UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2021
 
OR
 
[  ] TRANSITION REPORT UNDER SECTION 13 OF 15(d) OF THE EXCHANGE ACT OF 1934
 
From the transition period from               to              
 
Commission File Number 001-37853
 
AZURRX BIOPHARMA, INC.
(Exact name of small business issuer as specified in its charter)
 
Delaware
 
46-4993860
(State or other jurisdiction of incorporation or organization)
 
(IRS Employer Identification No.)
 
1615 South Congress Avenue, Suite 103
Delray Beach, Florida 33445
(Address of principal executive offices)
 
(646) 699-7855
(Issuer’s telephone number)
 
 Securities registered pursuant to Section 12(b) of the Act:
 
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
 
Securities registered under Section 12(g) of the Exchange Act: None
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X]    No [ ]
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Sec.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes [X]    No [  ]
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
[   ]
Accelerated filer
[   ]
Non-accelerated filer
[X] 
Smaller reporting company
[X]
 
Emerging growth company 
[X]
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [    ]
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [   ]    No [X]
 
There were 78,575,131 shares of the registrant’s common stock, par value $0.0001 per share (the “Common Stock”), outstanding as of May 18, 2021.
  

 
 
  
TABLE OF CONTENTS
 
 
 
Page
 
 
 




 1

 
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 





 
 
 


 
 
 


 
 
 


 
 
 


 
 
 


 
 
 

 
 
-i-
 
PART I
 
FINANCIAL INFORMATION
 
ITEM  1.   CONSOLIDATED FINANCIAL STATEMENTS
 
In our opinion, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly our financial position, results of operations, and cash flows for the interim periods presented. We have condensed such financial statements in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). Therefore, such financial statements do not include all disclosures required by accounting principles generally accepted in the United States of America. In preparing these consolidated financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through the date the consolidated financial statements were issued by filing with the SEC.
 
These financial statements should be read in conjunction with our audited financial statements for the year ended December 31, 2020 included in our Annual Report filed on Form 10-K, filed with the SEC on March 31, 2021.
 
The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results to be expected for the fiscal year ended December 31, 2021.
 
  
AZURRX BIOPHARMA, INC.
Consolidated Balance Sheets (unaudited)
 
 
 
 
 
 
 
 
 
March 31,
 
 
December 31,
 
 
 
2021
 
 
2020
 
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
Cash and cash equivalents
 $12,025,632 
 $6,062,141 
Other receivables
  501,660 
  551,489 
Prepaid expenses
  643,131 
  1,256,154 
Total Current Assets
  13,170,423 
  7,869,784 
 
    
    
Property, equipment, and leasehold improvements, net
  92 
  18,329 
 
    
    
Other Assets:
    
    
 Patents, net
  2,747,649 
  2,879,536 
 Goodwill
  1,973,963 
  2,054,048 
 Operating lease right-of-use assets
  61,524 
  74,238 
 Deposits
  29,242 
  27,920 
Total Other Assets
  4,812,378 
  5,035,742 
Total Assets
 $17,982,893 
 $12,923,855 
 
    
    
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
    
Current Liabilities:
    
    
Accounts payable and accrued expenses
 $1,707,841 
 $1,685,603 
Payable related to license agreement
  1,250,000 
  13,250,000 
Accrued dividend payable
  204,382 
  - 
Note payable
  347,082 
  552,405 
Other current liabilities
  65,335 
  57,417 
Total Current Liabilities
  3,574,640 
  15,545,425 
 
    
    
Other liabilities
  6,566 
  19,123 
Total Liabilities
  3,581,206 
  15,564,548 
 
    
    
Stockholders' Equity:
    
    
Common stock - Par value $0.0001 per share; 250,000,000 and 150,000,000 shares authorized; 74,926,902 and 31,150,309 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively.
  7,493 
  3,115 
Series B preferred stock- Par value $0.0001 per share; 5,194.81 shares authorized; 1,209.52 and 2,773.6 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively.
  - 
  - 
Series C preferred stock- Par value $0.0001 per share; 75,000 shares authorized; 0 and 0 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively.
  - 
  - 
Additional paid-in capital
  118,693,364 
  93,834,936 
Accumulated deficit
  (103,051,827)
  (95,366,198)
Accumulated other comprehensive loss
  (1,247,343)
  (1,112,546)
Total Stockholders' Equity
  14,401,687 
  (2,640,693)
Total Liabilities and Stockholders' Equity
 $17,982,893 
 $12,923,855 
 
See accompanying notes to consolidated financial statements
  
 
AZURRX BIOPHARMA, INC.
Consolidated Statements of Operations and Comprehensive Loss (unaudited)
 

 
 
Three Months
 
 
Three Months
 
 
 
Ended
 
 
Ended
 
 
 
03/31/21
 
 
03/31/20
 
Operating expenses:
 
 
 
 
 
 
Research and development expenses
 $2,516,027 
 $1,548,831 
General and administrative expenses
  5,697,514 
  1,379,620 
Total operating expenses
  8,213,541 
  2,928,451 
 
    
    
Loss from operations
  (8,213,541)
  (2,928,451)
 
    
    
Other income (expenses):
    
    
Interest expense
  (5,144)
  (2,332,839)
Interest income
  403 
  - 
Change in fair value of liability
  532,653 
  - 
Total other income (expenses)
  527,912 
  (2,332,839)
 
    
    
Loss before income taxes
  (7,685,629)
  (5,261,290)
 
    
    
Income taxes
  - 
  - 
 
    
    
Net loss
 $(7,685,629)
 $(5,261,290)
 
    
    
Other comprehensive loss:
    
    
  Foreign currency translation adjustment
  (134,797)
  157,494 
Total comprehensive loss
 $(7,820,426)
 $(5,103,796)
 
    
    
Net loss
 $(7,685,629)
 $(5,261,290)
  Deemed dividend on preferred stock issuances
  (4,507,125)
  - 
  Deemed dividend of preferred stock exchanges
  (17,584,048)
  - 
  Preferred stock dividends
  (204,382)
  - 
Net loss applicable to common stockholders
  (29,981,184)
  (5,261,290)
 
    
    
Basic and diluted weighted average shares outstanding
  55,348,130 
  26,941,803 
 
    
    
Net loss per share - basic and diluted
 $(0.14)
 $(0.20)
 
See accompanying notes to consolidated financial statements
 
 
 
AZURRX BIOPHARMA, INC.
Consolidated Statements of Changes in Stockholders' Equity (unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated
 
 
 
Series C Convertible
 
 
Series B Convertible
 
 
 
 
 
 
 
 
Additional
 
 
 
 
Other
 
 
Preferred Stock
 
 
Preferred Stock
 
 
Common Stock
 
 
Paid In
 
 
Accumulated
 
 
Comprehensive
 
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Capital
 
 
Deficit
 
 
Loss
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, January 1, 2020
  - 
 $- 
  - 
 $- 
  26,800,519 
 $2,680 
 $68,575,851 
 $(62,694,732)
 $(1,266,555)
 $4,617,244 
Common stock issued to settle related payable accounts payable
    
    
    
    
  105,937 
  11 
  131,126 
    
    
  131,137 
Common stock issued to consultants
    
    
    
    
  101,195 
  10 
  87,095 
    
    
  87,105 
Common stock issued to Lincoln Park for Equity Purchase agreement
    
    
    
    
  150,000 
  15 
  143,985 
    
    
  144,000 
Warrants issued in association with convertible debt issuances
    
    
    
    
    
    
  1,252,558 
    
    
  1,252,558 
Beneficial conversion feature on convertible debt issuances
    
    
    
    
    
    
  1,838,422 
    
    
  1,838,422 
Stock-based compensation
    
    
    
    
    
    
  74,453 
    
    
  74,453 
Foreign currency translation adjustment
    
    
    
    
    
    
    
    
  157,494 
  157,494 
Net loss
    
    
    
    
    
    
    
  (5,261,290)
    
  (5,261,290)
Balance, March 31, 2020
  - 
 $- 
  - 
 $- 
  27,157,651 
 $2,716 
 $72,103,490 
 $(67,956,022)
 $(1,109,061)
 $3,041,123 
 
    
    
    
    
    
    
    
    
    
    
Balance, January 1, 2021
  - 
 $- 
  2,774 
 $- 
  31,150,309 
 $3,115 
 $93,834,936 
 $(95,366,198)
 $(1,112,546)
 $(2,640,693)
Issuance of Series C preferred stock and warrants for cash, net of offering costs
  10,667 
  1 
  - 
 $- 
  - 
  - 
  7,105,167 
  - 
  - 
  7,105,167 
Issuance of Series C preferred stock to settle liability arising from acquisition
  3,290 
  1 
  - 
 $- 
  - 
  - 
  2,467,648 
    
    
  2,467,648 
Beneficial conversion feature of Series C preferred stock
  - 
  - 
  - 
 $- 
  - 
  - 
  4,507,125 
  - 
  - 
  4,507,125 
Deemed dividend of Series C preferred stock
  - 
  - 
  - 
 $- 
  - 
  - 
  (4,507,125)
    
    
  (4,507,125)
Issuance of Series C preferred stock upon exchange of Series B preferred stock
  13,501 
  1 
  (1,306)
 $- 
  - 
  - 
  (1,009)
    
    
  (1,009)
Warrants issued in connection with exchange of Series B preferred stock
  - 
  - 
  - 
 $- 
  - 
  - 
  17,585,057 
    
    
  17,585,057 
Deemed dividend related to exchange of Series B preferred stock
  - 
  - 
  - 
 $- 
  - 
  - 
  (17,584,048)
    
    
  (17,584,048)
Common stock issued upon conversion of Series B preferred stock
  - 
  - 
  (259)
 $- 
  2,582,782 
  258 
  (258)
    
    
  - 
Dividends on preferred stock
  - 
  - 
  - 
 $- 
  - 
  - 
  (204,382)
    
    
  (204,382)
Common stock and pre-funded warrants issued upon conversion of Series C preferred stock
  (27,458)
  (3)
  - 
 $- 
  25,615,442 
  2,562 
  (2,559)
    
    
  3 
Issuance of common stock, pre-funded warrants and warrants for cash, net of offering costs
  - 
  - 
  - 
 $- 
  5,800,000 
  580 
  9,058,710 
    
    
  9,059,290 
Common stock issued upon exercise of warrants
  - 
  - 
  - 
 $- 
  9,128,068 
  913 
  4,622,929 
    
    
  4,623,842 
Common stock and warrants issued to consultants
  - 
  - 
  - 
 $- 
  575,301 
  58 
  944,441 
    
    
  944,499 
Issuance of common stock in connection with settlement with former investment bank
  - 
  - 
  - 
 $- 
  75,000 
  7 
  94,492 
    
    
  94,499 
Stock-based compensation
  - 
  - 
  - 
 $- 
  - 
  - 
  772,240 
    
    
  772,240 
Foreign currency translation adjustment
  - 
  - 
  - 
 $- 
    
    
    
    
  (134,797)
  (134,797)
Net loss
  - 
  - 
  - 
 $- 
    
    
    
  (7,685,629)
    
