilized. |
We verified management’s records of new equity instruments by reading the original agreements for the equity instruments and assessing the terms relating to the technical accounting guidance.
| • | We evaluated management’s conclusions regarding the balance sheet classification and valuation of the complex equity instruments |
We assessed the required financial statement disclosures related to the transactions for completeness and accuracy /s/ Mazars USA LLP We have served as the Company’s auditor since 2015. New York, New YorkNY
March 31, 20212022
FIRST WAVE BIOPHARMA, INC. Consolidated Balance Sheets
| | December 31, 2021
| | | December 31, 2020
| | ASSETS | | | | | | | | | | | | | | Current Assets: | | | | | | | Cash and cash equivalents | | $ | 8,248,684 | | | $ | 6,062,141 | | Other receivables | | | 0 | | | | 551,489 | | Prepaid expenses | | | 1,176,268 | | | | 1,256,154 | | Total Current Assets | | | 9,424,952 | | | | 7,869,784 | | | | | | | | | | | Property, equipment, and leasehold improvements, net | | | 73,110 | | | | 18,329 | | | | | | | | | | | Other Assets: | | | | | | | | | Patents, net | | | 0 | | | | 2,879,536 | | Goodwill | | | 1,911,705 | | | | 2,054,048 | | Operating lease right-of-use assets | | | 336,197 | | | | 74,238 | | Deposits | | | 44,012 | | | | 27,920 | | Total Other Assets | | | 2,291,914 | | | | 5,035,742 | | Total Assets | | $ | 11,789,976 | | | $ | 12,923,855 | | | | | | | | | | | LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | | | | | | | | | | Current Liabilities: | | | | | | | | | Accounts payable and accrued expenses | | $ | 3,100,984 | | | $ | 1,685,603 | | Payable related to license agreement | | | 0 | | | | 13,250,000 | | Accrued dividend payable | | | 465,361 | | | | 0 | | Note payable | | | 641,236 | | | | 552,405 | | Other current liabilities | | | 8,092,807 | | | | 57,417 | | Total Current Liabilities | | | 12,300,388 | | | | 15,545,425 | | | | | | | | | | | Other liabilities | | | 7,311,138 | | | | 19,123 | | Total Liabilities | | | 19,611,526 | | | | 15,564,548 | | | | | | | | | | | Stockholders’ Equity: | | | | | | | | | Series C preferred stock- Par value $0.0001 per share; 57,000 shares authorized; 0 shares issued and outstanding at December 31, 2021 and 2020. | | | 0 | | | | 0 | | Series B preferred stock- Par value $0.0001 per share; 5,194.81 shares authorized; 662.25 and 2,773.6 shares issued and outstanding at December 31, 2021 and 2020, respectively.
| | | 0 | | | | 0 | | Common stock - Par value $0.0001 per share; 25,000,000 shares authorized; 14,855,848 and 3,115,030 shares issued and outstanding at December 31, 2021 and 2020, respectively.
| | | 1,485 | | | | 312 | | Additional paid-in capital | | | 147,305,147 | | | | 93,837,739 | | Accumulated deficit | | | (153,904,047 | ) | | | (95,366,198 | ) | Accumulated other comprehensive loss | | | (1,224,135 | ) | | | (1,112,546 | ) | Total Stockholders’ Equity | | | (7,821,550 | ) | | | (2,640,693 | ) | Total Liabilities and Stockholders’ Equity | | $ | 11,789,976 | | | $ | 12,923,855 | |
| | | | | ASSETS | | | Current Assets: | | | Cash and cash equivalents | $6,062,141 | $175,796 | Other receivables | 551,489 | 2,637,303 | Prepaid expenses | 1,256,154 | 595,187 | Total Current Assets | 7,869,784 | 3,408,286 | | | | Property, equipment, and leasehold improvements, net | 18,329 | 77,391 | | | | Other Assets: | | | Patents, net | 2,879,536 | 3,407,084 | Goodwill | 2,054,048 | 1,886,686 | Operating lease right-of-use assets | 74,238 | 82,386 | Deposits | 27,920 | 41,047 | Total Other Assets | 5,035,742 | 5,417,203 | Total Assets | $12,923,855 | $8,902,880 | | | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | Current Liabilities: | | | Accounts payable and accrued expenses | $1,685,603 | $1,754,682 | Accounts payable and accrued expenses - related party | - | 533,428 | Payables related to license agreement | 13,250,000 | - | Note payable | 552,405 | 444,364 | Convertible debt | - | 1,076,938 | Other current liabilities | 57,417 | 476,224 | Total Current Liabilities | 15,545,425 | 4,285,636 | | | | Other liabilities | 19,123 | - | Total Liabilities | 15,564,548 | 4,285,636 | | | | Stockholders' Equity: | | | Common stock - Par value $0.0001 per share; 150,000,000 shares authorized; 31,150,309 and 26,800,519 shares issued and outstanding at December 31, 2020 and December 31, 2019, respectively. | 3,115 | 2,680 | Series B preferred stock- Par value $0.0001 per share; 5,194.81 shares authorized; 2,773.62 and 0 shares issued and outstanding at December 31, 2020 and December 31, 2019, respectively. | - | - | Additional paid-in capital | 93,834,936 | 68,575,851 | Accumulated deficit | (95,366,198) | (62,694,732) | Accumulated other comprehensive loss | (1,112,546) | (1,266,555) | Total Stockholders' Equity | (2,640,693) | 4,617,244 | Total Liabilities and Stockholders' Equity | $12,923,855 | $8,902,880 |
The accompanying notes are an integral part of these Consolidated Financial Statements.
FIRST WAVE BIOPHARMA, INC. Consolidated Statements of Operations and Comprehensive Loss | | Years Ended December 31, | | | | 2021
| | | 2020
| | Operating expenses: | | | | | | | Research and development expenses | | $ | 16,994,828 | | | $ | 5,888,004 | | Research and development expenses - intellectual property acquired | | | 21,325,527 | | | | 13,250,000 | | General and administrative expenses | | | 18,384,545 | | | | 7,294,764 | | Intangible asset impairment
| | | 2,351,988 | | | | 0 | | Total operating expenses | | | 59,056,888 | | | | 26,432,768 | | | | | | | | | | | Loss from operations | | | (59,056,888 | ) | | | (26,432,768 | ) | | | | | | | | | | Other income (expenses): | | | | | | | | | Interest expense | | | (11,235 | ) | | | (5,840,614 | ) | Interest income | | | 1,173 | | | | 484 | | Gain on settlement | | | 0 | | | | 211,430 | | Gain (loss) on debt extinguishment | | | 0 | | | | (609,998 | ) | Change in fair value of liability
| | | 532,353 | | | | 0 | | Other income | | | (3,252 | ) | | | 0 | | Total other income (expenses) | | | 519,039 | | | | (6,238,698 | ) | Net loss | | $ | (58,537,849 | ) | | $ | (32,671,466 | ) | | | | | | | | | | Other comprehensive loss: | | | | | | | | | Foreign currency translation adjustment | | | (111,589 | ) | | | (154,009 | ) | Total comprehensive loss | | $ | (58,649,438 | ) | | $ | (32,825,475 | ) | | | | | | | | | | Net loss | | $ | (58,537,849 | ) | | $ | (32,671,466 | ) | Deemed dividend on preferred stock | | | (4,507,125 | ) | | | (8,155,212 | ) | Deemed dividend on preferred stock exchanges | | | (21,008,253 | ) | | | 0 | | Preferred stock dividends | | | (465,361 | ) | | | (905,660 | ) | Net loss applicable to common shareholders | | $ | (84,518,588 | ) | | $ | (41,732,338 | ) | | | | | | | | | | Basic and diluted weighted average shares outstanding | | | 8,925,728 | | | | 2,843,629 | | | | | | | | | | | Loss per share applicable to common shareholders - basic and diluted | | $ | (9.47 | ) | | $ | (14.68 | ) |
The accompanying notes are an integral part of these Consolidated Financial Statements.
FIRST WAVE BIOPHARMA, INC. Consolidated Statements of Changes in Stockholders’ Equity
| | Series C Convertible Preferred Stock | | | Series B Convertible Preferred Stock | | | Common Stock | | | Additional Paid In Capital | | | Accumulated Deficit | | | Other Comprehensive Loss | | | Total | | | | Shares | | | Amount | | | Shares | | | Amount | | | Shares | | | Amount | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance, January 1, 2020 | | | 0 | | | $ | 0 | | | | 0 | | | $ | 0 | | | | 2,680,052 | | | $ | 268 | | | $ | 68,578,263 | | | $ | (62,694,732 | ) | | $ | (1,266,555 | ) | | $ | 4,617,244 | | Issuance of Series B preferred stock and warrants for cash, conversion of promissory notes, net of offering costs | | | 0 | | | | 0 | | | | 2,912 | | | | 0 | | | | 0 | | | | 0 | | | | 14,460,155 | | | | 0 | | | | 0 | | | | 14,460,155 | | Warrants issued in connection with Series B convertible preferred stock private placement | | | - | | | | 0 | | | | - | | | | 0 | | | | - | | | | 0 | | | | 5,952,516 | | | | 0 | | | | 0 | | | | 5,952,516 | | Warrants issued as inducement to exchange promissory notes into Series B convertible preferred stock private placement | | | - | | | | 0 | | | | - | | | | 0 | | | | - | | | | 0 | | | | 986,526 | | | | 0 | | | | 0 | | | | 986,526 | | Beneficial conversion feature of Series B preferred stock | | | - | | | | 0 | | | | - | | | | 0 | | | | - | | | | 0 | | | | 8,155,212 | | | | 0 | | | | 0 | | | | 8,155,212 | | Deemed dividend of preferred stock | | | - | | | | 0 | | | | - | | | | 0 | | | | - | | | | 0 | | | | (8,155,212 | ) | | | 0 | | | | 0 | | | | (8,155,212 | ) | Deemed dividend related to exchange of promissory notes into Series B preferred stock | | | - | | | | 0 | | | | - | | | | 0 | | | | - | | | | 0 | | | | (1,129,742 | ) | | | 0 | | | | 0 | | | | (1,129,742 | ) | Issuance of Series B preferred PIK shares for accrued dividends | | | 0 | | | | 0 | | | | 118 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | Common stock issued upon conversion of Series B preferred stock | | | 0 | | | | 0 | | | | (256) | | | | 0 | | | | 256,581 | | | | 26 | | | | (26 | ) | | | 0 | | | | 0 | | | | 0 | | Common stock issued to settle accounts payable | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 10,594 | | | | 1 | | | | 131,136 | | | | 0 | | | | 0 | | | | 131,137 | | Common stock issued to consultants | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 18,284 | | | | 2 | | | | 144,403 | | | | 0 | | | | 0 | | | | 144,405 | | Common stock issued to Lincoln Park for Equity Purchase agreement | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 149,520 | | | | 15 | | | | 988,333 | | | | 0 | | | | 0 | | | | 988,348 | | Warrants issued in association with convertible debt issuances | | | - | | | | 0 | | | | - | | | | 0 | | | | - | | | | 0 | | | | 1,252,558 | | | | 0 | | | | 0 | | | | 1,252,558 | | Beneficial conversion feature on convertible debt issuances | | | - | | | | 0 | | | | - | | | | 0 | | | | - | | | | 0 | | | | 1,838,422 | | | | 0 | | | | 0 | | | | 1,838,422 | | Settlement with former chief executive officer | | | - | | | | 0 | | | | - | | | | 0 | | | | - | | | | 0 | | | | 85,770 | | | | 0 | | | | | | | | 85,770 | | Stock-based compensation | | | - | | | | 0 | | | | - | | | | 0 | | | | - | | | | 0 | | | | 549,425 | | | | 0 | | | | 0 | | | | 549,425 | | Foreign currency translation adjustment | | | - | | | | 0 | | | | - | | | | 0 | | | | - | | | | 0 | | | | 0 | | | | 0 | | | | 154,009 | | | | 154,009 | | Net loss | | | - | | | | 0 | | | | - | | | | 0 | | | | - | | | | 0 | | | | 0 | | | | (32,671,466 | ) | | | 0 | | | | (32,671,466 | ) | Balance, December 31, 2020 | | | 0 | | | $ | 0 | | | | 2,774 | | | $ | 0 | | | | 3,115,031 | | | $ | 312 | | | $ | 93,837,739 | | | $ | (95,366,198 | ) | | $ | (1,112,546 | ) | | $ | (2,640,693 | ) |
| | Series C Convertible Preferred Stock | | | Series B Convertible Preferred Stock | | | Common Stock | | | Additional Paid In Capital | | | Accumulated Deficit | | | Other Comprehensive Loss | | | Total | | | | Shares | | | Amount | | | Shares | | | Amount | | | Shares | | | Amount | | | | | | | | | | Balance, January 1, 2021 | | | 0 | | | $ | 0 | | | | 2,774 | | | $ | 0 | | | | 3,115,031 | | | $ | 312 | | | $ | 93,837,739 | | | $ | (95,366,198 | ) | | $ | (1,112,546 | ) | | $ | (2,640,693 | ) | Issuance of Series C preferred stock and warrants for cash, net of offering costs | | | 10,667 | | | | 1 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 7,105,167 | | | | 0 | | | | 0 | | | | 7,105,168 | | Issuance of Series C preferred stock for license acquired | | | 3,290 | | | | 1 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 2,467,648 | | | | 0 | | | | 0 | | | | 2,467,649 | | Beneficial conversion feature of Series C preferred stock | | | - | | | | 0 | | | | - | | | | 0 | | | | - | | | | 0 | | | | 4,507,125 | | | | 0 | | | | 0 | | | | 4,507,125 | | Deemed dividend of Series C preferred stock | | | - | | | | 0 | | | | - | | | | 0 | | | | - | | | | 0 | | | | (4,507,125 | ) | | | 0 | | | | 0 | | | | (4,507,125 | ) | Issuance of Series C preferred stock upon exchange of Series B preferred stock | | | 19,140 | | | | 1 | | | | (1,839 | ) | | | 0 | | | | 0 | | | | 0 | | | | (1,431 | ) | | | 0 | | | | 0 | | | | (1,430 | ) | Warrants issued in connection with exchange of Series B preferred stock into Series C preferred stock | | | - | | | | 0 | | | | - | | | | 0 | | | | - | | | | 0 | | | | 21,009,683 | | | | 0 | | | | 0 | | | | 21,009,683 | | Deemed dividend related to exchange of Series B preferred stock into Series C preferred stock | | | - | | | | 0 | | | | - | | | | 0 | | | | - | | | | 0 | | | | (21,008,253 | ) | | | 0 | | | | 0 | | | | (21,008,253 | ) | Issuance of common stock upon exchange of Series B preferred stock | | | 0 | | | | 0 | | | | (14 | ) | | | 0 | | | | 33,500 | | | | 3 | | | | (3 | ) | | | 0 | | | | 0 | | | | 0 | | Common stock issued upon conversion of Series B preferred stock | | | 0 | | | | 0 | | | | (259 | ) | | | 0 | | | | 258,278 | | | | 26 | | | | (26 | ) | | | 0 | | | | 0 | | | | 0 | | Dividends on preferred stock | | | - | | | | 0 | | | | - | | | | 0 | | | | - | | | | 0 | | | | (465,361 | ) | | | 0 | | | | 0 | | | | (465,361 | ) | Common stock and pre-funded warrants issued upon conversion of Series C preferred stock | | | (33,097 | ) | | | (3 | ) | | | 0 | | | | 0 | | | | 3,125,460 | | | | 312 | | | | (309 | ) | | | 0 | | | | 0 | | | | 0 | | Issuance of common stock, pre-funded warrants and warrants for cash, net of offering costs | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 1,625,454 | | | | 163 | | | | 14,155,887 | | | | 0 | | | | 0 | | | | 14,156,050 | | Effect of 10-for-1 reverse stock split | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | (1,706 | ) | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | Issuance of common stock at-the-market for cash, net of offering costs | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 5,333,345 | | | | 533 | | | | 18,506,281 | | | | 0 | | | | 0 | | | | 18,506,814 | | Common stock issued for intellectual property acquired, net | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 624,025 | | | | 62 | | | | 3,999,938 | | | | 0 | | | | 0 | | | | 4,000,000 | | Common stock cancelled in connection with acquisition of First Wave Bio, Inc. | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | (332,913 | ) | | | (33 | ) | | | 33 | | | | 0 | | | | 0 | | | | 0 | | Common stock issued upon exercise of warrants | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 945,644 | | | | 94 | | | | 4,906,536 | | | | 0 | | | | 0 | �� | | | 4,906,630 | | Common stock and warrants issued to consultants | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 122,230 | | | | 12 | | | | 1,326,050 | | | | 0 | | | | 0 | | | | 1,326,062 | | Settlement with former placement agent | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 7,500 | | | | 1 | | | | 94,498 | | | | 0 | | | | 0 | | | | 94,499 | | Stock-based compensation | | | - | | | | 0 | | | | - | | | | 0 | | | | - | | | | 0 | | | | 1,371,070 | | | | 0 | | | | 0 | | | | 1,371,070 | | Foreign currency translation adjustment | | | - | | | | 0 | | | | - | | | | 0 | | | | - | | | | 0 | | | | 0 | | | | 0 | | | | (111,589 | ) | | | (111,589 | ) | Net loss | | | - | | | | 0 | | | | - | | | | 0 | | | | - | | | | 0 | | | | 0 | | | | (58,537,849 | ) | | | 0 | | | | (58,537,849 | ) | Balance, December 31, 2021 | | | 0 | | | $ | 0 | | | | 662 | | | $ | 0 | | | | 14,855,848 | | | $ | 1,485 | | | $ | 147,305,147 | | | $ | (153,904,047 | ) | | $ | (1,224,135 | ) | | $ | (7,821,550 | ) |
The accompanying notes are an integral part of these Consolidated Financial Statements. FIRST WAVE BIOPHARMA, INC. Consolidated Statements of Cash Flows
| | Years Ended December 31, | | | | 2021
| | | 2020
| | Cash flows from operating activities: | | | | | | | Net loss | | $ | (58,537,849 | ) | | $ | (32,671,466 | ) | Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | | Intangible asset impairment
| | | 2,351,988 | | | | 0 | | Depreciation | | | 14,707 | | | | 37,797 | | Amortization | | | 527,548 | | | | 527,548 | | Non-cash lease expense | | | (4,855 | ) | | | (4,855 | ) | Fixed assets written off | | | 0 | | | | 10,950 | | Change in fair value of liability
| | | (532,353 | ) | | | 0 | | Stock-based compensation | | | 1,371,070 | | | | 522,133 | | Common stock issued for intellectual property acquired, net | | | 4,000,000 | | | | 0 | | Restricted stock granted to employees/directors | | | 0 | | | | 27,292 | | Common stock and warrants granted to consultants and former placement agent | | | 1,420,561 | | | | 166,905 | | Accreted interest on convertible debt | | | 0 | | | | 234,074 | | Accretion of debt discount | | | 0 | | | | 4,580,168 | | Loss on debt extinguishment | | | 0 | | | | 609,998 | | Gain on settlement | | | 0 | | | | (211,430 | ) | Beneficial conversion feature related to promissory note exchange | | | 0 | | | | 798,413 | | Changes in assets and liabilities: | | | | | | | | | Other receivables | | | 551,489 | | | | 2,083,270 | | Prepaid expenses | | | 79,886 | | | | (660,845 | ) | Right of use assets | | | (257,104 | ) | | | (110,835 | ) | Deposits | | | (16,092 | ) | | | (15,412 | ) | Accounts payable and accrued expenses | | | 1,415,381 | | | | (750,027 | ) | Payables related to license agreement | | | 0 | | | | 13,250,000 | | Other liabilities related to Merger consideration
| | | 15,000,000 | | | | 0 | | Other liabilities | | | 327,405 | | | | 354,784 | | Net cash used in operating activities | | | (32,288,218 | ) | | | (11,221,538 | ) | | | | | | | | | | Cash flows from investing activities: | | | | | | | | | Purchase of property and equipment | | | (69,488 | ) | | | (4,167 | ) | Proceeds from sale of property and equipment, net | | | 0 | | | | 91,517 | | Payment made related to license agreement | | | (10,250,000 | ) | | | 0 | | Net cash used in investing activities | | | (10,319,488 | ) | | | 87,350 | | | | | | | | | | | Cash flows from financing activities: | | | | | | | | | Proceeds from issuance of notes payable, net | | | 0 | | | | 799,772 | | Proceeds from issuance of preferred stock, net | | | 7,105,168 | | | | 13,197,740 | | Proceeds from issuance of common stock, net | | | 14,156,050 | | | | 988,348 | | Proceeds from exercise of warrants | | | 4,906,630 | | | | 0 | | Proceeds from issuance of convertible debt, net | | | 0 | | | | 3,227,002 | | Issuance of common stock at-the-market for cash, net of offering costs | | | 18,506,814 | | | | 0 | | Repayments of convertible debt | | | 0 | | | | (475,000 | ) | Issuance / (repayment) of note payable | | | 88,831 | | | | (691,741 | ) | Net cash provided by financing activities | | | 44,763,493 | | | | 17,046,121 | | | | | | | | | | | Increase in cash and cash equivalents | | | 2,155,787 | | | | 5,911,933 | | | | | | | | | | | Effect of exchange rate changes on cash | | | 30,756 | | | | (25,588 | ) | | | | | | | | | | Cash and cash equivalents, beginning balance | | | 6,062,141 | | | | 175,796 | | Cash and cash equivalents, ending balance | | $ | 8,248,684 | | | $ | 6,062,141 | | | | | | | | | | | Supplemental disclosures of cash flow information: | | | | | | | | | Cash paid for interest | | $ | 0 | | | $ | 105,460 | | Cash paid for income taxes | | $ | 0 | | | $ | 0 | | | | | | | | | | | Non-cash investing and financing activities: | | | | | | | | | Deemed dividend on preferred stock issuances | | $ | (4,507,125 | ) | | $ | (8,155,212 | ) | Deemed dividend on preferred stock exchanges | | $ | (21,008,253 | ) | | $ | 0 | | Accrued dividends on preferred stock | | $ | (465,361 | ) | | $ | (905,650 | ) | Issuance of preferred stock to settle liability related to license agreement | | $ | 2,467,649 | | | $ | 0 | | Exchange of promissory notes into preferred stock and warrants | | $ | 0 | | | $ | (609,998 | ) |
The accompanying notes are an integral part of these Consolidated Financial Statements.
FIRST WAVE BIOPHARMA, INC. Consolidated Statements of Operations and Comprehensive Loss
| | | | | | | Operating expenses: | | | Research and development expenses | $5,888,004 | $8,680,669 | Research and development expenses - license acquired | 13,250,000 | - | General and administrative expenses | 7,294,764 | 6,063,078 | Total operating expenses | 26,432,768 | 14,743,747 | | | | Loss from operations | (26,432,768) | (14,743,747) | | | | Other income (expenses): | | | Interest expense | (5,840,614) | (433,939) | Interest income | 484 | - | Gain on settlement | 211,430 | - | Loss on debt extinguishment | (609,998) | - | Total other income (expenses) | (6,238,698) | (433,939) | | | | Loss before income taxes | (32,671,466) | (15,177,686) | | | | Income taxes | - | - | | | | Net loss | $(32,671,466) | $(15,177,686) | | | | Other comprehensive loss: | | | Foreign currency translation adjustment | (154,009) | (116,443) | Total comprehensive loss | $(32,825,475) | $(15,294,129) | | | | Net loss | $(32,671,466) | $(15,177,686) | Deemed dividend of preferred stock | (8,155,212) | - | Series B preferred stock dividends | (905,660) | - | Net loss applicable to common stockholders | (41,732,338) | (15,177,686) | | | | Basic and diluted weighted average shares outstanding | 28,436,292 | 22,425,564 | | | | Net loss per share - basic and diluted | $(1.15) | $(0.68) |
The accompanying notes are an integral part of these Consolidated Financial Statements.
