[X] | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, | |
or | |
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 46-4993860 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. employer identification number) |
Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered |
Common stock, par value $0.0001 per share | AZRX | Nasdaq Capital Market |
Large accelerated filer | [ ] | Accelerated filer | [ ] |
Non-accelerated filer | [X] | Smaller reporting company | [X] |
Emerging growth company | [X] |
Year Ended December 31, | Increase | ||
2020 | 2019 | (decrease) | |
Operating expenses: | |||
Research and development expenses | $5,888,004 | $8,680,669 | $(2,792,665) |
Research and development expenses – license acquired | 13,250,000 | - | 13,250,000 |
General and administrative expenses | 7,294,764 | 6,063,078 | 1,231,686 |
Total operating expenses | 26,432,768 | 14,743,747 | 11,689,021 |
Other expenses | 6,238,698 | 433,939 | 5,804,759 |
Net loss | $32,671,466 | $15,177,686 | $17,493,780 |
Year Ended December 31, | ||
2020 | 2019 | |
Net cash provided by (used in): | ||
Operating activities | $(11,221,538) | $(14,033,502) |
Investing activities | 87,350 | (24,098) |
Financing activities | 17,046,121 | 13,144,979 |
Net increase (decrease) in cash and cash equivalents | $5,911,933 | $(912,621) |
Contractual Obligations | Total | 2021 | 2022 | 2023 | 2024 | 2025 |
Operating Leases (1) | $78,795 | $55,420 | $23,375 | $- | $- | $- |
(1) | Only includes basic rent payments for our properties. Additional monthly payments under the lease agreements shall include tax payments and operational costs. |
Evaluation of disclosure controls and procedures. |
Management’s Annual Report on Internal Control over Financial Reporting. |
ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The following
James Sapirstein was appointed to the Board on October 8, 2019 and as Mr. Sapirstein’s nearly 36 years of pharmaceutical industry experience which spans areas such as drug development and commercialization, including participation in 23 product launches, six of which were global launches led by him makes him a valuable asset to the Board and in his oversight and execution of Edward J. Borkowskiwas appointed to the Board in May 2015, and currently serves as Mr. Borkowski’s extensive healthcare and financial expertise, together with his public company experience provides the Board and management with valuable insight in the growth of Charles J. Casamentowas appointed to the Board in March 2017. Since 2007, Mr. Casamento has been executive director and principal of The Sage Group, a health care advisory group. Prior to that, Mr. Casamento was president and Chief Executive Officer of Osteologix, a startup company which he oversaw going public, from October 2004 until April 2007. Mr. Casamento was the founder of Questcor Pharmaceuticals where he was President, Chief Executive Officer and Chair from 1999 through 2004. During his time at Questcor, the company acquired Acthar, a product with sales that would eventually exceed $1.0 billion. Mr. Casamento also served as President, Chief Executive Officer and Chair of RiboGene Inc. until 1999 when RiboGene was merged another company to form Questcor. He was also the Co-Founder, President and Chief Executive Officer of Indevus (formerly Interneuron Pharmaceuticals) and has held senior management positions at Genzyme Corporation, where he was Senior Vice President, American Hospital Supply, where he was Vice President of Business Development for the Critical Care division, Johnson & Johnson, Hoffmann-LaRoche and Sandoz. He currently serves Mr. Casamento’s expertise and knowledge of the financial community combined with his experience in the healthcare sector makes him a valued member of the Dr. Alastair Riddell was appointed to the Board in September 2015. Since June 2016, Dr. Riddell has served as Chair of Nemesis Biosciences Ltd and Chair of Feedback plc (LON: FDBK). He has also served as Chair of the South West Academic Health Science network in the UK since January 2016. Since his appointment in December 2015, Dr. Riddell Dr. Riddell’s medical background coupled with his expertise in the life sciences industry, directing all phases of clinical trials, before moving to sales, marketing and general management, makes him a well-qualified member of the Board. Dr. Vern L. Schramm was appointed to the Board in October 2017. Dr. Schramm has served as Professor of the Albert Einstein College of Medicine since 1987 and Chair of the Department of Biochemistry from 1987 to 2015, Dr. Schramm’s substantial experience in biochemistry and expertise in the chemistry related to non-systemic biologics makes him a respected member of the Board and an asset to Gregory Oakes was appointed to the Board on April 13, 2020. Mr. Oakes brings over 25 years of pharmaceutical industry and leadership experience and currently serves asPresident, North America, Relypsa, Inc, Executive Vice President, Vifor Pharma. Mr. Oakes previously served asCorporate Vice President, Global Integration Lead for Mr. Oakes’ background of over 25 years of pharmaceutical industry and leadership experience combined with broad experience in pharmaceutical commercialization and acquisitions makes him a qualified member of the Board. Non-Executive Director Compensation On October 1, 2020, our Board adopted a Non-Executive Director Compensation Policy under which each of our non-executive directors is entitled to receive the following cash compensation for their service on the Board (paid quarterly): (i) an annual retainer of $35,000; (ii) the chairman of the Board is entitled to receive an annual retainer in the amount of $20,000, (iii) the chair of the Audit Committee is entitled to receive an annual retainer in the amount of $10,000, (iv) each non-chairperson member of the Audit Committee is entitled to receive an annual retainer in the amount of $5,000, (v) the chair of the Compensation Committee is entitled to receive an annual retainer in the amount of $7,500, (vi) each non-chairperson member of the Compensation Committee is entitled to receive an annual retainer in the amount of $3,500, (vii) the chair of the Corporate Governance and Nominating Committee is entitled to receive an annual retainer in the amount of $5,000, and (viii) each non-chairperson member of the Corporate Governance and Nominating Committee is entitled to receive an annual retainer in the amount of $2,500. Additionally, under this policy, each of our non-executive directors is entitled to receive an annual grant of 80,000 stock options for their service on the Board which will vest in equal quarterly installments. The following table provides information regarding compensation paid to non-employee directors for the year ended December 31, 2020. Mr. Sapirstein did not receive compensation for his service on the Board as employee director for the year ended December 31, 2020. Information regarding executive compensation paid to Messrs. Sapirstein during 2020 is reflected in the Summary Compensation table under “Executive Compensation.”
(1) Mr. Oakes was appointed to the board effective April 13, 2020. (2) Represents amounts of accrued and unpaid cash compensation for board services through December 31, 2020. By agreement with each director, on January 4, 2021, an aggregate of 41,237 stock options were awarded to the directors in lieu of payment of such cash. .. (3) Represents the aggregate grant date fair value of 80,000 stock options issued to each of Messrs. Borkowski, Casamento, Riddell and Schramm on April 6, 2020, and 60,000 stock options issued to Mr. Oakes on April 13, 2020, our non-employee directors, calculated in accordance with ASC Topic 718. Compensation Committee Interlocks and Insider Participation None of our executive officers currently serves, or has served during the last three years, on the Compensation Committee of any other entity that has one or more officers serving as a member of our Board. Board Leadership Structure Effective as of Following this change, Mr. Edward J. Borkowski, who previously served as Chair of our Board, now serves as lead independent director and has the following responsibilities: ● provides leadership to the Board in any situation where the Chair’s role may be, or may be perceived to be, in conflict, and also chairs meetings when the chairman is absent; ● serving as liaison between the Chair and the independent directors; ● approving information sent to the Board; and; ● approving meeting agendas for the Board. The Board believes that the lead independent director further strengthens the Board’s independence and autonomous oversight of our business as well as Board communication and effectiveness. The role of lead independent director serves as a bridge between the independent directors and management. Director Independence Director Nomination Process The Corporate Governance and Nominating Committee identifies director nominees by first considering those current members of the Board The Board may consider suggestions for persons to be nominated for director that are submitted by stockholders. The Corporate Governance and Nominating Committee will evaluate stockholder suggestions for director nominees in the same manner as it evaluates suggestions for director nominees made by management, then-current directors or other appropriate sources. The Role of the Board in Risk Oversight Our Board oversees a company-wide approach to risk management, determines our appropriate risk level in general, assesses the specific risks faced by us and reviews steps taken by management to manage those risks. Although our Board has ultimate oversight responsibility for the risk management process, specific areas of Specifically, the Board has designated certain fiduciary duties to its Compensation Committee, which is responsible for overseeing the management of risks relating to our executive compensation plans and arrangements, and the incentives created by the compensation awards it administers. The Board has also designated specific fiduciary duties to its Audit Committee, which is responsible for overseeing the management of enterprise risks and financial risks, as well as potential conflicts of interests. The Board is responsible for overseeing the management of risks associated with the independence of the Board. Code of Business Conduct and Ethics The Board adopted a code of business conduct and ethics (the “Code”) that Stockholder Communications If you wish to communicate with You must include your name and address in the written communication and indicate whether you are a stockholder of the Company. The Chief Financial Officer will review any communication received from a stockholder, and all Meetings of the Board Each of our directors who served during the year ended December 31, 2020 attended or participated in no less than 75% or more of the aggregate of (i) the total number of meetings of the Board; and (ii) the total number of meetings held by all committees of the Board on which such director served as a member during such year. Although directors are not required to attend our annual meeting of The following table represents the composition of each committee of the Board and meetings held as well as actions taken by unanimous written consent (“UWC”) in
Board Committees Audit Committee The duties and responsibilities of the Audit Committee ● appointing, compensating, retaining, evaluating, terminating, and overseeing our independent registered public accounting firm; ● discussing with our independent registered public accounting firm the independence of its members from its management; ● reviewing with our independent registered public accounting firm the scope and results of their audit; ● approving all audit and permissible non-audit services to be performed by our independent registered public accounting firm; ● overseeing the financial reporting process and discussing with management and our independent registered public accounting firm the interim and annual financial statements that ● reviewing and monitoring our accounting principles, accounting policies, financial and accounting controls, and compliance with legal and regulatory requirements; ● coordinating oversight of the ● establishing procedures for the confidential and/or anonymous submission of concerns regarding accounting, internal controls or auditing matters; and ● reviewing and approving related-person transactions. The rules of Compensation Committee The duties and responsibilities of the Compensation Committee ● reviewing key employee compensation goals, policies, plans and programs; ● reviewing and approving the compensation of our directors and executive officers; ● reviewing and approving employment agreements and other similar arrangements between us and our executive officers; and ● appointing and overseeing any compensation consultants or The ● assisting the Board in identifying qualified individuals to become members of the ● determining the composition of the Board and monitoring the activities of the Board to assess overall ● developing and recommending to our Board corporate governance guidelines applicable to the Company and advising our Board on corporate governance matters.