  (7,685,629)
Balance, March 31, 2021
  - 
  - 
  1,209 
 $- 
  74,926,902 
 $7,493 
 $118,693,364 
 $(103,051,827)
 $(1,247,343)
 $14,401,687 
 
See accompanying notes to consolidated financial statements
 
 
AZURRX BIOPHARMA, INC.
Consolidated Statements of Cash Flows (unaudited)
 
 
 
Three Months
 
 
Three Months
 
 
 
Ended
 
 
Ended
 
 
 
03/31/21
 
 
03/31/20
 
Cash flows from operating activities:
 
 
 
 
 
 
   Net loss
 $(7,685,629)
 $(5,261,290)
   Adjustments to reconcile net loss to net cash used in
    
    
   operating activities:
    
    
         Depreciation
  1,021 
  9,661 
         Amortization
  131,887 
  131,149 
         Non-cash lease expense
  (4,855)
  (6,065)
         Stock-based compensation
  772,240 
  54,950 
         Common stock issued to settle related party accounts payable
  - 
  131,137 
         Restricted stock granted to employees/directors
  - 
  19,503 
         Common stock and warrants granted to consultants
  1,038,998 
  87,105 
         Accreted interest on convertible debt
  - 
  164,281 
         Accretion of debt discount
  - 
  2,059,086 
    Net changes in assets and liabilities:
    
    
         Other receivables
  17,592 
  2,064,252 
         Prepaid expenses
  613,076 
  87,906 
         Right of use assets
  11,654 
  - 
         Deposits
  (1,356)
  - 
         Accounts payable and accrued expenses
  53,938 
  (832,955)
         Accrued dividends payable
  204,382 
  - 
         Other liabilities
  (226,342)
  - 
Net cash used in operating activities
  (5,073,394)
  (1,291,280)
 
    
    
Cash flows from investing activities:
    
    
    Purchase of property and equipment, net
  - 
  (4,340)
Net cash used in investing activities
  - 
  (4,340)
 
    
    
Cash flows from financing activities:
    
    
    Proceeds from issuance of convertible debt, net
  - 
  3,227,002 
    Proceeds from issuance of preferred stock, net
  7,105,167 
  - 
    Proceeds from issuance of common stock, net
  9,059,290 
  144,000 
    Proceeds from exercise of warrants
  4,623,842 
  - 
    Payment made related to license agreement
  (9,532,353)
  - 
    Repayments of note payable
  (205,323)
  (164,748)
    Repayments of convertible debt
  - 
  (450,000)
Net cash provided by financing activities
  11,050,623 
  2,756,254 
 
    
    
Increase in cash and cash equivalents
  5,977,229 
  1,460,634 
 
    
    
Effect of exchange rate changes on cash
  (13,738)
  (6,423)
 
    
    
Cash and cash equivalents, beginning balance
  6,062,141 
  175,796 
 
    
    
Cash and cash equivalents, ending balance
 $12,025,632 
 $1,630,007 
 
    
    
 
    
    
Supplemental disclosures of cash flow information:
    
    
     Cash paid for interest
 $5,144 
 $104,153 
Non-cash investing and financing activities:
    
    
   Deemed dividend on preferred stock issuances
 $(4,507,125)
 $- 
   Deemed dividend of preferred stock exchanges
 $(17,584,048)
 $- 
   Accrued dividends on preferred stock
 $(204,382)
 $- 
   Issuance of Series C preferred stock to settle liability arising from acquisition
 $2,467,648 
    
 
See accompanying notes to consolidated financial statements
 
 
Notes to Unaudited Condensed Consolidated Financial Statements
 
 
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. We are focused on developing our pipeline of gut-restricted GI clinical drug candidates, including MS1819 and niclosamide.
 
Our lead drug candidate is MS1819, a recombinant lipase for the treatment of exocrine pancreatic insufficiency (“EPI”) in patients with cystic fibrosis (“CF”) and chronic pancreatitis (“CP”), currently in two Phase 2 CF clinical trials. In March 2021, we announced topline results from our Phase 2b OPTION 2 monotherapy trial, and in May 2021, we announced positive interim results from the first 18 patients in our Phase 2 Combination trial in Europe.
 
In 2021, we intend to launch two new clinical programs using proprietary formulations of niclosamide, a small molecule with anti-helminthic, anti-viral and anti-inflammatory properties; FW-1022, for Severe Acute Respiratory Syndrome Coronavirus 2 (“COVID-19”) gastrointestinal infections, and FW-420, for Grade 1 and Grade 2 Immune Checkpoint Inhibitor-Associated Colitis (“ICI-AC”) and diarrhea in advanced stage oncology patients. We initiated our Phase 2 RESERVOIR clinical trial using a proprietary oral immediate-release tablet formulation of micronized niclosamide (FW-1022) for the treatment of COVID-19 related GI infections in April 2021, and we are preparing to initiate our Phase 1b/2a PASSPORT ICI-AC trial using both an oral immediate-release tablet and a topical rectal enema foam formulations of niclosamide (FW-420) in the first half of 2021.
 
Since its inception, the Company has devoted substantially all its efforts to research and development, business development, and raising capital, and has primarily 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 clinical trials and 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 March 31, 2021, the Company had approximately $12.0 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 $103.0 million as of March 31, 2021.
 
The Company has 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, the Company is subject to other challenges and risks specific to its business and its ability to execute on its strategy, as well as risks and uncertainties common to companies in the biotechnology and pharmaceutical industries with development and commercial operations, including, without limitation, risks and uncertainties associated with: obtaining regulatory approval of its drug candidates; delays or problems in the manufacture and supply of its 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 the Company’s 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 unaudited interim 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.
 
In our opinion, the accompanying unaudited interim consolidated financial statements include all adjustments, consisting of normal recurring adjustments, which are necessary to present fairly our financial position, results of operations, and cash flows. The consolidated balance sheet at December 31, 2020, has been derived from audited financial statements of that date. The unaudited interim consolidated results of operations are not necessarily indicative of the results that may occur for the full fiscal year. Certain information and footnote disclosure normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to instructions, rules, and regulations prescribed by the SEC. The Company believes that the disclosures provided herein are adequate to make the information presented not misleading when these unaudited interim consolidated financial statements are read in conjunction with the audited financial statements and notes previously distributed in our Annual Report Form 10-K for the year ended December 31, 2020, filed with the SEC on March 31, 2021.
 
Going Concern Uncertainty
 
The accompanying unaudited interim consolidated financial statements have been prepared as if the Company will continue as a going concern. The Company has incurred significant operating losses and negative cash flows from operations since inception. On March 31, 2021, we had cash and cash equivalents of approximately $12.0 million, and an accumulated deficit of approximately $103.0 million. The Company is dependent on obtaining additional working capital funding from the sale of equity and/or debt securities in order to continue to execute its development plan and continue operations. 
 
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 unaudited 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 balances were highly liquid on March 31, 2021, and December 31, 2020, respectively.
 
Concentrations of Credit Risk
 
Financial instruments that potentially expose the Company to concentrations of credit risk consist of cash. The Company primarily maintains its cash balances with financial institutions in federally insured accounts in the U.S. The Company may from time to time have cash in banks in excess of FDIC insurance limits. On March 31, 2021, and December 31, 2020, the Company had approximately $5.6 million and $2.7 million, respectively, in one account in the U.S. in excess of these limits. The Company has not experienced any losses to date resulting from this practice. The Company mitigates its risk by maintaining the majority of its cash and equivalents with high quality financial institutions.
 
The Company also has exposure to foreign currency risk as its subsidiary in France has a functional currency in Euros.
 
 
 
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 March 31, 2021.
 
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 March 31, 2021.
 
Income Taxes
 
Income taxes are recorded in accordance with ASC 740, Accounting for Income Taxes (“ASC 740”), which provides for deferred taxes using an asset and liability approach. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. The Company determines its deferred tax assets and liabilities based on differences between financial reporting and tax bases of assets and liabilities, which are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Valuation allowances are provided if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
 
The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740. When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit will more likely than not be realized. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances. On March 31, 2021, and December 31, 2020, the Company does not have any significant uncertain tax positions. All tax years are still open for audit.
 
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 for the worldwide, exclusive right to develop, manufacture, and commercialize proprietary formulations of niclosamide for the fields of treating ICI-AC and COVID-19 in humans was accounted for as an asset acquisition and initial liabilities of approximately $13.3 million in connection with the license acquisition were recorded as research and development expense, because it was determined to have no alternative future uses and therefore no separate economic value, which included cash payments totaling approximately $10.3 million and the issuance of approximately $3.0 million worth of preferred stock.
 
 
 
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 sublicense agreement were recorded as research and development expense. The Company terminated the sublicense agreement with TransChem during the year ended December 31, 2020.
 
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, payments to third parties for preclinical and non-clinical activities, expenses with clinical research organizations (CROs), investigative sites, consultants and contractors that conduct or provide other services relating to our clinical trials, costs to acquire drug product, drug supply and clinical trial materials from contract development and manufacturing organization (CDMOs) and third-party contractors relating to our chemistry, manufacturing and controls (“CMC”) efforts, the fees paid for and to maintain the Company’s licenses, amortization of intangible assets related to the acquisition of MS1819 and research and development costs related to niclosamide.
 
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.
 
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 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. U.S. 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:
 
 
 
 
 
 
Fair Value Measured at Reporting Date Using
 
 
 
 
 
 
Carrying Amount
 
 
Level 1
 
 
Level 2
 
 
Level 3
 
 
Fair Value
 
On March 31, 2021:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 $12,025,632 
 $6,000,886 
 $6,024,746 
 $- 
 $12,025,632 
Other receivables
 $501,660 
 $- 
 $- 
 $501,660 
 $501,660 
Note payable
 $347,082 
 $- 
 $- 
 $347,082 
 $347,082 
 
    
    
    
    
    
On December 31, 2020:
    
    
    
    
    
Cash and cash equivalents
 $6,062,141 
 $3,000,184 
 $3,061,957 
 $- 
 $6,062,141 
Other receivables
 $551,489 
 $- 
 $- 
 $- 
 $551,489 
Note payable
 $552,405 
 $- 
 $- 
 $- 
 $552,405 
 
On March 31, 2021, and December 31, 2020, cash and cash equivalents included approximately $6.0 million, and $3.0 million, respectively, 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.
 
Note 4 - Other Receivables
 
Other receivables consisted of the following:
 
 
March 31,
 
 
December 31,
 
 
 
2021
 
 
2020
 
Research and development tax credits
 $442,630 
 $493,906 
Other
  59,030 
  57,583 
Total other receivables
 $501,660 
 $551,489 
 
On March 31, 2021, and December 31, 2020, research and development tax credits were comprised of the 2020 refundable tax credits (CIR) for research conducted in France and Europe.
 
On March 31, 2021, and December 31, 2020, other consisted of amounts due from U.S. research and development tax credits.
 