Consolidated Statements of Changes in Stockholders' Equity
| | | | | Accumulated Other Comprehensive
| | | | | | | | | | | | | | | | | | | | Balance, January 1, 2019 | - | $- | 17,704,925 | $1,771 | $53,139,259 | $(47,517,046) | $(1,150,112) | $4,473,872 | Common stock issued from public offering | | | 7,522,097 | 752 | 9,475,997 | | | 9,476,749 | Common stock issued to consultants | | | 190,398 | 19 | 209,981 | | | 210,000 | Common stock issued for warrant exercises | | | 775,931 | 77 | 1,740,882 | | | 1,740,959 | Common stock issued to Lincoln Park for equity purchase agreement | | | 487,168 | 49 | (49) | | | - | Warrants issued in association with convertible debt issuances | | | | | 1,081,673 | | | 1,081,673 | Beneficial conversion feature on convertible debt issuances | | | | | 1,359,284 | | | 1,359,284 | Stock-based compensation | | | | | 574,335 | | | 574,335 | Restricted stock granted to employees/directors | | | 120,000 | 12 | 607,579 | | | 607,591 | Convertible debt converted into common stock | | | | | 325,320 | | | 325,320 | Warrant modification | | | | | 61,590 | | | 61,590 | Foreign currency translation adjustment | | | | | | | (116,443) | (116,443) | | | | | | | (15,177,686) | | (15,177,686) | Balance, December 31, 2019 | - | $- | 26,800,519 | $2,680 | $68,575,851 | $(62,694,732) | $(1,266,555) | $4,617,244 | | | | | | | | | | | | | | | | | | | Balance, January 1, 2020 | - | $- | 26,800,519 | $2,680 | $68,575,851 | $(62,694,732) | $(1,266,555) | $4,617,244 | Issuance of Series B preferred stock and warrants for cash, conversion of promissory notes, net | 2,912 | - | - | - | 14,460,155 | - | - | 14,460,155 | Warrants issued in connection with Series B preferred stock offering | - | - | - | - | 5,952,516 | - | - | 5,952,516 | Warrants issued as inducement to exchange promissory notes into Series B preferred stock offering | - | - | - | - | 986,526 | - | - | 986,526 | Series B Preferred Stock | - | - | - | - | 8,155,212 | - | - | 8,155,212 | Deemed dividend of preferred stock | - | - | - | - | (8,155,212) | - | - | (8,155,212) | Deemed dividend related to exchange of promissory notes into Series B preferred stock | - | - | - | - | (1,129,742) | - | - | (1,129,742) | Issuance of Series B preferred PIK shares for accrued dividends | 118 | - | - | - | - | - | - | - | Common stock issued upon conversion of Series B preferred stock | (256) | - | 2,565,813 | 257 | (257) | - | - | - | Common stock issued to settle accounts payable | - | - | 105,937 | 11 | 131,126 | - | - | 131,137 | Common stock issued to Lincoln Park for equity purchase agreement | - | - | 1,495,199 | 149 | 988,199 | - | - | 988,348 | Warrants issued in association with convertible debt issuances | - | - | - | - | 1,252,558 | - | - | 1,252,558 | Beneficial conversion feature on convertible debt issuances | - | - | - | - | 1,838,422 | - | - | 1,838,422 | Common stock issued to consultants | - | - | 182,841 | 18 | 144,387 | - | - | 144,405 | Settlement with former chief executive officer | - | - | - | - | 85,770 | - | - | 85,770 | Stock-based compensation | - | - | - | - | 549,425 | - | - | 549,425 | Foreign currency translation adjustment | - | - | - | - | - | - | 154,009 | 154,009 | | - | - | - | - | - | (32,671,466) | - | (32,671,466) | Balance, December 31, 2020 | 2,774 | $- | 31,150,309 | $3,115 | $93,834,936 | $(95,366,198) | $(1,112,546) | $(2,640,693) |
The accompanying notes are an integral part of these Consolidated Financial Statements.
Consolidated Statements of Cash Flows
| | | | | Cash flows from operating activities: |
|
| Net loss | $(32,671,466) | $(15,177,686) | Adjustments to reconcile net loss to net cash used in operating activities: | | | Depreciation | 37,797 | 63,096 | Amortization | 527,548 | 956,950 | Non-cash lease expense | (4,855) | - | Fixed assets written off | 10,950 | 7,296 | Stock-based compensation | 522,133 | 574,335 | Restricted stock granted to employees/directors | 27,292 | 607,591 | Common stock granted to consultants | 166,905 | 210,000 | Accreted interest on convertible debt | 234,074 | 112,543 | Accretion of debt discount | 4,580,168 | 313,364 | Loss on debt extinguishment | 609,998 | - | Gain on settlement | (211,430) | - | Beneficial conversion feature related to promissory note exchange | 798,413 | - | Net changes in assets and liabilities: | | | Other receivables | 2,083,270 | (749,859) | Prepaid expenses | (660,845) | (85,681) | Right of use assets | (110,835) | (82,234) | Deposits | (15,412) | 3,900 | Accounts payable and accrued expenses | (750,027) | (420,788) | Payables related to license agreement | 13,250,000 | - | Accrued dividends payable | - | - | Other liabilities | 354,784 | (366,329) | Net cash used in operating activities | (11,221,538) | (14,033,502) | | | | Cash flows from investing activities: | | | Purchase of property and equipment, net | (4,167) | (24,098) | Proceeds from sale of property and equipment, net | 91,517 | - | Net cash used in investing activities | 87,350 | (24,098) | | | | Cash flows from financing activities: | | | Proceeds from issuance of note payable, net | 799,772 | 498,783 | Proceeds from issuance of common stock, net | 988,348 | 9,476,749 | Proceeds from issuance of convertible debt, net | 3,227,002 | 4,967,308 | Proceeds from issuance of preferred stock, net | 13,197,740 | - | Received from stockholder in relation to warrant modification | - | 61,590 | Repayments of note payable | (691,741) | (309,451) | Repayments of convertible debt | (475,000) | (1,550,000) | Net cash provided by financing activities | 17,046,121 | 13,144,979 | | | | Increase in cash and cash equivalents | 5,911,933 | (912,621) | | | | Effect of exchange rate changes on cash | (25,588) | (25,926) | | | | Cash and cash equivalents, beginning balance | 175,796 | 1,114,343 | Cash and cash equivalents, ending balance | $6,062,141 | $175,796 | | | | Supplemental disclosures of cash flow information: | | | Cash paid for interest | $105,460 | $8,032 | | | | Non-cash investing and financing activities: | | | Common stock issued for patents purchased from Mayoly | $- | $1,740,959 | Warrant modification related to convertible debt issuance | $- | $325,320 | Deemed dividend on preferred stock | $8,155,212 | $- | Accrued dividends on preferred stock | $905,660 | $- | Exchange of promissory notes into preferred stock and warrants | $609,998 | $- | Payables related to license agreement | $13,250,000 | $- |
The accompanying notes are an integral part of these Consolidated Financial Statements.
Notes to Consolidated Financial Statements December 31, 20202021 and 20192020 Note 1 - The Company and Basis of Presentation The Company AzurRx BioPharma, Inc. (“AzurRx”), renamed itself First Wave BioPharma, Inc. (“First Wave” or “Parent”) was incorporated on January 30, 2014September 21, 2021, in the Stateconnection with its acquisition of Delaware. In June 2014, the Company acquired 100% of the issued and outstanding capital stock of AzurRx SAS (formerly “ProteaBio Europe SASFirst Wave Bio, Inc. (“FWB”), a company incorporated in October 2008 under the laws of France.. Parent and its wholly-owned subsidiary,wholly owned subsidiaries, including First Wave Bio, Inc., and AzurRx SAS, (“ABS”), are collectively referred to as the “Company”“Company”. Shares of the Company’s Common Stock commenced trading on the Nasdaq Capital Market under the new ticker symbol “FWBI” and CUSIP number (33749P101) at the market open on September 22, 2021.
On September 13, 2021, AzurRx consummated its acquisition of FWB, a clinical-stage biotechnology company developing novel gut-targeted small molecules for inflammatory bowel disease (“IBD”) and other serious gastrointestinal (“GI”) conditions.
Also, on September 13, 2021, AzurRx effected a reverse stock split, whereby every 10 shares of the Company’s issued and outstanding Common Stock was converted automatically into 1 issued and outstanding share of Common Stock, with a corresponding 1-for-10 reduction in the number of authorized shares of Common Stock, but without any change in the par value per share. All share and per share amounts have been retroactively restated to reflect the 1-for-10 reverse stock split.
The Company is engaged in the research and development of targeted, non-systemic therapies for the treatment of patients with gastrointestinal (“GI”) diseases. Non-systemic therapies are non-absorbable drugs that act locally, i.e. in the intestinal lumen, skin or mucosa, without reaching an individual’s systemic circulation. The Company iscurrently focused on developing its pipeline of gut-restricted GI clinical drug candidates. Our lead drug candidate is MS1819,product candidates, including niclosamide, an oral small molecule with anti-viral and anti-inflammatory properties, and the biologic adrulipase (formerly MS1819), a recombinant lipase enzyme designed to enable the digestion of fats and other nutrients.
The Company is developing its product candidates for a host of GI diseases where there are significant unmet clinical needs and limited therapeutic options, resulting in painful, life threatening and discomforting consequences for patients. The Company’s mission is to help protect the health and restore quality of life for the treatmentmillions of exocrine pancreatic insufficiency (“EPI”) in patients withcystic fibrosis (“CF”) and chronic pancreatitis (“CP”), currently in two Phase 2 CF clinical trials. In 2021, we plan to launch two clinical programs using in-licensed proprietary formulations of niclosamide, a pro-inflammatory pathway inhibitor; FW-1022, for Severe Acute Respiratory Syndrome Coronavirus 2 (“COVID-19”)people afflicted by these GI infections, and FW-420, for Grade 1 Immune Checkpoint Inhibitor-Associated Colitis (“ICI-AC”) and diarrhea in oncology patients.diseases. Since its inception, the Company has devoted substantially all of its efforts to research and development, business development, and raising capital, and has financed its operations through issuance of common stock, convertible preferred stock, convertible debt and other debt/equity instruments. The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, development and regulatory success, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations, and ability to secure additional capital to fund operations. Historically, the Company’s major sources of cash have been comprised of proceeds from various public and private offerings of its capital stock. As of December 31, 2020,2021, the Company had approximately $6.1$8.2 million in cash and cash equivalents. The Company has incurred recurring losses, has experienced recurring negative operating cash flows and requires significant cash resources to execute its business plans. The Company has an accumulated deficit of approximately $95.4$153.9 million as of December 31, 2020.2021. We have implemented business continuity plans designed to address and mitigate the impact of the COVID-19 pandemic on our business. The extent to which the ongoing COVID-19 pandemic impacts our business, our clinical development and regulatory efforts, our corporate development objectives and the value of and market for our Common Stock, will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time, such as the ultimate duration of the pandemic, travel restrictions, quarantines, social distancing and business closure requirements in the U.S., Europe and other countries, and the effectiveness of actions taken globally to contain and treat the disease. The global economic slowdown, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the pandemic could have a material adverse effect on our business, financial condition, results of operations and growth prospects. In addition, we are subject to other challenges and risks specific to our business and our ability to execute on our strategy, as well as risks and uncertainties common to companies in the pharmaceutical industry with development and commercial operations, including, without limitation, risks and uncertainties associated with: obtaining regulatory approval of our drugproduct candidates; delays or problems in the manufacture and supply of our drugproduct candidates, loss of single source suppliers or failure to comply with manufacturing regulations; identifying, acquiring or in-licensing additional products or drugproduct candidates; pharmaceutical product development and the inherent uncertainty of clinical success; and the challenges of protecting and enhancing our intellectual property rights; complying with applicable regulatory requirements. In addition, to the extent the ongoing COVID-19 pandemic adversely affects our business and results of operations, it may also have the effect of heightening many of the other risks and uncertainties discussed above.
Going Concern Uncertainty
F-7 The accompanying consolidated financial statements have been prepared as if the Company will continue as a going concern. The Company has incurred significant operating losses and negative cash flows from operations since inception. On December 31, 2021, the Company had cash and cash equivalents of approximately $8.2 million, and an accumulated deficit of approximately $153.9 million. The Company has incurred recurring losses, has experienced recurring negative operating cash flows, and requires significant cash resources to execute its business plans. Historically, the Company’s major sources of cash have been comprised of proceeds from various public and private offerings of its capital stock. The Company is dependent on obtaining additional working capital funding from the sale of equity and/or debt securities in order to continue to execute its development plans and continue operations. In November 2021, the Company reached an agreement with the hired representative of the former stockholders of FWB to substantially reduce the immediate payment obligations of the Company and defer certain remaining milestone and other payment obligations over time, with an immediate payment of $2.0 million related to and periodic installments of $500,000 per month payable from January 2022 through August 2022 and $1.0 million per month payable from September 2022 through July 2023 until an aggregate of $17.0 million is received.
Basis of Presentation and Principles of Consolidation The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and include the accounts of AzurRxFirst Wave and its wholly-owned subsidiary,subsidiaries, AzurRx SAS.SAS, and First Wave Bio, Inc. Intercompany transactions and balances have been eliminated upon consolidation. The accompanying consolidated financial statements have been prepared as if the Company will continue as a going concern. The Company has incurred significant operating losses and negative cash flows from operations since inception. At December 31, 2020,2021, we had an accumulated deficit of approximately $95.4$153.9 million and had negative working capital of approximately $4.7$8.0 million. The Company is dependent on obtaining additional working capital funding from the sale of equity securities and/or debt in order to continue to execute its development plan and continue operations. Subsequent to December 31, 2020,2021, we have raised aggregate gross proceeds of approximately $18.0$9.0 million from the sale of preferred stock and Common Stock and warrants in public offerings and private placement transactions. Net proceeds from our 2021 offerings are intended to be used for the cash consideration to First Wave under the First Wave License Agreement, to initiate our two niclosamide programs in 2021, and for other general corporate purposes. Additionally, we have received gross cash proceeds of approximately $4.6 million from the exercise of warrants, which proceeds are intended to be used for general corporate purposes.a registered direct offering transaction (See Note 21). Without adequate working capital, the Company may not be able to meet its obligations and continue as a going concern. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Note 2 - Significant Accounting Policies and Recent Accounting Pronouncements Use of Estimates The accompanying consolidated financial statements are prepared in conformity with GAAP and include certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements (including goodwill and intangible assets and contingent consideration)assets), and the reported amounts of revenue and expense during the reporting period, including contingencies. Accordingly, actual results may differ from those estimates Cash and Cash Equivalents The Company considers all highly liquid investments with maturities of three months or less from date of purchase to be cash equivalents. All cash and cash equivalent balances were highly liquid at December 31, 20202021 and 2019,2020, respectively. Concentrations of Credit Risk Financial instruments that potentially expose the Company to concentrations of credit risk consist of cash. The Company primarily maintains its cash balances with financial institutions in federally insured accounts in the U.S. The Company may from time to time have cash in banks in excess of FDIC insurance limits. At December 31, 20202021 and 2019,2020, the Company had approximately $2.7$7.5 million and $0,$2.7 million, respectively, in one account in the U.S. in excess of these limits. The Company has not experienced any losses to date resulting from this practice. The Company mitigates its risk by maintaining the majority of its cash and equivalents with high quality financial institutions. The Company also has exposure to foreign currency risk as its subsidiary in France has a functional currency in Euros. Cyber-Related Fraud In August 2019, management was adviseddetermined that it was a victim of a cyber-related fraud whereby a hacker impersonated one of the Company’s key vendors to redirect payments, totaling approximately $420,000. The Company, including the Audit Committee, completed its investigation and is reviewing all available avenues of recovery, including from the Company’s financial institution to recover the payments. As of December 31, 2020,2021, the Company had recovered approximately $50,000 from its financial institution but management is unable to determine the probability of recovering anything further from the cyber-related fraud. Therefore, as of December 31, 2019, the Company recorded a loss of approximately $370,000 which is included in general and administrative expense. As a result of the cyber-related fraud, the Company has instituted additional controls and procedures and all employees now undergone cybersecurity training. Debt Instruments Detachable warrants issued in conjunction with debt are measuredrecorded at their relative fair value, if they are determined to be equity instrument, or their respective fair value,values, if they are determined to be liability instruments, and recorded as a debt discount. Conversion features that are in the money at the commitment date constitute a beneficial conversion feature that is measured at its intrinsic value and recognized as debt discount. Debt discount is amortized as interest expense over the maturity period of the debt using the effective interest method. Contingent beneficial conversion features are recognized when the contingency has been resolved. Debt Issuance Costs Debt issuance costs are recorded as a direct reduction of the carrying amount of the related debt. Debt issuance costs are amortized over the maturity period of the related debt instrument using the effective interest method. Equity-Based Payments to Non-Employees Equity-based payments to non-employees are measured at fair value on the grant date per ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting. Fair Value Measurements The Company follows Accounting Standards Codification (“ASC”ASC”) Topic 820-10, Fair Value Measurements and Disclosures (“(“ASC 820”820”), which among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, a three-tier fair value hierarchy has been established, which prioritizes the inputs used in measuring fair value as follows: Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions, which reflect those that a market participant would use. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the overall fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial instrument. The Company recognizes transfers between levels as if the transfers occurred on the last day of the reporting period. Foreign Currency Translation For foreign subsidiaries with operations denominated in a foreign currency, assets and liabilities are translated to U.S. dollars, which is the functional currency, at period end exchange rates. Income and expense items are translated at average rates of exchange prevailing during the periods presented. Gains and losses from translation adjustments are accumulated in a separate component of stockholders’ equity.
Goodwill and Intangible Assets Goodwill represents the excess of the purchase price of the acquired business over the fair value of amounts assigned to assets acquired and liabilities assumed. Goodwill and other intangible assets with indefinite useful lives are reviewed for impairment annually or more frequently if events or circumstances indicate impairment may be present. Any excess in carrying value over the estimated fair value is charged to results of operations. The Company has not0t recognized any impairment charges through December 31, 2020. 2021 related to goodwill. Intangible assets subject to amortization consist of in patents, process research and development license agreements, and patentslicenses, reported at the fair value at date of the acquisition less accumulated amortization. Amortization expense is provided using the straight-line method over thetheir estimated useful liveslives. The carrying amounts of finite-lived intangible assets are evaluated for recoverability whenever events or changes in circumstances indicate that the Company may be unable to recover the asset’s carrying amount. Given changes in the projected usage of the assets as follows:patents, the Company recognized impairment charges of approximately $2.4 million at December 31, 2021.
Patents 7.2 years
In Process Research & Development 12 years
License Agreements 5 years
Impairment of Long-Lived Assets The Company periodically evaluates its long-lived assets for potential impairment in accordance with ASC Topic 360, Property, Plant and Equipment (“ASC 360”). Potential impairment is assessed when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recovered. Recoverability of these assets is assessed based on undiscounted expected future cash flows from the assets, considering a number of factors, including past operating results, budgets and economic projections, market trends and product development cycles. If impairments are identified, assets are written down to their estimated fair value. The Company has not0t recognized any impairment charges through December 31, 2020.2021. Income Taxes Income taxes are recorded in accordance with ASC 740, Accounting for Income Taxes (“(“ASC 740”), which provides for deferred taxes using an asset and liability approach. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. The Company determines its deferred tax assets and liabilities based on differences between financial reporting and tax bases of assets and liabilities, which are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Valuation allowances are provided if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740. When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit will more likely than not be realized. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances. At December 31, 20202021 and 2019,2020, the Company does not0t have any significant uncertain tax positions. All tax years are still open for audit. Leases Effective January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) No. 2016-02, “Leases”. This ASU requires substantially all leases beLeases are recorded on the balance sheet as right of use assets and lease obligations.
Loss Per Share
Basic loss per share (“EPS”) is computed by dividing the loss attributable to common shareholders by the weighted average number of shares of Common Stock outstanding. Diluted EPS reflects the potential dilution that could occur from shares of Common Stock issuable through the exercise or conversion of stock options, restricted stock awards, warrants and convertible securities. In certain circumstances, the conversion of options is excluded from diluted EPS if the effect of such inclusion would be anti-dilutive.
The Company adopteddilutive effect of stock options is determined using the ASU using a modified retrospective adoption method at January 1, 2019, as outlined in ASU No. 2018-11, “Leases - Targeted Improvements”. Under this methodtreasury stock method. Stock options to purchase shares of adoption, there is no impact to the comparative consolidated statementCommon Stock of operations and consolidated balance sheet. The Company determined that there was no cumulative-effect adjustment to beginning retained earnings on the consolidated balance sheet. In addition, the Company electedduring fiscal 2021 and 2020 were not included in the packagecomputation of practical expedients permitted underdiluted EPS because the transition guidance withinCompany has incurred a loss for the new standard, which among other things, allowed carryforward of historical lease classifications. Adoption of this standard did not materially impactyears ended December 31, 2021 and 2020 and the Company’s results of operations and had no impact on the consolidated statement of cash flows.effect would be anti-dilutive. Research and Development Research and development costs are charged to operations when incurred and are included in operating expense.expense, except for goodwill related to patents. Research and development costs consist principally of compensation of employees and consultants that perform the Company’s research activities, payments to third parties for preclinical and non-clinical activities, expenses with clinical research organizations (“CROs”), investigative sites, consultants and contractors that conduct or provide other services relating to clinical trials, costs to acquire drug product, drug supply and clinical trial materials from contract development and manufacturing organization (“CDMOs”) and third-party contractors relating to chemistry, manufacturing and controls (“CMC”) efforts, the fees paid for and to maintain the Company’s licenses, and the payments to third parties for clinical trials and manufacturing, and amortization of intangible assets related to the acquisition of MS1819.adrulipase and research and development costs related to niclosamide.
Research and Development – Intellectual Property Acquired
On December 31, 2020, the Company entered into a license agreement (the “FWB License Agreement”) with FWB, pursuant to which FWB granted the Company an exclusive license to certain patents and patent applications related to a proprietary formulation of niclosamide for use in the fields of ICI-AC and COVID-19 GI infections. The acquisition of intellectual property and patents for the worldwide, exclusive right to develop, manufacture, and commercialize proprietary formulations of niclosamide for the fields of treating ICI-AC and COVID-19 in humans was accounted for as an asset acquisition and initial liabilities of approximately $13.3 million in connection with the license acquisition were recorded as research and development expense, because it was determined to have no alternative future uses and therefore no separate economic value, which included cash payments totaling approximately $10.3 million and the issuance of approximately $3.0 million worth of preferred stock. Upon consummation of the Merger (as defined below) on September 13, 2021, the FWB License Agreement was effectively canceled.
On September 13, 2021, the Company completed its acquisition of FWB, which the Company concluded should be accounted for as an asset acquisition rather than a business combination under ASC 805, Business Combinations. The merger was accounted for as an asset acquisition because substantially all the fair value of the assets being acquired are concentrated in a single asset – intellectual property, which does not constitute a business.
The former FWB stockholders are also entitled to (i) up to $207.0 million of cash milestone payments contingent upon the achievement of specified development, regulatory and sales goals for the use of the acquired assets, and (ii) certain revenue-sharing. During the year ended December 31, 2021, the Company achieved one development milestone pursuant to the FWB License Agreement totaling $1.0 million, which was accrued and expensed in research and development. During the year ended December 31, 2021, the Company achieved one development milestone pursuant to the Merger Agreement totaling $2.0 million, which was expensed in research and development. Depending on the status of development at the time a contingent payment is recognized the Company may determine that the payment should be expensed as research and development or be capitalized as an intangible asset. This determination will be based on the facts and circumstances that exist at the time a contingent payment is recognized. Stock-Based Compensation The Company’s board of directors (the “Board”) and stockholders have adopted and approved the Amended and Restated 2014 Omnibus Equity Incentive Plan (the “2014 Plan”) which took effect on May 12, 2014, and the 2020 Omnibus Equity Incentive Plan, which took effect on September 11, 2020 (the “2020 Plan”). From the effective date of the 2020 Plan, no new awards have been or will be made under the 2014 Plan. The Company accounts for its stock-based compensation awards to employees and Board members in accordance with ASC Topic 718, Compensation—Stock Compensation (“ASC 718”). ASC 718 requires all stock-based payments to employees and Board members, including grants of employee stock options, to be recognized in the statements of operations by measuring the fair value of the award on the date of grant and recognizing this fair value as stock-based compensation using a straight-line method over the requisite service period, generally the vesting period. For awards with performance conditions that affect their vesting, such as the occurrence of certain transactions or the achievement of certain operating or financial milestones, recognition of fair value of the award occurs when vesting becomes probable. The Company estimates the grant date fair value of stock option awards using the Black-Scholes option-pricing model. The use of the Black-Scholes option-pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the Common Stock consistent with the expected life of the option, risk-free interest rates and expected dividend yields of the Common Stock. License Agreements
As more fully discussed in Note 14, the Company entered into a license agreement (the “First Wave License Agreement”) with First Wave Bio, Inc. (“First Wave”), pursuant to which First Wave granted the Company an exclusive license to certain patents and patent applications related to a proprietary formulation of niclosamide for use in the fields of ICI-AC and COVID-19 GI infections. The acquisition of intellectual property and patents forthe worldwide, exclusive right to develop, manufacture, and commercialize proprietary formulations of niclosamide for the fields of treating ICI-AC and COVID-19 in humans was accounted for as an asset acquisition and initial liabilities of approximately $13.3 million in connection with the license acquisition were recorded as research and development expense, because it was determined to have no alternative future uses and therefore no separate economic value, which included cash payments totaling approximately $10.3 million and the issuance of approximately $3.0 million of preferred stock.