The following table sets forth information regarding our current executive officers as appointed by the Board,
Our executive officers are appointed by and serve at the discretion of the Board, subject to the terms of any employment agreements they may have with us. The following is a brief description of the qualifications and business experience of each of our current executive officers. James Sapirstein. Please see Mr. Sapirstein’s biography under the “Directors” section of this Annual Report. Summary Compensation The
Employment
(1) Mr. Oakes was appointed to the board effective April 13, 2020. (2) Represents amounts of accrued and unpaid cash compensation for board services through December 31, 2020. By agreement with each director, on January 4, 2021, an aggregate of 41,237 stock options were awarded to the directors in lieu of payment of such cash. .. (3) Represents the aggregate grant date fair value of 80,000 stock options issued to each of Messrs. Borkowski, Casamento, Riddell and Schramm on April 6, 2020, and 60,000 stock options issued to Mr. Compensation Committee Interlocks and Insider Participation None of our executive officers currently serves, or has served during the last three years, on the Compensation Committee of any other entity that has one or more officers serving as Board Leadership Structure Effective as of February 19, 2021, our President and Chief Executive Officer, Mr. James Sapirstein, was appointed to serve as Chair of our Board. Mr. Sapirstein has provided strong leadership to the Board and management, instilling a clear focus on our strategy and business plans. The Board has chosen this structure because it believes Mr. Sapirstein serves as a bridge between management and the Board, ensuring that both groups act with a common purpose. The Board believes that the combined role of Chair and Chief Executive Officer will better assist management in developing strategic direction and then holding management accountable for the execution of strategy once it is developed. The Board believes, at this time, the combined role of Chair and Chief Executive Officer, together with independent directors, is in the best interest of stockholders because it provides the appropriate balance between strategy development and independent oversight of management. As a Following this change, Mr. ● provides ● serving as liaison between the ● approving information sent to the ● approving meeting agendas for the Board. The Board believes that the lead independent director further strengthens the Board’s independence and autonomous oversight of our business as well as Board communication and effectiveness. The role of lead independent director serves as a bridge between the independent directors and management. Director Independence Director Nomination Process The Corporate Governance and Nominating Committee identifies director nominees by first considering those current members of the Board who are willing to continue service. Current members of the Board with skills and experience that The Board may consider suggestions for persons to be nominated for director that are submitted by stockholders. The Corporate Governance and Nominating Committee will evaluate stockholder suggestions for director nominees in The Role of the Board in Risk Oversight Our Board oversees a company-wide approach to risk management, determines our appropriate risk level in general, assesses the specific risks faced by us and reviews steps taken by management to manage those risks. Although our Board has ultimate oversight responsibility for the risk management process, specific areas of risk are overseen by designation of such duties and responsibilities to certain committees of the Board. Specifically, the Board has designated certain fiduciary duties to its Compensation Committee, which is responsible for overseeing the management of risks relating to our executive compensation plans and arrangements, and the incentives created by the compensation awards it administers. The Board has also designated specific fiduciary duties to its Audit Committee, which is responsible for overseeing the management of enterprise risks and financial risks, as well as potential conflicts of interests. The Board is responsible for overseeing the management of risks associated with the independence of the Board. Code of Business Conduct and Ethics The Board adopted a code of business conduct and ethics (the “Code”) that applies to our directors, officers and employees. A copy of this Code is available on our website at www.azurrx.com/investors. We intend to disclose on our website any amendments to and waivers of the You must include your name and address in the written communication and indicate whether you are a Meetings of the Board The following table
Board Committees The standing committees of the Board consist of the Audit Committee, Compensation Committee, and Corporate Governance and Nominating Committee. Our Board has adopted written charters for each of these committees, copies of which are available on our website at www.azurrx.com/investors. Our Board may establish other committees as it deems necessary or appropriate from time to time. Audit Committee The duties and responsibilities of the Audit Committee include but are not limited to: ● appointing, compensating, retaining, evaluating, terminating, and overseeing our independent registered public accounting firm; ● discussing with our independent registered public accounting firm the independence of its members from its management; ● reviewing with our independent registered public accounting firm the scope and results of their audit; ● approving all audit and permissible non-audit services to be performed by our independent registered public accounting firm; ● overseeing the financial reporting process and discussing with management and our independent registered public accounting firm the interim and annual financial statements that are filed with the SEC; ● reviewing and monitoring our accounting principles, accounting policies, financial and accounting controls, and compliance with legal and regulatory requirements; ● coordinating oversight of the Code and our disclosure controls and procedures on behalf of the Board; ● establishing procedures for the confidential and/or anonymous submission of concerns regarding accounting, internal controls or auditing matters; and ● reviewing and approving related-person transactions. The rules of Nasdaq require our Audit Committee to consist of at least three directors, all of whom must be deemed to be independent directors under Nasdaq rules. The Board has affirmatively determined that Messrs. Borkowski and Casamento, and Dr. Riddell, each meet the definition of “independent director” for purposes of serving on an Audit Committee under Nasdaq rules. Additionally, the Board has determined that Messrs. Borkowski and Casamento each qualify as an “audit committee financial expert,” as such term is defined in Item 407(d)(5) of Regulation S-K. Compensation Committee The duties and responsibilities of the Compensation Committee include but are not limited to: ● reviewing key employee compensation goals, policies, plans and programs; ● reviewing and approving the compensation of our directors and executive officers; ● reviewing and approving employment agreements and other similar arrangements between us and our executive officers; and ● appointing and overseeing any compensation consultants or advisors to the Company. The rules of Nasdaq require our Compensation Committee to consist entirely of independent directors. The Board has affirmatively determined that Mr. Borkowski and Dr. Riddell meet the definition of “independent director” for purposes of serving on the Compensation Committee under Nasdaq rules. Corporate Governance and Nominating Committee The duties and responsibilities of the Corporate Governance and Nominating Committee include but are not limited to: ● assisting the Board in identifying qualified individuals to become members of the Board; ● determining the composition of the Board and monitoring the activities of the Board to assess overall effectiveness; and ● developing and recommending to our Board corporate governance guidelines applicable to the Company and advising our Board on corporate governance matters.
The following table sets forth information regarding our current executive officers as appointed by the Board, each to serve in such position until their respective successors have been duly appointed and qualified or until their earlier death, resignation or removal from office. Our executive officers are appointed by and serve at the discretion of the Board, subject to the terms of any employment agreements they may have with us. The following is a brief description of the qualifications and business experience of each of our current executive officers.