 
 
-10-
 
Note 5 - Property, Equipment and Leasehold Improvements
 
Property, equipment, and leasehold improvements consisted of the following:
 
 
 
March 31,
 
 
December 31,
 
 
 
2021
 
 
2020
 
Laboratory equipment
 $- 
 $2,410 
Computer equipment
  19,676 
  19,676 
Office equipment
  - 
  5,483 
Leasehold improvements
  - 
  29,163 
Total property, plant, and equipment
  19,676 
  56,732 
Less accumulated depreciation
  (19,584)
  (38,403)
Property, plant and equipment, net
 $92 
 $18,329 
 
Depreciation expense for the three months ended March 31, 2021 and 2020 was approximately $1,000 and $10,000, respectively.
 
For the three months ended March 31, 2021, approximately $1,000 of depreciation was included in research and development expense.
 
For the three months ended March 31, 2020, approximately $5,000 of depreciation was included in research and development expense and approximately $5,000 of depreciation was included 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:
 
Common stock issued at signing to Mayoly
 $1,740,959 
Due to Mayoly at December 31, 2019
  449,280 
Due to Mayoly at December 31, 2020
  393,120 
Assumed Mayoly liabilities and forgiveness of Mayoly debt
  1,219,386 
 
 $3,802,745 
 
Intangible assets are as follows:
 
 
 
March 31,
 
 
December 31,
 
 
 
2021
 
 
2020
 
Patents
 $3,802,745 
 $3,802,745 
Less accumulated amortization
  (1,055,096)
  (923,209)
Patents, net
 $2,747,649 
 $2,879,536 
 
Amortization expense was approximately $132,000 and $131,000 for the three months ended March 31, 2021, and 2020, respectively.
 
 
 
-11-
 
As of March 31, 2021, amortization expense related to patents is expected to be as follows for the next five years (2021 through 2025):
 
 
2021 (balance of year)
 $395,661 
2022
  527,548 
2023
  527,548 
2024
  527,548 
2025
  527,548 
 
Goodwill is as follows:
 
 
Goodwill
 
Balance on January 1, 2020
 $1,886,686 
Foreign currency translation
  167,362 
Balance on December 31, 2020
  2,054,048 
Foreign currency translation
  (80,085)
Balance on March 31, 2021
 $1,973,963 
 
Note 7 - Accounts Payable and Accrued Expenses
 
Accounts payable and accrued expenses consisted of the following:
 
 
 
March 31,
 
 
December 31,
 
 
 
2021
 
 
2020
 
Trade payables
 $1,440,718 
 $1,558,591 
Accrued expenses
  267,123 
  127,012 
Total accounts payable and accrued expenses
 $1,707,841 
 $1,685,603 
 
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 $347,000 on March 31, 2021.
 
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 $280,000 on March 31, 2020.
 
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.
 
 
 
-12-
 
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 March 31, 2021, 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.
 
 
 
-13-
 
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 Placement Agent Warrants, to purchase an aggregate of 199,732 shares of Common Stock. 41,495 of these Placement Agent Warrants have an exercise price of $1.21 per share and 158,237 of these 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 three months ended March 31, 2020, the Company recognized approximately $2.2 million of interest expense related to these Promissory Notes, including amortization of debt discount related to the value of the Note Warrants of approximately $660,000, amortization of the beneficial conversion feature of approximately $1.1 million, amortization of debt discount related to debt issuance costs of approximately $348,000, and accrued interest expense of approximately $150,000.
 
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 remained outstanding.
 
 
 
-14-
 
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.
 
Note 10 – Other Liabilities
 
Other liabilities consisted of the following:
 
 
 
March 31,
 
 
December 31,
 
Current
 
2021
 
 
2020
 
Lease liabilities
 $56,702 
 $57,417 
Other liabilities
  8,633 
  - 
 
 $65,335 
 $57,417 
 
 
 
March 31,
 
 
December 31,
 
Long-term
 
2021
 
 
2020
 
Lease liabilities
 $6,566 
 $19,123 
 
 $6,566 
 $19,123 
 
Note 11 – Equity
 
Our certificate of incorporation, as amended and restated on December 20, 2019 and February 24, 2021 (the “Charter”) authorizes the issuance of up to 250,000,000 shares of Common Stock, par value $0.0001 per share, and 10,000,000 shares of preferred stock, par value $0.0001 per share.
 
On February 24, 2021 the Company held a Special Meeting of Stockholders (the “2021 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 2021 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 74,926,902 and 31,150,309 shares of its Common Stock issued and outstanding on March 31, 2021, and December 31, 2020, 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.
 
 
 
-15-
 
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. Shares of Series B Preferred Stock that are converted into shares of Common Stock shall be retired and may not be reissued as Series B Preferred Stock but may be reissued as all or part of another series of Preferred Stock. On March 31, 2021, 1,209.52 shares of Series B Preferred Stock were issued and outstanding, with approximately 2,168.14 shares of Series B Preferred Stock remaining authorized but unissued.
 
On January 5, 2021, we authorized 75,000 shares as Series C Preferred Stock. Shares of Series C Preferred Stock converted into Common Stock (or Prefunded Warrants, as applicable) or redeemed shall be canceled and shall not be reissued. On March 31, 2021, 0 shares of Series C Preferred Stock were issued and outstanding, with approximately 47,542.05 shares of Series C Preferred Stock remaining authorized but unissued.
 
On March 31, 2021, the Company had approximately 1,209.52 shares of preferred stock issued and outstanding with approximately 9,969,515.38 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. On March 31, 2021, aggregate dividends payable amounted to approximately $205,000.
 
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. On March 31, 2021, the value of the liquidation preference of the Series B Preferred Stock aggregated to approximately $9.5 million.
 
 
 
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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 (MFN) 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 “Series B Exchange Amount”)) for any securities or units issued in a Subsequent Financing on dollar-for-dollar basis (the “Series B Exchange Right”).
 
As of May 18, 2021, holders of approximately 1,622.29 shares of Series B Preferred Stock with an aggregate Series B Exchange Amount of approximately $12.6 million had previously elected to exercise their Series B Exchange Rights into Series C Preferred Stock, convertible into an aggregate of 16,820,841 shares of Common Stock (which conversion the Company has elected to make in full), and additional January 2021 Investor Warrants exercisable for up to an aggregate of 16,820,841 shares of Common Stock.
 
As a result, as of May 18, 2021, we may be required to issue up to 9,483.38 additional shares of Series C Preferred Stock that are currently convertible up to 9,483,378 underlying shares of Common Stock, together with January 2021 Investor Warrants to purchase up to an additional 9,483,378 shares of Common Stock, to any holders of Series B Preferred Stock who elect to exercise their Series B Exchange Right in connection with up to 893.52 shares of Series B Preferred Stock plus accrued dividends of approximately $232,000. Any shares of Series C Preferred Stock to be issued pursuant to the Series B 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, 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.
 
 
 
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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 0 and 335,006 stock options, during the three months ended March 31, 2021 and 2020, respectively, under the 2014 Plan (see Note 13).
 
As of March 31, 2021, there were 3,924,770 shares issued and outstanding under the 2014 Plan 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 ceased making grants under the 2014 Plan.
 
As of March 31, 2020, there were an aggregate of 4,245,905 total shares available under the 2014 Plan, of which 1,997,506 are issued and outstanding, 632,667 shares are reserved subject to issuance of restricted stock and RSUs and 1,615,732 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 343,685 stock options during the three months ended March 31, 2021, under the 2020 Plan (see Note 13). As of March 31, 2021, 10,000,000 total shares were available under the 2020 Plan, of which 353,685 were issued and outstanding and 9,646,315 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.
 
 
 
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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.
 
 
 
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The Company issued an aggregate of 0, and 150,000 shares of Common Stock, during the three months ended March 31, 2021 and 2020, respectively, in connection with the Equity Line Agreement, resulting in net proceeds to the Company of approximately $0, and $144,000, respectively.
 
Common Stock Issuances
 
2021 Issuances 
 
During the three months ended March 31, 2021, the Company issued an aggregate of 575,301 shares of its Common Stock to consultants with a grant date fair value of approximately $891,000 for investor relations services provided, which was recorded as stock-based compensation and included as part of general and administrative expense.
 
During the three months ended March 31, 2021, the Company issued an aggregate 75,000 shares of its Common Stock with a grant date fair value of approximately $94,000 in connection with the settlement with our former investment bank, which was recorded as stock-based compensation and included as part of general and administrative expense.
 
During the three months ended March 31, 2021, the Company issued an aggregate of 25,615,442 shares of Common Stock upon the conversion of an aggregate of 27,457.95 shares of Series C Convertible Preferred Stock with a stated value of approximately $20.6 million plus accrued dividends of approximately $76,000.
 
During the three months ended March 31, 2021, the Company issued an aggregate of 9,128,068 shares of Common Stock upon the exercise of an aggregate of 9,197,834 investor warrants, including an aggregate of 3,991,882 pre-funded warrants (See Note 12).
  
During the three months ended March 31, 2021, the Company issued an aggregate of 2,582,782 shares of Common Stock upon the conversion of an aggregate of 258.08 shares of Series B Preferred Stock with a stated value of approximately $2.0 million plus accrued dividends of approximately $3,000.
 
During the three months ended March 31, 2021, the Company issued an aggregate of 5,800,000 shares of Common Stock in connection with the March 2021 Offering as detailed below.
 
2020 Issuances 
 
During the three months ended March 31, 2020, the Company issued an aggregate of 101,195 shares of its Common Stock to consultants with a grant date fair value of approximately $87,000 for investor relations services provided, which was recorded as stock-based compensation and included as part of general and administrative expense.
 
During the three months ended March 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.
 
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 or 2020 Plan, which constitutes a promise to grant shares of Common Stock at the end of a specified restriction period.
 
During the three months ended March 31, 2021, there was no vesting of restricted shares of Common Stock or RSUs.
 
During the three months ended March 31, 2020, an aggregate of 5,417 unvested restricted shares of Common Stock subject to service conditions, vested with a total grant date fair value of approximately $19,500, and was recorded as stock-based compensation, included as part of general and administrative expense.
 
As of March 31, 2021, the Company had unrecognized restricted common stock expense of approximately $394,000. Approximately $197,000 of this unrecognized expense vests upon the first commercial sale in the United States of MS1819 and approximately $197,000 of this unrecognized expense vests upon the total market capitalization of the Company exceeding $1.0 billion for 20 consecutive trading days. These milestones were not considered probable on March 31, 2021.
 
 
 
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As of March 31, 2020, the Company had unrecognized restricted common stock expense of approximately $424,000. Approximately $31,000 of this unrecognized expense will be recognized over the average remaining vesting term of 0.4 years. Approximately $197,000 of this unrecognized expense vests upon the first commercial sale in the United States of MS1819 and approximately $197,000 of this unrecognized expense vests upon the total market capitalization of the Company exceeding $1.0 billion for 20 consecutive trading days. These milestones were not considered probable on March 31, 2020.
 
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 “2020 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 2020 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 the 2020 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.
 
 
 
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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 the 2020 Stockholder 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.
 
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. The total 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 of approximately $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.
 
January 2021 Offerings
 
On December 31, 2020, the Company entered into a securities purchase agreement (the “Series C Purchase Agreement”), pursuant to which the Company agreed to sell in a registered direct offering 5,333.333 shares of Series C Preferred Stock, at a price of $750 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 “January 2021 Registered Direct Offering”).
 
