10-Q

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 June 30, 2018

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.)

760 Parkside Avenue

Downstate Biotechnology Incubator, Suite 304

Brooklyn, New York 11226

(Address of principal executive offices)

(646) 699-7855

(Issuer’s telephone number)

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 and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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	[   ]	Smaller reporting company	[   ]
(Do not check if a smaller reporting company)		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]

As of August 10, 2018, there were 16,910,462shares of the registrant’s common stock, $0.0001 par value, issued and outstanding.

  TABLE O F CONTENTS

			Page
PART I.	FINANCIAL INFORMATION
	Item 1.	Consolidated Financial Statements	1
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
	Item 4.	Controls and Procedures	26
PART II.	OTHER INFORMATION
	Item 1.	Legal Proceedings	27
	Item 1A.	Risk Factors	27
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
	Item 3.	Defaults Upon Senior Securities	27
	Item 4.	Mine Safety Disclosures	27
	Item 5.	Other Information	27
	Item 6.	Exhibits	27

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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, 2017 included in our Annual Report filed on Form 10-K, filed with the SEC on March 16, 2018.

The results of operations for the three and six months ended June 30, 2018 are not necessarily indicative of the results to be expected for the fiscal year ended December 31, 2018.

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AZURRX BIOPHARMA, INC.

Consolidated Balance Sheets (unaudited)

	June 30,	December 31,
	2018	2017
ASSETS
Current Assets:
Cash	$7,420,425	$573,471
Other receivables	1,081,378	1,104,134
Prepaid expenses	132,324	274,963
Total Current Assets	8,634,127	1,952,568
Property, equipment, and leasehold improvements, net	145,024	133,987
Other Assets:
In process research and development, net	282,293	307,591
License agreements, net	665,578	1,038,364
Goodwill	1,966,670	2,016,240
Deposits	45,546	30,918
Total Other Assets	2,960,087	3,393,113
Total Assets	$11,739,238	$5,479,668
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses	$1,259,889	$1,187,234
Accounts payable and accrued expenses - related party	1,035,970	868,105
Note payable	26,836	159,180
Convertible debt	281,024	257,365
Interest payable	7,192	7,192
Total Current Liabilities	2,610,911	2,479,076
Contingent consideration	1,500,000	1,340,000
Total Liabilities	4,110,911	3,819,076
Stockholders' Equity:
Convertible preferred stock - Par value $0.0001 per share; 10,000,000 shares authorized and 0 shares issued and outstanding at June 30, 2018 and December 31, 2017; liquidation preference approximates par value	-	-
Common stock - Par value $0.0001 per share; 100,000,000 shares authorized; 16,792,395 and 12,042,574 shares issued and outstanding, respectively, at June 30, 2018 and December 31, 2017	1,679	1,205
Additional paid-in capital	49,611,859	37,669,601
Subscriptions receivable	-	(1,071,070)
Accumulated deficit	(40,925,603)	(33,983,429)
Accumulated other comprehensive loss	(1,059,608)	(955,715)
Total Stockholders' Equity	7,628,327	1,660,592
Total Liabilities and Stockholders' Equity	$11,739,238	$5,479,668

See accompanying notes to consolidated financial statements

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AZURRX BIOPHARMA, INC.

Consolidated Statements of Operations and Comprehensive Loss (unaudited)

	Three Months	Three Months	Six Months	Six Months
	Ended	Ended	Ended	Ended
	June 30, 2018	June 30, 2017	June 30, 2018	June 30, 2017
Research and development expenses	$925,776	$743,422	$2,603,805	$1,277,559
General and administrative expenses	2,167,247	1,381,013	4,083,580	3,555,368
Fair value adjustment, contingent consideration	170,000	260,000	160,000	360,000
Loss from operations	(3,263,023)	(2,384,435)	(6,847,385)	(5,192,927)
Other:
Interest expense	(46,154)	(287,347)	(94,789)	(288,221)
Total other	(46,154)	(287,347)	(94,789)	(288,221)
Loss before income taxes	(3,309,177)	(2,671,782)	(6,942,174)	(5,481,148)
Income taxes	-	-	-	-
Net loss	(3,309,177)	(2,671,782)	(6,942,174)	(5,481,148)
Other comprehensive loss:
Foreign currency translation adjustment	(209,913)	230,170	(103,893)	291,856
Total comprehensive loss	$(3,519,090)	$(2,441,612)	$(7,046,067)	$(5,189,292)
Basic and diluted weighted average shares outstanding	15,300,197	10,064,713	13,881,698	9,849,098
Loss per share - basic and diluted	$(0.22)	$(0.27)	$(0.50)	$(0.56)

See accompanying notes to consolidated financial statements

 

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AZURRX BIOPHARMA, INC.