Our executive officers are appointed by and serve at the discretion of the Board, subject to the terms of any employment agreements they may have with us. The following is a brief description of the qualifications and business experience of each of our current executive officers. James Sapirstein. Please see Mr. Sapirstein’s biography under the “Directors” section of this Annual Report. Daniel Schneiderman was appointed as our Chief Financial Officer on January 2, 2020. Prior to joining us, from November 2018 through December 2019 Mr. Schneiderman served as Chief Financial Officer of Biophytis SA, (ENXTPA: ALBPS; Nasdaq: BPTS) and its U.S. subsidiary, Biophytis, Inc., a European-based, clinical-stage biotechnology company focused on the development of drug candidates for age-related diseases, with a primary focus on neuromuscular diseases. From February 2012 through August 2018, Mr. Schneiderman served as Vice President of Finance, Controller and Secretary of MetaStat, Inc. (OTCQB: MTST), a publicly traded biotechnology company with a focus on Rx/Dx precision medicine solutions to treat patients with aggressive (metastatic) cancer. From 2008 through February 2012, Mr. Schneiderman was Vice President of Investment Banking at Burnham Hill Partners LLC, a boutique investment bank providing capital raising, advisory and merchant banking services. From 2004 through 2008, Mr. Schneiderman served in various roles and increasing responsibilities, including as Vice President of Investment Banking at Burnham Hill Partners, a division of Pali Capital, Inc. Previously, Mr. Schneiderman worked at H.C. Wainwright & Co., Inc. in 2004 as an investment banking analyst. Mr. Schneiderman holds a bachelor’s degree in economics from Tulane University. Dr. James E. Pennington was appointed as our Chief Medical Officer in May 2018. Prior to joining us, Dr. Pennington served as Senior Clinical Fellow from 2010 to 2018 and as Executive Vice President and Chief Medical Officer from 2007 to 2010 at Anthera Pharmaceuticals, Inc. (Nasdaq: ANTH). From 2004 to 2007, Dr. Pennington served as Executive Vice President and Chief Medical Officer at CoTherix, Inc., and has held various executive positions at a number of pharmaceutical companies, including InterMune Inc., Shaman Pharmaceuticals and Bayer Corporation. He has served on several editorial boards, and has authored numerous original research publications and reviews. Dr. Pennington is currently a Clinical Professor of Medicine with the University of California San Francisco, where he has taught since 1986. Prior to that, he was a professor at Harvard Medical School. Dr. Pennington received a Bachelor of Arts from the University of Oregon and a Doctor of Medicine from the University of Oregon School of Medicine, and is Board Certified in internal medicine and infectious diseases. Summary Compensation The table set forth below reflects certain information regarding the compensation paid or accrued during the years ended December 31, 2020 and 2019 to our Chief Executive Officer and our executive officers, other than our Chief Executive Officer, who were serving as an executive officer as of December 31, 2020, and whose annual compensation exceeded $100,000 during such year (collectively the “Named Executive Officers”). As previously reported on our Current Report on Form 8-K filed on March 28, 2019, Dr. Dupret retired and resigned from his position as President of AzurRx SAS, a wholly owned French subsidiary of the Company effective July 1, 2019. Due to the resignation of Mr. Spoor as President and Chief Executive Officer effective October 8, 2019, Mr. Sapirstein was appointed as our President and Chief Executive Officer effective that same day. Compensation paid to Dr. Dupret and Mr. Spoor during the year ended December 31, 2019 is reflected in the table below.
Employment Arrangements and Potential Payments upon Termination or Change of Control Non-Executive Director Compensation The following table provides information regarding compensation paid to non-employee directors for the year ended December 31,
Compensation Committee Interlocks and Insider Participation None of our executive officers currently serves, or has served during the last three years, on the Board Leadership Structure Effective as of Following this change, Mr. Edward J. Borkowski, who previously served as Chair of our Board, now serves as lead independent director and has the following responsibilities: ● provides leadership to the Board in any situation where the Chair’s role may be, or may be perceived to be, in conflict, and also chairs meetings when the chairman is absent; ● serving as liaison between the Chair and the independent directors; ● approving information sent to the Board; and; ● approving meeting agendas for the Board. The Board believes that the lead independent director further strengthens the Board’s independence and autonomous oversight of our business as well as Board communication and effectiveness. The role of lead independent director serves as a bridge between the independent directors and management. Director Independence The Board has determined that all of its members, other than Mr. Sapirstein, our President, Chief Executive Officer and Chair of our Board are “independent” within the meaning of Nasdaq Listing Rule 5605(a)(2) under the rules of the Nasdaq Stock Market (“Nasdaq”), and the Securities and Exchange Commission (“SEC”) rules regarding independence. Director Nomination Process The Corporate Governance and Nominating Committee identifies director nominees by first considering those current members of the Board who are willing to continue service. Current members of the Board with skills and experience that are relevant to our business and are willing to continue their service as a director are considered for re-election, balancing the value of continuity of service by existing members of the Board with that of obtaining a new perspective. Nominees for director are selected by a majority of the members of the Board. Although we do not have a formal diversity policy, in considering the suitability of director nominees, the Corporate Governance and Nominating Committee considers such factors as it deems appropriate to develop a Board and its committees that are diverse in nature and comprised of experienced and seasoned advisors. Factors considered by the Corporate Governance and Nominating Committee include sound judgment, knowledge, skill, diversity, integrity, experience with businesses and other organizations of comparable size, including experience in the biopharma industry, clinical studies, FDA compliance, intellectual property, business, finance, administration or public service, the relevance of a candidate’s experience to our needs and experience of other Board members, experience with accounting rules and practices, the desire to balance the considerable benefit of continuity with the periodic injection of the fresh perspective provided by new members, and the extent to which a director candidate would be a desirable addition to the Board and its committees. The Board may consider suggestions for persons to be nominated for director that are submitted by stockholders. The Corporate Governance and Nominating Committee will evaluate stockholder suggestions for director nominees in the same manner as it evaluates suggestions for director nominees made by management, then-current directors or other appropriate sources. The Role of the Board in Risk Oversight Our Board oversees a company-wide approach to risk management, determines our appropriate risk level in general, assesses the specific risks faced by us and reviews steps taken by management to manage those risks. Although our Board has ultimate oversight responsibility for the risk management process, specific areas of risk are overseen by designation of such duties and responsibilities to certain committees of the Board. Specifically, the Board has designated certain fiduciary duties to its Compensation Committee, which is responsible for overseeing the management of risks relating to our executive compensation plans and arrangements, and the incentives created by the compensation awards it administers. The Board has also designated specific fiduciary duties to its Audit Committee, which is responsible for overseeing the management of enterprise risks and financial risks, as well as potential conflicts of interests. The Board is responsible for overseeing the management of risks associated with the independence of the Board. Code of Business Conduct and Ethics The Board adopted a code of business conduct and ethics (the “Code”) that applies to our directors, officers and employees. A copy of this Code is available on our website at www.azurrx.com/investors. We intend to disclose on our website any amendments to and waivers of the Code that apply to our principal executive officer, principal financial officer, principal accounting officer, controller, or persons performing similar functions. Stockholder Communications If you wish to communicate with the Board, you may send your communication in writing to AzurRx BioPharma, Inc., Attention: Chief Financial Officer – 1615 South Congress Avenue, Suite 103, Delray Beach, Florida 33445. You must include your name and address in the written communication and indicate whether you are a stockholder of the Company. The Chief Financial Officer will review any communication received from a stockholder, and all material and appropriate communications from stockholders will be forwarded to the appropriate director or directors or committee of the Board based on the subject matter. Meetings of the Board Each of our directors who served during the year ended December 31, 2020 attended or participated in no less than 75% or more of the aggregate of (i) the total number of meetings of the Board; and (ii) the total number of meetings held by all committees of the Board on which such director served as a member during such year. Although directors are not required to attend our annual meeting of stockholders, they are encouraged to attend. The following table represents the composition of each committee of the Board and meetings held as well as actions taken by unanimous written consent (“UWC”) in lieu of holding a meeting, during the fiscal year ended December 31, 2020:
Board Committees The standing committees of the Board consist of the Audit Committee, Compensation Committee, and Corporate Governance and Nominating Committee. Our Board has adopted written charters for each of these committees, copies of which are available on our website at www.azurrx.com/investors. Our Board may establish other committees as it deems necessary or appropriate from time to time. Audit Committee The duties and responsibilities of the Audit Committee include but are not limited to: ● appointing, compensating, retaining, evaluating, terminating, and overseeing our independent registered public accounting firm; ● discussing with our independent registered public accounting firm the independence of its members from its management; ● reviewing with our independent registered public accounting firm the scope and results of their audit; ● approving all audit and permissible non-audit services to be performed by our independent registered public accounting firm; ● overseeing the financial reporting process and discussing with management and our independent registered public accounting firm the interim and annual financial statements that are filed with the SEC; ● reviewing and monitoring our accounting principles, accounting policies, financial and accounting controls, and compliance with legal and regulatory requirements; ● coordinating oversight of the Code and our disclosure controls and procedures on behalf of the Board; ● establishing procedures for the confidential and/or anonymous submission of concerns regarding accounting, internal controls or auditing matters; and ● reviewing and approving related-person transactions. The rules of Nasdaq require our Audit Committee to consist of at least three directors, all of whom must be deemed to be independent directors under Nasdaq rules. The Board has affirmatively determined that Messrs. Borkowski and Casamento, and Dr. Riddell, each meet the definition of “independent director” for purposes of serving on an Audit Committee under Nasdaq rules. Additionally, the Board has determined that Messrs. Borkowski and Casamento each qualify as an “audit committee financial expert,” as such term is defined in Item 407(d)(5) of Regulation S-K. Compensation Committee The duties and responsibilities of the Compensation Committee include but are not limited to: ● reviewing key employee compensation goals, policies, plans and programs; ● reviewing and approving the compensation of our directors and executive officers; ● reviewing and approving employment agreements and other similar arrangements between us and our executive officers; and ● appointing and overseeing any compensation consultants or advisors to the Company. The rules of Nasdaq require our Compensation Committee to consist entirely of independent directors. The Board has affirmatively determined that Mr. Borkowski and Dr. Riddell meet the definition of “independent director” for purposes of serving on the Compensation Committee under Nasdaq rules. Corporate Governance and Nominating Committee The duties and responsibilities of the Corporate Governance and Nominating Committee include but are not limited to: ● assisting the Board in identifying qualified individuals to become members of the Board; ● determining the composition of the Board and monitoring the activities of the Board to assess overall effectiveness; and ● developing and recommending to our Board corporate governance guidelines applicable to the Company and advising our Board on corporate governance matters.