 
 
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Concurrently with the Registered Direct Offering, in a private placement offering pursuant to the Series C Purchase Agreement (the “January 2021 Private Placement,” and together with the January 2021 Registered Direct Offering, the “January 2021 Offerings”), the Company agreed to sell an additional 5,333.3333 shares of Series C Preferred Stock at the same price as the Series C Preferred Stock offered in the January 2021 Registered Direct Offering and convertible on the same terms and warrants (the “January 2021 Investor Warrants”) to purchase up to an aggregate of 10,666,668 shares of Common Stock, with an exercise price of $0.80 per share and a maturity date of July 6, 2026.
 
In connection with the January 2021 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 January 2021 Private Placement and the exercise of the January 2021 Investor Warrants. The registration statement was declared effective by the SEC on January 21, 2021.
 
On January 6, 2021, the January 2021 Offerings closed, and the Company received aggregate gross proceeds of approximately $8.0 million, excluding the net proceeds, if any, from the exercise of the January 2021 Investor Warrants.
 
The net proceeds to the Company from the January 2021 Offerings, after deducting the placement agent’s fees and expenses, was approximately $7.1 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 January 2021 Offerings, or approximately $700,000. The Company also agreed to issue to the placement agent or its designees warrants (the “January 2021 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 January 2021 Offerings by the offering price per share of Common Stock, or $0.75. The January 2021 Placement Agent Warrants have substantially the same terms as the January 2021 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, $125,000 for legal fees and expenses and other out-of-pocket expenses and $12,900 for clearing fees.
 
Pursuant to the January 2021 Private Placement and the Series C Purchase Agreement, the Company was required to hold a meeting of its stockholders not later than March 31, 2021 to seek approval (the “2021 Stockholder Approval”) for, among other things, the issuance of shares of Common Stock upon (i) full conversion of the Series C Preferred Stock; and (ii) full exercise of the January 2021 Investors Warrants and the January 2021 Placement Agent Warrants, and to increase the authorized shares to 250,000,000 from 150,000,000.
 
On February 24, 2021, the Company received the 2021 Stockholder Approval, and all outstanding shares of Series C Preferred Stock were converted to Common Stock.
 
Accounting for the January 2021 Offerings
 
Upon receiving the 2021 Stockholder Approval on February 24, 2021, the Company classified the Series C Preferred Stock as permanent equity because no features provide for redemption by the holders of the Series C Preferred Stock or conditional redemption, which is not solely within the Company’s control, and there are no unconditional obligations in that (1) the Company must or may settle in a variable number of its equity shares and (2) the monetary value is predominantly fixed, varying with something other than the fair value of the Company’s equity shares or varying inversely in relation to the Company’s equity shares.
 
Because the Series C Preferred Stock contains certain embedded features that could affect the ultimate settlement of the Series C Preferred Stock, the Company analyzed the instrument for embedded derivatives that require bifurcation. The Company’s analysis began with determining whether the Series C Preferred Stock is more akin to equity or debt.  The Company evaluated the following criteria/features in this determination: redemption, voting rights, collateral requirements, covenant provisions, creditor and liquidation rights, dividends, and conversion rights. The Company determined that the Series C Preferred Stock was more akin to equity than to debt when evaluating the economic characteristics and risks of the entire Series C Preferred Stock, including the embedded features. The Company then evaluated the embedded features to determine whether their economic characteristics and risks were clearly and closely related to the economic characteristics and risks of the Series C Preferred Stock. Since the Series C Preferred Stock was determined to be more akin to equity than debt, and the underlying that causes the value of the embedded features to fluctuate would be the value of the Company’s common stock, the embedded features were considered clearly and closely related to the Series C Preferred Stock. As a result, the embedded features would not need to be bifurcated from the Series C Preferred Stock.
 
 
 
-23-
 
The Company concluded the freestanding January 2021 Investor Warrants did not contain any provision that would require liability classification and therefore should be classified in stockholder’s equity, based on their relative fair value.
 
The proceeds from the January 2021 Offerings were allocated to the Series C Preferred Stock and the January 2021 Investor Warrants based on their relative fair values. The total proceeds of approximately $7.1 million, net of $0.9 million offering costs, were allocated as follows: approximately $4.6 million to the Series C Preferred Stock and approximately $3.4 million to the January 2021 Investor Warrants. After allocation of the proceeds, the effective conversion price of the Series C Preferred Stock was determined to be beneficial and, as a result, the Company recorded a deemed dividend of approximately $4.3 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 $0.9 million were recognized in equity.
 
Series B Most Favored Nations (MFN) Exchanges into the January 2021 Offerings
  
Subject to the consummating the January 2021 Offerings, the holders of the Series B Preferred Stock became entitled to exercise their Series B Exchange Right to exchange their Series B Preferred Stock at the Series B Exchange Amount into the Series C Preferred Stock and related January 2021 Investor Warrants. During the three months ended March 31, 2021, holders of approximately 1,306.30 shares of Series B Preferred Stock with an aggregate Exchange Amount of approximately $10.1 million had elected to exercise their Series B Exchange Rights into 13,501.10 shares of Series C Preferred Stock, convertible into an aggregate of 13,501,087 shares of Common Stock and additional January 2021 Investor Warrants exercisable for up to an aggregate of 13,501,087 shares of Common Stock. Immediately upon issuance of the Series C Preferred Stock pursuant to the Series B Exchange Right, an aggregate of 13,166.62 shares of Series C Preferred Stock were converted into 13,166,624 shares of Common Stock, at an effective conversion price of $0.77 per share, and an aggregate of 334.46 shares of Series C Preferred Stock, convertible into 334,463 shares of Common Stock, remained unconverted pending stockholder approval. Upon receiving the 2021 Stockholder Approval on February 24, 2021, the Company elected to convert all 334.46 remaining shares of Series C Preferred Stock issued pursuant to the Series B Exchange Right, plus accrued dividends thereon of approximately $2,000 into 336,994 shares of Common Stock.
 
As a result, as of March 31, 2021, the Company may be required to issue up to 12,690.20 additional shares of Series C Preferred Stock that are currently convertible up to 12,690,204 underlying shares of Common Stock, together with January 2021 Investor Warrants to purchase up to an additional 12,690,204 shares of Common Stock, to any holders of Series B Preferred Stock who elect to exercise their Series B Exchange Right. Any shares of Series C Preferred Stock to be issued pursuant to the Series B Exchange Right would, upon issuance, be immediately converted into underlying shares of Common Stock.
 
Accounting for the Series B Exchanges into the January 2021 Offerings
 
During the three months ended March 31, 2021, pursuant to the Series B Exchange Right, the Company issued an aggregate of 13,501.0807 shares of Series C Preferred Stock and warrants to purchase an aggregate of 13,501,087 shares of Common Stock in connection with the exchange of approximately 1,306.30 shares of Series B Preferred Stock. The exercise of all of these warrants and the conversion of a portion of these shares of Series C Preferred Stock were prohibited until the Company received stockholder approval on February 24, 2021. The Company analyzed the exchanges pursuant to the Series B Exchange Right from preferred stock to preferred stock qualitatively and determined that the exchanges result in a substantive change and should be accounted for as an extinguishment. As such, for the three months ended March 31, 2021, the Company recognized an aggregate deemed dividend of approximately $17.6 million as calculated by the difference in the carrying value of the Series B Preferred Stock exchanged and the fair value of the Series C Preferred Stock and January 2021 Investor Warrants issued on each exchange date.
 
March 2021 Offering
 
On March 7, 2021, the Company entered into a securities purchase agreement (the “March 2021 Purchase Agreement”), pursuant to which the Company agreed to sell, in a registered direct offering (the “March 2021 Offering”) priced at the market under Nasdaq rules, (i) 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 price per share of March 2021 Offering was $1.2725.
 
 
 
-24-
 
On March 10, 2021, the March 2021 Offering closed and the Company received aggregate gross proceeds of approximately $10.0 million, excluding the net proceeds, if any, from the exercise of the March 2021 Warrants. The net proceeds to the Company from the March 2021 Offering were approximately $9.1 million, after deducting the placement agent’s fees and expenses. The Company intends to use the net proceeds of the March 2021 Offering to initiate its two niclosamide clinical programs in 2021, a Phase 2 clinical trial for COVID-19 GI infections and a Phase 1b/2a trial for immune checkpoint inhibitor induced colitis, respectively, and for other general corporate purposes, which may include funding research, development and product manufacturing, clinical trials, acquisitions or investments in business, products or technologies that are complementary to its own, increasing working capital, reducing indebtedness and capital expenditures
 
 
The Company paid the placement agent a cash fee equal to 8.0% of the aggregate gross proceeds received by the Company, or approximately $800,000. The Company also agreed to issue the placement agent or its designees warrants (the “March 2021 Placement Agent Warrants”) exercisable for up to 550,099 shares of Common Stock, which is equal to 7.0% of the amount determined by dividing the gross proceeds of the March 2021 Offering by the offering price per share of Common Stock, or $1.2725. 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. The Company also reimbursed the placement agent $35,000 for non-accountable expenses, $50,000 for legal fees and expenses and other out-of-pocket expenses and $15,950 for clearing fees.
 
The March 2021 Offering was made pursuant to the Company’s effective shelf registration statement on Form S-3 (Registration No. 333-231954) originally filed with the SEC on June 21, 2019, and declared effective on June 25, 2019. The Company filed a prospectus supplement with the SEC in connection with the sale of such securities in the March 2021 Offering.
 
The Company concluded the freestanding March 2021 Warrants and the March 2021 Placement Agent Warrants did not contain any provisions that would require liability classification and therefore should be classified in stockholder’s equity.
 
Note 12 - Warrants
 
During the three months ended March 31, 2021, in connection with the January 2021 Offerings, the Company issued January 2021 Investor Warrants to the investor to purchase an aggregate of 10,666,668 shares of Common Stock, as referenced in Note 11. These January 2021 Investor Warrants were issued on January 6, 2021, are exercisable at $0.80 per share and expire on July 6, 2026. The exercise of the January 2021 Investor Warrants was prohibited until the Company received stockholder approval on February 24, 2021. The total grant date fair value of these warrants was determined to be approximately $6.0 million, as calculated using the Black-Scholes model, and were recorded as additional paid in capital based on their relative fair value of approximately $3.4 million (See Note 11).
 
During the three months ended March 31, 2021, in connection with the conversion of the Series C Preferred Stock issued in the January 2021 Offerings, the Company issued pre-funded warrants to the investor to purchase an aggregate of 1,933,334 shares of Common Stock as referenced in Note 11. These pre-funded warrants were issued on January 6, 2021, are exercisable at $0.001 per share and do not expire. The total grant date fair value of these pre-funded was determined to be approximately $1.6 million and was recorded as additional paid in capital (See Note 11).
 