As more fully discussed in Note 14, the Company entered into a sublicense agreement with TransChem, Inc. (“TransChem”), pursuant to which TransChem granted the Company an exclusive license to certain patents and patent applications. Payments made to TransChem in connection with this sublicence agreement were recorded as research and development expense. The Company terminated the sublicence agreement with TransChem during the year ended December 31, 2020.
Subsequent Events
The Company considered events or transactions occurring after the balance sheet date but prior to the date the consolidated financial statements are available to be issued for potential recognition or disclosure in its consolidated financial statements.
Recent Accounting Pronouncements In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other, Simplifying the Accounting for Goodwill Impairment. ASU 2017-04 removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance will remain largely unchanged. Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. This new guidance will be applied prospectively and is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. This ASU, which the Company adopted as of January 1, 2020, did not have a material effect on the Company’s consolidated financial statements. In August 2020, the FASB issued accounting pronouncement (ASU 2020-06) related to the measurement and disclosure requirements for convertible instruments and contracts in an entity'sentity’s own equity. The pronouncement simplifies and adds disclosure requirements for the accounting and measurement of convertible instruments and the settlement assessment for contracts in an entity'sentity’s own equity. As a smaller reporting company, as defined by the U.S. Securities and Exchange Commission (the "SEC"“SEC”), this pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2023. The Company is currently evaluating the impact of this ASU on the consolidated financial statements. Note 3 -Fair Value Disclosures Fair value is the price that would be received from the sale of an asset or paid to transfer a liability assuming an orderly transaction in the most advantageous market at the measurement date. GAAP establishes a hierarchical disclosure framework that prioritizes and ranks the level of observability of inputs used in measuring fair value. The fair value of the Company'sCompany’s financial instruments are as follows:
| | | | | Fair Value Measured at Reporting Date Using | | | | | | | Carrying Amount | | | Level 1 | | | Level 2 | | | Level 3 | | | Fair Value | | December 31, 2021: | | | | | | | | | | | | | | | | Other receivables | | $ | 0
| | | $ | 0
| | | $ | 0
| | | $ | 0
| | | $ | 0
| | December 31, 2020: | | | | | | | | | | | | | | | | | | | | | Other receivables | | $ | 551,489
| | | $ | 0
| | | $ | 0
| | | $ | 551,489
| | | $ | 551,489
| |
| | Fair Value Measured at Reporting Date Using | | | | | | | | At December 31, 2020: | | | | | | Cash and cash equivalents | $6,062,141 | $3,000,184 | $3,061,957 | $- | $6,062,141 | Other receivables | $551,489 | $- | $- | $- | $551,489 | Note payable | $552,405 | $- | $- | $- | $552,405 | | | | | | | At December 31, 2019: | | | | | | Cash and cash equivalents | $175,796 | $- | $175,796 | $- | $175,796 | Other receivables | $2,637,303 | $- | $- | $2,637,303 | $2,637,303 | Note payable | $444,364 | $- | $- | $444,364 | $444,364 | Convertible debt | $1,076,938 | $- | $- | $1,076,938 | $1,076,938 |
At December 31, 2020, cash and cash equivalents included approximately $3.0 million held in high-quality money market funds quoted in an active market and included in level 1 in the table above.
The fair value of other receivables approximates carrying value as these consist primarily of French research and development tax credits that are normally received the following year.
Note 4 – Asset Acquisition
The Asset Acquisition
On September 13, 2021, the Company completed its acquisition of FWB, in accordance with the terms of an Agreement and Plan of Merger dated as of September 13, 2021 (the “Merger Agreement”) by and among the Company, Alpha Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of the Company (“Merger Sub”), and FWB. On September 13, 2021, pursuant to the Merger Agreement, Merger Sub was merged with and into FWB (the “Merger”), with FWB being the surviving corporation and becoming a wholly owned subsidiary of the Company. In connection with the Merger, AzurRx changed its name to First Wave BioPharma, Inc.
At the effective time of the Merger, the former FWB stockholders received an applicable pro rata share of (i) $3.0 million in cash and (ii) 624,025 shares of the Common Stock. The remaining non-contingent purchase price was payable to the former FWB stockholders on a pro rata basis upon the Company’s payment of (i) $8.0 million in cash, payable within 45 days of the Merger, (iii) $7.0 million in cash, payable by March 31, 2022. As of November 15, 2021, the Company reached an agreement with the hired representative of the former stockholders of FWB to substantially reduce the immediate payment obligations of the Company and defer certain remaining milestone and other payment obligations over time, with an immediate payment of $2.0 million related to a milestone payment and periodic installments of $500,000 per month payable from January 2022 through August 2022 and $1.0 million per month payable from September 2022 through July 2023 until an aggregate of $17.0 million is received. In addition, the Company cancelled 332,913 shares of Common Stock held by FWB immediately prior to the Merger for no additional consideration, which shares of Common Stock are authorized and unissued.
The former FWB stockholders are also entitled to up to $207 million of cash milestone payments contingent upon the achievement of specified development, regulatory and sales goals relating to the use of the acquired assets. All milestone payments will be payable in cash, provided that 25% of the milestone payments attributable to a certain IBD indications may be payable in Common Stock, at the option of the Company. In addition, the former FWB stockholders are entitled to 10% of certain specified revenue received by the Company from any third-party with a pre-existing niclosamide development program relating to COVID. Accounting Treatment
The Company concluded that the Merger should be accounted for as an asset acquisition under ASC 805 because substantially all the fair value of the note payableassets being acquired are concentrated in a single asset - intellectual property, which does not constitute a business. Because the acquired intellectual property has not received regulatory approval, the $21.3 million non-contingent purchase price was immediately expensed in the Company’s statement of operations as research and development – intellectual property acquired. The $0.9 million of transaction expenses paid at closing were classified in general and administrative expenses. The Common Stock issued for the asset acquisition was valued at $4.0 million which is equal to the 624,025 common shares issued multiplied by $6.41 per share.
Achievement of Milestone pursuant to Merger Agreement
On October 4, 2021, the Company achieved a milestone for clinical development pursuant to the Merger Agreement in connection with dosing of the first patient in the Company’s Phase 2 clinical trial for FW-UP for ulcerative proctitis resulting in a $2.0 million payment to FWB, which is included in the $17.0 million aggregate payment amount discussed under the heading “FWB Payments” below. This $2.0 million milestone was accrued and expensed in research and development as the product candidate is still in clinical development.
FWB Payments
Fortis Advisors LLC is the hired representative (in such capacity, the “Representative”) of the former stockholders of FWB in connection with the financingMerger Agreement. On October 29, 2021, the Representative filed a complaint against us in the Court of directors and officer’s liability insurance approximates carrying valueChancery of the State of Delaware, seeking to enforce rights to payment of $8.0 million due October 28, 2021, pursuant to the Merger Agreement, which the Company did not pay. On November 15, 2021, the Company reached an agreement with the Representative to settle the litigation, under terms that, among other things, involve a substantial reduction in immediate payment obligations and deferrals of such instrumentscertain remaining milestone and applicable interest rates.other payment obligations over time, with an immediate payment of $2.0 million for the milestone and periodic installments of $500,000 per month payable from January 2022 through August 2022 and $1.0 million per month payable from September 2022 through July 2023 until an aggregate of $17.0 million is received.
The convertible debt is based on its fair value less unamortized debt discount plus accrued interest throughDuring the dateyear ended December 31, 2021, the Company paid an aggregate of reporting (see Note 9).$5.0 million in cash related to the Merger Agreement.
Note 45 - Other Receivables Other receivables consisted of the following: | | | | | Research and development tax credits | $493,906 | $2,566,281 | Other | 57,583 | 71,022 | Total other receivables | $551,489 | $2,637,303 |
| | December 31, | | | | 2021
| | | 2020
| | | | | | | | | Research and development tax credits | | $ | 0 | | | $ | 493,906 | | Other | | | 0 | | | | 57,583 | | Total other receivables | | $ | 0 | | | $ | 551,489 | |
At December 31, 2020, research and development tax credits was comprised of the 2020 refundable tax credits for research conducted in France and Europe. At December 31, 2019, the research and development tax credits were comprised of the 2017, 2018, and 2019 refundable tax credits for research conducted in France and Europe. During the year ended December 31, 2020, the Company received the 2017, 2018 and 2019 refundable tax credits.During the year ended December 31, 2021, the Company received the 2020 refundable tax credits. At December 31, 2020, and 2019, other consisted of amounts due from U.S. research and development tax credits. There were 0 other receivables as of December 31, 2021. Note 56 - Property, Equipment and Leasehold Improvements Property, equipment and leasehold improvements consisted of the following:
| | December 31, | | | | 2021 | | | 2020 | | | | | | | | | Laboratory equipment | | $ | 0 | | | $ | 2,410 | | Computer equipment and software | | | 11,540 | | | | 19,676 | | Office equipment | | | 48,278 | | | | 5,483 | | Leasehold improvements | | | 28,000 | | | | 29,163 | | Total property, plant, and equipment | | | 87,818 | | | | 56,732 | | Less accumulated depreciation | | | (14,708 | ) | | | (38,403 | ) | Property, plant and equipment, net | | $ | 73,110 | | | $ | 18,329 | |
| | | | | Laboratory equipment | $2,410 | $193,661 | Computer equipment | 19,676 | 74,836 | Office equipment | 5,483 | 36,703 | Leasehold improvements | 29,163 | 35,711 | Total property, plant and equipment | 56,732 | 340,911 | Less accumulated depreciation | (38,403) | (263,520) | Property, plant and equipment, net | $18,329 | $77,391 |
Depreciation expense was approximately $48,000 and $63,000 for the years ended December 31, 2020 and 2019, respectively. Approximately $10,000 of write-offs of fixed assets was included in depreciation$15,000 for the year ended December 31, 2021 and $38,000, including $10,000 of write-offs for the year ended December 31, 2020.
For the year ended December 31, 2021, approximately $15,000 of depreciation was included in general and administrative expense. For the year ended December 31, 2020, approximately $33,000 of depreciation was included in research and development expense and approximately $15,000 of depreciation was included in general and administrative expense. For the year ended December 31, 2019, approximately $42,000 of depreciation was reclassified to research and development expense and approximately $13,000 of depreciation remained in general and administrative expense.
Note 67 - Intangible Assets and Goodwill Patents Pursuant to the Mayoly APA entered into in March 2019 (see Note 14)15), in which the Company purchased all remaining rights, title and interest in and to MS1819adrulipase from Mayoly, the Company recorded Patents in the amount of approximately $3.8 million as follows: Common stock issued at signing to Mayoly | | $ | 1,740,959 | | Due to Mayoly at December 31, 2019 | | | 449,280 | | Due to Mayoly at December 31, 2020 | | | 393,120 | | Assumed Mayoly liabilities and forgiveness of Mayoly debt | | | 1,219,386 | | | | $ | 3,802,745 | |
Common stock issued at signing to Mayoly, subject to vesting | $1,740,959
| Due to Mayoly at 12/31/19 - €400,000 | 449,280
| Due to Mayoly at 12/31/20 - €350,000 | 393,120
| Assumed Mayoly liabilities and forgiveness of Mayoly debt | 1,219,386
| | $3,802,745
|
Intangible assets are as follows:
| | December 31, | | | | 2021
| | | 2020
| | Patents | | $ | 3,802,745 | | | $ | 3,802,745 | | Less accumulated amortization | | | (1,450,757 | ) | | | (923,209 | ) | Intangible asset impairment
| | | (2,351,988 | ) | | | 0 | | Patents, net | | $ | 0 | | | $ | 2,879,536 | |
| | | | | Patents | $3,802,745 | $3,802,745 | Less accumulated amortization | (923,209) | (395,661) | Patents, net | $2,879,536 | $3,407,084 |
Amortization expense was approximately $528,000 and $780,000 for theboth years ended December 31, 2020,2021, and 2019,2020, respectively. ForDuring the year ended December 31, 2019,2021, the Company recorded impairment charges of approximately $780,000 of amortization was included research and development expense. Amortization expense for the year ended December 31, 2019 included approximately $385,000 from in process research and development and license agreements written off as a result of the Mayoly APA.
As of December 31, 2020, amortization expense$2.4 million related to patents is expected to be approximately $528,000that the Company determined were no longer sufficient for eachthe commercialization of the next five years (2021 through 2025).
2021 | $527,548 | 2022 | $527,548 | 2023 | $527,548 | 2024 | $527,548 | 2025 | $527,548 |
adrulipase. Goodwill is as follows:
| | Goodwill | | Balance aton January 1, 20192020 | | $1,924,830
| 1,886,686 | | Foreign currency translation | (38,144)
| | 167,362 | | Balance aton December 31, 20192020 | 1,886,686
| | 2,054,048 | | Foreign currency translation | 167,362
| | (142,343 | ) | Balance aton December 31, 20202021 | | $2,054,048
| 1,911,705 | |
Note 78 - Accounts Payable and Accrued Expense Accounts payable and accrued expense consisted of the following:
| | | | | Trade payables | $1,558,591 | $1,683,505 | Accrued expense | 127,012 | 71,177 | Total accounts payable and accrued expense | $1,685,603 | $1,754,682 |
| | December 31, | | | December 31, | | | | 2021
| | | 2020
| | Trade payables | | $ | 2,681,914 | | | $ | 1,558,591 | | Accrued expenses | | | 419,070 | | | | 127,012 | | Total accounts payable and accrued expenses | | $ | 3,100,984 | | | $ | 1,685,603 | |
Note 89 - Note Payable Directors and Officer’s Liability Insurance
On November 30, 2021, the Company entered into a 9-month financing agreement for its directors and officer’s liability insurance in the amount of approximately $957,000 that bears interest at an annual rate of 3.99%. Monthly payments, including principal and interest, of approximately $81,000 per month. The balance due under this financing agreement was approximately $641,000 at December 31, 2021. On November 30, 2020, the Company entered into a 9-month financing agreement for its directors and officer’s liability insurance in the amount of approximately $620,000 that bears interest at an annual rate of 4.250%. Monthly payments, including principal and interest, of approximately $70,000 per month. The balance due under this financing agreement was approximately $552,000 at December 31, 2020. On December 5, 2019, the Company entered into a 9-month financing agreement for its directors and officer’s liability insurance in the amount of approximately $500,000 that bears interest at an annual rate of 5.461%. Monthly payments, including principal and interest, were approximately $57,000 per month. The balance due under this financing agreement was approximately $444,000 at December 31, 2019.
CARES ACT PPP Loan In April 2020, the Company applied for and received a CARES Act Paycheck Protection Program (“PPP”PPP”) loan of approximately $179,000 through the Small Business Administration (SBA)(“SBA”). In May 2020, the Company returned the loan in full after analysis of the updated guidance from the U.S. Department of Treasury and the SBA regarding the eligibility for such loans. Note 910 – Convertible Debt The ADEC Note Offering On February 14, 2019, the Company entered into a Note Purchase Agreement (the “ADEC NPA”NPA”) with ADEC Private Equity Investments, LLC (“ADEC”(“ADEC”), pursuant to which the Company issued to ADEC two2 Senior Convertible Notes (“Note A” and “Note B,” respectively, each(each an “ADEC Note,” and together, the “ADEC Notes”Notes”), in the principal amount of $1.0 million per ADEC Note, resulting in gross proceeds to the Company of $2.0 million (the “ADEC Note Offering”). The ADEC Notes accrued interest at a rate of 10% per annum; provided, however, that in the event the Company should elect to repay the full balance due under the terms of both ADEC Notes prior to December 31, 2019, then the interest rate would be reduced to 6% per annum. Interest would be payable at the time all outstanding principal amounts owed under each ADEC Note were repaid. The ADEC Notes were scheduled to mature on the earlier to occur of (i) the tenth business day following the receipt by ABS of certain tax credits that the Company expects to receive prior to July 2019 in the case of Note A (the “2019 Tax Credit”) and July 2020 in the case of Note B (the “2020 Tax Credit”), respectively, or (ii) December 31, 2019 in the case of Note A and December 31, 2020 in the Case of Note B (the “Maturity Dates”). As a condition to entering into the ADEC NPA, ABS and ADEC also entered into a Pledge Agreement, pursuant to which ABS agreed to pledge an interest in each of the 2019 Tax Credit and 2020 Tax Credit to ADEC in order to guarantee payment of all amounts due under the terms of the ADEC Notes.
Each of the ADEC Notes was convertible, at ADEC’s option, into shares of Common Stock, at a conversion price equal to $2.50 per share; provided, however, that pursuant to the term of the ADEC Notes, ADEC could not convert all or a portion of the ADEC Notes if such conversion would result in the significant stockholder and/or entities affiliated with him beneficially owning in excess of 19.99% of the shares of Common Stock issued and outstanding immediately after giving effect to the issuance of the shares issuable upon conversion of the ADEC Notes (the “ADEC Note Conversion Shares”).
As additional consideration for entering into the ADEC NPA, the Company entered into a warrant amendment agreement, whereby the Company agreed to reduce the exercise price of 1,009,565 outstanding warrants previously issued by the Company to ADEC and its affiliates (the “ADEC Warrants”) to $1.50 per share (the “ADEC Warrant Amendment”). The ADEC Warrant Amendment did not alter any other terms of the ADEC Warrants. The ADEC Warrant Amendment resulted in a debt discount of approximately $325,000 that was accreted to additional interest expense over the lives of the ADEC Notes.million.
In December 2019, the Company repaid $1,550,000 principal amount of the ADEC Notes and on January 2, 2020 repaid the remaining principal balance of $450,000 plus outstanding accrued interest of approximately $104,000. As of December 31, 2021 and 2020, no0 ADEC Notes were outstanding.
Senior Convertible Promissory Note Offering On December 20, 2019, the Company began an offering of (i) Senior Convertible Promissory Notes (each a “Promissory Note,” and together, the “Promissory Notes”) in the principal amount of up to $8.0 million to certain accredited investors (the “Note Investors”), and (ii) warrants (“Note Warrants”) to purchase shares of Common Stock, each pursuant to Note Purchase Agreements entered into by and between the Company and each of the Note Investors (the “Promissory NPAs” NPAs”) (the “Promissory Note Offering”). In December 2019, the Company issued Promissory Notes to the Note Investors in the aggregate principal amount of approximately $3.4 million. The Promissory Notes were scheduled to mature on September 20, 2020, accrue interest at a rate of 9% per annum, and were convertible, at the sole option of the holder, into shares of Common Stock (the “Promissory Note Conversion Shares”) at a price of $0.97$9.70 per share (the “Conversion Option”). The Promissory Notes could be prepaid by the Company at any time prior to the maturity date in cash without penalty or premium (the “Prepayment Option”). OnDuring January 2, 2020, January 3, 2020, and January 9, 2020, the Company issued Promissory Notes to the Note Investors in the aggregate principal amount of approximately $3.5 million.
As additional consideration for the execution of the Promissory NPA, each Note Investor also received Note Warrants to purchase that number of shares of Common Stock equal to one-half (50%) of the Promissory Note Conversion Shares issuable upon conversion of the Promissory Notes (the “Note Warrant Shares”). The Note Warrants have an exercise price of $1.07$10.70 per share and expire five years from the date of issuance. In addition, all of the Note Warrants, other than those issued in the December 20, 2019 closing (covering an aggregate of 2,374,345237,435 shares of Common Stock) contain a provision prohibiting exercise until the expiration of six months from the date of issuance. The Company and each Note Investor executed a Registration Rights Agreement (the “RRA”), pursuant to which the Company agreed to file a registration statement. The Company filed a registration statement with the SEC on February 7, 2020 covering the Promissory Note Conversion Shares and Note Warrant Shares, but that registration statement was not declared effective and was subsequently withdrawn by the Company. On July 27, 2020, the Company filed a separate registration statement in connection with the Series B Private Placement and the Exchange described in Note 11,12, which also covers the Note Warrant Shares. That registration statement was declared effective on September 21, 2020.
In connection with the four closings in December 2019 of the Promissory Note Offering, the Company paid aggregate placement agent fees of approximately $339,000, which fees were based on (i) 9% of the aggregate principal amount of the Promissory Notes issued to the Note Investors introduced by the placement agent, and (ii) a non-accountable expense allowance of 1% of the gross proceeds from the Promissory Note Offering. In addition, the placement agent was issued warrants, containing substantially the same terms and conditions as the Note Warrants, to purchase an aggregate of 244,372 shares of Common Stock (the “Placement Agent Warrants”), representing 7% of the Promissory Note Conversion Shares issuable upon conversion of the Promissory Notes issued to the Note Investors. The Placement Agent Warrants have an exercise price of $1.21 per share and expire five years from the date of issuance.
In connection with the three closings in January 2020 of the PromissoryNote Offering, the Company paid aggregate placement agent fees of approximately $277,000, which fees were based on (i) 9% of the aggregate principal amount of the Promissory Notes issued to the Note Investors introduced by the placement agent, and (ii) a non-accountable expense allowance of 1% of the gross proceeds from the PromissoryNote Offering. In addition, the placement agent was issued January Placement Agent Warrants, to purchase an aggregate of 199,73219,973 shares of Common Stock. 41,4954,150 of these January Placement Agent Warrants have an exercise price of $1.21$12.10 per share and 158,23715,824 of these January Placement Agent Warrants have an exercise price of $1.42$14.20 per share. The Company determined the Prepayment Option feature represents a contingent call option. The Company evaluated the Prepayment Option in accordance with ASC 815-15-25. The Company815-15-25 and determined that the Prepayment Option feature is clearly and closely related to the debt host instrument and is not an embedded derivative requiring bifurcation. Additionally, the Company determined the Conversion Option represents an embedded call option. The Company evaluated the Conversion Option in accordance with ASC 815-15-25. The Company815-15-25 and determined that the Conversion Option feature meets the scope exception from ASC 815 and is not an embedded derivative requiring bifurcation. The Company evaluated the Promissory Notes for a beneficial conversion feature in accordance with ASC 470-20. The Company470-20 and determined that at each commitment date the effective conversion price was below the closing stock price (market value), and the Convertible Notes contained a beneficial conversion feature. Pursuant to the December 2019 closings of the Promissory Note Offering, the principal amount of approximately $3.4 million was first allocated based on the relative fair value of the Promissory Notes and the Note Warrants. The fair value of the Note Warrants amounted to approximately $913,000. Then the beneficial conversion feature was calculated, which amounted to approximately $1.4 million. The Company incurred debt issuance costs of approximately $0.6 million related to the offering. The initial carrying value of the Promissory Notes issued amounted to approximately $0.5 million.
Pursuant to the January 2020 closings of the Promissory Note Offering, the principal amount of approximately $3.5 million was first allocated based on the relative fair value of the Promissory Notes and the Note Warrants. The fair value of the Note Warrants amounted to approximately $2.4 million. Then the beneficial conversion feature was calculated, which amounted to approximately $1.8 million. The Company incurred debt issuance costs of approximately $0.5 million related to the offering. The initial carrying value of the Promissory Notes issued amounted to approximately $0.1 million. On June 1, 2020, the Company entered into an amendment to a certain Promissory Note in the principal amount of $100,000 issued on December 20, 2019 to Edward J. Borkowski, the chairman of the Board, to increase the Conversion Price to $1.07$10.70 per share (the “Note Amendment”). The Company evaluated the Note Amendment transaction in accordance with ASC 470-50 and determined the Note Amendment did not constitute a substantive modification of the Promissory Note and that the transaction should be accounted for as a debt modification with no accounting treatment required. During the year ended December 31, 2020, the Company recognized approximately $4.9 million of interest expense related to these Promissory Notes, including amortization of debt discount related to the value of the Note Warrants of approximately $1.5 million, amortization of the beneficial conversion feature of approximately $2.3 million, amortization of debt discount related to debt issuance costs of approximately $0.8 million, and accrued interest expense of approximately $0.3 million.
During the year endedAs of December 31, 2019, the Company recognized approximately $115,000 of interest expense related to these2021 and 2020, 0 Promissory Notes including amortization of debt discount related to the value of the Note Warrants of approximately $34,000, amortization of the beneficial conversion feature of approximately $52,000, amortization of debt discount related to debt issuance costs of approximately $21,000, and accrued interest expense of approximately $8,000.were outstanding.