The following table sets forth information regarding our current executive officers as appointed by the Board, each to serve in such position until their respective successors have been duly appointed and qualified or until their earlier death, resignation or removal from office. Our executive officers are appointed by and serve at the discretion of the Board, subject to the terms of any employment agreements they may have with us. The following is a brief description of the qualifications and business experience of each of our current executive officers.
Our executive officers are appointed by and serve at the discretion of the Board, subject to the terms of any employment agreements they may have with us. The following is a brief description of the qualifications and business experience of each of our current executive officers. James Sapirstein. Please see Mr. Sapirstein’s biography under the “Directors” section of this Annual Report. Daniel Schneiderman was appointed as our Chief Financial Officer on January 2, 2020. Prior to joining us, from November 2018 through December 2019 Mr. Schneiderman served as Chief Financial Officer of Biophytis SA, (ENXTPA: ALBPS; Nasdaq: BPTS) and its U.S. subsidiary, Biophytis, Inc., a European-based, clinical-stage biotechnology company focused on the development of drug candidates for age-related diseases, with a primary focus on neuromuscular diseases. From February 2012 through August 2018, Mr. Schneiderman served as Vice President of Finance, Controller and Secretary of MetaStat, Inc. (OTCQB: MTST), a publicly traded biotechnology company with a focus on Rx/Dx precision medicine solutions to treat patients with aggressive (metastatic) cancer. From 2008 through February 2012, Mr. Schneiderman was Vice President of Investment Banking at Burnham Hill Partners LLC, a boutique investment bank providing capital raising, advisory and merchant banking services. From 2004 through 2008, Mr. Schneiderman served in various roles and increasing responsibilities, including as Vice President of Investment Banking at Burnham Hill Partners, a division of Pali Capital, Inc. Previously, Mr. Schneiderman worked at H.C. Wainwright & Co., Inc. in 2004 as an investment banking analyst. Mr. Schneiderman holds a bachelor’s degree in economics from Tulane University. Dr. James E. Pennington was appointed as our Chief Medical Officer in May 2018. Prior to joining us, Dr. Pennington served as Senior Clinical Fellow from 2010 to 2018 and as Executive Vice President and Chief Medical Officer from 2007 to 2010 at Anthera Pharmaceuticals, Inc. (Nasdaq: ANTH). From 2004 to 2007, Dr. Pennington served as Executive Vice President and Chief Medical Officer at CoTherix, Inc., and has held various executive positions at a number of pharmaceutical companies, including InterMune Inc., Shaman Pharmaceuticals and Bayer Corporation. He has served on several editorial boards, and has authored numerous original research publications and reviews. Dr. Pennington is currently a Clinical Professor of Medicine with the University of California San Francisco, where he has taught since 1986. Prior to that, he was a professor at Harvard Medical School. Dr. Pennington received a Bachelor of Arts from the University of Oregon and a Doctor of Medicine from the University of Oregon School of Medicine, and is Board Certified in internal medicine and infectious diseases. Summary Compensation The table set forth below reflects certain information regarding the compensation paid or accrued during the years ended December 31, 2020 and 2019 to our Chief Executive Officer and our executive officers, other than our Chief Executive Officer, who were serving as an executive officer as of December 31, 2020, and whose annual compensation exceeded $100,000 during such year (collectively the “Named Executive Officers”). As previously reported on our Current Report on Form 8-K filed on March 28, 2019, Dr. Dupret retired and resigned from his position as President of AzurRx SAS, a wholly owned French subsidiary of the Company effective July 1, 2019. Due to the resignation of Mr. Spoor as President and Chief Executive Officer effective October 8, 2019, Mr. Sapirstein was appointed as our President and Chief Executive Officer effective that same day. Compensation paid to Dr. Dupret and Mr. Spoor during the year ended December 31, 2019 is reflected in the table below.
Employment Arrangements and Potential Payments upon Termination or Change of Control Current Named Executive Officers Sapirstein Employment Agreement. Effective October 8, 2019, we entered into an employment agreement with Mr. Sapirstein to serve as our 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 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 us 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 of our assets; (iii) a grant of 200,000 restricted shares of our Common Stock which are subject to vest as follows (a) 100,000 upon the first commercial sale of MS1819 in the U.S., and (b) 100,000 upon our total market capitalization exceeding $1.0 billion for 20 consecutive trading days; (iv) a grant of 300,000 10-year stock options to purchase shares of our Common Stock which are subject to vest as follows (a) 50,000 upon us initiating our next Phase 2 clinical trial in the U.S. for MS1819, (b) 50,000 upon us completing our next or subsequent Phase 2 clinical trial in the U.S. for MS1819, (c) 100,000 upon us initiating a Phase 2I clinical trial in the U.S. for MS1819, and (d) 100,000 upon us initiating a Phase 1 clinical trial in the U.S. for any product other than MS1819. 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 us. In the event that Mr. Sapirstein’s employment is terminated by us for Cause, as defined in his employment agreement, or by Mr. Sapirstein voluntarily, then 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 the 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) for a period of 12 months following the termination date; (ii) payment of Executive’s premiums to cover COBRA for a period of 12 months following the termination date; and (iii) a prorated annual bonus. Schneiderman Employment Agreement.Effective January 2, 2020, we entered into an employment agreement with Mr. Schneiderman to serve as our 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 our Board or the Compensation Committee, (b) grants of stock options to purchase such number of shares equal to one and a quarter percent (1.25%) of the issued and outstanding Common Stock on January 2, 2020, or 335,006 shares of Common Stock with an exercise price of $1.03 per share, which shall vest in over a term of three years. 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 us. We may terminate Mr. Schneiderman’s employment agreement at any time, with or without Cause, as such term is defined in his employment agreement. Effective July 16, 2020, our Board approved an amended and restated option grant to Mr. Schneiderman, amending and restating the 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 Amended and Restated 2014 Omnibus Equity Incentive Plan (the “2014 Plan”) on the original grant date (or 300,000 shares), due to the 2014 Plan provisions relating to Section 162(m) limitations. In the event that Mr. Schneiderman’s employment is terminated by us 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 we terminate 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 we terminate 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. Pennington Employment Agreement. Effective May 28, 2018, we entered into an employment agreement with Mr. Pennington to serve as our Chief Medical Officer. The employment agreement with Dr. Pennington provides for a base annual salary of $250,000. 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 employment agreement is terminable by either party at any time. In the event of termination by us other than for cause, Dr. Pennington is entitled to three months’ severance payable over such period. In the event of termination by us other than for cause in connection with a Change of Control, Dr. Pennington will receive six months’ severance payable over such period. Former Named Executive Officers Spoor Employment Agreement. On January 3, 2016, we entered into an employment agreement with our former President and Chief Executive Officer, Johan Spoor. The employment agreement provided for a term expiring January 2, 2019. Although Mr. The employment agreement with Mr. Spoor provided for a base salary of $425,000 per year. At the sole discretion of the Board or the Compensation Committee Mr. Spoor resigned from his position as our President and Chief Executive Office effective October 8, 2019. Mr. Spoor received no additional or severance compensation and all unvested stock options and shares of restricted Common Stock granted to Mr. Spoor were cancelled as a result of Mr. Spoor’s resignation. Mr. Spoor had a period of twelve months following his resignation to exercise all vested stock options. Shenouda Employment Agreement. On September 26, 2017, we entered into an employment agreement with Mr. Shenouda to serve as our Executive Vice-President of Corporate Development and Chief Financial Officer for a term of three years, during which time he received a base salary of $275,000. In addition to the base salary, Mr. Shenouda was eligible to receive an annual milestone cash bonus based on the achievement of certain financial, clinical development, and/or business milestones, which milestones were established annually at the sole discretion of our Board or the Compensation Committee. Mr. Shenouda’s employment agreement provided for the issuance of stock options to purchase 100,000 shares of Common Stock, pursuant to the 2014 Plan, with an exercise price of $4.39 per share and a term of ten years. These stock options vested upon the achievement of certain strategic milestones during the year ended December 31, 2018. Mr. Shenouda’s employment agreement was terminable by us any time, with or without Cause, as such term is defined in the agreement. If we terminated the agreement without Cause, or if the agreement was terminated due to a Change of Control, as such term is defined in the agreement, Mr. Shenouda was 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 12 months following the termination date or the remaining term of his employment agreement; (iv) payment of premiums to cover COBRA for a period of 12 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; and (vi) immediate accelerated vesting of any unvested options or other unvested awards. Mr. Shenouda resigned from Outstanding Equity Incentive Awards at Fiscal Year-End The following table sets forth information regarding unexercised options, stock that has not vested and equity incentive awards held by each of the