During the three months ended March 31, 2021, in connection with the January 2021 Offerings, the Company issued January 2021 Placement Agent Warrants to the placement agent and/or their designees to purchase an aggregate of 746,667 shares of Common Stock, as referenced in Note 11. These January 2021 Placement Agent Warrants were issued on January 6, 2021, are exercisable at $0.9375 per share and expire on July 6, 2026. The total grant date fair value of these warrants was determined to be approximately $392,000, as calculated using the Black-Scholes model, and had no effect on shareholders’ equity (See Note 11).
 
 
 
-25-
 
During the three months ended March 31, 2021, the Company issued January 2021 Investor Warrants to purchase an aggregate of 13,501,087 shares of Common Stock to holders of Series B Preferred Stock elected to exercise their Series B Exchange Rights into Series C Preferred Stock and related warrants, as referenced in Note 11. These January 2021 Investor Warrants were issued between January 13, 2021 and March 25, 2021, are exercisable at $0.80 per share and expire on July 6, 2026. The exercise of these warrants was prohibited until the Company received stockholder approval on February 24, 2021. The total grant date fair value of these warrants was determined to be approximately $17.6 million, as calculated using the Black-Scholes model, and were recorded as a deemed dividend and recognized on the exchange date and recorded as a reduction of income available to common stockholders in computing basic and diluted loss per share.
 
During the three months ended March 31, 2021, in connection with the March 2021 Offering, the Company issued March 2021 Warrants to the investor to purchase an aggregate of 3,929,274 shares of Common Stock, as referenced in Note 11. These March 2021 Warrants were issued on March 10, 2021, are exercisable at $1.21 per share and expire five years from the date of issuance. The total grant date fair value of these warrants was determined to be approximately $3.5 million, as calculated using the Black-Scholes model, and were recorded as additional paid in capital (See Note 11).
 
During the three months ended March 31, 2021, in connection with March 2021 Offering, the Company issued pre-funded warrants to the investor to purchase an aggregate of 2,058,548 shares of Common Stock, as referenced in Note 11. These pre-funded warrants were issued on March 10, 2021, are exercisable at $0.01 per share and do not expire. The total grant date fair value of these pre-funded was determined to be approximately $2.6 million and was recorded as additional paid in capital (See Note 11).
 
During the three months ended March 31, 2021, in connection with the March 2021 Offering, the Company issued March 2021 Placement Agent Warrants to the placement agent and/or their designees to purchase an aggregate of 550,099 shares of Common Stock, as referenced in Note 11. These March 2021 Placement Agent Warrants were issued on March 10, 2021, are exercisable at $1.5906 per share and expire five years from the date of issuance. The total grant date fair value of these warrants was determined to be approximately $453,000, as calculated using the Black-Scholes model, and had no effect on shareholders’ equity (See Note 11).
 
During the three months ended March 31, 2021, the Company issued warrants to a consultant to purchase an aggregate of 200,000 shares of Common Stock that are subject to service-based milestone vesting conditions for investor relations services. These warrants were issued on February 8, 2021, are exercisable at $1.69 per share and expire four years from the date of issuance. The total grant date fair value of these warrants was determined to be approximately $214,000, as calculated using the Black-Scholes model. For the three months ended March 31, 2021, warrants to purchase a total of 50,000 shares of Common Stock vested, with a grant date fair value of approximately $53,000, which was recorded as stock-based compensation and was included as part of general and administrative expense.
 
During the three months ended March 31, 2021, warrants to purchase an aggregate of 9,197,836 shares of Common Stock, including the pre-funded warrants issued in January 2021 and March 2021, were exercised for cash proceeds of approximately $4.6 million.
 
During the three months ended March 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 as referenced in Note 9. These Note Warrants were issued between January 2, 2020 and January 9, 2020, and became exercisable commencing six (6) months following the issuance date 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.
 
During the three months ended March 31, 2020, in connection with the January 2020 closings of the Promissory Note Offering, the Company issued placement agent warrants to purchase an aggregate of 199,732 shares of Common Stock. These placement agent warrants were issued between January 2, 2020 and January 9, 2020, vested immediately, and expire five years from issuance. 41,495 of these Placement Agent Warrants are exercisable at $1.21 per share and 158,237 are exercisable at $1.42 per share. The total grant date fair value of these placement agent warrants was determined to be approximately $174,000, as calculated using the Black-Scholes model, and was charged to debt discount that will be amortized over the life of the debt.
 
 
-26-
 
Warrant transactions for the three months ended March 31, 2021 and 2020 were as follows:
 
 
 
 
 
 
Exercise
 
Weighted Average
 
 
 
 
 
Price Per
 
Exercise
 
 
Warrants
 
 
Share
 
Price
 
 
 
 
 
 
 
 
 
 
Warrants outstanding and exercisable on January 1, 2020
  5,378,288 
 $1.07 - 7.37 
 $2.53 
 
    
    
    
Granted during the period
  2,012,989 
  1.07 - 1.42 
  1.10 
Expired during the period
  - 
  - 
  - 
Exercised during the period
  - 
  - 
  - 
Warrants outstanding and exercisable on March 31, 2020
  7,391,277 
 $1.07 - 7.37 
 $2.14 
 
    
    
    
 
    
    
    
Warrants outstanding and exercisable on January 1, 2021
  25,179,192 
 $0.85 - 7.37 
 $1.22 
 
    
    
    
Granted during the period
  33,435,677 
 $0.001-1.69 
 $0.77 
Expired during the period
  24,259 
  - 
  - 
Exercised during the period
  (9,197,834)
  - 
  - 
Warrants outstanding and exercisable on March 31, 2021
  49,392,776 
 $0.80 – 6.60 
 $1.04 
 
Warrants exercisable on March 31, 2021, were as follows:
 
 
 
Exercise Price
 
 
Number of Shares Under Warrants
 
 
Weighted Average Remaining Contract Life in Years
 
Weighted Average Exercise Price
 
 
$
0.00 - 0.99
 
 
 
38,787,490
 
 
 
4.85
 
 
 
 
$
1.00 - 1.99
 
 
 
8,531,482
 
 
 
4.00
 
 
 
 
$
2.00 - 2.99
 
 
 
320,063
 
 
 
2.32
 
 
 
 
$
3.00 - 3.99
 
 
 
630,459
 
 
 
1.08
 
 
 
 
$
4.00 - 4.99
 
 
 
164,256
 
 
 
1.03
 
 
 
 
$
5.00 - 5.99
 
 
 
771,276
 
 
 
0.94
 
 
 
 
$
6.00 - 6.99
 
 
 
187,750
 
 
 
0.51
 
 
Totals
 
 
 
 
 
 
49,392,776
 
 
 
4.55
 
$1.04
 
 
The weighted average fair value of warrants granted during the three months ended March 31, 2021, and 2020, was $0.95 and $0.87 per share, respectively. The grant date fair values were calculated using the Black-Scholes model with the following weighted average assumptions:
 
 
 
March 31,
 
 
 
2021
 
Expected life (in years)
  5.41 
Volatility
  83.8- 90.2%
Risk-free interest rate
  0.36- 0.87%
Dividend yield
  -%
 
 
 
-27-
 
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 three months ended March 31, 2021, the Company issued stock options under the 2020 Plan to new employees to purchase an aggregate of 343,685 shares of Common Stock with strike prices ranging from $0.92 to $1.54 per share and a term of ten years that vest in equal monthly installments over three years. These options had a total fair value of approximately $274,000, as calculated using the Black-Scholes model.
 
During the three months ended March 31, 2021, stock options to purchase an aggregate of 135,514 shares of Common Stock under the 2014 Plan were cancelled with strike prices ranging between $0.85 and $3.60 per share.
 
During the three months ended March 31, 2021, stock options to purchase an aggregate of 204,720 shares of Common Stock, subject to service-based milestone vesting conditions, vested with a total grant date fair value of approximately $149,000 which was recorded as stock-based compensation, of which approximately $121,000 was included as part of general and administrative expense and approximately $28,000 was included as part of research and development expense.
 
During the three months ended March 31, 2021, stock options to purchase an aggregate of 755,000 shares of Common Stock, subject to performance-based milestone vesting conditions, vested due to the Company achieving certain clinical milestones, with a total grant date fair value of approximately $623,000 which was recorded as stock-based compensation, of which approximately $253,000 was included as part of general and administrative expense and approximately $370,000 was included as part of research and development expense. Stock options to purchase an aggregate of 437,500 shares of Common Stock, with a total grant date fair value of approximately $427,000, vested due to the Company completing enrollment of the Phase 2 OPTION 2 clinical trial. Stock options to purchase an aggregate of 210,000 shares of Common Stock, with a total grant date fair value of approximately $148,000, vested due to the Company’s public announcement of topline data for the Phase 2 OPTION 2 clinical trial. Stock options to purchase an aggregate of 7,500 shares of Common Stock, with a total grant date fair value of approximately $8,000, vested due to the Company completing enrollment of the Phase 2 Combination Trial in Europe. Stock options to purchase an aggregate of 100,000 shares of Common Stock, with a total grant date fair value of approximately $40,000, vested due to the Company determining that initiating a U.S. Phase 1 clinical trial for any product other than MS1819 became probable in connection with the initiation of the COVID-19 niclosamide trial.
 
During the three months ended March 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 fair value of approximately $281,000, as calculated using the Black-Scholes model.
 
During the three months ended March 31, 2020, stock options to purchase an aggregate of 15,000 shares of Common Stock were cancelled with strike prices ranging between $1.75 and $3.60 per share.
 
During the three months ended March 31, 2020, stock options to purchase an aggregate of 57,917 shares of Common Stock, subject to service-based milestone vesting conditions, vested with a total grant date fair value of approximately $55,000 and recorded as stock-based compensation, and included as part of general and administrative expense.
 
 
 
-28-
 
The fair values were estimated on the grant dates using the Black-Scholes option-pricing model with the following weighted-average assumptions:
 
 
 
March 31,
 
 
 
2021
 
Contractual term (in years)
  10 
Volatility
  83.8 - 90.1%
Risk-free interest rate
  0.93 - 1.69%
Dividend yield
  -%
 
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.
 