Exchange of Promissory Notes into Series B Convertible Preferred Stock As more fully discussed in Note 11,12, on July 16, 2020, in connection with the Series B Private Placement, approximately937.00 shares of Series B Preferred Stock, Series B Warrants to purchase 4,684,991468,499 shares of Common Stock, and Exchange Warrants to purchase 1,772,937177,294 shares of Common Stock were issued to certain holders of the Promissory Notes in exchange for such Promissory Notes for aggregate consideration of approximately $7.2 million consisting of approximately $6.9 million aggregate outstanding principal amount, together with accrued and unpaid interest thereon through the date of the Series B Private Placement of approximately $0.3 million. The Company prepaid the remaining outstanding balance of $25,000 aggregate principal amount of Promissory Notes, together with accrued and unpaid interest thereon through the prepayment date of approximately $1,000, held by those holders who did not participate in the Exchange. Following these transactions, no0 Promissory Notes remain outstanding. Accounting for the Exchange of Promissory Notes into Series B Private Placement The Company determined the Exchange of the Promissory Notes into Series B Preferred Stock and related warrants should be recognized as an extinguishment of the Promissory Notes,,which resulted in a loss on extinguishment of approximately $0.6 million.million in the year ended December 31, 2020. Additionally, the Company recorded interest expense of approximately $0.8 million in the year ended December 31, 2020 related to the remaining unamortized discount resulting from initial beneficial conversion feature of the Promissory Notes on closing date of the Exchange. Convertible debt consisted of the following:
| | Promissory Notes
December 31, 2020
| ADEC Notes
December 31, 2020
| | Convertible debt | $-
| $-
| $-
| $3,836,300
| Unamortized debt discount - revalued warrants | -
| -
| -
| (118,356)
| Unamortized debt discount - warrants | -
| -
| -
| (878,979)
| Unamortized debt discount - BCF | -
| -
| -
| (1,307,755)
| Unamortized debt discount - debt issuance costs | -
| -
| -
| (566,815)
| Accrued interest | -
| -
| -
| 112,543
| Total convertible debt | $-
| $-
| $-
| $1,076,938
|
Note 1011 – Other Liabilities Other liabilities consisted of the following: | | Current | | | Due to Mayoly | $- | $392,989 | Lease liabilities | 57,417 | 83,235 | Total current liabilities | $57,417 | $476,224 |
| | December 31, | | | | 2021
| | | 2020
| | Current
| | | | | | | Lease liabilities | | $ | 77,989 | | | $ | 57,417 | | Other liabilities | | | 14,818 | | | | 0 | | Liabilities related to Merger consideration
| | | 8,000,000 | | | | 0 | | | | $ | 8,092,807 | | | $ | 57,417 | | Long-term
| | | | | | | | | Lease liabilities | | $ | 311,138 | | | $ | 19,123 | | Liabilities related to Merger consideration | | $ | 7,000,000 | | | $ | 0 | | | | $ | 7,311,138 | | | $ | 19,123 | |
As of December 31, 2021, other current liabilities and other long-term liabilities included $8,000,000 and $7,000,000, respectively, related to the Merger Agreement (See Note 4).
Note 12 –Equity | | Long-term | | | Lease liabilities | $19,123 | $- | Total long-term liabilities | $19,123 | $- |
Note 11 – Equity
Our certificate of incorporation, as amended and restated on December 20, 2019 (the “Charter”) authorized the issuance of up to 150,000,00050,000,000 shares of Common Stock, par value $0.0001 per share, and 10,000,000 shares of preferred stock, par value $0.0001 per share. On February 24, 2021 the Company held a Special Meeting of Stockholders (the “Special Meeting”), whereby, the shareholders approved, among others, the following proposals: (i) amending the Company’s Certificate of Incorporation to increase the authorized shares of its Common Stock to 250,000,000 shares from 150,000,000 shares, and (ii) amending the Company’s Charter to authorize the Board to effect a reverse stock split of both the issued and outstanding and authorized shares of Common Stock, at a specific ratio, ranging from one-for-five (1:5) to one-for-ten (1:10), any time prior to the one-year anniversary date of the Special Meeting, with the exact ratio to be determined by the Board (the “Reverse Split”). AsOn September 13, 2021, the Company effected a reverse stock split, whereby every ten shares of the date hereof,Company’s issued and outstanding common stock were converted automatically into one issued and outstanding share of common stock, with a corresponding 1-for-10 reduction in the Board had not electednumber of authorized shares of common stock, but without any change in the par value per share. All share and per share amounts have been retroactively restated to effect a Reverse Split. The authorization forreflect the Reverse Split will expire onand the Company effectively cancelled approximately 1,706 shares of Common Stock.
On February 24, 2022. Stockholders (the “Annual Meeting”), whereby, the shareholders approved, among others, the following proposals: (i) amending the Company’s Certificate of Incorporation to increase the authorized shares of its Common Stock to 50,000,000 shares from 25,000,000 shares. Common Stock The Company had 31,150,30914,855,848 and 26,800,5193,115,030 shares of its Common Stock issued and outstanding at December 31, 20202021 and 2019,2020, respectively. Each holder of Common Stock is entitled to one1 vote for each share of Common Stock held on all matters submitted to a vote of the stockholders. Our Charter and Amended and Restated Bylaws (the “Bylaws”) do not provide for cumulative voting rights. In addition, the holders of our Common Stock will be entitled to receive ratably such dividends, if any, as may be declared by the Board out of legally available funds; however, the current policy of our Board is to retain earnings, if any, for operations and growth. Upon liquidation, dissolution or winding-up, the holders of our Common Stock will be entitled to share ratably in all assets that are legally available for distribution. Holders of our Common Stock have no preemptive, conversion or subscription rights, and there are no redemption or sinking fund provisions applicable to the Common Stock. The rights, preferences and privileges of the holders of Common Stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of our preferred stock that we may designate and issue in the future. Preferred Stock We have 10,000,000 shares of preferred stock, par value $0.0001 per share, authorized and available for issuance in one or more series. The Board is authorized to divide the preferred stock into any number of series, fix the designation and number of each such series, and determine or change the designation, relative rights, preferences, and limitations of any series of preferred stock. The Board of may increase or decrease the number of shares initially fixed for any series, but no decrease may reduce the number below the shares then outstanding and duly reserved for issuance.
On July 16, 2020, we authorized 5,194.805195 shares as Series B Preferred Stock and issued approximately 2,912.58 sharesof Series B Preferred Stock, with approximately 2,282.22 shares of Series B Preferred Stock remaining authorized but undesignated and unissued.
On January 5, 2021, we authorized 75,000 shares as Series C Preferred Stock. Shares of Series C Preferred Stock converted into Common Stock (or Prefunded Warrants, as applicable) or redeemed shall be canceled and shall not be reissued. As of December 31, 2021, 0 shares of Series C Preferred Stock were issued and outstanding, with approximately 41,903 shares of Series C Preferred Stock remaining authorized but unissued.
At December 31, 2020,2021, the Company had approximately 2,773.62662.25 shares of preferred stock issued and outstanding with approximately 9,997,226.389,999,337.75 shares of preferred stock remaining authorized but unissued. Series B Convertible Preferred Stock Pursuant to the Certificate of Designation of Rights and Preferences of the Series B Preferred Stock (the “Series B Certificate of Designation”), the terms of the Series B Preferred Stock are as follows: Ranking The Series B Preferred Stock will rank senior to the Common Stock with respect to distributions of assets upon the liquidation, dissolution or winding up of the Company. Stated Value Each share of Series B Preferred Stock has a stated value of $7,700, subject to adjustment for stock splits, combinations and similar events (the “Series B Stated Value”). Dividends Each holder of shares of Series B Preferred Stock, in preference and priority to the holders of all other classes or series of stock of the Company, is entitled to receive dividends, commencing from the date of issuance. Such dividends may be paid by the Company only when, as and if declared by the Board, out of assets legally available therefor, semiannually in arrears on the last day of June and December in each year, commencing December 31, 2020, at the dividend rate of 9.0% per year, which is cumulative and continues to accrue on a daily basis whether or not declared and whether or not the Company has assets legally available therefor. The Company may pay such dividends at its option either in cash or in kind in additional shares of Series B Preferred Stock (rounded down to the nearest whole share), provided the Company must pay in cash the fair value of any such fractional shares in excess of $100.00. During the year ended December 31, 2020, the Company issued a total of approximately 117.62 shares of Series B Preferred Stock for payment of dividends amounting to approximately $906,000. During the year ended December 31, 2021, the Company accrued dividends amounting to approximately $678,000, of which approximately $213,000 of accrued dividends were issued as shares of Common Stock in connection with holders of Series B Preferred Stock exercising the Series B Exchange Rights.
Liquidation Preference; Liquidation Rights Under the Certificate of Designations, each share of Series B Preferred Stock carries a liquidation preference equal to the Series B Stated Value (as adjusted thereunder) plus accrued and unpaid dividends thereon (the “Liquidation Preference”). If the Company voluntarily or involuntarily liquidates, dissolves or winds up its affairs, each holder of the Series B Preferred Stock will be entitled to receive out of the Company’s assets available for distribution to stockholders, after satisfaction of liabilities to creditors, if any, but before any distribution of assets is made on the Common Stock or any of the Company’s shares of stock ranking junior as to such a distribution to the Series B Preferred Stock, a liquidating distribution in the amount of the Stated Value of all such holder’s Series B Preferred Stock plus all accrued and unpaid dividends thereon. At December 31, 2021 and 2020, the value of the liquidation preference of the Series B Preferred stocks aggregated to approximately $5.6 million and $21.4 million.million, respectively. Conversion Each share of Series B Preferred Stock will be convertible at the holder’s option at any time, into Common Stock at a conversion rate equal to the quotient of (i) the Series B Stated Value divided by (ii) the initial conversion price of $0.77,$7.70, subject to specified adjustments for stock splits, cash or stock dividends, reorganizations, reclassifications other similar events as set forth in the Series B Certificate of Designations. In addition, at any time after the six month anniversary of the Series B Closing Date, if the closing sale price per share of Common Stock exceeds 250% of the initial conversion price, or $1.925,$19.25, for 20 consecutive trading days, then all of the outstanding shares of Series B Preferred Stock will automatically convert (the “Automatic Conversion”) into such number of shares of Common Stock as is obtained by multiplying the number of shares of Series B Preferred Stock to be so converted, plus the amount of any accrued and unpaid dividends thereon, by the Series B Stated Value per share and dividing the result by the then applicable conversion price. The Series B Preferred Stock contains limitations that prevent the holder thereof from acquiring shares of Common Stock upon conversion (including pursuant to the Automatic Conversion) that would result in the number of shares beneficially owned by such holder and its affiliates exceeding 9.99% of the total number of shares of Common Stock outstanding immediately after giving effect to the conversion, which percentage may be increased or decreased at the holder’s election not to exceed 19.99%. Most Favored Nations Exchange Right In the event the Company effects any issuance by the Company or any of its subsidiaries of Common Stock or Common Stock equivalents for cash consideration, or a combination of units thereof (a “Subsequent Financing”), each holder of the Series B Preferred Stock has the right, subject to certain exceptions set forth in the Series B Certificate of Designations, at its option, to exchange (in lieu of cash subscription payments) all or some of the Series B Preferred Stock then held (with a value per share of Series B Preferred Stock equal to the stated value, plus accrued and unpaid dividends thereon, of the Series B Preferred Stock (the “Exchange Amount”)) for any securities or units issued in a Subsequent Financing on dollar-for-dollar basis (the “Series B Exchange Right”). As of March 30, 2021,28, 2022, (i) holders of approximately 1,266.921,846.80 shares of Series B Preferred Stock with an aggregate Exchange Amount of approximately $9.8$14.4 million had previously elected to exercise their Series B Exchange Rights into Series C Preferred Stock, convertible into an aggregate of 13,087,8431,921,645 shares of Common Stock (which conversion the Company has elected to make in full), and additional Investor Warrants exercisable for up to an aggregate of 13,087,8431,921,645 shares of Common Stock. In addition, asStock, (ii) holders of March 30, 2021, approximately 1,248.8913.80 shares of Series B Preferred Stock with an aggregate Exchange Amount of approximately $9.7 million currently remain outstanding, which are currently exchangeable for$114,000 had previously elected to exercise their Series CB Exchange Rights into 33,500 shares of Common Stock with no warrants, and (iii) holders of approximately 17.05 shares of Series B Preferred Stock convertible intowith an aggregate Exchange Amount of upapproximately $145,000 had previously elected to 13,168,280exercise their Series B Exchange Rights into 104,735 shares of Common Stock, and additional InvestorSeries C Warrants exercisable for up to an aggregate of 13,168,280104,735 shares of Common Stock.Any shares of Series C Preferred Stock to be issued pursuant to the Exchange Right would, upon issuance, be immediately converted into underlying shares of Common Stock.
Voting The holders of the Series B Preferred Stock, voting as a separate class, will have customary consent rights with respect to certain corporate actions of the Company. The Company may not take the following actions without the prior consent of the holders of at least a majority of the Series B Preferred Stock then outstanding: (a) authorize, create, designate, establish, issue or sell an increased number of shares of Series B Preferred Stock or any other class or series of capital stock ranking senior to or on parity with the Series B Preferred Stock as to dividends or upon liquidation; (b) reclassify any shares of Common Stock or any other class or series of capital stock into shares having any preference or priority as to dividends or upon liquidation superior to or on parity with any such preference or priority of Series B Preferred Stock; (c) amend, alter or repeal the Certificate of Incorporation or Bylaws of the Company and the powers, preferences, privileges, relative, participating, optional and other special rights and qualifications, limitations and restrictions thereof, which would adversely affect any right, preference, privilege or voting power of the Series B Preferred Stock; (d) issue any indebtedness or debt security, other than trade accounts payable, insurance premium financings and/or letters of credit, performance bonds or other similar credit support incurred in the ordinary course of business, or amend, renew, increase, or otherwise alter in any material respect the terms of any such indebtedness existing as of the date of first issuance of shares of Series B Preferred Stock; (e) redeem, purchase, or otherwise acquire or pay or declare any dividend or other distribution on (or pay into or set aside for a sinking fund for any such purpose) any capital stock of the Company; (f) declare bankruptcy, dissolve, liquidate, or wind up the affairs of the Company; (g) effect, or enter into any agreement to effect, a Change of Control (as defined in the Certificate of Designations); or (h) materially modify or change the nature of the Company’s business. F-21
2014 Equity Incentive Plan The Company’s Board and stockholders adopted and approved the Amended and Restated 2014 Omnibus Equity Incentive Plan (the “2014 Plan”), which took effect on May 12, 2014. From the adoption and approval of the 2020 Plan on September 11, 2020, no0 new awards have been or will be made under the 2014 Plan. The 2014 Plan allowed for the issuance of securities, including stock options to employees, Board members and consultants. The number of shares of Common Stock reserved for issuance under the 2014 Plan could not exceed ten percent (10%) of the issued and outstanding shares of Common Stock on an as converted basis (the “As Converted Shares”) on a rolling basis. For calculation purposes, the As Converted Shares included all shares of Common Stock and all shares of Common Stock issuable upon the conversion of outstanding preferred stock and other convertible securities but did not include any shares of Common Stock issuable upon the exercise of options, or other convertible securities issued pursuant to the 2014 Plan. The number of authorized shares of Common Stock reserved for issuance under the 2014 Plan was automatically be increased concurrently with the Company’s issuance of fully paid and non- assessable shares of As Converted Shares. Shares were deemed to have been issued under the 2014 Plan solely to the extent actually issued and delivered pursuant to an award. On July 16, 2020, the Board approved an amendment to the 2014 Plan. The amendment eliminates individual grant limits under the 2014 Plan that were intended to comply with the exemption for “performance-based compensation” under Section 162(m) of the Internal Revenue Code, which section has been repealed. The Company issued an aggregate of 2,870,0120 and 1,193,500287,001 stock options, during the years ended December 31, 20202021 and 2019,2020, respectively, under the 2014 Plan (see Note 13)14). As of December 31, 2020,2021, there were an aggregate of 5,888,632310,250 total shares available under the 2014 Plan, of which 4,060,284271,550 are issued and outstanding, and 387,00038,700 shares are reserved subject to issuance of restricted stock and RSUs. Upon adoption of the 2020 Omnibus Equity Incentive Plan on September 11, 2020, the Company will nomay longer make grants under the 2014 Plan. As of December 31, 2019, there were an aggregate of 3,584,986 total shares available under the 2014 Plan, of which 1,677,500 are issued and outstanding, 632,667 shares are reserved subject to issuance of restricted stock and RSUs and 1,274,819 shares are available for potential issuances.
2020 Equity Incentive Plan The Company’s Board and stockholders adopted and approved the 2020 Omnibus Equity Incentive Plan (the “2020 Plan”), which took effect on September 11 ,2020. The 2020 Plan allows for the issuance of securities, including stock options to employees, Board members and consultants. The initial number of shares of Common Stock available for issuance under the 2020 Plan is 10,000,0001,000,000 shares, which will, on January 1 of each calendar year, unless the Board decides otherwise, automatically increase to equal ten percent (10%) of the total number of shares of Common Stock outstanding on December 31 of the immediately preceding calendar year, calculated on an As Converted Basis. As Converted Shares include all outstanding shares of Common Stock and all shares of Common Stock issuable upon the conversion of outstanding preferred stock, warrants and other convertible securities, but will not include any shares of Common Stock issuable upon the exercise of options and other convertible securities issued pursuant to either the 2014 Plan or the 2020 Plan. The number of shares permitted to be issued as “incentive stock options” (“ISOsISOs”) from is 15,000,0001,500,000 under the 2020 Plan. The Company issued an aggregate of 10,000175,246 and 1,000 stock options under the 2020 Plan during the year ended December 31, 2020.2021 and 2020, respectively. As of December 31, 2020, 10,000,0002021, 1,000,000 total shares were available under the 2020 Plan, of which 10,000176,246 were issued and outstanding and 9,990,000823,754 shares were available for potential issuances.
As of January 1, 2022, the number of shares of Common Stock available for issuance under the 2020 Plan automatically increased to 2,114,360.
Equity Line with Lincoln Park In November 2019, the Company entered into a purchase agreement (the “Equity Line Agreement”), together with a registration rights agreement (the “Lincoln Park Registration Rights Agreement”), with Lincoln Park. Under the terms of the Equity Line Agreement, Lincoln Park has committed to purchase up to $15,000,000 of our Common Stock (the “Equity Line”). Upon execution of the Equity Line Agreement, the Company issued Lincoln Park 487,16848,717 shares of Common Stock (the “Commitment Shares”) as a fee for its commitment to purchase shares of our Common Stock under the Equity Line Agreement. The Commitment Shares had a grant date fair value of approximately $297,000 and had no effect on expenses or stockholders’ equity.
The remaining shares of our Common Stock that may be issued under the Equity Line Agreement may be sold by the Company to Lincoln Park at our discretion from time-to-time over a 30-month period commencing after the satisfaction of certain conditions set forth in the Equity Line Agreement, subject to the continued effectiveness of a registration statement covering such shares of Common Stock sold to Lincoln Park by the Company. The registration statement was filed with the SEC on December 31, 2019 and was declared effective on January 14, 2020. Under the Equity Line Agreement, on any business day over the term of the Equity Line Agreement, the Company has the right, in its sole discretion, to present Lincoln Park with a purchase notice (each, a “Purchase Notice”) directing Lincoln Park to purchase up to 150,00015,000 shares of Common Stock per business day (the “Regular Purchase”). In each case, Lincoln Park’s maximum commitment in any single Regular Purchase may not exceed $1,000,000. The Equity Line Agreement provides for a purchase price per Purchase Share (the “Purchase Price”) equal to the lesser of: ● | the lowest sale price of Common Stock on the purchase date; and; |
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the lowest sale price of Common Stock on the purchase date; and;
●
● | the average of the three lowest closing sale prices for the Common Stock during the ten consecutive business days ending on the business day immediately preceding the purchase date of such shares. |
In addition, on any date on which the Company submits a Purchase Notice toLincoln Park, the Company also has the right, in its sole discretion, to present Lincoln Park with an accelerated purchase notice (each, an “Accelerated Purchase Notice”) directing Lincoln Park to purchase an amount of stock (the “Accelerated Purchase”) equal to up to the lesser of (i) three3 times the number of shares purchased pursuant to such Regular Purchase; and (ii) 30% of the aggregate shares of Common Stock traded during all or, if certain trading volume or market price thresholds specified in the Equity Line Agreement are crossed on the applicable Accelerated Purchase date, the portion of the normal trading hours on the applicable Accelerated Purchase date prior to such time that any one of such thresholds is crossed (such period of time on the applicable Accelerated Purchase Date, the “Accelerated Purchase Measurement Period”), provided that Lincoln Park will not be required to buy shares pursuant to an Accelerated Purchase Notice that was received by Lincoln Park on any business day on which the last closing trade price of Common Stock on the Nasdaq Capital Market (or alternative national exchange) is below $0.25$2.50 per share. The purchase price per share for each such Accelerated Purchase will be equal to the lesser of: ● | 97% of the volume weighted average price of the Company’s common stock during the applicable Accelerated Purchase Measurement Period on the applicable Accelerated Purchase date; and; |
● | the closing sale price of Common Stock on the applicable Accelerated Purchase Date. |
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97% of the volume weighted average price of the Company’s common stock during the applicable Accelerated Purchase Measurement Period on the applicable Accelerated Purchase date; and;
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the closing sale price of Common Stock on the applicable Accelerated Purchase Date.
The Company may also directLincoln Park on any business day on which an Accelerated Purchase has been completed and all of the shares to be purchased thereunder have been properly delivered to Lincoln Park in accordance with the Equity Line Agreement, to purchase an amount of stock (the “Additional Accelerated Purchase”) equal to up to the lesser of (i) three times the number of shares purchased pursuant to such Regular Purchase; and (ii) 30% of the aggregate number of shares of Common Stock traded during a certain portion of the normal trading hours on the applicable Additional Accelerated Purchase date as determined in accordance with the PurchaseEquity Line Agreement (such period of time on the applicable Additional Accelerated Purchase date, the “Additional Accelerated Purchase Measurement Period”), provided that the closing price of the Company’s common stock on the business day immediately preceding such business day is not below $0.25$2.50 per share. Additional Accelerated Purchases will be equal to the lower of: ● | 97% of the volume weighted average price of the Company’s common stock during the applicable Additional Accelerated Purchase Measurement Period on the applicable Additional Accelerated Purchase; and; |
● | the closing sale price of Common Stock on the applicable Additional Accelerated Purchase. |
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the closing sale price of Common Stock on the applicable Additional Accelerated Purchase.
Pursuant to the terms of the Equity Line Agreement, without first obtaining stockholder approval, the aggregate number of shares that the Company is permitted to sell to Lincoln Park thereunder, when aggregated with certain other private offerings of Common Stock, as applicable, may not exceed 19.99% of the Common Stock outstanding immediately prior to the execution of the Equity Line Agreement on November 13, 2019, unless the average price of all applicable sales thereunder exceeds $0.70$7.00 per share calculated by reference to the “Minimum Price” under Nasdaq Listing Rule 5635(d). On September 11, 2020, the Company received stockholder approval for the issuances of the full $15 million available under the Equity Line Agreement. There is approximately $14.0 million of availability left for issuance pursuant to the Equity Line Agreement. The Company issued an aggregate of 1,495,199,0, and 0149,520 shares of Common Stock, during the years ended December 31, 20202021 and 2019,2020, respectively, in connection with the Equity Line Agreement, resulting in net proceeds to the Company of approximately $0 and $1.0 million, and $0, respectively. At The Market Agreement with H.C. Wainwright
On May 26, 2021, the Company entered into the ATM Agreement with H.C. Wainwright & Co., LLC (“Wainwright”), as sales agent, pursuant to which the Company may issue and sell, from time to time, through Wainwright, shares of its Common Stock, and pursuant to which Wainwright may sell its Common Stock by any method permitted by law deemed to be an “at the market offering” as defined by Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended (the “Securities Act”). The Company will pay Wainwright a commission of 3.0% of the aggregate gross proceeds from each sale of Common Stock. As of May 26, 2021, the Company was authorized to offer and sell up to $50 million of its Common Stock pursuant to the ATM Agreement. During the year ended December 31, 2021, the Company issued and sold an aggregate of 5,333,345 shares of Common Stock under the ATM Agreement for which the Company received gross proceeds of approximately $19.2 million, less issuance costs incurred of approximately $601,000.
Common Stock Issuances
2021 Issuances
During the year ended December 31, 2021, the Company issued an aggregate of 122,230 shares of its Common Stock to consultants with a grant date fair value of approximately $1.3 million for investor relations services provided, which was recorded as stock-based compensation and included as part of general and administrative expense.
During the year ended December 31, 2021, the Company issued an aggregate 7,500 shares of its Common Stock with a grant date fair value of approximately $94,000 in connection with the settlement with the Company’s former investment bank, which was recorded as stock-based compensation and included as part of general and administrative expense.