Securities Authorized for Issuance Under Equity Compensation Plans The following table provides information as of December 31,
(1) Common Stock reserved under the 2014 Plan as of December 31, 2020, subject to the issuance of restricted stock and RSUs. (2) Represents outstanding stock options granted to our current or former employees, directors and consultants pursuant to the 2014 Omnibus Equity Incentive Plan (the “2014 Plan” and 2020 Omnibus Equity Incentive Plan (the “2020 Plan”). Summary of Amended and Restated 2014 Omnibus Equity Incentive Plan The Board and stockholders adopted and approved the 2014 Plan, which took effect on May 12, 2014, and the 2020 Plan, which took effect on September 11, 2020. From the effective date of the 2020 Plan, no new awards have been or will be made under the 2014 Plan. Stock Options. The 2014 Plan permitted the grant of “incentive stock options” (“ISOs”), which are intended to meet the requirements for special federal income tax treatment under the Code, and “nonqualified stock options” (“NQSOs”) that do not meet the requirements of Section 422 of the Code. No stock option may be transferred other than by will or by the laws of descent and distribution, and during a recipient’s lifetime a stock option may be exercised only by the recipient. However, the Compensation Committee may permit the holder of a stock option, SAR or other award to transfer the stock option, right or other award to immediate family members or a family trust for estate planning purposes. The Compensation Committee will determine the extent to which a holder of a stock option may exercise the option following termination of service with us. Restricted Stock Awards and Restricted Stock Unit Awards. A restricted stock award is a grant or sale of Common Stock to the participant, subject to our right to repurchase all or part of the shares at their purchase price (or to require forfeiture of such shares if issued to the participant at no cost) in the event that conditions specified by the Compensation Committee in the award are not satisfied prior to the end of the time period during which the shares subject to the award may be repurchased by or forfeited to us. A restricted stock unit entitles the participant to receive a cash payment equal to the fair market value of a share of Common Stock for each restricted stock unit subject to such restricted stock unit award, if the participant satisfies the applicable vesting requirement. The Compensation Committee will determine the restrictions and conditions applicable to each award of restricted stock award or restricted stock unit award, which may include performance-based conditions. Unrestricted Stock Awards. An unrestricted stock award is a grant or sale of shares of our Common Stock to the participant that is not subject to transfer, forfeiture or other restrictions, in consideration for past services rendered to us or an affiliate or for other valid consideration. Change-in-Control Provisions. In connection with the grant of an award, the Compensation Committee may provide that, in the event of a change in control, such award will become fully vested and immediately exercisable. Potential Limitation on Company Deductions Section 162(m) of the Code generally disallows a tax deduction for compensation in excess of $1 million paid in a taxable year by a publicly held corporation to its chief executive officer and certain other “covered employees.” Effective for taxable years beginning prior to January 1, 2018, an exception to this deduction limit applied to “performance-based compensation” that satisfied certain criteria. Under regulations issued by the Internal Revenue Service under Section 162(m), stock options and stock appreciation rights were treated as performance-based compensation if, among other things, an annual limit was placed on issuing such awards to a single individual. In order to comply with the foregoing exception to the $1 million deduction limit under Section 162(m), the 2014 Plan previously contained an annual limit on issuing awards of stock options and stock appreciation rights to a single individual, which was intended to allow us to deduct such awards granted as performance-based compensation. Pursuant to the Tax Cut and Jobs Act of 2017, however, the exception for performance-based compensation under Section 162(m) of the Code was repealed. As a result, the annual limit in the 2014 Plan was no longer effective to allow us to claim this deduction. Accordingly, effective July 16, 2020, our Board approved an amendment to the 2014 Plan that removed this annual limit. Summary of the 2020 Omnibus Equity Incentive Plan The Board and stockholders have adopted and approved the Administration. The Shares Subject to the 2020 Plan. The maximum aggregate number of shares of If any award expires, is cancelled, or terminates unexercised or is forfeited, the number of shares subject thereto is again available for grant under the The number of shares Stock Options. The Stock Appreciation Rights. A SAR entitles the participant, upon exercise, to receive an amount, in cash or stock or a combination thereof, equal to the increase in the fair market value of the underlying Performance Shares and Performance Unit Awards. Performance share and performance unit awards entitle the participant to receive cash or shares of Restricted Stock Awards and Restricted Stock Unit Awards. A restricted stock award is a grant or sale of Unrestricted Stock Awards. An unrestricted stock award is a grant or sale of shares of our Incentive Bonus Awards. Incentive bonus awards may be awarded to the participant based upon the attainment of specified levels of our performance as measured by pre-established, objective performance criteria determined at the discretion of the Compensation Committee. Change-of-Control Provisions. Amendment and Termination. The Compensation Committee may adopt, amend and rescind rules relating to the administration of the
The following table sets forth information regarding shares of our Common Stock beneficially owned as of March 29, 2021 by: ● each of our officers and directors; ● all officers and directors as a group; and ● each person known by us to beneficially own five percent or more of the outstanding shares of our Common Stock. Percentage of ownership is calculated based on 74,439,377 shares of Common Stock outstanding as of March 30, 2021.
(1) Unless otherwise indicated, the address of such individual is c/o AzurRx BioPharma, Inc., 1615 South Congress Avenue, Suite 103, Delray Beach, FL 33445. (2) Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. All entries exclude beneficial ownership of shares issuable pursuant to warrants, options or other derivative securities that have not vested or that are not otherwise exercisable as of the date hereof or which will not become vested or exercisable within 60 days. (3) Percentages are rounded to nearest tenth of a percent. Percentages are based on 74,439,377 shares of Common Stock outstanding. Warrants, options or other derivative securities that are presently exercisable or exercisable within 60 days are deemed to be beneficially owned by the person holding such securities for the purpose of computing the percentage ownership of that person, but are not treated as outstanding for the purpose of computing the percentage of any other person. (4) Includes (i) 141,667 shares of Common Stock issuable upon exercise of vested options, (ii) 135,281 shares of Common Stock issuable upon conversion of approximately 13.53 shares of Series B Preferred Stock, which includes issued PIK dividends through December 31, 2020, and (iii) 64,935 shares of Common Stock issuable upon exercise of warrants. Excludes (i) 1,358,333 shares of Common Stock issuable upon exercise of unvested options, and (ii) 200,000 shares of Common Stock issuable upon unvested Restricted Stock Units (RSUs). Pursuant to the Exchange Right, Mr. Sapirstein has the right to exchange the stated value, plus accrued and unpaid dividends, of the shares of Series B Preferred Stock beneficially owned by him for shares of Series C Preferred Stock and Investor Warrants on a dollar-for-dollar basis. (5) Includes (i) 1,000 shares of Common Stock and (ii) 149,862 shares of Common Stock issuable upon exercise of vested options. Excludes 435,144 shares of Common Stock issuable upon exercise of unvested options. (6) Includes 120,833 shares of Common Stock issuable upon exercise of vested options. Excludes 364,167 shares of Common Stock issuable upon exercise of unvested options. (7) Includes (i) 409,773 shares of Common Stock; (ii) 336,397 shares of Common Stock issuable upon the exercise of warrants; (iii) 140,000 shares of Common Stock issuable upon exercise of vested options; (iv) 480,423 shares of Common Stock issuable upon conversion of approximately 48.043 shares of Series B Preferred Stock, which includes issued PIK dividends through December 31, 2020, and (v) 13,680 shares of Common Stock held by Mr. Borkowski’s spouse. Excludes (i) 45,000 unvested and unissued restricted shares of Common Stock; and (ii) 41,237 shares of Common Stock issuable upon exercise of unvested options. Pursuant to the Exchange Right, Mr. Borkowski has the right to exchange the stated value, plus accrued and unpaid dividends, of the shares of Series B Preferred Stock beneficially owned by him for shares of Series C Preferred Stock and Investor Warrants on a dollar-for-dollar basis. (8) Includes (i) 107,998 shares of Common Stock; (ii) 110,000 shares of Common Stock issuable upon exercise of vested options; and (iii) 9,000 shares of Common Stock held by La Jolla Lenox Trust, a family trust of which the Trustee is someone other than Mr. Casamento. Mr. Casamento and members of his immediate family are the sole beneficiaries of the trust. Excludes 75,000 shares of Common Stock issuable upon exercise of unvested options. Excludes 41,237 shares of Common Stock issuable upon exercise of unvested options. (9) Includes (i) 132,049 shares of Common Stock and (ii) 140,000 shares of Common Stock issuable upon exercise of vested options. Excludes (i) 30,000 unvested restricted shares of Common Stock; and (ii) 41,237 shares of Common Stock issuable upon exercise of unvested options. (10) Includes (i) 90,498 shares of Common Stock and (ii) 110,000 shares of Common Stock issuable upon exercise of vested options. Excludes 41,237 shares of Common Stock issuable upon exercise of unvested options. (11) Includes 60,000 shares of Common Stock issuable upon exercise of vested options. Excludes 41,237 shares of Common Stock issuable upon exercise of unvested options.