During the three months ended March 31, 2021 and 2020, stock option activity under the 2014 Plan and 2020 Plan was as follows:
 
 
 
Number
of Shares
 
 
Average Exercise Price
 
 
Remaining Contract
Life in Years
 
 
Intrinsic
Value
 
Stock options outstanding on January 1, 2020
  1,677,500 
 $2.17 
  5.37 
 $- 
 
    
    
    
  - 
Granted during the period
  335,006 
 $1.03 
  10.00 
  - 
Expired during the period
  - 
  - 
  - 
  - 
Canceled during the period
  (15,000)
 $2.80 
  3.28 
  - 
Exercised during the period
  - 
  - 
  - 
  - 
Stock options outstanding on March 31, 2020
  1,997,506 
 $2.08 
  5.91 
 $- 
 
    
    
    
    
Exercisable on March 31, 2020
  841,917 
 $3.23 
  4.33 
 $- 
 
Non-vested stock options outstanding on January 1, 2020
  883,500 
 $1.33 
  6.26 
 $- 
 
    
    
    
    
Granted during the period
  335,006 
 $1.03 
  10.00 
  - 
Vested during the period
  (57,917)
 $1.40 
  6.88 
  - 
Expired during the period
  - 
  - 
  - 
  - 
Canceled during the period
  (5,000)
 $3.32 
  2.82 
  - 
Exercised during the period
  - 
  - 
  - 
  - 
Non-vested stock options outstanding on March 31, 2020
  1,155,589 
 $1.24 
  7.06 
 $- 
 
 
Stock options outstanding on January 1, 2021
  4,070,284 
 $1.38 
  7.94 
 $- 
 
    
    
    
    
Granted during the period
  343,685 
 $1.01 
  10.00 
  - 
Expired during the period
  - 
  - 
  - 
  - 
Canceled during the period
  (135,514)
 $2.45 
  2.87 
  - 
Exercised during the period
  - 
  - 
  - 
  - 
Stock options outstanding on March 31, 2021
  4,278,455 
 $1.19 
  7.93 
 $1,599,166 
 
    
    
    
    
Exercisable on March 31, 2021
  2,221,569 
 $1.48 
  6.67 
 $637,269 
 
Non-vested stock options outstanding on January 1, 2021
  2,740,657 
 $0.99 
  8.42 
 $- 
 
    
    
    
    
Granted during the period
  343,685 
 $1.01 
  10.00 
  - 
Vested during the period
  (959,720)
 $- 
  - 
  - 
Expired during the period
  - 
  - 
  - 
  - 
Canceled during the period
  (67,736)
 $- 
  - 
  - 
Exercised during the period
  - 
  - 
  - 
  - 
Non-vested stock options outstanding on March 31, 2021
  2,056,886 
 $0.87 
  9.28 
 $961,897 
 
 
 
-29-
 
As of March 31, 2021, the Company had unrecognized stock-based compensation expense of approximately $1.5 million. Approximately $1.1 million of this unrecognized expense will be recognized over the average remaining vesting term of the stock options of 2.24 years. Approximately $40,000 of this unrecognized expense will vest upon initiating a Phase 3 clinical trial in the U.S. for 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.
 
As of March 31, 2020, the Company had unrecognized stock-based compensation expense of approximately $965,000. Approximately $290,000 of this unrecognized expense will be recognized over the average remaining vesting term of the stock options of 2.74 years. Approximately $522,000 of this unrecognized expense will vest upon enrollment completion next of the Phase 2 OPTION 2 clinical trial. Approximately $73,000 of this unrecognized expense will vest upon enrollment completion of the ongoing Combination Trial in Europe. Approximately $40,000 of this unrecognized expense will vest upon the Company 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. 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 were 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. As of December 31, 2020, this was initially 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, in connection with the securities purchase agreement with First Wave (the “First Wave Purchase Agreement”) pursuant to which we issued to First Wave 3,290.1960 shares of Series C Preferred Stock, which were convertible into an aggregate of 3,290,196 shares of Common Stock based on a conversion price of $0.75 per share, and with a grant date fair value of approximately $2.5 million. The First Wave Purchase Agreement contains demand and piggyback registration rights with respect to the Common Stock issuable upon conversion of the Series C Preferred Stock.
 
The conversion price of the Series C Preferred Stock was determined to be beneficial and, as a result, the Company recorded a deemed dividend of approximately $230,000 equal to the intrinsic value of the beneficial conversion feature and recognized on the issuance date and recorded as a reduction of income available to common stockholders in computing basic and diluted loss per share.
 
 
 
-30-
 
Upon the 2021 Stockholder Approval on February 24, 2021, the Company recognized a change in fair value of approximately $0.5 million based on the difference in fair value of the $3.0 million liability initially recorded pursuant to the First Wave License Agreement as of December 31, 2020 and the fair value of approximately $2.5 million of Series C Preferred Stock issued pursuant to the First Wave Purchase Agreement to settle the liability.
 
Following the 2021 Stockholder Approval, the shares of Series C Preferred Stock automatically converted into Common Stock.
 
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
 
In March 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.
 
 
 
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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.
 
In March 2020, the Company provided TransChem with sixty (60) days prior written notice of its intent to terminate the TransChem Sublicense Agreement, which as of March 31, 2021 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.
 
 
 
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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.
 
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 $52,000 and $35,000, respectively, for the three months ended March 31, 2021 and 2020.
 
 
 
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The weighted-average remaining lease term and weighted-average discount rate under operating leases on March 31, 2021, are:
 
 
 
March 31,
 
 
 
2021
 
Lease term and discount rate
 
 
 
Weighted-average remaining lease term
  1.17 years  
Weighted-average discount rate
6.0%
 
Maturities of operating lease liabilities on March 31, 2021, were as follows:
 
2021
 $41,803 
2022
  23,375 
Total lease payments
  65,178 
Less imputed interest
  (1,910)
Present value of lease liabilities
 $63,268 
 
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. On March 31, 2021, and December 31, 2020, the Company had no tax provision for either jurisdiction.
 
On March 31, 2021, and December 31, 2020, the Company had gross deferred tax assets of approximately $25 million and $26.1 million, respectively. As the Company cannot determine that it is more likely than not that the Company will realize the benefit of the deferred tax asset, a valuation allowance of approximately $25 million and $26.1 million, respectively, has been established on March 31, 2021, and December 31, 2020. The change in the valuation allowance in the three months ended March 31, 2021 and 2020 was approximately $(1.3) million and $(0.4) million, respectively.
 
On March 31, 2021, the Company has gross net operating loss (“NOL”) carryforwards for U.S. federal and state income tax purposes of approximately $57 million and $22 million, 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.
 
On March 31, 2021, and December 31, 2020, the Company had approximately $24.4 million and $23.0 million, respectively, in net operating losses which it can carryforward indefinitely to offset against future French income.
 
On March 31, 2021, and December 31, 2020, the Company had taken no uncertain tax positions that would require disclosure under ASC 740, Accounting for Income Taxes.
 
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.
 
 
 
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On March 31, 2021, diluted net loss per share did not include the effect of 12,360,554 shares of Common Stock issuable upon the conversion of Series B preferred stock, including accrued and unpaid dividends through March 31, 2021, 49,392,676 shares of Common Stock issuable upon the exercise of outstanding warrants, 112,000 shares of restricted stock and RSUs not yet issued, and 4,278,455 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 12,690,204 shares of Common Stock issuable upon exercise of January 2021 Investor Warrants potentially issuable pursuant the Series B Exchange Right.
 
On March 31, 2020, diluted net loss per share did not include the effect of 7,117,559 shares of Common Stock issuable upon the conversion of convertible debt, 7,391,277 shares of Common Stock issuable upon the exercise of outstanding warrants, 632,667 shares of Common Stock pursuant to unissued restricted stock and RSUs, and 1,997,506 shares of Common Stock issuable upon the exercise of outstanding options as their effect would be antidilutive during the periods prior to conversion.
 
 
 
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Note 18 - 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 $32,000 and $22,000 for the three months ended March 31, 2021 and 2020, respectively.
 
Note 19 – Subsequent Events
 
French R&D (CIR) Tax Credit
 
In April 2021, the Company received payment for the 2020 refundable tax credits for research conducted in France of approximately $550,000.
 
Series B Most Favored Nations (MFN) Exchanges
 
From April 1 through May 21, 2021, holders of 315.99 shares of Series B Preferred Stock with an aggregate Series B Exchange Amount of approximately $2.5 million have elected to exercise their Series B Exchange Rights into Series C Preferred Stock, convertible into an aggregate of 3,319,854 shares of Common Stock, and additional January 2021 Investor Warrants exercisable for up to an aggregate of 3,319,854 shares of Common Stock.
 
As of May 21, 2021, holders of 1,622.29 shares of Series B Preferred Stock with an aggregate Series B Exchange Amount of approximately $12.6 million had previously elected to exercise their Series B Exchange Rights into Series C Preferred Stock, convertible into an aggregate of 16,820,841 shares of Common Stock, and additional January 2021 Investor Warrants exercisable for up to an aggregate of 16,820,841 shares of Common Stock.
 
As a result, as of May 21, 2021, we may be required to issue up to 9,483.3780 additional shares of Series C Preferred Stock that are currently convertible up to 9,483,378 underlying shares of Common Stock, together with January 2021 Investor Warrants to purchase up to an additional 9,483,378 shares of Common Stock, to any holders of Series B Preferred Stock who elect to exercise their Series B Exchange Right in connection with up to 893.52 shares of Series B Preferred Stock plus accrued dividends of approximately $232,000. Any shares of Series C Preferred Stock to be issued pursuant to the Series B Exchange Right would, upon issuance, be immediately converted into underlying shares of Common Stock.
 
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ITEM 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
References in this report to “AzurRx,” “Company,” “we,” “us,” “our,” or similar references mean AzurRx BioPharma, Inc. and its subsidiaries on a consolidated basis. References to “AzurRx BioPharma” refer to AzurRx BioPharma, Inc. on an unconsolidated basis. References to “AzurRx SAS” refer to AzurRx BioPharma’s wholly owned subsidiary through which we conduct our European operations. References to the “SEC” refer to the U.S. Securities and Exchange Commission.
 
Forward-Looking Statements
 
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes included elsewhere in this interim report. Our consolidated financial statements have been prepared in accordance with U.S. GAAP. The following discussion and analysis contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including, without limitation, statements regarding our expectations, beliefs, intentions or future strategies that are signified by the words “expect,” “anticipate,” “intend,” “believe,” or similar language. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. Our business and financial performance are subject to substantial risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. In evaluating our business, you should carefully consider the information set forth under the heading “Risk Factors” included in our Annual Report filed on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 31, 2021. Readers are cautioned not to place undue reliance on these forward-looking statements.
 
Overview
 
We are 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. We are focused on developing our pipeline of gut-restricted GI clinical drug candidates, including MS1819 and niclosamide.
 
MS1819, our lead drug candidate, is a recombinant lipase for the treatment of exocrine pancreatic insufficiency (“EPI”) in patients with cystic fibrosis (“CF”) and chronic pancreatitis (“CP”), currently in two Phase 2 CF clinical trials. In March 2021, we announced topline results from our Phase 2b OPTION 2 monotherapy trial, and in May 2021, we announced positive interim results from the first 18 patients in our Phase 2 Combination trial in Europe.
 
In 2021, we intend to launch two new clinical programs using proprietary formulations of niclosamide, a small molecule with anti-helminthic, anti-viral and anti-inflammatory properties; FW-1022, for Severe Acute Respiratory Syndrome Coronavirus 2 (“COVID-19”) GI infections, and FW-420, for Grade 1 and Grade 2 Immune Checkpoint Inhibitor-Associated Colitis (“ICI-AC”) and diarrhea in advanced stage oncology patients. We initiated our Phase 2 RESERVOIR clinical trial using a proprietary oral immediate-release tablet formulation of micronized niclosamide (FW-1022) for the treatment of COVID-19 related GI infections in April 2021, and we are preparing to initiate our Phase 1b/2a PASSPORT ICI-AC trial using both an oral immediate-release tablet and a topical rectal enema foam formulations of niclosamide (FW-420) in the first half of 2021.
 
