| Equity | Our certificate
of incorporation, as amended and restated on December 20, 2019 (the “ Charter On
December 19, 2019, the Company held its Annual Meeting of Stockholders (the “ 2019 Annual Meeting Reverse Split Common
Stock The
Company had 28,881,984 and 26,800,519 shares of its Common Stock issued and outstanding at September 30, 2020 and December 31,
2019, respectively. Each
holder of Common Stock is entitled to one vote for each share of Common Stock held on all matters submitted to a vote of the stockholders.
Our Charter and Amended and Restated Bylaws (the “ Bylaws In
addition, the holders of our Common Stock will be entitled to receive ratably such dividends, if any, as may be declared by the
Board out of legally available funds; however, the current policy of our Board is to retain earnings, if any, for operations and
growth. Upon liquidation, dissolution or winding-up, the holders of our Common Stock will be entitled to share ratably in all
assets that are legally available for distribution. Holders
of our Common Stock have no preemptive, conversion or subscription rights, and there are no redemption or sinking fund provisions
applicable to the Common Stock. The rights, preferences and privileges of the holders of Common Stock are subject to, and may
be adversely affected by, the rights of the holders of shares of any series of our preferred stock that we may designate and issue
in the future. Preferred
Stock We have 10,000,000 shares of preferred stock,
par value $0.0001 per share, authorized and available for issuance in one or more series. The Board is authorized to divide the
preferred stock into any number of series, fix the designation and number of each such series, and determine or change the designation,
relative rights, preferences, and limitations of any series of preferred stock. The Board of may increase or decrease the number
of shares initially fixed for any series, but no decrease may reduce the number below the shares then outstanding and duly reserved
for issuance. On July 16, 2020, we authorized 5,194.805195
shares as Series B Preferred Stock and issued 2,912.583005 shares of Series B Preferred Stock, with 2,282.222190
shares of Series B Preferred Stock remaining authorized but unissued. Following such transactions, we currently have 2,912.583005
shares of preferred stock issued and outstanding with 9,997,087.416995 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 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. At September 30, 2020 the dividend
payable to the holders of the Series B Preferred Stock aggregated to approximately $408,043. Liquidation Preference; Liquidation Rights Under the Certificate of Designations,
each share of Series B Preferred Stock carries a liquidation preference equal to the Series B Stated Value (as adjusted thereunder)
plus accrued and unpaid dividends thereon (the “ Liquidation Preference If the Company voluntarily or involuntarily
liquidates, dissolves or winds up its affairs, each holder of the Series B Preferred Stock will be entitled to receive out of the
Company’s assets available for distribution to stockholders, after satisfaction of liabilities to creditors, if any, but
before any distribution of assets is made on the Common Stock or any of the Company’s shares of stock ranking junior as to
such a distribution to the Series B Preferred Stock, a liquidating distribution in the amount of the Stated Value of all such holder’s
Series B Preferred Stock plus all accrued and unpaid dividends thereon. At September 30, 2020, the value of the liquidation preference
of the Series B Preferred stocks aggregated to approximately $22.6 million. Conversion Each share of Series B Preferred Stock will
be convertible at the holder’s option at any time, into Common Stock at a conversion rate equal to the quotient of (i) the
Series B Stated Value divided by (ii) the initial conversion price of $0.77, subject to specified adjustments for stock splits,
cash or stock dividends, reorganizations, reclassifications other similar events as set forth in the Series B Certificate
of Designations. In addition, at any time after the six month anniversary of the Series B Closing Date, if the closing sale price
per share of Common Stock exceeds 250% of the initial conversion price, or $1.925, for 20 consecutive trading days, then all of
the outstanding shares of Series B Preferred Stock will automatically convert (the “ Automatic Conversion Most Favored Nations Exchange Right In the event the Company effects any issuance
by the Company or any of its subsidiaries of Common Stock or Common Stock equivalents for cash consideration, or a combination
of units thereof (a “ Subsequent Financing Voting The holders of the Series B Preferred Stock,
voting as a separate class, will have customary consent rights with respect to certain corporate actions of the Company. The Company
may not take the following actions without the prior consent of the holders of at least a majority of the Series B Preferred Stock
then outstanding: (a) authorize, create, designate, establish, issue or sell an increased number of shares of Series B Preferred
Stock or any other class or series of capital stock ranking senior to or on parity with the Series B Preferred Stock as to dividends
or upon liquidation; (b) reclassify any shares of Common Stock or any other class or series of capital stock into shares having
any preference or priority as to dividends or upon liquidation superior to or on parity with any such preference or priority of
Series B Preferred Stock; (c) amend, alter or repeal the Certificate of Incorporation or Bylaws of the Company and the powers,
preferences, privileges, relative, participating, optional and other special rights and qualifications, limitations and restrictions
thereof, which would adversely affect any right, preference, privilege or voting power of the Series B Preferred Stock; (d) issue
any indebtedness or debt security, other than trade accounts payable, insurance premium financings and/or letters of credit, performance
bonds or other similar credit support incurred in the ordinary course of business, or amend, renew, increase, or otherwise alter
in any material respect the terms of any such indebtedness existing as of the date of first issuance of shares of Series B Preferred
Stock; (e) redeem, purchase, or otherwise acquire or pay or declare any dividend or other distribution on (or pay into or set aside
for a sinking fund for any such purpose) any capital stock of the Company; (f) declare bankruptcy, dissolve, liquidate, or wind
