Note

– Equity and Stock-Based Compensation

Under the Second Amended and Restated Certificate of Incorporation, it has the authority to issue a total of

101,000,000

shares of capital stock, consisting of

100,000,000

shares of common stock and

1,000,000

shares of preferred stock, par value

$0.0001

per share, which will have such rights, powers and preferences as the Board of Directors of the Company shall determine.

Series A Preferred Stock

May 5, 2016,

the Company filed a Certificate of Designations of Series A Preferred Stock with the Delaware Secretary of State, designating

29,038

shares of the Company’s undesignated preferred stock, par value

$0.0001

per share, as Series A Preferred Stock. On

May 5, 2016,

the Company issued

29,038

shares of Series A Preferred Stock to the Deerfield Lenders in accordance with the Plan pursuant to the exemption from the registration requirements of the Securities Act provided by Section

1145

of the Bankruptcy Code. The Deerfield Lenders did

not

receive any shares of common stock or other equity interests in the Company.

The Series A Preferred Stock has

stated maturity date, is

not

convertible or redeemable, and carries a liquidation preference of

$29,038,000,

which is required to be paid to holders of such Series A Preferred Stock before any payments are made with respect to shares of New Common Stock (and other capital stock that is

not

issued on parity or senior to the Series A Preferred Stock) upon a liquidation or change in control transaction. For so long as Series A Preferred Stock is outstanding, the holders of Series A Preferred Stock have the right to nominate and elect

one

member of the Board of Directors of the Company. The Series A Preferred Stock has voting rights, voting with the New Common Stock as a single class, with each share of Series A Preferred Stock having the right to

five

votes, which currently represents approximately

one

percent (

) of the voting rights of the capital stock of the Company. The holders of Series A Preferred Stock have the right to approve certain transactions and incurrences of debt. Among other restrictions, the Certificate of Designations for our Series A Preferred Stock limits the Company’s ability to (i) issue securities that are senior or

pari passu

with the Series A Preferred Stock, (ii) incur debt other than for working capital purposes

not

in excess of

$3.0

million, (iii) issue securities that are junior to the Series A Preferred Stock and that provide certain consent rights to the holders of such junior securities in connection with a liquidation or contain certain liquidation preferences, (iv) pay dividends on or purchase shares of its capital stock, and (v) change the authorized number of members of its Board of Directors to a number other than five, in each case without the consent of holders representing at least

two

-thirds of the outstanding shares of Series A Preferred Stock. The Series A Preferred Stock is classified in equity.

Common Stock

May 28, 2018,

the Company sold

1,000,000

common shares for

$500,000

to Rohto. See Note

–

Convertible Notes and Stock Purchase Warrants

for information on the issuance of notes convertible into common stock in

September 2018.

Stock Purchase Warrants

As part of the Plan of Reorganization, the Company also issued warrants to purchase

6,180,000

shares of unregistered common stock to certain investors participating in the recapitalization of the Company. The warrants terminate on

May 5, 2021

and are currently exercisable at exercise prices ranging from

$0.50

per share to

$0.75

per share. The number of shares of common stock underlying a warrant and its exercise price are subject to customary adjustments upon subdivisions, combinations, payment of stock dividends, reclassifications, reorganizations and consolidations. The warrants are classified in equity.

See Note

–

Convertible Notes and Stock Purchase Warrants

for information on the issuance of warrants to purchase an aggregate of

466,666

shares of unregistered common stock to the convertible note investors in

September 2018.

Stock-Based Compensation

July 2016,

the Board of Directors approved the Company’s

2016

Omnibus Incentive Plan (the

“2016

Omnibus Plan”), and on

August 4, 2016,

the Board amended such plan to include an evergreen provision, intended to increase the maximum number of shares issuable under the Omnibus Plan on the

first

day of each fiscal year (starting on

January 1, 2017)

by an amount equal to

six

percent (

) of the shares reserved as of the last day of the preceding fiscal year, provided that the aggregate number of all such increases

may

not

exceed

1,000,000

shares. As of

November 21, 2016,

holders of a majority of our capital stock executed a written consent adopting and approving the

2016

Omnibus Plan, as amended and restated, which provides for the Company to grant equity and cash incentive awards to officers, directors and employees of, and consultants to, the Company and its subsidiaries. We were authorized to issue up to

1,786,524

shares of common stock under the

2016

Omnibus Plan as of

September 30, 2019.

A summary of stock option activity under the

2016

Omnibus Plan during the

nine

months ended

September 30, 2019

is presented below:

Stock Options – 2016 Omnibus Plan	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value

Outstanding at January 1, 2019		1,616,876	$	0.50		6.96	$	-
Granted		125,000	$	0.40		7.00
Exercised		-	$	-		-
Forfeited or expired		-	$	-		-
Outstanding at September 30, 2109		1,741,876	$	0.49		6.22	$	-
Exercisable at September 30, 2019		1,741,876	$	0.49		6.22	$	-

There were

125,000

stock options granted under the

2016

Omnibus Plan during the

nine

months ended

September 30, 2019

to settle accrued compensation liabilities with the Company’s senior management. The fair value of these stock options granted and immediately vested during the

nine

months ended

September 30, 2019

was approximately

$2,600.

As the options issued were to related parties, the

$50,000

of settled liabilities was credited to additional paid-in-capital.

stock options were exercised during the

nine

months ended

September 30, 2019.

As of

September 30, 2019,

there was

unrecognized compensation cost related to non-vested stock options.

The Company recorded stock-based compensation expense in the periods presented as follows:

	Three Months ended September 30, 2019		Three Months ended September 30, 2018

Research and development	$	-	$	721
General and administrative		-		649
	$	-	$	1,370

	Nine Months ended September 30, 2019		Nine Months ended September 30, 2018

Research and development	$	-	$	2,766
General and administrative		-		2,958
	$	-	$	5,724