During the year ended December 31, 2021, the Company issued an aggregate of 3,125,460 shares of Common Stock upon the conversion of an aggregate of 33,097.10 shares of Series C Preferred Stock with a stated value of approximately $24.7 million plus accrued dividends of approximately $198,000.
During the year ended December 31, 2021, the Company issued an aggregate of 945,644 shares of Common Stock upon the exercise of an aggregate of 952,588 investor warrants, including an aggregate of 399,187 pre-funded warrants (see Note 13).
During the year ended December 31, 2021, the Company issued an aggregate of 258,278 shares of Common Stock upon the conversion of an aggregate of 258.08 shares of Series B Preferred Stock with a stated value of approximately $2.0 million plus accrued dividends of approximately $3,000.
During the year ended December 31, 2021, the Company issued an aggregate of 33,500 shares of Common Stock upon the exchange of 13.80 shares of Series B Preferred Stock with a stated value of approximately $0.1 million plus accrued dividends of approximately $8,000 into shares of Common Stock at $3.40 per share. During the year ended December 31, 2021, the Company issued an aggregate of 1,625,454 shares of Common Stock in connection with the March 2021 Offering and July 2021 Offering, as detailed below. 2020 Issuances During the year ended December 31, 2020, holders of shares of Series B Preferred Stock converted approximately 254.54 shares of Series B Preferred Stock into an aggregate of 2,565,813256,581 shares of Common Stock at the stated conversion price of $0.77$7.70 per share. During the year ended December 31, 2020, the Company issued an aggregate of 182,841 18,284shares of its Common Stock to consultants with a total grant date fair value of approximately $144,000for investor relations services provided, which was recorded as stock-based compensation and included as part of general and administrative expense. During the year ended December 31, 2020, the Company issued 62,5186,252 restricted shares of Common Stock to a consultant as payment of $135,000 of accounts payable for investor relations services. During the year ended December 31, 2020, the Company issued an aggregate of 105,93710,594 shares of its Common Stock to outside Board members as payment of Board fees with an aggregate grant date fair value of approximately $131,000that was recorded as stock-based compensation, included as part of general and administrative expense. The aggregate effective settlement price was $1.24$12.40 per share, and each individual stock issuance was based on the closing stock price of the Common Stock on the initial date the payable was accrued. 2019 Issuances
During the year ended December 31, 2019, pursuant to the Asset Purchase Agreement and associated Assignment Agreement and Delegation and Set-off Agreement by and between the Company and Mayoly (together, the “Mayoly APA”), the Company issued Mayoly 400,481 shares of Common Stock as part of the closing payment in March 2019 with a grant date fair value of approximately $917,000, that was recognized as part of stockholders’ equity.
During the year ended December 31, 2019, pursuant to the Mayoly APA, the Company issued 200,240 shares of Common Stock to be released form escrow on December 31, 2019, and 175,210 shares of restricted Common Stock to be released form escrow on December 31, 2020. During the year ended December 31, 2019, the Company recognized approximately $824,000 as part of stockholders’ equity.
During the year ended December 31, 2019, the Company issued an aggregate of 92,995 shares of its Common Stock to consultants as payment of $135,000 of accounts payable and 97,403 shares of its Common Stock to a consultant with a grant date fair value of $75,000 for services provided.
During the year ended December 31, 2019, the Company issued an aggregate of 120,000 shares of its Common Stock to outside members of its Board as payment of Board fees with an aggregate grant date fair value of approximately $173,000, that was recorded as part of general and administrative expense.
During the year ended December 31, 2019, the Company issued an aggregate of 7,522,097 shares of its Common Stock in our public offerings of Common Stock that occurred in April 2019, May 2019, and July 2019 for aggregate net proceeds of approximately $9.5 million.
During the year ended December 31, 2019, the Company issued 487,168 of Common Stock as a commitment fee pursuant to entering into the Equity Line Agreement with grant date fair value of approximately $297,000 and had no effect on expenses or stockholders’ equity.
Restricted Stock and Restricted Stock Units Restricted stock refers to shares of Common Stock subject to vesting based on certain service, performance, and market conditions. Restricted stock unit awards (“RSUs”) refer to an award under the 2014 Plan, which constitutes a promise to grant shares of Common Stock at the end of a specified restriction period. During the year ended December 31, 2020, an aggregate of 10,0801,008 restricted shares of Common Stock, subject to service conditions, vested with a total grant date fair value of approximately $36,000 and was recorded as stock-based compensation, included as part of general and administrative expense. During the year ended December 31, 2020, an aggregate 4,000400 unvested restricted shares of Common Stock were forfeited. During the year ended December 31, 2019, the Company issued James Sapirstein, its new Chief Executive Officer a restricted stock unit (“RSU”) for 200,000 shares of Common Stock subject to milestone-based vesting with a grant date fair value of $104,000. These RSUs will vest as follows: (i) 100,000 shares upon the first commercial sale in the U.S. of MS1819, and (ii) 100,000 shares upon the total market capitalization of the Company exceeding $1.0 billion for 20 consecutive trading days. The Company will recognize the expense related to these milestones when vesting of the milestones becomes probable.
During the year ended December 31, 2019, an aggregate of 188,333 unvested shares of restricted Common Stock that were issued to former executives were canceled with a total grant date fair value of approximately $500,000 due to their resignations from the Company.
During the year ended December 31, 2019, an aggregate of 223,417 restricted shares of Common Stock vested with a total grant date fair value of approximately $557,000. 33,334 of these restricted shares with a total grant date fair value of approximately $101,000 vested due to the Company achieving certain clinical milestones. 41,250 of these restricted shares with a total grant date fair value of approximately $135,000 vested due to the satisfaction of service conditions. 30,000 of these restricted shares were issued to certain our directors as a part of Board compensation with a total grant date fair value of approximately $142,000.
During the year ended December 31, 2019, an aggregate of 48,668 shares of restricted Common Stock, subject to time-based vesting, vested with a total grant date fair value of approximately $154,000 and was recorded as stock-based compensation, included as part of general and administrative expense.
As of December 31, 2021, and 2020, the Company had an aggregate unrecognized restricted Common Stock expense of approximately $393,000 and $393,000, respectively, which will be recognized when vesting of certain milestones will be become probable. The Series B Private Placement and the Exchange On July 16, 2020 (the “Series B Closing Date”), the Company consummated a private placement offering (the “Series B Private Placement”) whereby the Company entered into a Convertible Preferred Stock and Warrant Securities Purchase Agreement (the “Series B Purchase Agreement”) with certain accredited and institutional investors (the “Series B Investors”). Pursuant to the Series B Purchase Agreement, the Company issued an aggregate of 2,912.583005 shares of Series B Convertible Preferred Stock, par value $0.0001 per share (the “Series B Preferred Stock”), at a price of $7,700.00 per share, initially convertible into an aggregate of 29,125,7562,912,576 shares of Common Stock at $0.77$7.70 per share, together with warrants (the “Series B Warrants”) to purchase an aggregate of 14,562,8261,456,283 shares of Common Stock at an exercise price of $0.85$8.50 per share. The amount of the Series B Warrants is equal to 50% of the shares of Common Stock into which the Series B Preferred Stock is initially convertibleconvertible. In connection with the Series B Private Placement, an aggregate of approximately 1,975.58 shares of Series B Preferred Stock initially convertible into 19,755,7481,975,575 shares of Common Stock and related 9,877,835987,784 Series B Warrants were issued for cash consideration, resulting in aggregate gross proceeds of approximately $15.2 million and aggregate net proceeds to the Company of approximately $13.2 million after deducting placement agent compensation and offering expenses. An aggregate of approximately 937.00 shares of Series B Preferred Stock initially convertible into 9,370,008937,001 shares of Common Stock and related Series B Warrants to purchase 4,684,991468,499 shares of Common Stock were issued to certain Series B Investors (the “Exchange Investors”) in exchange for consideration consisting of approximately $6.9 million aggregate outstanding principal amount, together with accrued and unpaid interest thereon through the Series B Closing Date of approximately $0.3 million, of certain Senior Convertible Promissory Notes (the “Promissory Notes”) issued between December 20, 2019 and January 9, 2020 (the “Exchange”), pursuant to an Exchange Addendum (the “Exchange Addendum”) executed by the Company and the Exchange Investors. As additional consideration to the Exchange Investors, the Company also issued certain additional warrants (the “Exchange Warrants”) to purchase an aggregate of 1,772,937177,294 shares of Common Stock at an exercise price of $0.85$8.50 per share. The amount of the Exchange Warrants is equal to 25% of the shares of Common Stock into which such Promissory Notes were originally convertible upon the initial issuance thereof. Pursuant to the Series B Private Placement and the Series B Purchase Agreement, for purposes of complying with Nasdaq Listing Rule 5635(c) and 5635(d), the Company was required to hold a meeting of its stockholders not later than 60 days following the Series B Closing Date to seek approval (the “Stockholder Approval”) for, among other things, the issuance of shares of Common Stock upon (i) full conversion of the Series B Preferred Stock; and (ii) full exercise of the Series B Warrants and the Exchange Warrants. In the event the Stockholder Approval was not received on or prior to the 90th day following the Series B Closing Date, subject to extension upon the prior written approval of the holders of at least a majority of the Series B Preferred Stock then outstanding, the Company would have been required to repurchase all of the then outstanding shares of Series B Preferred Stock at a price equal to 150% of the stated valuethereof plus accrued and unpaid dividends thereon, in cash. On September 11, 2020, the Company received Stockholder Approval. The Company prepaid the remaining outstanding balance of $25,000 aggregate principal amount of Promissory Notes, together with accrued and unpaid interest thereon through the prepayment date of approximately $1,000, held by those holders who did not participate in the Exchange. Following these transactions, no Promissory Notes remain outstanding. In connection with the Series B Private Placement, the Company paid the placement agent 9.0% of the gross cash proceeds received by the Company from investors introduced by the placement agent and 4.0% of the gross cash proceeds received by the Company for all other investors, or approximately $1.3 million. The Company also paid the placement agent a non-accountable cash fee equal to 1.0% of the gross cash proceeds and a cash financial advisory fee equal to 3.0% of the outstanding principal balance of the Promissory Notes that were submitted in the Exchange, or approximately $0.3 million in additional cash fees in the aggregate. In addition, the Company issued to the placement agent warrants to purchase up to 1,377,458137,746 shares of Common Stock (the “July Placement Agent Warrants”). The July Placement Agent Warrants have substantially the same terms as the Series B Warrants, except the July Placement Agent Warrants have an exercise price of $0.96$9.60 per share, are not callable, provide for cashless exercise and are not exercisable until the earlier of stockholder approval of the Series B Private Placement and the date that is six months following the issuance thereof. Accounting for the Series B Private Placement Upon receiving Shareholder Approval on September 11, 2020, the Company classified the Series B Preferred Stock as permanent equity because no features provide for redemption by the holders of the Series B Preferred Stock or conditional redemption, which is not solely within the Company’s control, and there are no unconditional obligations in that (1) the Company must or may settle in a variable number of its equity shares and (2) the monetary value is predominantly fixed, varying with something other than the fair value of the Company’s equity shares or varying inversely in relation to the Company’s equity shares. Because the Series B Preferred Stock contain certain embedded features that could affect the ultimate settlement of the Series B Preferred Stock, the Company analyzed the instrument for embedded derivatives that require bifurcation. The Company’s analysis began with determining whether the Series B Preferred Stock is more akin to equity or debt. The Company evaluated the following criteria/features in this determination: redemption, voting rights, collateral requirements, covenant provisions, creditor and liquidation rights, dividends, conversion rights and exchange rights. The Company determined that the Series B Preferred Stock was more akin to equity than to debt when evaluating the economic characteristics and risks of the entire Series B Preferred Stock, including the embedded features. The Company then evaluated the embedded features to determine whether their economic characteristics and risks were clearly and closely related to the economic characteristics and risks of the Series B Preferred Stock. Since the Series B Preferred Stock was determined to be more akin to equity than debt, and the underlying that causes the value of the embedded features to fluctuate would be the value of the Company’s common stock, the embedded features were considered clearly and closely related to the Series B Preferred Stock. As a result, the embedded features would not need to be bifurcated from the Series B Preferred Stock. Any beneficial conversion features related to the exercise of the Most Favored Nation exchange right or the application of the Mandatory Conversion provision will be recognized upon the occurrence of the contingent events based on its intrinsic value at the commitment date. The Company concluded the freestanding Series B Warrants did not contain any provision that would require liability classification and therefore should be classified in stockholder’s equity, based on their relative fair value.
The proceeds from the Series B Private Placement were allocated to the Series B Preferred Stock and Series B Warrants based on their relative fair values. Thetotal proceeds of approximately $22.4 million were allocated as follows: approximately $16.5 million to the Series B Preferred Stock, and approximately $5.9 million to the Series B Warrants.After allocation of the proceeds, the effective conversion price of the Series B Preferred Stock was determined to be beneficial and, as a result, the Company recorded a deemed dividend ofapproximately$8.2 $8.2 million equal to the intrinsic value of the beneficial conversion feature and recognized on the closing date and recorded as a reduction of income available to common stockholders in computing basic and diluted loss per share. The total offering costs of approximately $2.0 million were recognized in equity. Registered Direct Offering and Private PlacementJanuary 2021 Offerings
On December 31, 2020, the Company entered into a securities purchase agreement (the “Series C Purchase Agreement”), pursuant to which the Company agreed to sell in a registered direct offering 5,333.333 shares of Series C Preferred Stock, at a price of $750$750.00 per share, initially convertible into an aggregate of 5,333,334533,333 shares of Common Stock, at an initial stated value of $750.00 per share and a conversion price of $0.75$7.50 per share (the “January 2021 Registered Direct Offering”).
Concurrently with the January 2021 Registered Direct Offering, in a private placement offering pursuant to the Series C Purchase Agreement (the “January 2021 Private Placement,” and together with the January 2021 Registered Direct Offering, the “January 2021 Offerings”), the Company agreed to sell an additional 5,333.3333 shares of Series C Preferred Stock at the same price as the Series C Preferred Stock offered in the January 2021 Registered Direct Offering and convertible on the same terms and warrants (the “January 2021 Investor Warrants”) to purchase up to an aggregate of 10,666,6681,066,666 shares of Common Stock, with an exercise price of $0.80$8.00 per share and an expiration term of five and one-half years from thea maturity date of issuance.July 6, 2026.
In connection with the January 2021 Private Placement, wethe Company entered into a registration rights agreement, dated as of December 31, 2020, pursuant to which wethe Company filed a registration statement on Form S-1 (File No. 333-252087) to register the shares of Common Stock issuable upon the conversion of the Series C Preferred Stock sold in the January 2021 Private Placement and the exercise of the January 2021 Investor Warrants. The registration statement was declared effective by the SEC on January 21, 2021.
TheOn January 6, 2021, the January 2021 Offerings closed, and the Company received aggregate gross proceeds from the Registered Direct Offering and the Private Placement, excluding the net proceeds, if any, from the exercise of the Investor Warrants, was approximately $8.0 million.
The net proceeds to the Company from the Registered Direct Offering and the Private Placement,January 2021 Offerings, after deducting the placement agent’s fees and expenses and estimated offering expenses, was approximately $6.8 million. The Company used the net proceeds to fund the payment of cash consideration to First WaveFWB under the First WaveFWB License Agreement, and for other general corporate purposes.
The Company paid the placement agent a cash fee equal to 8.0% and a management fee equal to 1.0% of the aggregate gross proceeds received by the Company in the Registered Direct Offering and the Private Placement,January 2021 Offerings, or approximately $700,000. The Company also agreed to issue to the placement agent or its designees warrants (the “December 2020January 2021 Placement Agent Warrants”) exercisable for up to 746,66774,667 shares of Common Stock, which is equal to 7.0% of the amount determined by dividing the gross proceeds of the Registered Direct Offering and Private PlacementJanuary 2021 Offerings by the offering price per share of Common Stock, or $0.75.$7.50. The December 2020January 2021 Placement Agent Warrants have substantially the same terms as the January 2021 Investor Warrants, except they are exercisable at $0.9375$9.375 per share, or 125% of the effective purchase price per share of the Series C Preferred Stock issued. The Company also reimbursed the placement agent $35,000 for non-accountable expenses, up to $125,000 for legal fees and expenses and other out-of-pocket expenses and $12,900 for clearing fees. Pursuant to the January 2021 Private Placement and the Series C Purchase Agreement, the Company was required to hold a meeting of its stockholders not later than March 31, 2021 to seek approval (the “2021 Stockholder Approval”) for, among other things, the issuance of shares of Common Stock upon (i) full conversion of the Series C Preferred Stock; and (ii) full exercise of the January 2021 Investors Warrants and the January 2021 Placement Agent Warrants, and to increase the authorized shares to 25,000,000 from 15,000,000.
On February 24, 2021, the Company’s stockholders approved certain proposals related toCompany received the Registered Direct Offering and the Private Placement2021 Stockholder Approval, and all outstanding shares of Series C Preferred Stock were converted to Common Stock.
Note 12 - WarrantsAccounting for the January 2021 Offerings
Upon receiving the 2021 Stockholder Approval on February 24, 2021, the Company classified the Series C Preferred Stock as permanent equity because no features provide for redemption by the holders of the Series C Preferred Stock or conditional redemption, which is not solely within the Company’s control, and there are no unconditional obligations in that (1) the Company must or may settle in a variable number of its equity shares and (2) the monetary value is predominantly fixed, varying with something other than the fair value of the Company’s equity shares or varying inversely in relation to the Company’s equity shares. ForBecause the Series C Preferred Stock contains certain embedded features that could affect the ultimate settlement of the Series C Preferred Stock, the Company analyzed the instrument for embedded derivatives that require bifurcation. The Company’s analysis began with determining whether the Series C Preferred Stock is more akin to equity or debt. The Company evaluated the following criteria/features in this determination: redemption, voting rights, collateral requirements, covenant provisions, creditor and liquidation rights, dividends, and conversion rights. The Company determined that the Series C Preferred Stock was more akin to equity than to debt when evaluating the economic characteristics and risks of the entire Series C Preferred Stock, including the embedded features. The Company then evaluated the embedded features to determine whether their economic characteristics and risks were clearly and closely related to the economic characteristics and risks of the Series C Preferred Stock. Since the Series C Preferred Stock was determined to be more akin to equity than debt, and the underlying that causes the value of the embedded features to fluctuate would be the value of the Company’s common stock, the embedded features were considered clearly and closely related to the Series C Preferred Stock. As a result, the embedded features would not need to be bifurcated from the Series C Preferred Stock.
The Company concluded the freestanding January 2021 Investor Warrants did not contain any provision that would require liability classification and therefore should be classified in stockholder’s equity, based on their relative fair value.
The proceeds from the January 2021 Offerings were allocated to the Series C Preferred Stock and the January 2021 Investor Warrants based on their relative fair values. The total proceeds of approximately $6.8 million, net of $1.2 million offering costs, were allocated as follows: approximately $4.6 million to the Series C Preferred Stock and approximately $3.4 million to the January 2021 Investor Warrants. After allocation of the proceeds, the effective conversion price of the Series C Preferred Stock was determined to be beneficial and, as a result, the Company recorded a deemed dividend of approximately $4.5 million equal to the intrinsic value of the beneficial conversion feature and recognized on the closing date and recorded as a reduction of income available to common stockholders in computing basic and diluted loss per share. The total offering costs of approximately $1.2 million were recognized in equity.
Series B Most Favored Nations (MFN) Exchanges into the January 2021 Offerings
Subject to consummating the January 2021 Offerings, the holders of the Series B Preferred Stock became entitled to exercise their Series B Exchange Right to exchange their Series B Preferred Stock at the Series B Exchange Amount into the Series C Preferred Stock and related January 2021 Investor Warrants.
During the year ended December 31, 2021, holders of approximately 1,877.64 shares of Series B Preferred Stock with an aggregate Exchange Amount of approximately $14.5 million had elected to exercise their Series B Exchange Rights into 19,216.45 shares of Series C Preferred Stock, convertible into an aggregate of 1,921,645 shares of Common Stock and additional January 2021 Investor Warrants exercisable for up to an aggregate of 1,921,645 shares of Common Stock. Immediately upon issuance of the Series C Preferred Stock pursuant to the Series B Exchange Right prior to February 24, 2021, an aggregate of 13,166.62 shares of Series C Preferred Stock were converted into 1,316,662 shares of Common Stock, at an effective conversion price of $7.70 per share, and an aggregate of 3,344.63 shares of Series C Preferred Stock, convertible into 33,446 shares of Common Stock, remained unconverted pending stockholder approval. Upon receiving the stockholder approval on February 24, 2021, the Company elected to convert all 334.46 remaining shares of Series C Preferred Stock issued pursuant to the Series B Exchange Right, plus accrued dividends thereon of approximately $2,000 into 33,699 shares of Common Stock.
Accounting for the Series B Exchanges into the January 2021 Offerings During the year ended December 31, 2021, pursuant to the Series B Exchange Right, the Company issued an aggregate of 19,140.14 shares of Series C Preferred Stock and warrants to purchase an aggregate of 1,913,971 shares of Common Stock in connection with the exchange of approximately 1,839.76 shares of Series B Preferred Stock. The exercise of all of these warrants and the conversion of a portion of these shares of Series C Preferred Stock were prohibited until the Company received stockholder approval on February 24, 2021. The Company analyzed the exchanges pursuant to the Series B Exchange Right from preferred stock to preferred stock qualitatively and determined that the exchanges result in a substantive change and should be accounted for as an extinguishment. As such, for the year ended December 31, 2021, the Company recognized an aggregate deemed dividend of approximately $21.0 million as calculated by the difference in the carrying value of the Series B Preferred Stock exchanged and the fair value of the Series C Preferred Stock and January 2021 Investor Warrants issued on each exchange date.
March 2021 Offering
On March 7, 2021, the Company entered into a securities purchase agreement (the “March 2021 Purchase Agreement”), pursuant to which the Company agreed to sell, in a registered direct offering (the “March 2021 Offering”) priced at the market under Nasdaq rules, (i) 580,000 shares of Common Stock, (ii) pre-funded warrants (the “March 2021 Pre-Funded Warrants”) to purchase up to 205,854 shares of Common Stock, with an exercise price of $0.01 per share and no expiration term and (iii) warrants (the “March 2021 Warrants”) to purchase an aggregate of 392,927 shares of Common Stock with an exercise price of $12.10 per share and an expiration term of five years from the date of issuance. The price per share of March 2021 Offering was $12.725.
On March 10, 2021, the March 2021 Offering closed and the Company received aggregate gross proceeds of approximately $10.0 million, excluding the net proceeds, if any, from the exercise of the March 2021 Warrants. The net proceeds to the Company from the March 2021 Offering were approximately $9.1 million, after deducting the placement agent’s fees and expenses.
The Company paid the placement agent a cash fee equal to 8.0% of the aggregate gross proceeds received by the Company, or approximately $800,000. The Company also agreed to issue the placement agent or its designees warrants (the “March 2021 Placement Agent Warrants”) exercisable for up to 55,010 shares of Common Stock, which is equal to 7.0% of the amount determined by dividing the gross proceeds of the March 2021 Offering by the offering price per share of Common Stock, or $12.725. The March 2021 Placement Agent Warrants have substantially the same terms as the March 2021 Warrants, except they are exercisable at $15.906 per share, or 125% of the effective purchase price per share of Common Stock issued. The Company also reimbursed the placement agent $35,000 for non-accountable expenses, $50,000 for legal fees and expenses and other out-of-pocket expenses and approximately $16,000 for clearing fees.
The March 2021 Offering was made pursuant to the Company’s effective shelf registration statement on Form S-3 (Registration No. 333-231954) originally filed with the SEC on June 21, 2019 and declared effective on June 25, 2019. The Company filed a prospectus supplement with the SEC in connection with the sale of such securities in the March 2021 Offering. The Company concluded the freestanding March 2021 Warrants and the March 2021 Placement Agent Warrants did not contain any provisions that would require liability classification and therefore should be classified in stockholder’s equity.
July 2021 Offering
On July 22, 2021, the Company entered into an underwriting agreement with Wainwright pursuant to which the Company agreed to sell, in an upsized firm commitment offering, 909,091 shares of Common Stock to Wainwright at an offering price to the public of $5.50 per share, less underwriting discounts and commissions. On July 27, 2021, pursuant to the terms of the underwriting agreement, Wainwright exercised its 30-day over-allotment option in full to purchase an additional 136,363 shares of Common Stock at the same offering price to the public, less underwriting discounts and commissions. The offering closed on July 27, 2021.