Johan (Thijs) Spoor During the year ended December 31, 2015, As of December 31, 2019, Mr. Spoor received no additional or severance compensation and all unvested stock options and shares of restricted Maged Shenouda From October 1, 2016 until his appointment as In June Mr. Shenouda resigned from his position as Promissory Notes, Series B Private Placement and Series B Exchange On January 3, 2020, Edmund Burke Ross, Jr., a stockholder that beneficially owned greater than 5% of our outstanding shares, purchased a Promissory Note for an original amount of $750,000, together with related warrants exercisable for 375,000 shares of Common Stock at an exercise price of $1.07, pursuant to a Note Purchase Agreement by and between us and certain accredited investors. The Promissory Note accrued interest at a rate of 9% per annum and was convertible at the option of the holder into shares of Common Stock at a price of $0.97 per share. On July 16, 2020, in connection with the Private Placement and the Exchange, Mr. Ross exchanged the balance of his outstanding Promissory Note of approximately $786,000 (including outstanding principal amount and accrued and unpaid interest thereon) for 102.06191 shares of Series B Preferred Stock convertible into 1,020,620 shares of Common Stock, Series B Warrants for 510,310 shares of Common Stock and Exchange Warrants for 193,299 shares of Common Stock. On July 16, 2020, in connection with the Series B Private Placement and the Exchange, James Sapirstein, President, Chief Executive Officer and Director purchased $100,000 worth of Series B Preferred Stock and related Series B Warrants for cash. Mr. Sapirstein received approximately 12.99 shares of Series B Preferred Stock convertible into 129,871 shares of Common Stock and Series B Warrants for 64,936 shares of Common Stock. Policy and Procedures Governing Related Party Transactions The Board The SEC rules define a related party transaction to include any transaction, arrangement or relationship which: (i) we are a participant; (ii) the amount involved exceeds $120,000; and (iii) executive officer, director or director nominee, or any person who is known to be the beneficial owner of more than 5% of our Although we do not maintain a formal written procedure for the review and approval of transactions with such related persons, it is our policy for the disinterested members of our Board All related party transactions must be disclosed in our applicable filings with the SEC as required under SEC rules.
Set forth below are fees billed or expected to be billed to us by our independent registered public accounting firm Mazars USA LLP for the years ended December 31, Audit Fees The following table presents fees for professional services billed by Mazars USA LLP for the fiscal years ended December 31,
(1) Professional services rendered by the Mazars USA LLP for the audit of our annual financial statements and review of financial statements included in our Form 10-Q’s. (2) The aggregate fees billed for assurance and related services by Mazars USA LLP that are reasonably related to the performance of the audit or review of our financial statements and are not reported under Note 1 above, principally related to registration statement filings. (3) The aggregate fees billed for professional services rendered by Mazars USA LLP for tax compliance, tax advice, and tax planning. (4) The aggregate fees billed for products and services provided by Mazars USA LLP other than the services reported in Notes 1 through 3 above. Audit Committee Pre-Approval Policies and Procedures The Audit Committee has the sole authority for the appointment, compensation and oversight of the work of our independent The Audit Committee has considered whether the provision of audit-related fees, tax fees, and all other fees as described above is compatible with maintaining Mazars USA LLP’s independence and has determined that such services for fiscal year 2020 were compatible. All such services were approved by the Audit Committee pursuant to Rule 2-01 of Regulation S-X under the Exchange Act to the extent that rule was applicable. The Audit Committee is responsible for reviewing and discussing the audited financial statements with management, discussing with the independent registered public accountants the matters required in Auditing Standards No. 16, receiving written disclosures from the independent registered public accountants required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent registered public accountants’ communications with the Audit Committee concerning independence and discussing with the independent registered public accountants their independence, and recommending to our board of directors that the audited financial statements be included in our annual report on Form 10-K. ITEM 15. EXHIBITS
* Filed # Certain portions of this exhibit (indicated by “[*****]”) have been omitted as
ITEM 16: FORM 10-K SUMMARY None. 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.
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.
AzurRx BioPharma, Inc. Index to Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of AzurRx BioPharma, Inc. Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of AzurRx BioPharma, Inc. (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity, and cash flows for the years then ended, 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 financial position of the Company as of December 31, 2020 and 2019, and the results of their operations and their cash flows for the years then ended, 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 million at December 31, 2020. The Company is dependent on obtaining necessary funding from outside sources, including obtaining additional funding from the sale of securities in order to continue their 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'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'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 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. /s/ Mazars USA LLP We have served as the Company’s auditor since 2015. New York, New York March 31, 2021 AZURRX BIOPHARMA, INC. Consolidated Balance Sheets
The accompanying notes are an integral part of these Consolidated Financial Statements. AZURRX BIOPHARMA, INC. Consolidated Statements of Operations and Comprehensive Loss
The accompanying notes are an integral part of these Consolidated Financial Statements. AZURRX BIOPHARMA, INC. Consolidated Statements of Changes in Stockholders' Equity
The accompanying notes are an integral part of these Consolidated Financial Statements. AZURRX BIOPHARMA, INC. Consolidated Statements of Cash Flows
The accompanying notes are an integral part of these Consolidated Financial Statements. AZURRX BIOPHARMA, INC. Notes to Consolidated Financial Statements December 31, 2020 and 2019 Note 1 - The Company and Basis of Presentation The Company AzurRx BioPharma, Inc. (“AzurRx” or “Parent”) was incorporated on January 30, 2014 in the State of Delaware. In June 2014, the Company acquired 100% of the issued and outstanding capital stock of AzurRx SAS (formerly “ProteaBio Europe SAS”), a company incorporated in October 2008 under the laws of France. Parent and its wholly-owned subsidiary, AzurRx SAS (“ABS”), are collectively referred to as the “Company”. 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, a recombinant lipase for the treatment 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”) GI infections, and FW-420, for Grade 1 Immune Checkpoint Inhibitor-Associated Colitis (“ICI-AC”) and diarrhea in oncology patients. 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, the Company had approximately $6.1 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 million as of December 31, 2020. 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 drug candidates; delays or problems in the manufacture and supply of our drug candidates, loss of single source suppliers or failure to comply with manufacturing regulations; identifying, acquiring or in-licensing additional products or drug 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. 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 AzurRx and its wholly-owned subsidiary, AzurRx SAS. 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, we had an accumulated deficit of approximately $95.4 million and had negative working capital of approximately $4.7 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, we have raised aggregate gross proceeds of approximately $18.0 million from the sale of preferred stock and Common Stock 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. 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, intangible assets and contingent consideration), 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, 2020 and 2019, 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, 2020 and 2019, the Company had approximately $2.7 million and $0, 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 advised 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, 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 measured at their relative fair value, if they are determined to be equity instrument, or their fair value, 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”) Topic 820-10, Fair Value Measurements and Disclosures (“ASC 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 not recognized any impairment charges through December 31, 2020. Intangible assets subject to amortization consist of in process research and development, license agreements, and patents reported at the fair value at date of the acquisition less accumulated amortization. Amortization expense is provided using the straight-line method over the estimated useful lives of the assets as follows: 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 not recognized any impairment charges through December 31, 2020. 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, 2020 and 2019, the Company does not 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 be recorded on the balance sheet as right of use assets and lease obligations. The Company adopted the ASU using a modified retrospective adoption method at January 1, 2019, as outlined in ASU No. 2018-11, “Leases - Targeted Improvements”. Under this method of adoption, there is no impact to the comparative consolidated statement 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 elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed carryforward of historical lease classifications. Adoption of this standard did not materially impact the Company’s results of operations and had no impact on the consolidated statement of cash flows. Research and Development Research and development costs are charged to operations when incurred and are included in operating expense. Research and development costs consist principally of compensation of employees and consultants that perform the Company’s research activities, 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. 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'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's own equity. As a smaller reporting company, as defined by the U.S. Securities and Exchange Commission (the "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 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's financial instruments are as follows:
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. The fair value of the note payable in connection with the financing of directors and officer’s liability insurance approximates carrying value due to the terms of such instruments and applicable interest rates. The convertible debt is based on its fair value less unamortized debt discount plus accrued interest through the date of reporting (see Note 9). Note 4 - Other Receivables Other receivables consisted of the following:
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. At December 31, 2020 and 2019, other consisted of amounts due from U.S. research and development tax credits. Note 5 - Property, Equipment and Leasehold Improvements Property, equipment and leasehold improvements consisted of the following:
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 for the year ended December 31, 2020. 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 6 - Intangible Assets and Goodwill Patents Pursuant to the Mayoly APA entered into in March 2019 (see Note 14), in which the Company purchased all remaining rights, title and interest in and to MS1819 from Mayoly, the Company recorded Patents in the amount of approximately $3.8 million as follows:
Intangible assets are as follows:
Amortization expense was approximately $528,000 and $780,000 for the years ended December 31, 2020, and 2019, respectively. For the year ended December 31, 2019, 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 related to patents is expected to be approximately $528,000 for each of the next five years (2021 through 2025).