up the affairs of the Company; (g) effect, or enter into any agreement to effect, a Change of Control (as defined in the Certificate
of Designations); or (h) materially modify or change the nature of the Company’s business. 2014 Equity Incentive Plan The Company’s Board and stockholders adopted
and approved the Amended and Restated 2014 Omnibus Equity Incentive Plan (the “ 2014 Plan 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 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 795,006 and
0 stock options, during the nine months ended September 30, 2020 and 2019, respectively, under the 2014 Plan (see Note 13). Upon
adoption of the 2020 Omnibus Equity Incentive Plan on September 11, 2020, the Company will no longer make grants under the 2014
Plan. 2020 Equity Incentive Plan The Company’s Board and stockholders adopted
and approved the 2020 Omnibus Equity Incentive Plan (the “ 2020 Plan SOs As of September 30, 2020, no grants were issued
under the 2020 Plan and an aggregate of 10,000,000 total shares are available under the 2020 Plan. Equity Line with Lincoln Park On November 13, 2019, the Company entered into
a purchase agreement (the “ Equity Line Agreement Lincoln
Park Registration Rights Agreement Equity Line Commitment Shares 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 Regular Purchase Purchase Price
● 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 Accelerated Purchase Accelerated Purchase Measurement
Period
● 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 Additional Accelerated Purchase Measurement Period
● 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 date; and
● the closing sale price of Common Stock on the applicable Additional Accelerated Purchase. During the three and nine months ended September
30, 2020, the Company issued an aggregate of 0, and 1,495,199 shares of Common Stock, respectively, in connection with the Equity
Line Agreement, resulting in net proceeds to the Company of approximately $0, and $988,348, respectively. 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. Generally, there is approximately $14 million of availability left for issuance pursuant
to the Equity Line Agreement. Common Stock Issuances During the three months ended September
30, 2020, holders of shares of Series B Preferred Stock converted 34.127448 shares of Series B Preferred Stock into an
aggregate of 341,274 shares of Common Stock at the stated conversion price of $0.77 per share, plus the issuance of 4,610
shares of Common Stock for accrued dividends of $3,551 through such conversion dates. During the three months ended September 30,
2020, the Company issued an aggregate of 31,646 shares of its Common Stock to consultants with a total grant date fair value
of approximately $25,000 for investor relations services provided, which was recorded as stock-based compensation
and included as part of general and administrative expense. During the nine months ended September 30, 2020,
the Company issued an aggregate of 132,841 shares of its Common Stock to consultants with a total grant date fair value of
approximately $112,105 for investor relations services provided, which was recorded was recorded as stock-based compensation
and included as part of general and administrative expense. During the nine months ended September 30, 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 $131,137 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. During the three and nine months ended September
30, 2019, the Company issued 21,677 and 62,518 shares of Common Stock, respectively, to a consultant as payment of $22,500 and
$112,500, respectively, of accounts payable related to investor relations services. During the three and nine months ended September
30, 2019, the Company issued an aggregate of 0 and 60,000 shares of its Common Stock, respectively, to outside Board
members as payment of Board fees with an aggregate grant date fair value of approximately $0 and $123,000, respectively that
was recorded as stock-based compensation, included as part of general and administrative expense. During the period from April 6, 2020 through
May 22, 2020, the Company sold an aggregate of 1,345,199 shares of Common Stock pursuant to the Equity Line, from which the Company
derived approximately $869,000 in net proceeds. The sales of these shares were exempt from registration under the Securities Act
of 1933, as amended, in reliance upon Section 4(a)(2) (or Regulation D promulgated thereunder). 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 During the three months ended September 30,
2020, an aggregate of 1,746 unvested restricted shares of Common Stock, subject to service conditions, vested with a total grant
date fair value of approximately $6,289 and was recorded as stock-based compensation, included as part of general and administrative
expense. During the nine months ended September 30, 2020,
an aggregate of 10,080 unvested restricted shares of Common Stock, subject to service conditions, vested with a total grant date
fair value of approximately $36,289 and was recorded as stock-based compensation, included as part of general and administrative
expense. During the three and nine months ended September
30, 2020, an aggregate of 0, and 4,000 unvested restricted shares of Common Stock were forfeited, respectively. During the three months ended September 30,
2019, the Company issued 21,677 restricted shares of Common Stock to a consultant as payment of $22,500 of accounts payable for
investor relations services. During the nine months ended September 30, 2019, the Company issued 62,518 shares of Common Stock
to a consultant as payment of $112,500 of accounts payable for investor relations services. During the three months ended September 30,
2019, an aggregate of 43,750 unvested restricted shares of Common Stock vested with a total grant date fair value of approximately
$63,434. 13,750 of these restricted shares vested during the three months ended September 30, 2019 due to the terms of such grants
with a total grant date fair value of approximately $44,834. 30,000 of these restricted shares were issued during the three months
ended September 30, 2019 to our directors as a part of Board compensation with a total grant date fair value of approximately $18,600. During the nine months ended September 30, 2019,
an aggregate of 223,417 unvested restricted shares of Common Stock vested with a total grant date fair value of approximately $556,888.