The Company received net proceeds from the offering of approximately $5.1 million. The Company paid Wainwright an underwriting discount equal to 8.0% of the gross proceeds of the offering, and reimbursed Wainwright for a non-accountable expense allowance of $35,000, $125,000 in legal fees and $15,950 for clearing expenses. Additionally, as partial compensation for Wainwright’s services as underwriter in the offering, the Company issued to Wainwright (or its designees) warrants to purchase 73,178 shares of Common Stock equal to 7.0% of the aggregate number of shares of Common Stock sold in the offering (the “July 2021 Wainwright Warrants”). The July 2021 Wainwright Warrants have a term of five (5) years from the date of the offering and an exercise price of $6.875 per share (equal to 125% of the offering price per share), subject to adjustments as provided in the terms of the July 2021 Wainwright Warrants. The July 2021 Wainwright Warrants provide for liquidated damages and compensation for buy-ins, if the Company fails to timely deliver the underlying Common Stock within specified timeframes from exercise. The July 2021 Wainwright Warrants do not provide for any Black Scholes payout in the event of a fundamental transaction relating to the Company.
The Company concluded the freestanding July 2021 Wainwright Warrants did not contain any provisions that would require liability classification and therefore should be classified in stockholder’s equity.
Note 13 - Warrants
During the year ended December 31, 2021, in connection with the January 2021 Offerings, the Company issued January 2021 Investor Warrants to the investor to purchase an aggregate of 1,066,666 shares of Common Stock. These January 2021 Investor Warrants were issued on January 6, 2021, are exercisable at $8.00 per share and expire on July 6, 2026. The exercise of the January 2021 Investor Warrants was prohibited until the Company received stockholder approval on February 24, 2021. The total grant date fair value of these warrants was determined to be approximately $6.0 million, as calculated using the Black-Scholes model, and were recorded as additional paid in capital based on their relative fair value of approximately $3.4 million.
During the year ended December 31, 2021, in connection with the conversion of the Series C Preferred Stock issued in the January 2021 Offerings, the Company issued pre-funded warrants to the investor to purchase an aggregate of 193,333 shares of Common Stock. These pre-funded warrants were issued on January 6, 2021, are exercisable at $0.01 per share and do not expire. The total grant date fair value of these pre-funded was determined to be approximately $1.6 million and was recorded as additional paid in capital.
During the year ended December 31, 2021, in connection with the January 2021 Offerings, the Company issued January 2021 Placement Agent Warrants to the placement agent and/or their designees to purchase an aggregate of 74,667 shares of Common Stock. These January 2021 Placement Agent Warrants were issued on January 6, 2021, are exercisable at $9.375 per share and expire on July 6, 2026. The total grant date fair value of these warrants was determined to be approximately $392,000, as calculated using the Black-Scholes model, and had no effect on shareholders’ equity. During the year ended December 31, 2021, the Company issued January 2021 Investor Warrants to purchase an aggregate of 1,921,645 shares of Common Stock to holders of Series B Preferred Stock elected to exercise their Series B Exchange Rights into Series C Preferred Stock and related warrants, as referenced in Note 12. These January 2021 Investor Warrants were issued between January 13, 2021 and June 9, 2021, are exercisable at $8.00 per share and expire on July 6, 2026. The exercise of these warrants was prohibited until the Company received stockholder approval on February 24, 2021. The total grant date fair value of these warrants was determined to be approximately $21.0 million, as calculated using the Black-Scholes model, and were recorded as a deemed dividend and recognized on the exchange date and recorded as a reduction of income available to common stockholders in computing basic and diluted loss per share.
During the year ended December 31, 2021, in connection with the March 2021 Offering, the Company issued March 2021 Warrants to the investor to purchase an aggregate of 392,927 shares of Common Stock. These March 2021 Warrants were issued on March 10, 2021, are exercisable at $12.10 per share and expire five years from the date of issuance. The total grant date fair value of these warrants was determined to be approximately $3.5 million, as calculated using the Black-Scholes model, and were recorded as additional paid in capital.
During the year ended December 31, 2021, in connection with March 2021 Offering, the Company issued pre-funded warrants to the investor to purchase an aggregate of 205,855 shares of Common Stock. These pre-funded warrants were issued on March 10, 2021, are exercisable at $0.10 per share and do not expire. The total grant date fair value of these pre-funded was determined to be approximately $2.6 million and was recorded as additional paid in capital.
During the year ended December 31, 2021, in connection with the March 2021 Offering, the Company issued March 2021 Placement Agent Warrants to the placement agent and/or their designees to purchase an aggregate of 55,010 shares of Common Stock. These March 2021 Placement Agent Warrants were issued on March 10, 2021, are exercisable at $15.906 per share and expire five years from the date of issuance. The total grant date fair value of these warrants was determined to be approximately $453,000, as calculated using the Black-Scholes model, and had no effect on shareholders’ equity.
During the year ended December 31, 2021, in connection with the July 2021 Offering, the Company issued July 2021 Placement Agent Warrants to the placement agent and/or their designees to purchase an aggregate of 73,181 shares of Common Stock. These July 2021 Placement Agent Warrants were issued on July 22, 2021, are exercisable at $6.875 per share and expire five years from the date of issuance. The total grant date fair value of these warrants was determined to be approximately $263,000, as calculated using the Black-Scholes model, and had no effect on shareholders’ equity.
During the year ended December 31, 2021, the Company issued warrants to a consultant to purchase an aggregate of 20,000 shares of Common Stock that are subject to service-based milestone vesting conditions for investor relations services. These warrants were issued on February 8, 2021, are exercisable at $16.90 per share and expire four years from the date of issuance. The total grant date fair value of these warrants was determined to be approximately $214,000, as calculated using the Black-Scholes model. During the year ended December 31, 2021, warrants to purchase an aggregate of 952,588 shares of Common Stock, including the pre-funded warrants issued in January 2021 and March 2021, were exercised for 945,644 shares of Common Stock resulting in cash proceeds of approximately $4.9 million.
For theyear ended December 31, 2020, in connection with the January 2020 closings of the Promissory Note Offering, the Company issued Note Warrants to investors to purchase an aggregate of 1,813,257181,326 shares of Common Stock with the issuance of the Promissory Notes (See Note 9)12). These Note Warrants were issued in January 2020, became exercisable commencing six (6) months following issuance at $1.07$10.70 per share and expire five years from issuance. The total grant date fair value of these warrants was determined to be approximately $1.6 million, as calculated using the Black-Scholes model, and were recorded as a debt discount based on their relative fair value. Additionally, in connection with the January 2020 closings of the Promissory Note Offering, the Company issued the placement agent warrants to purchase an aggregate of 199,73219,973 shares of Common Stock to the placement agent and/or their designees (See Note 9)12). These warrants were issued in January 2020, were immediately exercisable, and expire five years from issuance. 41,4954,147 of these warrants are exercisable at $1.21$12.10 per share and 158,23715,824 of these warrants are exercisable at $1.42$14.20 per share. The total grant date fair value of these warrants was determined to be approximately $174,000, as calculated using the Black-Scholes model, and was charged to debt discount and amortized over the life of the debt. For theyear ended December 31, 2020, in connection with the closing of the Exchange (See(see Note 11)12), the Company issued Exchange Warrants to certain investors to purchase an aggregate of 1,772,937177,294 shares of Common Stock with the issuance of the Series B Preferred Stock as referenced in Note 11.12. These Exchange Warrants were issued on July 16, 2020, are exercisable commencing six (6) months following the issuance date at $0.85$8.50 per share and expire five years from issuance. The total grant date fair value of the Exchange warrants was determined to be approximately $987,000, as calculated using the Black-Scholes model, and were recorded as part of the loss on extinguishment (See Note 9)10). For theyear ended December 31, 2020, in connection with the closing of the Series B Private Placement, the Company issued placement agent warrants to purchase an aggregate of 1,377,458 137,746 shares of Common Stock to the placement agent and/or their designees. These warrants were issued in July 2020, became exercisable commencing six (6) months following issuance at $0.96$9.60 per share and expire five years from issuance. The total grant date fair value of these warrants was determined to be approximately $745,000, as calculated using the Black-Scholes model, and were recorded as equity. For theyear ended December 31, 2020, in connection with the Spoor Settlementsettlement and Releaserelease with our former Chief Executive Officer, Johan “Thijs” Spoor in July 2020, the Company granted Mr. Spoor warrants to purchase an aggregate of 150,00015,000 shares of Common Stock. The warrants were immediately exercisable, have an exercise price equal to $1.00$10.00 per share, a five-year term and may be exercised pursuant to a cashless exercise provision commencing six months from the issuance date. The total grant date fair value of these warrants was determined to be approximately $86,000, as calculated using the Black-Scholes model, and were included in the gain on settlement (See Note 18).settlement. During year ended December 31, 2020, warrants to purchase an aggregate of 80,7508,075 shares of Common Stock expired with exercise prices ranging between $3.25$32.50 and $7.37$73.70 per share. For the year ended December 31, 2019, in connection with the December 2019 closings of the Promissory Note Offering, the Company issued Note Warrants to investors to purchase an aggregate of 1,745,538 shares of Common Stock with the issuance of the Promissory Notes (See Note 9). These Note Warrants were issued in December 2019, became exercisable commencing six (6) months following issuance at $1.07 per share and expire five years from issuance. The total grant date fair value of these warrants was determined to be approximately $1.3 million, as calculated using the Black-Scholes model, and were recorded as a debt discount based on their relative fair value.
Additionally, in connection with the December 2019 closings of the Promissory Note Offering, the Company issued placement agent warrants to purchase an aggregate of 244,372 shares of Common Stock. These placement agent warrants were issued in December 2019, were immediately exercisable, are exercisable at $1.21 per share and expire five years from issuance. The total grant date fair value of these placement agent warrants was determined to be approximately $169,000, as calculated using the Black-Scholes model, and was charged to debt discount that will be amortized over the life of the debt.
During the year ended December 31, 2019, in connection with the public offerings in April 2019, and May 2019, the Company issued selling agent warrants to purchase an aggregate of 75,663 shares of Common Stock. These selling agent warrants will become exercisable one year following issuance, expire five years from issuance, and have an exercise prices of ranging from $2.55 to $2.82 per share. The total grant date fair value of these investment banking warrants was determined to be approximately $117,000, as calculated using the Black-Scholes model, and had no effect on expenses or stockholders’ equity.
During the year ended December 31, 2019, in connection with the public offerings July 2019, the Company issued the underwriting warrants to purchase an aggregate of 200,000 shares of Common Stock. These underwriting warrants are exercisable immediately, expire five years from issuance, and have an exercise price of $1.25 per share. The total grant date fair value of these investment banking warrants was determined to be approximately $116,600, as calculated using the Black-Scholes model, and had no effect on expenses or stockholders’ equity.
In February 2019, as additional consideration for issuing the ADEC Notes and pursuant to the ADEC Warrant Amendment, the Company agreed to reduce the exercise price of certain outstanding warrants previously issued by the Company to ADEC and its affiliates (see Note 9).
Warrant transactions for the years ending December 31, 20202021 and 20192020 were as follows:
| | Warrants | | | Exercise Price Per Share | | | Weighted Average Price | | | | | | | | | | | | Warrants outstanding and exercisable on January 1, 2020 | | | 537,829 | | | $ | 10.70 - 73.70 | | | $ | 25.30 | | Granted during the period | | | 1,987,968 | | | $ | 8.50 - 14.20 | | | $ | 8.80 | | Expired during the period | | | (8,075 | ) | | $ | 32.50 - 73.70 | | | $ | 41.10 | | Exercised during the period | | | 0 | | | | 0 | | | | 0 | | Warrants outstanding and exercisable on December 31, 2020 | | | 2,517,722 | | | $ | 8.50 - 73.70 | | | $ | 12.20 | | | | | | | | | | | | | | | Warrants outstanding and exercisable on January 1, 2021 | | | 2,517,722 | | | $ | 8.50 - 73.70 | | | $ | 12.20 | | Granted during the period | | | 4,095,602 | | | $ | 0.01 - 16.90 | | | | 7.46 | | Expired during the period | | | (133,346 | ) | | $ | 0.01 - 14.20 | | | $ | 33.98 | | Exercised during the period | | | (952,588 | ) | | $ | 15.00 - 73.70 | | | $ | 5.32 | | Warrants outstanding and exercisable on December 31, 2021 | | | 5,527,390 | | | $ | 0.80 – 6.60 | | | $ | 9.49 | |
| | | Weighted Average Exercise Price | | | | | Warrants outstanding and exercisable at January 1, 2019 | 3,112,715 | $2.55 - 7.37 | $4.83 | | | | | Granted during the period | 2,265,573 | $1.07 - 2.82 | $1.15 | Expired during the period | - | - | - | Exercised during the period | - | - | - | Warrants outstanding and exercisable at December 31, 2019 | 5,378,288 | $1.07 - 7.37 | $2.53 | | | | | | | | | Warrants outstanding and exercisable at January 1, 2020 | 5,378,288 | $1.07 - 7.37 | $2.53 | | | | | Granted during the period | 19,881,654 | $0.85 - 1.42 | $0.88 | Expired during the period | (80,750) | $3.25 - 7.37- | $4.11 | Exercised during the period | - | - | - | Warrants outstanding and exercisable at December 31, 2020 | 25,179,192 | $0.85 - 7.37 | $1.22 |
F-32
Warrants exercisable at December 31, 20202021 were as follows: | | Exercise Price | | | Number of Shares Under Warrants | | | Weighted Average Remaining Contract Life in Years | | Weighted Average Exercise Price | | | $ | 0.00 - 9.99 | | | | 4,582,860 | | | | 4.12 | | | | | $ | 10.00 - 19.99 | | | | 803,631 | | | | 3.54 | | | | | $ | 20.00 - 29.99 | | | | 32,003 | | | | 1.56 | | | | | $ | 30.00 - 39.99 | | | | 43,463 | | | | 0.57 | | | | | $ | 40.00 - 49.99 | | | | 16,425 | | | | 0.27 | | | | | $ | 50.00 - 59.99 | | | | 48,208 | | | | 0.40 | | | | | $ | 60.00 - 69.99 | | | | 800 | | | | 0.42 | | | Totals | | | | | | | 5,527,390 | | | | 3.95 | | $ 9.49 |
| | Number of Shares Under Warrants | Weighted Average Remaining Contract Life in Years | Weighted Average Exercise Price | | $0.00 - 0.99 | 17,718,665 | 4.54 | | | $1.00 - 1.99 | 5,362,464 | 3.41 | | | $2.00 - 2.99 | 320,063 | 2.56 | | | $3.00 - 3.99 | 635,019 | 1.32 | | | $4.00 - 4.99 | 164,256 | 1.27 | | | $5.00 - 5.99 | 778,116 | 1.18 | | | $6.00 - 6.99 | 187,750 | 0.76 | | | $7.00 - 7.37 | 12,859 | 0.18 | | Totals | | 25,179,192 | 4.04 | $1.22 |
The weighted average fair value of warrants granted during the years ended December 31, 2021 and 2020, was $8.63 and 2019, was $0.59 and $0.71$5.90 per share, respectively. The grant date fair values were calculated using the Black-Scholes model with the following weighted average assumptions: | | | | | Expected life (in years) | 5 | 5 | Volatility | 81- 85% | 71 - 80% | Risk-free interest rate | 0.28 – 1.67% | 1.64 - 2.37% | Dividend yield | -% | -% |
| | December 31, | | | | 2021
| | | 2020
| | Expected life (in years) | | | 4.38 | | | | 5 | | Volatility | | | 83.8- 90.8 | % | | | 81.0- 85.0 | % | Risk-free interest rate | | | 0.36- 0.90 | % | | | 0.28- 1.67 | % | Dividend yield | | | 0 | % | | | 0 | % |
Note 1314 – Stock Options Under the 2014 Plan and the 2020 Plan, the fair value of options granted is estimated on the grant date using the Black-Scholes option valuation model. This valuation model for stock-based compensation expense requires the Company to make assumptions and judgments about the variables used in the calculation, including the expected term (weighted-average period of time that the options granted are expected to be outstanding), the volatility of the common stock price and the assumed risk-free interest rate. The Company recognizes stock-based compensation expense for only those shares expected to vest over the requisite service period of the award. NoNaN compensation cost is recorded for options that do not vest and the compensation cost from vested options, whether forfeited or not, is not reversed.
On June 30, 2021, the Board rescinded and cancelled certain stock option awards previously made under the 2014 Plan (the “Prior Awards”) to James Sapirstein, the Company’s President, Chief Executive Officer and Chairman of the Board, and Daniel Schneiderman, the Company’s former Chief Financial Officer, and issued new stock options awards (the “New Awards”) under the 2020 Plan in an equivalent amount and with equivalent exercise price, vesting and expiration terms to the Prior Awards. This action was approved by the Board following the recommendation of a special committee of the Board upon review of certain matters raised in a stockholder litigation demand letter received by the Company on or about July 27, 2020, as previously disclosed in the Company’s definitive proxy statement, dated August 11, 2020, in connection with stockholder approval of the 2020 Plan.
The terms of the New Awards to Mr. Sapirstein (the “New Sapirstein Awards”) covering 90,000 shares of the Common Stock at an exercise price of $8.50 per share comprised of (i) stock options to purchase 30,000 shares of Common Stock that vest over a term of 18 months in 18 equal monthly installments starting with the first monthly installment on February 16, 2022, (ii) stock options to purchase 20,000 shares of Common Stock that vested immediately upon the grant of such stock options, and (iii) stock options to purchase 40,000 shares of Common Stock subject to milestone-based vesting based upon the achievement of certain strategic milestones specified by the Board. The Company determined the cancellation and reissue of the New Sapirstein Awards did not result in modification accounting under ASC 718 as there was no change between the fair value of the original stock options immediately prior to the modification and the grant date fair value of the replacement stock options and no change to vesting conditions. The Company will recognize a total of approximately $359,000, representing the original unexpensed amount over the remaining requisite service periods of the New Sapirstein Awards. The terms of the New Awards to Mr. Schneiderman (the “New Schneiderman Awards”) covering an aggregate of 28,500 shares of Common Stock at an exercise price of $8.50 per share comprised of (i) stock options to purchase 25,000 shares of Common Stock, of which stock options to purchase 7,986 shares of Common Stock vested immediately upon the grant of such stock options and the remaining stock options to purchase 17,014 shares of Common Stock will vest over a term of 2 years and 1 month in 25 equal monthly installments, and (ii) stock options to purchase 3,500 shares of Common Stock, of which stock options to purchase 1,750 shares of Common Stock vested immediately upon the grant of such stock options and the remaining options to purchase 1,750 shares of Common Stock vest over a term of 19 months in 19 equal monthly installments. The Company determined the cancellation and reissue of the New Schneiderman Awards did not result in modification accounting under ASC 718 as there was no change between the fair value of the original stock options immediately prior to the modification and the grant date fair value of the replacement stock options and no change to vesting conditions. The Company will recognize a total of $192,000 over the remaining requisite service periods of the New Schneiderman Awards, which amounts to the unexpensed amount of the original stock option grants.
During the year ended December 31, 2021, the Company issued stock options under the 2020 Plan to employees, excluding the New Awards to purchase an aggregate of 35,100 shares of Common Stock with strike prices ranging from $6.40 to $15.40 per share and a term of ten years that vest in equal monthly installments over three years. These options had a total fair value of approximately $247,000, as calculated using the Black-Scholes model.
During the year ended December 31, 2021, the Company issued stock options under the 2020 Plan to outside Board members to purchase an aggregate of 21,646 shares of Common Stock with strike prices ranging from $6.40 to $9.70 per share and a term of ten years that vest in equal monthly installments over fiscal year 2021. These options had a total fair value of approximately $153,000, as calculated using the Black-Scholes model.
During the year ended December 31, 2021, excluding the Prior Awards described above, stock options to purchase an aggregate of 134,477 shares of Common Stock under the 2014 Plan were cancelled with strike prices ranging between $8.50 and $36.00 per share.
During the year ended December 31, 2021, excluding the Prior Awards described above, stock options to purchase an aggregate of 8,604 shares of Common Stock under the 2020 Plan were cancelled with strike prices ranging between $9.23 and $14.30 per share.
During the year ended December 31, 2021, stock options to purchase an aggregate of 91,362 shares of Common Stock, subject to service-based milestone vesting conditions, vested with a total grant date fair value of approximately $552,000 which was recorded as stock-based compensation, of which approximately $435,000 was included as part of general and administrative expense and approximately $117,000 was included as part of research and development expense.
During the year ended December 31, 2021, stock options to purchase an aggregate of 95,500 shares of Common Stock, subject to performance-based milestone vesting conditions, vested due to the Company achieving certain clinical milestones, with a total grant date fair value of approximately $623,000 which was recorded as stock-based compensation, of which approximately $253,000 was included as part of general and administrative expense and approximately $370,000 was included as part of research and development expense. Stock options to purchase an aggregate of 43,750 shares of Common Stock, with a total grant date fair value of approximately $427,000, vested due to the Company completing enrollment of the Phase 2 OPTION 2 clinical trial. Stock options to purchase an aggregate of 21,000 shares of Common Stock, with a total grant date fair value of approximately $148,000, vested due to the Company’s public announcement of topline data for the Phase 2 OPTION 2 clinical trial. Stock options to purchase an aggregate of 750 shares of Common Stock, with a total grant date fair value of approximately $8,000, vested due to the Company completing enrollment of the Phase 2 Combination Trial in Europe. Stock options to purchase an aggregate of 10,000 shares of Common Stock, with a total grant date fair value of approximately $40,000, vested due to the Company determining that initiating a U.S. Phase 1 clinical trial for any product other than adrulipase became probable in connection with the initiation of the COVID-19 niclosamide trial. During the year ended December 31, 2020, the Company issuedstock options under the 2014 Plan to purchase an aggregate of 335,006 33,500 shares of Common Stock with a strike price of $1.03$10.30 per share and a term of ten years to its chief financial officer that vest in equal monthly installments over three years. These options had a total grant date fair value of approximately $281,000, as calculated using the Black-Scholes model.
During the year ended December 31, 2020, the Board approved an amended and restated option grant to its chief financial officer, amending and restating a grant previously made on January 2, 2020, to reduce the amount of shares issuable upon exercise of such option to be the maximum number of shares Mr. Schneiderman was eligible to receive under the 2014 Plan on the original grant date, or 300,00030,000 shares (on a split adjusted basis), due to the 2014 Plan provisions relating to the individual grant limits that were intended to comply with the exemption for “performance-based compensation” under Section 162(m) of the Internal Revenue Code, which section has been repealed. The Board also approved the issuance of a replacement option covering the balance of shares intended to be issued at that time, or 35,0063,500 shares. The original stock option has an exercise price of $1.03,$10.30, the closing sale price of Common Stock on January 2, 2020, which was the date of its original grant, and the replacement stock option has an exercise price of $0.85,$8.50, the closing sale price of the Common Stock on its date of grant. Both the original stock option and the replacement stock option vest over a term of three years, in 36 equal monthly installments on each monthly anniversary of January 2, 2020. On the issuance date, 6,336633 shares had vested, and 28,6702,867 shares were unvested with approximately $24,000 of unrecognized expense. The Company determined the cancellation and reissue of these stock options resulted in an effective repricing of the stock options and modification accounting should be applied under ASC 718. The fair value of the original stock options immediately prior to the modification was approximately $23,000 and the grant date fair value of the replacement stock options was approximately $24,000. The Company will recognize a total of approximately $25,000 over the remaining requisite service period through January 1, 2023. During the year ended December 31, 2020, the Company issued stock options under the 2014 Plan to purchase an aggregate of 460,00046,000 shares of Common Stock with a strike price of $0.97$9.70 per share and a term of ten years to certain Board members that vested in equal installments over 2020. These options had a total grant date fair value of approximately $210,000, as calculated using the Black-Scholes model. During the year ended December 31, 2020, the Company issued stock options under the 2014 Plan to purchase an aggregate of 2,040,000204,000 shares of Common Stock with a strike price of $0.85$8.50 per share and a term of ten years to its employees. 600,00060,000 of these stock options are subject to performance-based milestone vesting conditions and 1,440,000144,000 of these stock options vest in equal monthly installments over three years. These options had a total grant date fair value of approximately $1.4 million, as calculated using the Black-Scholes model. During the year ended December 31, 2020, the Company issued stock options under the 2020 Plan to purchase an aggregate of 10,0001,000 shares of Common Stock with a strike price of $0.97$9.70 per share and a term of ten years to a consultant that are subject to performance-based milestone vesting conditions. These options had a total grant date fair value of approximately $8,000, as calculated using the Black-Scholes model.