Goodwill is as follows:
Note 7 - Accounts Payable and Accrued Expense Accounts payable and accrued expense consisted of the following:
Note 8 - Note Payable Directors and Officer’s Liability Insurance 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”) loan of approximately $179,000 through the Small Business Administration (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 9 – Convertible Debt The ADEC Note Offering On February 14, 2019, the Company entered into a Note Purchase Agreement (the “ADEC NPA”) with ADEC Private Equity Investments, LLC (“ADEC”), pursuant to which the Company issued to ADEC two Senior Convertible Notes (“Note A” and “Note B,” respectively, each an “ADEC Note,” and together, the “ADEC 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. 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, 2020, no 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”) (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 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”). On 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 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 2,374,345 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, 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 Promissory Note 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 Promissory Note Offering. In addition, the placement agent was issued January Placement Agent Warrants, to purchase an aggregate of 199,732 shares of Common Stock. 41,495 of these January Placement Agent Warrants have an exercise price of $1.21 per share and 158,237 of these January Placement Agent Warrants have an exercise price of $1.42 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 Company 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 Company 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 Company 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 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 ended December 31, 2019, the Company recognized approximately $115,000 of interest expense related to these 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. Exchange of Promissory Notes into Series B Convertible Preferred Stock As more fully discussed in Note 11, on July 16, 2020, in connection with the Series B Private Placement, approximately 937.00 shares of Series B Preferred Stock, Series B Warrants to purchase 4,684,991 shares of Common Stock, and Exchange Warrants to purchase 1,772,937 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, no 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. Additionally, the Company recorded interest expense of approximately $0.8 million 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:
Note 10 – Other Liabilities Other liabilities consisted of the following:
Note 11 – Equity Our certificate of incorporation, as amended and restated on December 20, 2019 (the “Charter”) authorized the issuance of up to 150,000,000 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”). As of the date hereof, the Board had not elected to effect a Reverse Split. The authorization for the Reverse Split will expire on February 24, 2022. Common Stock The Company had 31,150,309 and 26,800,519 shares of its Common Stock issued and outstanding at December 31, 2020 and 2019, respectively. Each holder of Common Stock is entitled to one 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 shares of Series B Preferred Stock, with approximately 2,282.22 shares of Series B Preferred Stock remaining authorized but unissued. At December 31, 2020, the Company had approximately 2,773.62 shares of preferred stock issued and outstanding with approximately 9,997,226.38 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. 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, 2020, the value of the liquidation preference of the Series B Preferred stocks aggregated to approximately $21.4 million. 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, 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, 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 “Exchange Right”). As of March 30, 2021, holders of approximately 1,266.92 shares of Series B Preferred Stock with an aggregate Exchange Amount of approximately $9.8 had previously elected to exercise their Series B Exchange Rights into Series C Preferred Stock, convertible into an aggregate of 13,087,843 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 13,087,843 shares of Common Stock. In addition, as of March 30, 2021, approximately 1,248.89 shares of Series B Preferred Stock with an aggregate Exchange Amount of approximately $9.7 million currently remain outstanding, which are currently exchangeable for Series C Preferred Stock convertible into an aggregate of up to 13,168,280 shares of Common Stock and additional Investor Warrants exercisable for up to an aggregate of 13,168,280 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. 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, no 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 2,870,012 and 1,193,500 stock options, during the years ended December 31, 2020 and 2019, respectively, under the 2014 Plan (see Note 13). As of December 31, 2020, there were an aggregate of 5,888,632 total shares available under the 2014 Plan, of which 4,060,284 are issued and outstanding, and 387,000 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 no 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 10,000,000 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” (“ISOs”) from is 15,000,000 under the 2020 Plan. The Company issued an aggregate of 10,000 stock options under the 2020 Plan during the year ended December 31, 2020. As of December 31, 2020, 10,000,000 total shares were available under the 2020 Plan, of which 10,000 were issued and outstanding and 9,990,000 shares were available for potential issuances. 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 487,168 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 150,000 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; ● 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 to Lincoln 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) three 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 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. The Company may also direct Lincoln 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 Purchase 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 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. 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 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, and 0 shares of Common Stock, during the years ended December 31, 2020 and 2019, respectively, in connection with the Equity Line Agreement, resulting in net proceeds to the Company of approximately $1.0 million, and $0, respectively. Common Stock Issuances 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 2,565,813 shares of Common Stock at the stated conversion price of $0.77 per share. During the year ended December 31, 2020, the Company issued an aggregate of 182,841 shares of its Common Stock to consultants with a total grant date fair value of approximately $144,000 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, 2020, the Company issued 62,518 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 105,937 shares of its Common Stock to outside Board members as payment of Board fees with an aggregate grant date fair value of approximately $131,000 that was recorded as stock-based compensation, included as part of general and administrative expense. The aggregate effective settlement price was $1.24 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 10,080 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 4,000 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, 2020, the Company had an aggregate unrecognized restricted Common Stock expense of approximately $393,000, 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 29,125,756 shares of Common Stock at $0.77 per share, together with warrants (the “Series B Warrants”) to purchase an aggregate of 14,562,826 shares of Common Stock at an exercise price of $0.85 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 convertible In connection with the Series B Private Placement, an aggregate of approximately 1,975.58 shares of Series B Preferred Stock initially convertible into 19,755,748 shares of Common Stock and related 9,877,835 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 9,370,008 shares of Common Stock and related Series B Warrants to purchase 4,684,991 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 1,772,937 shares of Common Stock at an exercise price of $0.85 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 value thereof 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 1,377,458 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 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 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 Placement 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 per share, initially convertible into an aggregate of 5,333,334 shares of Common Stock, at an initial stated value of $750.00 per share and a conversion price of $0.75 per share (the “Registered Direct Offering”). Concurrently with the Registered Direct Offering, in a private placement offering pursuant to the Series C Purchase Agreement (the “Private Placement”), 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 Registered Direct Offering and convertible on the same terms and warrants (the “Investor Warrants”) to purchase up to an aggregate of 10,666,668 shares of Common Stock, with an exercise price of $0.80 per share and an expiration term of five and one-half years from the date of issuance. In connection with the Private Placement, we entered into a registration rights agreement, dated as of December 31, 2020, pursuant to which we 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 Private Placement and the exercise of the Investor Warrants. The registration statement was declared effective by the SEC on January 21, 2021. The 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, 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 Wave under the First Wave 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, or approximately $700,000. The Company also agreed to issue to the placement agent or its designees warrants (the “December 2020 Placement Agent Warrants”) exercisable for up to 746,667 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 Placement by the offering price per share of Common Stock, or $0.75. The December 2020 Placement Agent Warrants have substantially the same terms as the Investor Warrants, except they are exercisable at $0.9375 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. On February 24, 2021, the Company’s stockholders approved certain proposals related to the Registered Direct Offering and the Private Placement and all outstanding shares of Series C Preferred Stock were converted to Common Stock. Note 12 - Warrants For the year 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 1,813,257 shares of Common Stock with the issuance of the Promissory Notes (See Note 9). These Note Warrants were issued in January 2020, 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 $1.6 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 199,732 shares of Common Stock to the placement agent and/or their designees (See Note 9). These warrants were issued in January 2020, were immediately exercisable, and expire five years from issuance. 41,495 of these warrants are exercisable at $1.21 per share and 158,237 of these warrants are exercisable at $1.42 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 the year ended December 31, 2020, in connection with the closing of the Exchange (See Note 11), the Company issued Exchange Warrants to certain investors to purchase an aggregate of 1,772,937 shares of Common Stock with the issuance of the Series B Preferred Stock as referenced in Note 11. These Exchange Warrants were issued on July 16, 2020, are exercisable commencing six (6) months following the issuance date at $0.85 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). For the year 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 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 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 the year ended December 31, 2020, in connection with the Spoor Settlement and Release in July 2020, the Company granted Mr. Spoor warrants to purchase an aggregate of 150,000 shares of Common Stock. The warrants were immediately exercisable, have an exercise price equal to $1.00 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). During year ended December 31, 2020, warrants to purchase an aggregate of 80,750 shares of Common Stock expired with exercise prices ranging between $3.25 and $7.37 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, 2020 and 2019 were as follows:
Warrants exercisable at December 31, 2020 were as follows:
The weighted average fair value of warrants granted during the years ended December 31, 2020 and 2019, was $0.59 and $0.71 per share, respectively. The grant date fair values were calculated using the Black-Scholes model with the following weighted average assumptions:
Note 13 – 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. No compensation cost is recorded for options that do not vest and the compensation cost from vested options, whether forfeited or not, is not reversed. During the year ended December 31, 2020, the Company issued stock options under the 2014 Plan to purchase an aggregate of 335,006 shares of Common Stock with a strike price of $1.03 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 300,000 shares, 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 35,006 shares. The original stock option has an exercise price of $1.03, 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, 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, 6,336 shares had vested, and 28,670 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 460,000 shares of Common Stock with a strike price of $0.97 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 2,040,000 shares of Common Stock with a strike price of $0.85 per share and a term of ten years to its employees. 600,000 of these stock options are subject to performance-based milestone vesting conditions and 1,440,000 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 10,000 shares of Common Stock with a strike price of $0.97 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 600,086 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 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 50,000 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 487,228 shares of Common Stock were cancelled with strike prices ranging between $0.85 and $4.48 per share. The weighted average fair value of stock options granted during the year ended December 31, 2020 was $0.89 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:
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, 2020 and 2019, stock option activity under the 2014 Plan and 2020 Plan was as follows:
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 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. 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 MS1819 with a bona fide partner, or (ii) the substantial sale of the Company or the MS1819 asset, on or before December 31, 2021. The Company will recognize the expense related to these milestones when the milestones become probable. Note 14 – Agreements License Agreement with First Wave Bio, Inc. On December 31, 2020, we entered into the First Wave License Agreement, pursuant to which First Wave granted us a worldwide, exclusive right to develop, manufacture, and commercialize First Wave’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, we agreed to pay First Wave 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 Wave totaling up to $37.0 million for each indication, based upon the achievement of specified development and regulatory milestones. Under the First Wave License Agreement we are obligated to pay First Wave royalties as a mid-single digit percentage of net sales of the Niclosamide Product, subject to specified reductions. We are also obligated to issue to First Wave 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 Wave License Agreement, or $0.9118 per share, convertible into an aggregate of 3,290,196 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 Wave (the “First Wave Purchase Agreement”) to issue the junior convertible preferred stock to the First Wave License Agreement. Pursuant to the First Wave Purchase Agreement, we issued to First Wave 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 per share, which is convertible into an aggregate of 3,290,196 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 Wave Purchase Agreement contains demand and piggyback registration rights with respect to the Common Stock issuable upon conversion. The Company is now solely responsible, and has agreed to use commercially reasonable efforts, for all development, regulatory and commercial activities related to the Niclosamide Products in the ICI-AC and COVID-19 fields. 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 Wave based on the sublicensee’s development and commercialization of the licensed Niclosamide Products. Pursuant to the First Wave License Agreement, First Wave retains rights to develop 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 outside of the Field then First Wave shall provide to AzurRx written notice 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. Pursuant to the First Wave 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. 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. 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 MS1819 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 200,000 restricted stock units (“RSUs”) which are scheduled to vest as follows (a) 100,000 shares upon the first commercial sale of MS1819 in the U.S. and (b) 100,000 shares upon the total market capitalization of the Company exceeding $1.0 billion for 20 consecutive trading days; (iv) a grant of 300,000 10-year stock options to purchase shares of common stock with an exercise price equal to $0.56 per share, which are scheduled to vest as follows (a) 50,000 shares upon the Company initiating its next Phase 2 clinical trial in the U.S. for MS1819, (b) 50,000 shares upon the Company completing its next or subsequent Phase 2 clinical trial in the U.S. for MS1819, (c) 100,000 shares upon the Company initiating a Phase 3 clinical trial in the U.S. for MS1819, and (d) 100,000 shares upon the Company initiating a Phase 1 clinical trial in the U.S. for any product other than MS1819. 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 335,006 shares of common stock with an exercise price of $1.03 per share, which shall vest in three 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. 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. 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 15 - 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. 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. 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 and $198,000 for the years ended December 31, 2020 and 2019, respectively. The weighted-average remaining lease term and weighted-average discount rate under operating leases at December 31, 2020 were:
Maturities of operating lease liabilities at December 31, 2020 were as follows:
Note 16 - 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, 2020 and 2019, the Company had no tax provision for either jurisdictions. At December 31, 2020 and 2019, the Company had gross deferred tax assets of approximately $26.1 million and $16.4 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 million and $16.4 million has been established at December 31, 2020 and 2019, respectively. The change in the valuation allowance was approximately $9.7 million and $3.9 million in 2020 and 2019, respectively. The significant components of the Company’s net deferred tax assets consisted of:
Income taxes computed using the federal statutory income tax rate differs from the Company’s effective tax rate primarily due to the following:
The Company has gross net operating loss (“NOL”) carryforwards for U.S. federal and state income tax purposes of approximately $51.4 million and $29.3 million, at December 31, 2020 and 2019, 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 had approximately $23.0 million and $19.5 million in net operating losses, at December 31, 2020 and 2019, respectively, which it can carryforward indefinitely to offset against future French income. The Company had taken no uncertain tax positions that would require disclosure under ASC 740, Accounting for Income Taxes, at December 31, 2020 and 2019, respectively. Note 17 - 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, diluted net loss per share did not include the effect of 27,736,019 shares of Common Stock issuable upon the conversion of Series B preferred stock, 25,179,192 shares of Common Stock issuable upon the exercise of outstanding warrants, 112,000 shares of restricted stock not yet issued, and 4,070,284 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 from the First Wave License Agreement, and the potentially dilutive effect 10,666,668 shares of Common Stock underlying the Series C Preferred Stock and 10,666,668 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 18 - 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 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 12.987013 shares of Series B Preferred Stock convertible into 129,871 shares of Common Stock and Series B Warrants for 64,936 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 19 - 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 and $92,000 for the years ended December 31, 2020 and 2019, respectively. Note 20 – Subsequent Events Amendment to Charter and Approved Reverse Stock Split On February 24, 2021, at the Special Meeting of Stockholders (“Special Meeting”), the stockholders approved an amendment to the Amended and Restated Certificate of Incorporation (the “Charter”) to increase the number of authorized shares of Common Stock by 100,000,000 shares to 250,000,000 shares, and to authorize 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, with the exact ratio to be determined by the Board. The Company filed a Certificate of Amendment to its Charter with the Secretary of State of the State of Delaware on February 24, 2021, to increase the number of authorized shares of Common Stock to 250,000,000 shares. March 2021 Common Stock and Warrant Offering On March 7, 2021, the Company entered into a securities purchase agreement (the “March 2021 Purchase Agreement”) with a single institutional investor, 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) 5,800,000 shares of Common Stock, (ii) pre-funded warrants (the “March 2021 Pre-Funded Warrants”) to purchase up to 2,058,548 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 3,929,274 shares of Common Stock with an exercise price of $1.21 per share and an expiration term of five years from the date of issuance. The aggregate price per of the March 2021 Offering share was $1.2725. The aggregate gross proceeds from the March 2021 Offering, which closed on March 10, 2021 (the “March 2021Closing Date”), excluding the net proceeds, if any, from the exercise of the March 2021 Warrants was 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 million. The Company intends to use the net proceeds to initiate the two niclosamide clinical programs in the first half of 2021, a Phase 2 clinical trial for COVID-19 GI infections and a Phase 1b/2a trial for ICI-AC, respectively, and for other general corporate purposes. 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 2021 Purchase Agreement, the Company 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 50 days after the March 2021 Closing Date. In addition, the Company 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 Purchase Agreement) until the one-year anniversary of the date of the March 2021 Purchase Agreement, subject to certain exceptions 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 “Exchange Right”). On December 31, 2020, the Company entered into the Series C Purchase Agreement as part of the Registered Direct Offering and Private Placement, and the holders of the Series B Preferred Stock became entitled to exercise their Exchange Right to exchange into the Series C Preferred Stock and related Investor Warrants. As of March 30, 2021, holders of approximately 1,266.92 shares of Series B Preferred Stock with an aggregate Exchange Amount of approximately $9.8 million had previously elected to exercise their Series B Exchange Rights into Series C Preferred Stock, convertible into an aggregate of 13,087,843 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 Investor Warrants exercisable for up to an aggregate of 13,087,843 shares of Common Stock. As a result, as of March 30, 2021, 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 Warrants 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 6,640,588 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 exercise price of $1.02 per share. F-39 |