Clinical Trial Update
 
MS1819 - Combination Trial
 
In May 2021, we announced positive interim data from the first 18 out of 20 patients in our Phase 2 Combination Trial evaluating MS1819 in combination with porcine-derived pancreatic enzyme replacement therapy (PERT), the current standard of care, for the treatment of severe EPI in CF patients. The interim topline data revealed that the combination therapy led to clinically meaningful improvements in the primary efficacy endpoint, the Coefficient of Fat Absorption (CFA), with an average gain of 5.9 points from baseline. According to the clinical literature, a five-point improvement in CFA is considered clinically significant. Full topline results from all 20 patients enrolled in the Combination Trial is expected in the second quarter of 2021.
 
Niclosamide - Phase 2 RESERVOIR clinical trial for COVID-19 related GI infections
 
In April 2021, we initiated our Phase 2 RESERVOIR clinical trial using a proprietary oral formulation of micronized niclosamide (FW-1022) for the treatment of COVID-19 related GI infections. The Phase 2 RESERVOIR clinical trial is a two-part, two-arm, placebo-controlled study examining the safety and efficacy of micronized oral niclosamide tablets in patients with COVID-19 GI infection. The two primary objectives of the RESERVOIR trial will be to confirm the safety of niclosamide in the treatment of patients with COVID-19 GI infection and to demonstrate efficacy in clearing the SARS-CoV-2 virus from the GI tract.
 
Part 1 of the trial will study 9 to 18 patients hospitalized with COVID-19 and GI positive stool or rectal swabs for SARS-CoV-2. Patients will be treated for 14 days and observed closely for any signs of safety issues. A Data Monitoring Committee will then review the safety profile and if niclosamide is well-tolerated, the trial will move on to Part 2.
 
Part 2 of the trial will study approximately 100 patients in outpatient care setting with COVID-19 and PCR positive stool or rectal swabs for SARS-CoV-2. Patients will be randomized to either niclosamide, 400 mg tablets, three times a day, or placebo tablets three times a day. After 14 days of treatment, patients will be taken off study drugs and remain on study observation for up to 6 months.
 
The primary efficacy measure of the RESERVOIR trial is the rate of fecal SARS-CoV-2 virus clearance (rectal swab or stool sample) assessed by RT-PCR, comparing the niclosamide arm to the placebo arm for up to six months. These long-term observation data could indicate that niclosamide treatment has the potential to improve ‘long haul’ COVID-19 symptoms.
 
We commenced patient enrollment in April 2021, and topline data from the RESERVOIR trial is expected in the first half of 2022.
 
COVID-19 Update
 
In March 2020, the World Health Organization declared the novel coronavirus disease, or COVID-19, outbreak a global pandemic. To limit the spread of COVID-19, governments have taken various actions including the issuance of stay-at-home orders and physical distancing guidelines. Accordingly, businesses have adjusted, reduced or suspended operating activities. Beginning in March 2020, the majority of our workforce began working from home. Disruptions caused by the COVID-19 pandemic, including the effects of the stay-at-home orders and work-from-home policies, have impacted productivity, including delayed enrollment of new patients at certain of our clinical trial sites, and may further disrupt our business and delay our development programs and regulatory timelines, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct business in the ordinary course. As a result, our expenses may vary significantly if there is an increased impact from COVID-19 on the costs and timing associated with the conduct of our clinical trials and other related business activities.
 
We have implemented business continuity plans designed to address and mitigate the impact of the ongoing COVID-19 pandemic on our employees and our business. We continue to operate normally with the exception of enabling all of our employees to work productively at home and abiding by travel restrictions issued by federal, state and local governments. Our current plans to return to the office remain fluid as federal, state and local guidelines, rules and regulations continue to evolve.
 
 
 
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Liquidity and Capital Resources
 
To date, we have not generated any revenues and have experienced net losses and negative cash flows from our activities.
 
As of March 31, 2021, we had cash and cash equivalents of approximately $12.0 million, and had sustained cumulative losses attributable to common stockholders of approximately $103 million. Subsequent to March 31, 2021, we have received aggregate gross cash proceeds of approximately $264,000 from the exercise of warrants and approximately $550,000 from the 2020 French refundable tax credits (CIR) for research conducted in France and Europe. We have not yet achieved profitability and anticipate that we will continue to incur net losses for the foreseeable future. We expect that our expenses will continue to grow and, as a result, we will need to generate significant product revenues to achieve profitability. We may never achieve profitability. As such, we are dependent on obtaining, and are continuing to pursue, the necessary funding from outside sources, including obtaining additional funding from the sale of securities in order to continue our operations. Without adequate funding, we may not be able to meet our obligations. We believe these conditions may raise substantial doubt about our ability to continue as a going concern.
 
Our primary sources of liquidity come from capital raises through additional equity and/or debt financings. This may be impacted by the COVID-19 pandemic, which is evolving and could negatively impact our ability to raise additional capital in the future.
 
We have funded our operations to date primarily through the issuance of debt, convertible debt securities, preferred stock, as well as the issuance of Common Stock in various public offerings and private placement transactions. We expect to incur substantial expenditures in the foreseeable future for the development of MS1819, niclosamide and any other drug candidates. We will require additional financing to develop our drug candidates, run clinical trials, prepare regulatory filings and obtain regulatory approvals, fund operating losses, and, if deemed appropriate, establish manufacturing, sales and marketing capabilities. Our current financial condition raises substantial doubt about our ability to continue as a going concern. Our failure to raise capital as and when needed would have a material adverse impact on our financial condition, our ability to meet our obligations, and our ability to pursue our business strategies. We will seek funds through additional equity and/or debt financings, collaborative or other arrangements with corporate sources, or through other sources of financing.
 
Although, we are primarily focused on the development of our drug candidates, including MS1819 and niclosamide, we are also opportunely focused on expanding our product pipeline of clinical assets through collaborations, and also through acquisitions of products and companies. We are continually evaluating potential asset acquisitions business combinations, and other partnership opportunities. To finance such acquisitions, we might raise additional equity capital, incur additional debt, or both.
 
As of March 31, 2021, we have approximately $44.3 million of securities available to be sold under the shelf registration statement filed on July 3, 2018, which was declared effective on July 12, 2018 and will expire on July 12, 2021, and we have approximately $30.0 million of securities available to be sold under the shelf registration statement filed on June 5, 2019, which was declared effective on June 25, 2019 and will expire on June 25, 2022.
 
As of March 31, 2021, there is approximately $14.0 million of our Common Stock available for issuance pursuant to a purchase agreement with Lincoln Park Capital Fund, LLC. We may sell the remaining shares of Common Stock that may be issued under the purchase agreement at our discretion from time to time until July 2022, subject to the continued effectiveness of a registration statement covering such shares of Common Stock sold to Lincoln Park Capital Fund, LLC by us.
 
Our ability to issue securities is subject to market conditions. Each issuance under the shelf registration statements will require the filing of a prospectus supplement identifying the amount and terms of the securities to be issued.
 
Consolidated Results of Operations for the Three Months Ended March 31, 2021 and 2020
 
The following table summarizes our consolidated results of operations for the periods indicated:
 
 
 
Three Months Ended
March 31,
 
 
 
 
 
 
2021
 
 
2020
 
 
Increase
(decrease)
 
Operating expenses:
 
 
 
 
 
 
 
 
 
Research and development expenses
 $2,516,027 
 $1,548,831 
 $967,196 
General and administrative expenses
  5,697,514 
  1,379,620 
  4,317,894 
Total operating expenses
  8,123,541 
  2,928,451 
  5,285,090 
Other expenses (income)
  (527,912)
  2,332,839 
  2,860,751 
Net loss
 $7,685,629 
 $5,261,290 
 $2,424,339 
 
 
 
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Revenues
 
We have not yet achieved revenue-generating status from any of our product candidates. Since inception, we have devoted substantially all of our time and efforts to developing our drug candidates. As a result, we did not have any revenue during the three months ended March 31, 2021 and 2020, respectively.
 
Research and Development Expense
 
Research and development expenses include cash and non-cash expenses primarily relating to the development of our lead drug candidate, MS1819 and our in-licensed niclosamide drug candidates.
 
Research and development expenses for the three months ended March 31, 2021 totaled approximately $2.5 million, an increase of approximately $1.0 million, or 62% over the approximately $1.5 million recorded for the three months ended March 31, 2020. Non-cash expenses, including stock-based compensation, and depreciation and amortization totaled approximately $0.5 million for the three months ended March 31, 2021 and approximately $0.1 million recorded for the three months ended March 31, 2020. Cash research and development expenses for the three months ended March 31, 2021 totaled approximately $2.0 million, an increase of approximately $0.6 million, or 40% over the approximately $1.4 million recorded for the three months ended March 31, 2020.
 
The increase in total research and development expenses was primarily attributable increases of approximately $0.3 million in clinical related expenses in connection with conducting two Phase 2 clinical trials during the three months ended March 31, 2021, as compared to one Phase 2 clinical trial during the three months ended March 31, 2020, approximately $0.3 million in CMC related activates for MS1819, and approximately $0.4 million in non-cash stock option expense.
 

 
We expect cash research and development expense to increase during the remainder of this fiscal year as we initiate and conduct two clinical trials for niclosamide, pursue additional CMC activities in connection with formulation development for MS1819 and personnel related costs in connection with four new hires.
 
General and Administrative Expense
 
General and administrative expenses include cash and non-cash expenses primarily consisting of costs associated with our overall operations and being a public company. These costs include personnel, legal and financial professional services, insurance, corporate communication and investor relations, compliance related fees, rent, and expenses associated with obtaining and maintaining intellectual property and patents, among others.
 
General and administrative expenses for the three months ended March 31, 2021 totaled approximately $5.7 million, an increase of approximately $4.3 million, or 309% over the approximately $1.4 million recorded for the three months ended March 31, 2020. Non-cash expenses, including stock-based compensation, stock expense and depreciation and amortization totaled approximately $1.4 million for the three months ended March 31, 2021, and approximately $0.2 million recorded for the three months ended March 31, 2020. Cash general and administrative expenses for the three months ended March 31, 2021 totaled approximately $4.3 million, an increase of approximately $3.1 million, or 250% over the approximately $1.2 million recorded for the three months ended March 31, 2020.
 
The increase in total general and administrative was due primarily to increases of approximately $1.9 million in public company costs, including investor relations, corporate communications, and compliance related fees in connection with market awareness campaigns, approximately $0.4 million of legal expenses primarily related to increased financing activity, including a special meeting of the shareholders, approximately $0.3 million of business development costs primarily related to fees for the First Wave license agreement, approximately $0.3 million of other costs related to the settlement with our former investment bank, and approximately $0.1 million in personnel costs, offset by decreases of approximately $0.1 million in travel and entertainment.
 
We expect cash general and administrative expenses to increase during the remainder of this fiscal year to support our research and development efforts and growing operations.
 