During the year ended December 31, 2020, stock options under the 2014 Plan to purchase an aggregate of 600,08660,008 shares of Common Stock, subject to service-based milestone vesting conditions, vested with a total grant date fair value of approximately $361,000 and recorded as stock-based compensation, of which approximately $341,00$341,000 was included as part of general and administrative expense and approximately $20,000 was included as part of research and development expense.
During the year ended December 31, 2020, stock options under the 2014 Plan to purchase an aggregate of 50,0005,000 shares of Common Stock, subject to performance-based vesting conditions, vested with a total grant date fair value of approximately $20,000 and were recorded as stock-based compensation, and included as part of general and administrative expense due to the Company achieving clinical milestones.
During the year ended December 31, 2020, stock options under the 2014 Plan to purchase an aggregate of 487,22848,722 shares of Common Stock were cancelled with strike prices ranging between $0.85$8.50 and $4.48$44.80 per share.
The weighted average fair value of stock options granted during the year ended December 31, 2021 and 2020 was $0.89$9.05 and $8.90, respectively per share. During the year ended December 31, 2019, the Company issued stock options under the 2014 Plan to purchase an aggregate of 120,000 shares of Common Stock with a strike price of $1.75 per share and a term of five years to certain Board members that vested quarterly over one (1) year. These options had a total fair value of approximately $126,000, as calculated using the Black-Scholes model and were recorded as stock-based compensation, and included as part of general and administrative expense.
During the year ended December 31, 2019, the Company issued stock options under the 2014 Plan to purchase an aggregate of 250,000 shares of Common Stock with a strike price of $1.75 per share and a term of five years to its former chief executive officer and former chief financial officer, and were subject to performance-based milestone vesting conditions. These stock options had a grant date fair value of approximately $253,000, as calculated using the Black-Scholes model. These unvested stock options were cancelled as a result of the former executives’ resignations.
During the year ended December 31, 2019, the Company issued stock options under the 2014 Plan to purchase an aggregate of 300,000 shares of Common Stock with a strike price of $0.56 per share and a term of 10 years to its chief executive officer with performance-based milestone vesting conditions. These options had a total grant date fair value of approximately $121,000, as calculated using the Black-Scholes model. The Company will recognize the expense related to these performance-based milestones when the milestones become probable.
During the year ended December 31, 2019, the Company issued stock options under the 2014 Plan to purchase an aggregate of 523,500 shares of Common Stock with a strike price of $1.75 per share and a term of five years to certain employees with performance-based milestone vesting conditions. These options had a total grant date fair value of approximately $550,000, as calculated using the Black-Scholes model. The Company will recognize the expense related to these performance-based milestones when the milestones become probable.
During the year ended December 31, 2019, stock options under the 2014 Plan to purchase an aggregate of 304,500 shares of Common Stock, subject to performance-based vesting conditions, vested with a total grant date fair value of approximately $574,000 and recorded as stock-based compensation.
During the year ended December 31, 2019, stock options under the 2014 Plan to purchase an aggregate of 510,000 shares of Common Stock were canceled with strike prices ranging from of $1.75 to $4.48 per share.
The weighted average fair value of stock options granted during the year ended December 31, 2019 was $0.89 per share.
The fair values were estimated on the grant dates using the Black-Scholes option-pricing model with the following weighted-average assumptions: | | | | | Contractual term (in years) | 5 - 10 | 5 - 10 | Volatility | 81-85% | 72-75% | Risk-free interest rate | 0.62-1.88% | 1.54-1.84% | Dividend yield | -% | -% |
| | December 31, | | | | 2021
| | | 2020
| | Contractual term (in years) | | | 9-10 | | | | 5 - 10 | | Volatility | | | 83.8 - 90.6 | % | | | 81.0 - 85.0 | % | Risk-free interest rate | | | 0.93 - 1.69 | % | | | 0.62 - 1.88 | % | Dividend yield | | | 0
| % | | | 0
| % |
The expected term of the options is based on expected future employee exercise behavior. Volatility is based on the historical volatility of the Company’s Common Stock if available or of several public entities that are similar to the Company. The Company bases volatility this way because it may not have sufficient historical transactions in its own shares on which to solely base expected volatility. The risk-free interest rate is based on the U.S. Treasury rates at the date of grant with maturity dates approximately equal to the expected term at the grant date. The Company has not historically declared any dividends and does not expect to in the future. The Company realized no income tax benefit from stock option exercises in each of the periods presented due to recurring losses and valuation allowances. During the years ended December 31, 20202021 and 2019,2020, stock option activity under the 2014 Plan and 2020 Plan was as follows:
| | Number of Shares | | | Average Exercise Price | | | Remaining Contract Life (Years) | | | Intrinsic Value | | Stock options outstanding on January 1, 2021 | | | 407,028 | | | $ | 13.80 | | | | 7.94 | | | $ | 0 | | Granted during the period | | | 175,246 | | | $ | 8.61 | | | | 8.32 | | | $ | 0 | | Canceled during the period | | | (143,082 | ) | | $ | 10.47 | | | | 2.87 | | | $ | 0 | | Stock options outstanding on December 31, 2021 | | | 439,192 | | | $ | 11.58 | | | | 7.28 | | | $ | 0 | | Exercisable on December 31, 2021 | | | 281,418 | | | $ | 13.41 | | | | 6.55 | | | $ | 0 | | | | | | | | | | | | | | | | | | | Non-vested stock options outstanding on January 1, 2021 | | | 274,065 | | | $ | 9.90 | | | | 8.42 | | | $ | 0 | | Granted during the period | | | 175,246 | | | $ | 8.61 | | | | 8.32 | | | $ | 0 | | Vested during the period | | | (186,862 | ) | | $ | 10.41 | | | | - | | | $ | 0 | | Canceled during the period | | | (104,521 | ) | | $ | 9.84 | | | | - | | | $ | 0 | | Non-vested stock options outstanding on December 31, 2021 | | | 157,928 | | | $ | 8.32 | | | | 8.58 | | | $ | 0 | |
| | | Remaining Contract Life in Years | | | | | | | Stock options outstanding at January 1, 2019 | 994,000 | $3.58 | 5.42 | $- | | | | | | Granted during the period | 1,193,500 | $1.44 | 5.79 | $- | Expired during the period | - | - | | | Canceled during the period | (510,000) | $2.80 | 4.50 | $- | Exercised during the period | - | - | | | Stock options outstanding at December 31, 2019 | 1,677,500 | $2.17 | 5.37 | $- | | | | | | Exercisable at December 31, 2019 | 794,000 | $3.36 | 4.04 | $- | | | | | | Non-vested stock options outstanding at January 1, 2019 | 244,500 | $3.05 | 4.53 | $- | | | | | | Granted during the period | 1,193,500 | $1.44 | 5.79 | $- | Vested during the period | (304,500) | $2.79 | 3.72 | $- | Expired during the period | - | - | | | Canceled during the period | (250,000) | $1.75 | 4.45 | $- | Exercised during the period | - | - | | | Non-vested stock options outstanding at December 31, 2019 | 883,500 | $1.33 | 6.26 | $- |
Stock options outstanding at January 1, 2020 | 1,667,550 | $2.17 | 5.37 | $- | | | | | | Granted during the period | 2,880,012 | $0.89 | 9.06 | $- | Expired during the period | - | - | | | Canceled during the period | (487,228) | $2.77 | | $- | Exercised during the period | - | - | | | Stock options outstanding at December 31, 2020 | 4,070,284 | $1.38 | 7.94 | $- | | | | | | Exercisable at December 31, 2020 | 1,329,627 | $1.78 | 6.67 | $- | | | | | | Non-vested stock options outstanding at January 1, 2020 | 883,500 | $1.33 | 6.26 | $- | | | | | | Granted during the period | 2,880,012 | $0.89 | 9.06 | $- | Vested during the period | (840,627) | $0.98 | | $- | Expired during the period | - | - | | | Canceled during the period | (182,228) | $1.75 | | $- | Exercised during the period | - | - | | | Non-vested stock options outstanding at December 31, 2020 | 2,740,657 | $0.99 | 8.42 | $- |
| | Number of Shares | | | Average Exercise Price | | | Remaining Contract Life (Years) | | | Intrinsic Value | | Stock options outstanding on January 1, 2020 | | | 167,750 | | | $ | 21.70 | | | | 5.37 | | | $ | 0 | | Granted during the period | | | 288,001 | | | $ | 8.90 | | | | 9.06 | | | $ | 0 | | Canceled during the period | | | (48,723 | ) | | $ | 27.70 | | | | - | | | $ | 0 | | Stock options outstanding on December 31, 2020 | | | 407,028 | | | $ | 13.80 | | | | 7.94 | | | $ | 0 | | Exercisable on December 31, 2020 | | | 132,963 | | | $ | 17.80 | | | | 6.67 | | | $ | 0 | | | | | | | | | | | | | | | | | | | Non-vested stock options outstanding on January 1, 2020 | | | 88,350 | | | $ | 13.30 | | | | 6.26 | | | $ | 0 | | Granted during the period | | | 288,001 | | | $ | 8.90 | | | | 9.06 | | | $ | 0 | | Vested during the period | | | (84,063 | ) | | $ | 9.80 | | | | - | | | $ | 0 | | Canceled during the period | | | (18,223 | ) | | $ | 17.50 | | | | - | | | $ | 0 | | Non-vested stock options outstanding on December 31, 2020 | | | 274,065 | | | $ | 9.90 | | | | 8.42 | | | $ | 0 | |
As of December 31, 2020,2021, the Company had unrecognized stock-based compensation expense of approximately $2.0$1.1 million. Approximately $1.0$0.9 million of this unrecognized expense will be recognized over the average remaining vesting term of the stock options of 8.421.85 years. Approximately $440,000 of this unrecognized expense will vest upon enrollment completion of the ongoing OPTION 2 Trial. Approximately $41,000 of this unrecognized expense will vest upon enrollment completion of the ongoing Combination Trial. Approximately $168,000 of this unrecognized expense will vest upon the public release of topline data of the complete OPTION 2 Trial results . Approximately $40,000 of this unrecognized expense will vest upon initiating a Phase 3 clinical trial in the U.S. for MS1819. Approximately $40,000 of this unrecognized expense will vest upon initiating a U.S. Phase 1 clinical trial for any product other than MS1819.adrulipase. Approximately, $140,000 of this unrecognized expense will vest upon the public release of topline data of the complete Combination Trial results. Approximately, $140,000 of this unrecognized expense will vest upon signing of a definitive term sheet with Board approval for either (i) a strategic licensing, distribution, or commercialization agreement for MS1819adrulipase with a bona fide partner, or (ii) the substantial sale of the Company or the MS1819adrulipase asset, on or before December 31, 2021. The Company will recognize the expense related to these milestones when the milestones become probable.
As of December 31, 2020, the Company had unrecognized stock-based compensation expense of approximately $2.0 million. Approximately $1.0 million of this unrecognized expense will be recognized over the average remaining vesting term of the stock options of 8.42 years. Approximately $440,000 of this unrecognized expense will vest upon enrollment completion of the ongoing OPTION 2 Trial. Approximately $41,000 of this unrecognized expense will vest upon enrollment completion of the ongoing Combination Trial. Approximately $168,000 of this unrecognized expense will vest upon the public release of topline data of the complete OPTION 2 Trial results. Approximately $40,000 of this unrecognized expense will vest upon initiating a Phase 3 clinical trial in the U.S. for adrulipase. Approximately $40,000 of this unrecognized expense will vest upon initiating a U.S. Phase 1 clinical trial for any product other than adrulipase. Approximately, $140,000 of this unrecognized expense will vest upon the public release of topline data of the complete Combination Trial results. Approximately, $140,000 of this unrecognized expense will vest upon signing of a definitive term sheet with Board approval for either (i) a strategic licensing, distribution or commercialization agreement for adrulipase with a bona fide partner, or (ii) the substantial sale of the Company or the adrulipase asset, on or before December 31, 2021. The Company will recognize the expense related to these milestones when the milestones become probable.
Note 1415 – Agreements License Agreement with First Wave Bio, Inc. On December 31, 2020, we entered into the First WaveFWB License Agreement, pursuant to which First WaveFWB granted us a worldwide, exclusive right to develop, manufacture, and commercialize First Wave’sFWB’s proprietary immediate release and enema formulations of niclosamide (the “Niclosamide Product”) for the fields of treating ICI-AC and COVID-19 in humans. In consideration of the license and other rights granted by First Wave,FWB, we agreed to pay First WaveFWB a $9.0 million upfront cash payment due within 10 days, which was paid in January 2021 and are obligated to make an additional payment of $1.25 million due on June 30, 2021. In addition, we are obligated to pay potential milestone payments to First WaveFWB totaling up to $37.0 million for each indication, based upon the achievement of specified development and regulatory milestones. Under the First WaveFWB License Agreement we arewere obligated to pay First WaveFWB royalties as a mid-single digit percentage of net sales of the Niclosamide Product, subject to specified reductions. We arewere also obligated to issue to First WaveFWB junior convertible preferred stock, initially convertible into $3.0 million worth of Common Stock based upon the volume weighted average price of the Common Stock for the five-day period immediately preceding the date of the First WaveFWB License Agreement, or $0.9118$9.118 per share, convertible into an aggregate of 3,290,19632,902 shares of Common Stock. This was classified as a liability in the consolidated balance sheet because of certain NASDAQ restrictions and the requirement to obtain stockholder approval. On January 8, 2021, we entered into a securities purchase agreement with First WaveFWB (the “First WaveFWB Purchase Agreement”) to issue the junior convertible preferred stock to the First WaveFWB License Agreement. Pursuant to the First WaveFWB Purchase Agreement, we issued to First WaveFWB 3,290.1960 shares of Series C Preferred Stock, at an initial stated value of $750.00 per share and a conversion price of $0.75$7.50 per share, which is convertible into an aggregate of 3,290,19632,902 shares of Common Stock. The shares of Series C Preferred Stock automatically converted into Common Stock upon the stockholder approval on February 24, 2021.The First Wave2021. The FWB Purchase Agreement contains demand and piggyback registration rights with respect to the Common Stock issuable upon conversion. The conversion price of the Series C Preferred Stock was determined to be beneficial and, as a result, the Company is now solely responsible, and has agreed to use commercially reasonable efforts, for all development, regulatory and commercial activities relatedrecorded a deemed dividend of approximately $230,000 equal to the Niclosamide Productsintrinsic value of the beneficial conversion feature and recognized on the issuance date and recorded as a reduction of income available to common stockholders in computing basic and diluted loss per share.
Upon the ICI-AC and COVID-19 fields. The2021 Stockholder Approval on February 24, 2021, the Company may sublicense its rights under the First Wave License Agreement and, if it does so, will be obligated to pay milestone payments and royalties to First Waverecognized a change in fair value of approximately $0.5 million based on the sublicensee’s development and commercializationdifference in fair value of the licensed Niclosamide Products. Pursuant$3.0 million liability initially recorded pursuant to the First WaveFWB License Agreement First Wave retains rights to developas of December 31, 2020 and commercialize the licensed niclosamide formulations outside the ICI-AC and COVID-19 fields, and to develop and commercialize other niclosamide formulations that are not licensed to Company. However, if prior to April 30, 2021, First Wave seeks to outlicense, sell to or otherwise grant rights to a third party related to any products containing niclosamide for use outside the ICI-AC or COVID-19 fields to develop or commercialize a product containing niclosamide for use outsidefair value of the Field then First Wave shall provide to AzurRx written noticeapproximately $2.5 million of such proposal, in reasonable detail and AzurRx shall have the right and option to negotiate with First Wave with respect to a definitive agreement for the acquisition of First Wave. PursuantSeries C Preferred Stock issued pursuant to the First WaveFWB Purchase Agreement to settle the liability.
Following the 2021 Stockholder Approval, the shares of Series C Preferred Stock were automatically converted into Common Stock.
Upon consummating the Merger on September 13, 2021, the FWB License Agreement the Company grants First Wave a worldwide, non-exclusive, royalty-free, perpetual, irrevocable license for use outside the ICI-AC and COVID-19 fields, with the right to grant sublicenses, under any Program IP and other intellectual property owned by the Company and incorporated into the Niclosamide Product.was effectively canceled. The First Wave License Agreement terminates on a country-by-country basis and product-by-product basis upon the expiration of the royalty term for such product in such country. Each royalty term begins on the date of the first commercial sale of the licensed product in the applicable country and ends on date of expiration of the last to expire royalty term with respect to the country. The First Wave License Agreement may be terminated earlier in specified situations, including termination for uncured material breach of the First Wave License Agreement by either party, termination by the Company in specified circumstances, termination by First Wave in specified circumstances, termination by the Company for convenience with advance notice, and termination upon a party’s insolvency or bankruptcy. After expiration of the royalty term, the Company shall have a non-exclusive, fully-paid, perpetual, royalty-free right and irrevocable license with respect to any Product in any country within the territory.
In certain circumstances set forth in the First Wave License Agreement, in the event that First Wave seeks to outlicense, sell or otherwise grant to a third party rights relating to its proprietary formulations of niclosamide (or any products containing niclosamide) for use outside the ICI-AC and the COVID-19 field, then First Wave must provide the Company written notice and engage in good faith negotiations with the Company for a period of time to try to reach agreement on the terms of an acquisition of First Wave by the Company. In the event that First Wave and the Company fail to reach an agreement, then First Wave shall be free to negotiate a transaction, and the right of first refusal shall be of no further force or effect.
The First Wave License Agreement also contains customary representations, warranties and covenants by both parties, as well as customary provisions relating to indemnification, confidentiality and other matters.
Mayoly Agreement On March 27, 2019, the Company and Laboratories Mayoly Spinder (“Mayoly”) entered into an Asset Purchase Agreement (the “Mayoly APA”), pursuant to which the Company purchased substantially all remaining rights, title and interest in and to MS1819.adrulipase. Further, upon execution of the Mayoly APA, the Joint Development and License Agreement (the “JDLA”) previously executed by AzurRx SAS and Mayoly was assumed by the Company. In addition, the Company granted to Mayoly an exclusive, royalty-bearing right to revenue received from commercialization of MS1819adrulipase within certain territories. During the year ended December 31, 2019, the Company charged approximately $403,000 to Mayoly under the JDLA that was in effect during such period.
TransChem Sublicense
In August 2017, the Company entered into a sublicense agreement with TransChem, pursuant to which TransChem granted the Company an exclusive license to patents and patent applications relating to Helicobacter pylori 5’methylthioadenosine nucleosidase inhibitors (the “TransChem Licensed Patents”) currently held by TransChem (the “TransChem Sublicense Agreement”). The Company may terminate the TransChem Sublicense Agreement and the licenses granted therein for any reason and without further liability on 60 days’ notice. Unless terminated earlier, the TransChem Sublicense Agreement will expire upon the expiration of the last TransChem Licensed Patents. Upon execution, the Company paid an upfront fee to TransChem and agreed to reimburse TransChem for certain expenses previously incurred in connection with the preparation, filing, and maintenance of the TransChem Licensed Patents. The Company also agreed to pay TransChem certain future periodic sublicense maintenance fees, which fees may be credited against future royalties. The Company may also be required to pay TransChem additional payments and royalties in the event certain performance-based milestones and commercial sales involving the TransChem Licensed Patents are achieved. The TransChem Licensed Patents allowed the Company to develop compounds for treating gastrointestinal and other infections which are specific to individual bacterial species. H. pylori bacterial infections are a major cause of chronic gastritis, peptic ulcer disease, gastric cancer and other diseases.
Amounts paid under the TransChem Sublicense Agreement during the years ended December 31, 2020 and 2019 were approximately $0 and $50,000, respectively, and were included in research and development expense.
In March 2020, the Company provided TransChem with sixty (60) days prior written notice of its intent to terminate the TransChem Sublicense Agreement. As of December 31, 2020, this agreement has been terminated.
Employment Agreements James Sapirstein Effective October 8, 2019, the Company entered into an employment agreement with Mr. Sapirstein to serve as its President and Chief Executive Officer for a term of three years, subject to further renewal upon agreement of the parties. The employment agreement with Mr. Sapirstein originally provided for a base salary of $450,000 per year, which was subsequently increased to $480,000 per year during the year ended December 31, 2020. In addition to the base salary, Mr. Sapirstein is eligible to receive (i) a cash bonus of up to 40% of his base salary on an annual basis, based on certain milestones that are yet to be determined; (ii) 1% of net fees received by the Company upon entering into license agreements with any third-party with respect to any product current in development or upon the sale of all or substantially all assets of the Company; (iii) an award grant of 200,00020,000 restricted stock units (“RSUs”) which are scheduled to vest as follows (a) 100,00010,000 shares upon the first commercial sale of MS1819adrulipase in the U.S. and (b) 100,00010,000 shares upon the total market capitalization of the Company exceeding $1.0 billion for 20 consecutive trading days; (iv) a grant of 300,00030,000 10-year stock options to purchase shares of common stock with an exercise price equal to $0.56$5.60 per share, which are scheduled to vest as follows (a) 50,0005,000 shares upon the Company initiating its next Phase 2 clinical trial in the U.S. for MS1819,adrulipase, (b) 50,0005,000 shares upon the Company completing its next or subsequent Phase 2 clinical trial in the U.S. for MS1819,adrulipase, (c) 100,00010,000 shares upon the Company initiating a Phase 3 clinical trial in the U.S. for MS1819,adrulipase, and (d) 100,00010,000 shares upon the Company initiating a Phase 1 clinical trial in the U.S. for any product other than MS1819.adrulipase. Mr. Sapirstein is entitled to receive 20 days of paid vacation, participate in full employee health benefits and receive reimbursement for all reasonable expenses incurred in connection with his services to the Company. In the event that Mr. Sapirstein’s employment is terminated by the Company for Cause, as defined in his employment agreement, or by Mr. Sapirstein voluntarily, then he will not be entitled to receive any payments beyond amounts already earned, and any unvested equity awards will terminate. In the event that Mr. Sapirstein’s employment is terminated as a result of an Involuntary Termination Other than for Cause, as defined in his employment agreement, Mr. Sapirstein will be entitled to receive the following compensation: (i) severance in the form of continuation of his salary (at the base salary rate in effect at the time of termination, but prior to any reduction triggering Good Reason (as such term is defined in Mr. Sapirstein’s employment agreement) for a period of twelve months following the termination date; (ii) payment of Mr. Sapirstein’s premiums to cover COBRA for a period of twelve months following the termination date; and (iii) a prorated annual bonus. Daniel Schneiderman Effective January 2, 2020, the Company entered into an employment agreement with Mr. Schneiderman to serve as the Company’s Chief Financial Officer for a term of three years, subject to further renewal upon agreement of the parties. The employment agreement with Mr. Schneiderman provides for a base salary of $285,000 per year. In addition to the base salary, Mr. Schneiderman is eligible to receive (a) an annual milestone cash bonus based on certain milestones that will be established by the Company’s Board or the Compensation Committee, and (b) a grant of stock options to purchase 335,00633,500 shares of common stock with an exercise price of $1.03$10.30 per share, which shall vest in three3 equal portions on each anniversary date of the execution of Mr. Schneiderman’s employment agreement, commencing on January 2, 2021, the first anniversary date of the agreement. Mr. Schneiderman is entitled to receive 20 days of paid vacation, participate in full employee health benefits and receive reimbursement for all reasonable expenses incurred in connection with his service to the Company. The Company may terminate Mr. Schneiderman’s employment agreement at any time, with or without Cause, as such term is defined in his employment agreement. In the event that Mr. Schneiderman’s employment is terminated by the Company for Cause, as defined in Mr. Schneiderman’s employment agreement, or by Mr. Schneiderman voluntarily, then he will not be entitled to receive any payments beyond amounts already earned, and any unvested equity awards will terminate. If the Company terminates his employment agreement without Cause, not in connection with a Change of Control, as such term is defined in Mr. Schneiderman’s employment agreement, he will be entitled to (i) all salary owed through the date of termination; (ii) any unpaid annual milestone bonus; (iii) severance in the form of continuation of his salary for the greater of a period of six months following the termination date or the remaining term of the employment agreement; (iv) payment of premiums to cover COBRA for a period of six months following the termination date; (v) a prorated annual bonus equal to the target annual milestone bonus, if any, for the year of termination multiplied by the formula set forth in the agreement. If the Company terminates Mr. Schneiderman’s employment agreement without Cause, in connection with a Change of Control, he will be entitled to the above and immediate accelerated vesting of any unvested options or other unvested awards.
Mr. Schneiderman resigned from his position as our Chief Financial Officer effective February 28, 2022. Mr. Schneiderman’s resignation from his executive role with the Company was not due to any disagreements with respect to the Company’s operations, policies or practices.