33,334 of these restricted shares with a total grant date fair value of approximately $101,335 vested during the nine months ended
September 30, 2019 due to the Company achieving certain clinical milestones. 41,250 of these restricted shares with a total grant
date fair value of approximately $134,501 vested during the nine months ended September 30, 2019 due to the satisfaction of service
conditions 30,000 of these restricted shares were issued during the three months ended September 30, 2019 to our directors as a
part of Board compensation with a total grant date fair value of approximately $142,200. As of September 30, 2020, the Company had unrecognized
restricted common stock expense of approximately $393,250. Approximately $196,625 of this unrecognized expense vests upon the first
commercial sale in the United States of MS1819 and approximately $196,625 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
at September 30, 2020. The Series B Private Placement and the
Exchange On July 16, 2020 (the “ Series B Closing
Date Series B Private Placement Series
B Purchase Agreement Series B Investors Series B Preferred Stock Series
B Warrants In connection with the Series B Private Placement,
an aggregate of 1,975.578828 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 937.004177 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 Promissory Notes Exchange Exchange Addendum Exchange
Warrants Pursuant to the Series B Private Placement and
the Series B Purchase Agreement, for purposes of complying with Nasdaq Listing Rule 5635(c) and 5635(d), the Company was required
to hold a meeting of its stockholders not later than 60 days following the Series B Closing Date to seek approval (the “ Stockholder
Approval 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 $1,307, held by those holders who did not participate in the Exchange. Following these transactions, no Promissory
Notes remain outstanding. In connection with the Series B Private Placement,
the Company paid the placement agent 9.0% of the gross cash proceeds received by the Company from investors introduced by the placement
agent and 4.0% of the gross cash proceeds received by the Company for all other investors, or approximately $1.3 million. The Company
also paid the placement agent a non-accountable cash fee equal to 1.0% of the gross cash proceeds and a cash financial advisory
fee equal to 3.0% of the outstanding principal balance of the Promissory Notes that were submitted in the Exchange, or approximately
$0.3 million in additional cash fees in the aggregate. In addition, the Company issued to the placement agent warrants to purchase
up to 1,377,458 shares of Common Stock (the “ July Placement Agent Warrants Accounting for the Series B Private Placement Upon receiving Shareholder Approval on September
11, 2020, the Company classified the Series B Preferred Stock as permanent equity because no features provide for redemption by
the holders of the Series B Preferred Stock or conditional redemption, which is not solely within the Company’s control,
and there are no unconditional obligations in that (1) the Company must or may settle in a variable number of its equity shares
and (2) the monetary value is predominantly fixed, varying with something other than the fair value of the Company’s equity
shares or varying inversely in relation to the Company’s equity shares. Because the Series B Preferred Stock contain
certain embedded features that could affect the ultimate settlement of the Series B Preferred Stock, the Company analyzed the instrument
for embedded derivatives that require bifurcation. The Company’s analysis began with determining whether the Series B Preferred
Stock is more akin to equity or debt. The Company evaluated the following criteria/features in this determination: redemption,
voting rights, collateral requirements, covenant provisions, creditor and liquidation rights, dividends, conversion rights and
exchange rights. The Company determined that the Series B Preferred Stock was more akin to equity than to debt when evaluating
the economic characteristics and risks of the entire Series B Preferred Stock, including the embedded features. The Company then
evaluated the embedded features to determine whether their economic characteristics and risks were clearly and closely related
to the economic characteristics and risks of the Series B Preferred Stock. Since the Series B Preferred Stock was determined to
be more akin to equity than debt, and the underlying that causes the value of the embedded features to fluctuate would be the value
of the Company’s common stock, the embedded features were considered clearly and closely related to the Series B Preferred
Stock. As a result, the embedded features would not need to be bifurcated from the Series B Preferred Stock. Any beneficial conversion features related to
the exercise of the Most Favored Nation exchange right or the application of the Mandatory Conversion provision will be recognized
upon the occurrence of the contingent events based on its intrinsic value at the commitment date. The Company
concluded the freestanding Series B Warrants did not contain any provision that would require liability classification and therefore
should be classified in stockholder’s equity, based on their relative fair value. The proceeds
from the Series B Private Placement were allocated to the Series B Preferred Stock and Series B Warrants based on their relative
fair values. The 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 $8,155,212 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 $2,014,218 were recognized in equity. |