 
 
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Other Expense (Income)
 
Other income for the three months ended March 31, 2021 totaled approximately $(0.5) million, an increase of approximately $2.9 million, or 123% over the approximately $2.3 million of other expense recorded for the three months ended March 31, 2020. Interest expense was approximately $0 and $2.3 million for the three months ended March 31, 2021 and 2020, respectively. The decreased interest expense was primarily due to amortization of debt discount and accrued interest related to the convertible debt issued in December 2019 and January 2020 for the three months ended March 31, 2020, which was not present for the three months ended March 31, 2021. The change in fair value was approximately $0.5 million and $0 for the three months ended March 31, 2021 and 2020, respectively. The increased change in fair value related to the extinguishment of the $3.0 million liability in connection with First Wave License Agreement pursuant to the issuance of Series C Preferred Stock with a fair value of approximately $2.5 million for the three months ended March 31, 2021, which was not present for the three months ended March 31, 2020.
 
Net Loss
 
As a result of the factors above, our net loss for the three months ended March 31, 2021 totaled approximately $7.7 million, an increase of approximately $2.4 million, or 45% over the approximately $5.3 million recorded for the three months ended March 31, 2020.
 
Cash Flows for the Three Months Ended March 31, 2021 and 2020
 
The following table summarizes our cash flows for the periods indicated:
 
 
 
Three Months Ended
March 31,
 
 
 
2021
 
 
2020
 
Net cash provided by (used in):
 
 
 
 
 
 
Operating activities
 $(5,073,394)
 $(1,291,280)
Investing activities
  - 
  (4,340)
Financing activities
  11,050,623 
  2,756,254 
Net increase (decrease) in cash and cash equivalents
 $5,977,229 
 $1,460,634 
 
Operating Activities
 
Net cash used in operating activities during the three months ended March 31, 2021 of approximately $5.1 million was primarily attributable to our net loss of approximately $7.7 million adjusted for addbacks of non-cash expenses of approximately $0.7 million, related to common stock and warrants issued to consultants of approximately $1.0 million, depreciation and amortization of approximately $0.1 million, and stock-based compensation of approximately $0.8 million and a net increase of working capital of approximately $0.7 million.
 
Net cash used in operating activities during the three months ended March 31, 2020 of approximately $1.3 million was primarily attributable to our net loss of approximately $5.3 million adjusted for addbacks of non-cash expenses of approximately $2.7 million, which includes depreciation and amortization of approximately $0.1 million, stock expense of approximately $0.2 million, accretion of debt discount of approximately $2.0 million, interest on convertible debt of approximately $0.2 million and stock-based compensation of approximately $0.1 million and a net decrease of working capital of approximately $1.3 million.
 
Investing Activities
 
Net cash used in investing activities during the three months ended March 31, 2021 of approximately $0.
 
Net cash used in investing activities during the three months ended March 31, 2020 of approximately $4,000 was primarily attributable to the net purchase of property and equipment.
 
 
 
-40-
 
Financing Activities
 
Net cash provided by financing activities of approximately $11.1 million for the three months ended March 31, 2021 was primarily due to the issuance of the Series C Preferred Stock and warrants of approximately $7.1 million from the January 2021 Offerings, the issuance of the Common Stock and warrants of approximately $9.1 million from the March 2021 Offering, and the cash proceeds from warrant exercises of approximately $4.6 million, offset by repayments of approximately $0.2 million related to the note payable, and payment of approximately $9.5 million related to the license agreement.
 
Net cash provided by financing activities of approximately $2.8 million for the three months ended March 31, 2020 was primarily due to the issuance of the convertible debt of approximately $3.2 million from the Promissory Note Offering, and approximately $0.1 million from the proceeds of the Equity Line Agreement offset by repayments of convertible debt and interest of approximately $0.5 million related to the ADEC Notes and approximately $0.2 million related to the note payable.
 
Critical Accounting Policies and Estimates
 
Our accounting policies are essential to understanding and interpreting the financial results reported on the condensed consolidated financial statements. The significant accounting policies used in the preparation of our condensed consolidated financial statements are summarized in Note 2 to the consolidated financial statements and notes thereto found in our Annual Report on Form 10-K for the year ended December 31, 2020. Certain of those policies are considered to be particularly important to the presentation of our financial results because they require us to make difficult, complex or subjective judgments, often as a result of matters that are inherently uncertain.
 
During the three months ended March 31, 2021, there were no material changes to matters discussed under the heading “Critical Accounting Policies and Estimates” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
 
ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS 
 
Not applicable.
 
ITEM 4.  CONTROLS AND PROCEDURES
 
Disclosure Controls and Procedures
 
As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”) conducted an evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on that evaluation, our CEO and our CFO each concluded that our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act, (i) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and (ii) is accumulated and communicated to our management, including our CEO and our CFO, as appropriate to allow timely decisions regarding required disclosure. Our CEO and CFO each reached these conclusions notwithstanding the fact that on May 18, 2021, we filed with the Securities and Exchange Commission a Notification of Late Filing, pursuant to Rule 12b-25 under the Securities and Exchange Act of 1934, with respect to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021. We subsequently filed the Quarterly Report on Form 10-Q within the five day extension period permitted pursuant to Rule 12b-25.
 
Changes in Internal Control Over Financial Reporting
 
There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
  
 
 
-41-
 
PART II
 
OTHER INFORMATION
 
ITEM  1.     LEGAL PROCEEDINGS
 
None.
 
ITEM  1A.  RISK FACTORS
 
Our results of operations and financial condition are subject to numerous risks and uncertainties described in our Annual Report on Form 10-K for our fiscal year ended December 31, 2020, filed on March 31, 2021. You should carefully consider these risk factors in conjunction with the other information contained in this Quarterly Report. Should any of these risks materialize our business, financial condition and future prospects could be negatively impacted. As of May 14, 2021, there have been no material changes to the disclosures made in the above referenced Form 10-K.
 
ITEM 2.     UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
During the three months ended March 31, 2021, we issued our non-executive Board members stock options to purchase an aggregate of 206,185 shares of Common Stock with a strike price of $0.97 per share, subject to time-based vesting, under the Omnibus Equity Incentive Plan, as amended and restated (the “2020 Plan”) as payment for services provided to the Board. Such issuance was exempt from registration under 4(a)(2) of the Securities Act of 1933, as amended.
 
During the three months ended March 31, 2021, we issued to non-executive employees stock options to purchase an aggregate of 137,500 shares of Common Stock with strike prices ranging from $0.92 to $1.54 per share, subject to time-based vesting, under the 2020 Plan as payment for services rendered. Such issuance was exempt from registration under 4(a)(2) of the Securities Act of 1933, as amended.
 
ITEM 3.     DEFAULTS UPON SENIOR SECURITIES
 
None.
 
ITEM 4.    MINE SAFETY DISCLOSURES
 
Not applicable.
 
ITEM 5.    OTHER INFORMATION
 
None. 
 
ITEM 6.    EXHIBITS

(b)
Exhibits
 
Exhibit No.
 
Description
 
Certificate of the Designations, Powers, Preferences and Rights of Series C 9.00% Convertible Junior Preferred Stock (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed with the SEC on January 8, 2021).
  3.2*
 
Amended and Restated Certificate of Incorporation of AzurRx BioPharma, Inc., as amended.
 
Form of Pre-funded Warrant (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed with the SEC on January 4, 2021).
 
Form of Private Placement Warrant (incorporated by reference to Exhibit 4.2 of the Company’s Current Report on Form 8-K filed with the SEC on January 4, 2021).
 
Form of Wainwright Warrant (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed with the SEC on January 8, 2021).
 
Form of Pre-Funded Warrant (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed with the SEC on March 10, 2021).
 
Form of Warrant (incorporated by reference to Exhibit 4.2 of the Company’s Current Report on Form 8-K filed with the SEC on March 10, 2021).
 
Form of Wainwright Warrant (incorporated by reference to Exhibit 4.3 of the Company’s Current Report on Form 8-K filed with the SEC on March 10, 2021).
 
Form of Purchase Agreement (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on January 4, 2021).
 
Form of Registration Rights Agreement (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed with the SEC on January 4, 2021).
 
First Wave Purchase Agreement (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on January 8, 2021).
 
License Agreement, dated December 31, 2020, by and between the Company and First Wave Bio, Inc. (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K/A filed with the SEC on January 13, 2021).
 
Form of Purchase Agreement (incorporated by reference to Exhibit 10.1 filed with the Company’s Current Report on Form 8-K filed with the SEC on March 10, 2021).
31.1*
 
Certification of the Principal Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*
 
Certification of the Principal Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*
 
Certification of the Principal Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
101.INS
 
XBRL Instance Document
101.SCH
 
XBRL Taxonomy Extension Schema
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase
101.LAB
 
XBRL Taxonomy Extension Label Linkbase
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase
 
  * filed herewith
-42-
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
 
AZURRX BIOPHARMA, INC.
 
 
 
 
 
 
By
/s/ James Sapirstein
 
 
 
James Sapirstein
President, Chief Executive Officer and Chairman
(Principal Executive Officer)
 
 
 
 
 
 
 
By
/s/ Daniel Schneiderman
 Date: May 24, 2021
 
 
Daniel Schneiderman
Chief Financial Officer
(Principal Financial and Accounting Officer)
 
 
 
 
 
-43-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Exhibit 31.1
 
CERTIFICATION PURSUANT TO RULE 13A-14 OF THE SECURITIES EXCHANGE ACT OF 1934
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
 
 
 I, James Sapirstein, Chief Executive Officer of the Company, certify that:
 
 1.
I have reviewed this Quarterly Report on Form 10-Q of AzurRx BioPharma, Inc.;
 
 2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.
 
 3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
 4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
 
 a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
 
 b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles
 
 
 c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
 
 d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
 5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
 
 a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
 
 b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date: May 24, 2021
/s/  James Sapirstein
James Sapirstein
Chief Executive Officer
(Principal Executive Officer)
 
 
 
 
 
Exhibit 31.2
 
CERTIFICATION PURSUANT TO RULE 13A-14 OF THE SECURITIES EXCHANGE ACT OF 1934
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
 
 
 I, Daniel Schneiderman, Chief Financial Officer of the Company, certify that:
 
 1.
I have reviewed this Quarterly Report on Form 10-Q of AzurRx BioPharma, Inc.;
 
 2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.
 
 3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
 4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
 
 a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
 
 b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles
 
 
 c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
 
 d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
 5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
 
 a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
 
 b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date: May 24, 2021
/s/ Daniel Schneiderman
Daniel Schneiderman
Chief Financial Officer
(Principal Financial and Accounting Officer)

 
 
 
 
 
Exhibit 32.1
 
CERTIFICATION PURSUANT TO 
18 U.S.C. SECTION 1350, 
AS ADOPTED PURSUANT TO 
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
   
In connection with the Quarterly Report of AzurRx BioPharma, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James Sapirstein, Chief Executive Officer of the Company, and Daniel Schneiderman, Chief Financial Officer of the Company, each certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
  
 
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
 
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
 

Date: May 24, 2021
/s/ James Sapirstein
 
James Sapirstein
President and Chief Executive Officer
(Principal Executive Officer)
 
 
 
 
 
/s/ Daniel Schneiderman
Daniel Schneiderman
Chief Financial Officer
(Principal Financial and Accounting Officer)