In connection with Mr. Schneiderman’s resignation, we entered into a settlement and release agreement, whereby the Company will: (i) pay Mr. Schneiderman a lump sum severance payment in an amount equal to six (6) months of his salary; (ii) reimburse premiums to cover all benefits available under the Consolidated Omnibus Budget Reconciliation Act (COBRA) for a period of six (6) months following the termination date if so elected by Mr. Schneiderman; and (iii) vest all unvested stock options issued to Mr. Schneiderman and provide for the exercise of all stock options through their remaining life. In addition, the Company and Mr. Schneiderman have entered into a separate consulting agreement for Mr. Schneiderman to provide consulting services to the Company for a period of two (2) months during the transition period. Dr. James E. Pennington Effective May 28, 2018, the Company entered into an employment agreement with Dr. Pennington to serve as its Chief Medical Officer. The employment agreement with Dr. Pennington provides for a base annual salary of $250,000.$250,000, which was subsequently increased to $425,000 per year during the year ended December 31, 2021. In addition to his salary, Dr. Pennington is eligible to receive an annual milestone bonus, awarded at the sole discretion of the Board based on his attainment of certain financial, clinical development, and/or business milestones established annually by the Board or Compensation Committee. The Company may terminate Dr. Pennington’s employment agreement at any time, with or without Cause, as such term is defined in Dr. Pennington’s employment agreement. In the event of termination by the Company other than for Cause, Dr. Pennington is entitled to three months’ severance payable over such period. In the event of termination by the Company other than for Cause in connection with a Change of Control as such term is defined in Dr. Pennington’s employment agreement, Dr. Pennington will receive six months’ severance payable over such period. Note 1516 - Leases The Company adopted ASU 2016-02, Leases, as of January 1, 2019, using the modified retrospective approach. Prior year financial statements were not recast under the new standard.
The Company leases its offices and research facilities under operating leases which are subject to various rent provisions and escalation clauses.
Effective June 1, 2021, the Company commenced a sixty-three-month lease agreement for its corporate headquarters located in approximately 3,472 square feet of office space at 777 Yamato Road, Suite 502, Boca Raton, FL 33431.
During the year ended December 31, 2020, the Company entered into a month-to-month lease for office space in Delray Beach, FL, a one-year residential lease in Delray Beach, FL and a two-year lease extension (amendment) to is Hayward, CA office. During the year ended December 31, 2020, the Company’s lease for its research laboratory in France expired and was not renewed. The Company determined that the modification to the Hayward, CA lease did not grant an additional right of use and concluded that the modification was not a separate new lease, but rather that it should reassess and remeasure the entire modified lease on the effective date of the modification. The Company accounted for the lease amendment prospectively. The Company’s leases expire at various dates through 2022.2026. The escalation clauses are indeterminable and considered not material and have been excluded from minimum future annual rental payments. Lease expense amounted to approximately $205,000$261,000 and $198,000$205,000 for the years ended December 31, 20202021 and 2019,2020, respectively. The weighted-average remaining lease term and weighted-average discount rate under operating leases at December 31, 20202021 were:
| | December 31, 2021 | | | December 31, 2020 | | Lease term and discount rate | | | | | | | Weighted-average remaining lease term | | 4.1 years | | | 1.42 years
| | Weighted-average discount rate | | | 6.87 | % | | | 6.00 | % |
F-40 | | December 31, | | | | 2020 | | Lease term and discount rate | | | | Weighted-average remaining lease term | | 1.42 years | | Weighted-average discount rate | | | 6.0% |
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Maturities of operating lease liabilities at December 31, 20202021 were as follows:
2021 | 55,420 | | 2022 | 23,375 | | $ | 81,254 | | 2023
| | | | 83,691 | | 2024
| | | | 86,202 | | 2025
| | | | 88,788 | | 2026
| | | | 60,593 | | Total lease payments | 78,795 | | | 400,528 | | Less imputed interest | - | | | (11,401 | ) | Present value of lease liabilities | $78,795 | | $ | 389,127 | |
Note 1617 - Income Taxes The Company is subject to taxation at the federal level in both the United States and France and at the state level in the United States. At December 31, 20202021 and 2019,2020, the Company had no0 tax provision for either jurisdictions. At December 31, 20202021 and 2019,2020, the Company had gross deferred tax assets of approximately $26.1$31.6 million and $16.4$26.1 million, respectively. As the Company cannot determine that it is more likely than not that the Company will realize the benefit of the deferred tax asset, a valuation allowance of approximately $26.1$31.6 million and $16.4$26.1 million has been established at December 31, 20202021 and 2019,2020, respectively. The change in the valuation allowance was approximately $5.6 million and $9.7 million in 2021 and $3.9 million in 2020, and 2019, respectively. The significant components of the Company’s net deferred tax assets consisted of:
| | | December 31, | | | | | | | 2021
| | | | 2020
| | Gross deferred tax assets: | | | | | | | | | | Net operating loss carry-forwards | $24,269,000 | $16,197,000 | | $
| 30,576,000
| | | $ | 24,269,000 | | Temporary differences: | | | | | | | | | | Stock compensation | 1,408,000 | 199,000 | | | 112,000 | | | | 1,408,000 | | Accruals | 76,000 | 136,000 | | | 30,000 | | | | 76,000 | | Change in accounts payable
| | | | 138,000 | | | | 0 | | Other | 639,000 | 131,000 | | | 791,000 | | | | 639,000 | | Amortization | (319,000) | (291,000) | | | 0 | | | | (319,000 | ) | Deferred tax asset valuation allowance | (26,073,000) | (16,372,000) | | | (31,647,000 | ) | | | (26,073,000 | ) | Net deferred tax asset | $- | | $
| 0 | | | $ | 0 | |
Income taxes computed using the federal statutory income tax rate differs from the Company’s effective tax rate primarily due to the following:
| | | December 31, | | | | | | 2021
| | | 2020
| | Income taxes benefit (expense) at statutory rate | 21% | | | 21.0 | % | | | 21.0 | % | State income tax | 14% | | | 4.2 | % | | | 14.0 | % | Non-deductible expense | (12%) | (6%) | | | (10.3 | %) | | | (12.0 | %) | Change in valuation allowance | (23%) | (29%) | | | (9.5 | %) | | | (23.0 | %) | Prior year adjustments
| | | | (4.7 | %) | | | 0 | % | Other
| | | | (0.7 | %) | | | 0 | % | | 0% | | | 0 | % | | | 0 | % |
The Company has gross net operating loss (“NOL”) carryforwards for U.S. federal and state income tax purposes of approximately $51.4$79.1 million and $29.3$51.4 million, at December 31, 20202021 and 2019,2020, respectively. The NOL’s expire between the years 2034 and 2039. The Company’s ability to use its NOL carryforwards may be limited if it experiences an “ownership change” as defined in Section 382 (“Section 382”) of the Internal Revenue Code of 1986, as amended. An ownership change generally occurs if certain stockholders increase their aggregate percentage ownership of a corporation’s stock by more than 50 percentage points over their lowest percentage ownership at any time during the testing period, which is generally the three-year period preceding any potential ownership change. The Company has not completed a study to determine whether transactions that have occurred over the past three years may have triggered an ownership change limitation. The Company had approximately $23.0$27.1 million and $19.5$23.0 million in net operating losses, at December 31, 20202021 and 2019,2020, respectively, which it can carryforward indefinitely to offset against future French income. The Company had taken no0 uncertain tax positions that would require disclosure under ASC 740, Accounting for Income Taxes, at December 31, 2021 and 2020, and 2019, respectively. Note 1718 - Net Loss per Common Share Basic net loss per share is computed by dividing net loss available to Common Stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect, in periods in which they have a dilutive effect, the impact of common shares issuable upon exercise of stock options and warrants and conversion of convertible debt that are not deemed to be anti-dilutive. The dilutive effect of the outstanding stock options and warrants is computed using the treasury stock method.
At December 31, 2020,2021, diluted net loss per share did not include the effect of 27,736,019721,663 shares of Common Stock issuable upon the conversion of Series B preferred stock, 25,179,1925,527,390 shares of Common Stock issuable upon the exercise of outstanding warrants, 112,00037,500 shares of restricted stock not yet issued, and 4,070,284447,796 shares of Common Stock issuable upon the exercise of outstanding options as their effect would be antidilutive during the periods prior to conversion. Also excluded from the diluted net loss per are the potentially dilutive effect of 3,290,196 shares of Common Stock potentially issuable pursuant the Series B Exchange Right.
At December 31, 2020, diluted net loss per share did not include the effect of 2,773,602 shares of Common Stock issuable upon the conversion of Series B preferred stock, 2,517,919 shares of Common Stock issuable upon the exercise of outstanding warrants, 11,200 shares of restricted stock not yet issued, and 407,028 shares of Common Stock issuable upon the exercise of outstanding options as their effect would be antidilutive during the periods prior to conversion. Also excluded from the diluted net loss per are the potentially dilutive effect of 329,020 shares of Common Stock from the First Wave License Agreement, and the potentially dilutive effect 10,666,6681,066,667 shares of Common Stock underlying the Series C Preferred Stock and 10,666,6681,066,666 shares of Common Stock issuable upon exercise of Investor Warrants potentially issuable pursuant the Registered Direct Offering and Private Placement entered into on December 31, 2020. At December 31, 2019, diluted net loss per share did not include the effect of 3,671,055 shares of Common Stock issuable upon the conversion of convertible debt, 5,378,288 shares of Common Stock issuable upon the exercise of outstanding warrants, 632,667 shares of restricted stock not yet issued, and 1,677,500 shares of Common Stock issuable upon the exercise of outstanding options as their effect would be antidilutive during the periods prior to conversion.
Note 1819 - Related Party Transactions Johan (Thijs) Spoor
During the year ended December 31, 2015, the Company employed the services of JIST Consulting (“JIST”), a company controlled by Johan (Thijs) Spoor, the Company’s former Chief Executive Officer and President, as a consultant for business strategy, financial modeling, and fundraising. Approximately $348,000 was included in accounts payable at December 31, 2019 for JIST relating to Mr. Spoor’s services. Mr. Spoor received no other compensation from the Company other than as specified in his employment agreement. On October 8, 2019, Mr. Spoor resigned as Chief Executive Officer and President of the Company. In addition, Mr. Spoor resigned as a member of the Board on April 29, 2020.
In June 2019, the Company accrued an incentive bonus in the amount of $255,000 payable to Mr. Spoor. Subsequent to Mr. Spoor’s resignation, the Compensation Committee reviewed the accrued bonus and determined that such amount was not owed by the Company, which determination is being challenged by Mr. Spoor. As a result of management’s determination, the Company reversed the accrual in the quarter ended December 31, 2019.
All unvested shares of restricted stock and stock options subject to time and other performance-based vesting conditions have been forfeited in connection with Mr. Spoor's resignation as the Company’s President and Chief Executive Officer. Mr. Spoor also declined the right to receive 241,667 earned, but unissued shares of restricted stock on April 29, 2020 in connection with his resignation from the Board.
The Company and Mr. Spoor entered into a settlement and general release (the “Spoor Settlement and Release”), effective July 9, 2020 (the “Spoor Settlement Date”), of certain claims relating to Mr. Spoor's separation from the Company on October 8, 2019. In connection with the Spoor Settlement and Release, on July 14, 2020 the Company granted Mr. Spoor warrants to purchase an aggregate of 150,000 shares of Common Stock, which had a grant date fair value of $85,770 (See Note 12). In addition, Mr. Spoor legally released all claims to a discretionary bonus in the amount of $255,000, which was originally accrued by the Company in June 2019 but was subsequently reversed during the quarter ended December 31, 2019, legally released all claims to $348,400 due to JIST Consulting, a company controlled by Mr. Spoor and the Company also paid Mr. Spoor's legal expenses in the amount of approximately $51,000. During the year ended December 31, 2020, the Company recognized a gain on settlement of approximately $211,000 in connection with the Spoor Settlement and Release.
Maged Shenouda
From October 1, 2016 until his appointment as the Company’s Chief Financial Officer on September 25, 2017, the Company employed the services of Maged Shenouda as a financial consultant. Approximately $50,000 was included in accounts payable at December 31, 2019 for Mr. Shenouda’s services. On November 1, 2019, Mr. Shenouda submitted his resignation as Chief Financial Officer of the Company, effective November 30, 2019.
In June 2019, the Company accrued an incentive bonus in the amount of $100,000 payable to Mr. Shenouda. Subsequent to Mr. Shenouda’s resignation, the Compensation Committee reviewed the accrued bonus and determined that such amount should not be paid, and the Company reversed the accrual in the quarter ended December 31, 2019.
On July 2, 2020, the Company and Mr. Shenouda, also entered into a settlement and general release (the “Shenouda Settlement and Release”), of certain claims relating to Mr. Shenouda’s s separation from the Company effective November 30, 2019. In connection with the Shenouda Settlement and Release, the Company paid a total of $15,000 to Mr. Shenouda, which amount included $10,000 of accounts payable of the Company due to Mr. Shenouda for services provided and $5,000 for legal expenses, and Mr. Shenouda legally released all claims to a discretionary bonus in the amount of $100,000 originally accrued by the Company in June 2019, but was subsequently reversed during the quarter ended December 31, 2019.
Insider Participation in the Private Placement and Exchange On July 16, 2020, in connection with the Series B Private Placement and the Exchange, James Sapirstein, President, Chief Executive Officer and Chair of the Board purchased $100,000 worth of Series B Preferred Stock and related Series B Warrants for cash. Mr. Sapirstein received 12.987013approximately 12.99 shares of Series B Preferred Stock convertible into 129,87112,987 shares of Common Stock and Series B Warrants for 64,9366,494 shares of Common Stock. Edward J. Borkowski, lead independent director, purchased $250,000 worth of Series B Preferred Stock and related Series B Warrants for cash and exchanged $105,129 of Promissory Notes (including outstanding principal amount and accrued and unpaid interest thereon) for Series B Preferred Stock and related Series B Warrants and Exchange Warrants in the Exchange.
Note 1920 - Employee Benefit Plans 401(k) Plan Since 2015, the Company has sponsored a multiple employer defined contribution benefit plan, which complies with Section 401(k) of the Internal Revenue Code covering substantially all employees of the Company. All employees are eligible to participate in the plan. Employees may contribute from 1% to 100% of their compensation and the Company matches an amount equal to 100% on the first 6% of the employee contribution and may also make discretionary profit-sharing contributions. Employer contributions under this 401(k) plan amounted to approximately $92,000$107,000 and $92,000 for the years ended December 31, 2021 and 2020, and 2019, respectively.
Note 2021 – Subsequent Events
Amendment to Charter and Approved Reverse Stock Split
Nasdaq Deficiency Notice
On November 26, 2021, the Company received a letter from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) indicating that the Company was not in compliance with the minimum stockholders’ equity requirement for continued listing on the Nasdaq Capital Market, under Listing Rule 5550(b)(1), because its stockholders’ equity of $(6,969,988) as reported in its Quarterly Report on Form 10-Q for the period ended September 30, 2021 was below the required minimum of $2.5 million, and because, as of November 24, 2021, it did not meet the alternative compliance standards, relating to the market value of listed securities of $35 million or net income from continuing operations of $500,000 in the most recently completed fiscal year or in two of the last three most recently completed fiscal years.
On January 10, 2022, the Company submitted to Nasdaq a plan to regain compliance with Listing Rule 5550(b)(1). On February 24,15, 2022, Nasdaq notified the Company that they have granted the Company an extension of up to 180 calendar days from November 26, 2021, ator through May 25, 2022, to regain compliance. If the Special MeetingCompany fails to evidence compliance upon filing its periodic report for the quarter ending June 30, 2022, the Company may be subject to delisting. If Nasdaq determines to delist the Company’s common stock, the Company will have the right to appeal to a Nasdaq hearings panel. Waiver Agreements with Certain Holders of Stockholders (“Special MeetingSeries B Convertible Preferred Stock
In February 2022, the Company entered into waiver agreements (the “Waiver”) with certain holders of the Company’s Series B Convertible Preferred Stock, par value $0.0001 per share (the “Series B Preferred Stock”), pursuant to which the stockholders approved an amendmentCompany agreed to pay a cash waiver fee equal to ten percent of the Amended and Restated Certificatestated value of Incorporation (the “Charter”) to increase the number of authorized shares of CommonSeries B Preferred Stock held by 100,000,000 sharessuch holder (other than holders who are insiders of the Company who did not receive a cash waiver fee) and such holder agreed to 250,000,000 shares,irrevocably waive its Series B Exchange Right (as defined below) with respect to any Subsequent Financing (as defined below) that occurs from and to authorizeafter the Board of Directors (the “Board”) to effect a reverse stock split of both the issued and outstanding and authorized shares of Common Stock, at a specific ratio, ranging from one-for-five (1:5) to one-for-ten (1:10), any time prior to the one-year anniversary date of the Special Meeting, withWaiver until December 31, 2022.
Pursuant to the exact ratio to be determinedSeries B Preferred Stock Certificate of Designations (the “Certificate of Designations”), in the event of any issuance by the Board.Company or any of its subsidiaries of its Common Stock, or Common Stock equivalents for cash consideration or a combination of units thereof (a “Subsequent Financing”), each holder of the Company’s Series B Preferred Stock has the right, subject to certain exceptions set forth in the Certificate of Designations, at its option, to exchange (in lieu of cash subscription payments) all or some of the Series B Preferred Stock then held (with a value per share of Series B Preferred Stock equal to the stated value of each share of Series B Preferred Stock, or $7,700.00, plus accrued and unpaid dividends thereon, of the Series B Preferred Stock) for any securities or units issued in a Subsequent Financing on a dollar-for-dollar basis (the “Series B Exchange Right”).
The Company filedentered into Waivers with holders of approximately $2.88 million of stated value of Series B Preferred Stock. The Company also entered into Waivers with Company insiders of approximately $474,000 of stated value of our Series B Preferred Stock for which the Company did 0t pay a Certificatewaiver fee.
F-43
March 2021 Common Stock and Warrant2022 Registered Direct Offering
On March 7, 2021,February 27, 2022, the Company entered into a securities purchase agreement (the “March 2021 Purchase Agreement”) with a single institutional investor (the “March 2022 Purchase Agreement”) pursuant to which the Company agreed to sell, in a registered direct offering (the “March 20212022 Registered Direct Offering”) priced at the market under Nasdaq rules, an aggregate of (i) 5,800,0001,650,000 shares of Common Stock, (ii) pre-funded warrants (the “March 20212022 Pre-Funded Warrants”) to purchaseexercisable for an aggregate of up to 2,058,5484,848,195 shares of Common Stock, with an exercise price of $0.01 per share and no expiration term and (iii) Series C warrants (the “March 2021Series C Warrants”) to purchaseexercisable for an aggregate of 3,929,274up to 6,498,195 shares of Common Stock. The public offering price for each share of Common Stock with an exerciseand accompanying Series C Warrant to purchase one share of Common Stock was $1.385, and the public offering price for each March 2022Pre-Funded Warrant and accompanying Series C Warrant to purchase one share of $1.21 per share and an expiration term of five years from the date of issuance.Common Stock was $1.375. The aggregate price perMarch 2022 Registered Direct Offering closed on March 2, 2022.
The net proceeds of the March 20212022 Registered Direct Offering, share was $1.2725. The aggregate gross proceeds fromafter deducting the March 2021 Offering, which closed on March 10, 2021 (the “March 2021Closing Date”),placement agent’s fees and expenses and other estimated offering expenses payable by the Company and excluding the net proceeds, if any, from the exercise of the March 2021Series C Warrants, waswere approximately $10.0 million.
The net proceeds to the Company from the March 2021 Offering, after deducting the placement agent’s fees and expenses and estimated offering expenses, was approximately $9.1$8.1 million. The Company intends to use the net proceeds from the March 2022 Registered Direct Offering to initiatepay a portion of the two niclosamide clinical programs in the first halfcash purchase price for its acquisition of 2021, a Phase 2 clinical trial for COVID-19 GI infections and a Phase 1b/2a trial for ICI-AC, respectively,First Wave Bio, Inc. and for other general corporate purposes.purposes, which may include product manufacturing, clinical development and/or increases in working capital.
The Company paid the placement agent a cash fee equal to 8.0% of the aggregate gross proceeds received by us in the March 2021 Offering, or approximately $800,000. The Company also agreed to issue to the placement agent or its designees warrants (the “March 2021 Placement Agent Warrants”) exercisable for up to 550,099 shares of Common Stock, which is equal to 7.0% of the aggregate number of shares of Common Stock placed in the March 2021 Offering. The March 2021 Placement Agent Warrants have substantially the same terms as the March 2021 Warrants, except they are exercisable at $1.5906 per share, or 125% of the effective purchase price per share of Common Stock issued in the March 2021 Offering. The Company also reimbursed the placement agent $35,000 for non-accountable expenses, up to $50,000 for legal fees and expenses and other out-of-pocket expenses and approximately $16,000 for clearing fees.
In the March 20212022 Purchase Agreement, the Company has agreed not to issue, enter into any agreement to issue or announce the issuance or proposed issuance of, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for shares of Common Stock or file any registration statement or prospectus, or any amendment or supplement thereto for 5060 days after the closing date of the March 2021 Closing Date.2022 Registered Direct Offering. In addition, the Company has agreed not to effect or enter into an agreement to effect any issuance of Common Stock or any securities convertible into or exercisable or exchangeable for shares of Common Stock involving a variable rate transaction (as defined in the March 2021 2022Purchase Agreement) until the one-year anniversary of the date of the March 20212022 Purchase Agreement, subject to certain exceptionsexceptions.
The March 2022 Purchase Agreement contain customary representations, warranties and agreements by the Company, customary conditions to closing, indemnification obligations of the Company and the purchasers, including for liabilities arising under the Securities Act, other obligations of the parties and termination provisions. The representations, warranties and covenants contained in the March 2022 Purchase Agreement were made only for the purposes of such agreements and as of specific dates, were solely for the benefit of the parties to such agreements and may be subject to limitations agreed upon by the contracting parties. Series B Most Favored Nations (MFN) Exchanges Under the Certificate of Designations for the Series B Convertible Preferred Stock (the “Series B Certificate of Designations,”), in the event the Company effects any issuance of Common Stock or Common Stock equivalents for cash consideration, or a combination of units thereof (a “Subsequent Financing”), each holder of the Series B Convertible Preferred Stock, par value $0.0001 per share (the “Series B Preferred Stock,”), has the right to exchange the stated value, plus accrued and unpaid dividends (the “Exchange Amount”), of the Series B Preferred Stock for any securities issued in the Subsequent Financing, in lieu of any cash subscription payments therefor (the “Series B Exchange Right”). On December 31, 2020, theThe Company entered into the Series CMarch 2022 Purchase Agreement as part of the March 2022 Registered Direct Offering, and Private Placement, and the holders of the Series B Preferred Stock became entitled to exercise their Series B Exchange Right to exchange into the Series C Preferredshares of Common Stock and related InvestorSeries C Warrants. As of March 30, 2021,28, 2022, holders of approximately 1,266.9217.05 shares of Series B Preferred Stock with an aggregate Exchange Amount of approximately $9.8 million$145,000 had previously elected to exercise their Series B Exchange Rights into Series C Preferred Stock, convertible into an aggregate of 13,087,843104,735 shares of Common Stock, (which conversion the Company has elected to make in full on February 24, 2021, upon receipt of certain stockholder approvals), and additional InvestorSeries C Warrants exercisable for up to an aggregate of 13,087,843104,735 shares of Common Stock.As a result, as
Issuance of March 30, 2021,Stock Options
On January 3, 2022, the Company may be required to issue up to 13,168.280 additional shares of Series C Preferred Stock that are currently convertible up to 13,168,280 underlying shares of Common Stock, together with Investor Warrantsissued employees ten-year stock options to purchase up to an additional 13,168,280 shares of Common Stock, to any holders of Series B Preferred Stock who elect to exercise their Exchange Right. Any shares of Series C Preferred Stock to be issued pursuant to the Exchange Right would, upon issuance, be immediately converted into underlying shares of Common Stock. Exercises of Warrants
From January 1, 2021 through March 29, 2021, the Company received gross proceeds of approximately $4.6 million from the exercise of warrants to purchase an aggregate of 6,640,588161,000 shares of Common Stock with exercise prices ranging from $0.001 to $1.42 per share. As of March 29, 201, the Company had 44,930,105 shares of Common Stock issuable upon exercise of outstanding warrants, with a weighted average exercisestrike price of $1.02$1.45 per share.share, subject to service-based milestone vesting over three years under the 2020 Plan as payment for services rendered. Such issuance was exempt from registration under 4(a)(2) of the Securities Act.
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