Consolidated Statements of Changes in Stockholders' Equity (unaudited)

								Accumulated
	Convertible				Additional			Other
	Preferred Stock		Common Stock		Paid In	Subscriptions	Accumulated	Comprehensive
	Shares	Amount	Shares	Amount	Capital	Receivable	Deficit	Loss	Total
Balance, January 1, 2017	-	$-	9,631,088	$963	$27,560,960	$-	$(22,887,046)	$(1,461,875)	$3,213,002
Common stock and warrants issued from private placement			1,428,572	143	4,645,082				4,645,225
Stock-based compensation					551,333				551,333
Restricted stock granted to consultants			58,500	6	221,479				221,485
Warrants issued to consultants					560,902				560,902
Warrants issued in association with convertible debt issuances					246,347				246,347
Beneficial conversion feature on convertible debt issuances					395,589				395,589
Foreign currency translation adjustment								291,856	291,856
Net loss							(5,481,148)		(5,481,148)
Balance, June 30, 2017	-	$-	11,118,160	$1,112	$34,181,692	$-	$(28,368,195)	$(1,170,019)	$4,644,590
Balance, January 1, 2018	-	$-	12,042,574	$1,205	$37,669,601	$(1,071,070)	$(33,983,429)	$(955,715)	$1,660,592
Common stock issued from public offering			4,160,000	416	9,577,524				9,577,940
Common stock issued to consultants			751	-	-				-
Common stock issued for warrant exercises			503,070	49	1,253,623	1,071,070			2,324,742
Stock-based compensation					277,948				277,948
Restricted stock granted to employees/directors			60,000	6	335,745				335,751
Convertible debt converted into common stock			26,000	3	68,670				68,673
Warrant modification					428,748				428,748
Foreign currency translation adjustment								(103,893)	(103,893)
Net loss							(6,942,174)		(6,942,174)
Balance, June 30, 2018	-	$-	16,792,395	$1,679	$49,611,859	$-	$(40,925,603)	$(1,059,608)	$7,628,327

See accompanying notes to consolidated financial statements

 

-4-

AZURRX BIOPHARMA, INC.

Consolidated Statements of Cash Flows (unaudited)

	Six Months Ended June 30, 2018	Six Months Ended June 30, 2017
Cash flows from operating activities:
Net loss	$(6,942,174)	$(5,481,148)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	30,420	23,124
Amortization	377,499	355,857
Fair value adjustment, contingent consideration	160,000	360,000
Stock-based compensation	277,948	551,333
Restricted stock granted to employees/directors	335,751	-
Restricted stock granted/accrued to consultants	220,230	221,485
Warrants issued to consultants	-	560,902
Accreted interest on convertible debt	-	45,209
Convertible debt beneficial conversion feature	-	149,036
Accreted interest on debt discount - warrants	92,332	92,810
Warrant modification	428,748	-
Changes in assets and liabilities:
Other receivables	(6,624)	70,745
Prepaid expenses	142,560	6,449
Deposits	(15,000)	5,625
Accounts payable and accrued expenses	35,989	(383,867)
Net cash used in operating activities	(4,862,321)	(3,422,440)
Cash flows from investing activities:
Purchase of property and equipment	(41,041)	(21,243)
Net cash used in investing activities	(41,041)	(21,243)
Cash flows from financing activities:
Net proceeds from issuances of common stock and warrants	9,577,940	4,645,225
Net proceeds from common stock issued for warrant exercises	2,324,742	-
Proceeds from issuances of convertible debt	-	1,000,000
Repayments of note payable	(132,344)	(129,177)
Net cash provided by financing activities	11,770,338	5,516,048
Increase in cash	6,866,976	2,072,365
Effect of exchange rate changes on cash	(20,022)	(17,302)
Cash, beginning balance	573,471	1,773,525
Cash, ending balance	$7,420,425	$3,828,588
Supplemental disclosures of cash flow information:
Cash paid for interest	$2,457	$1,166
Cash paid for income taxes	$-	$-
Non-cash investing and financing activities:
Conversion of convertible debt into common stock	$68,673	$-

See accompanying notes to consolidated financial statements

 

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Notes to Unaudited Consolidated Financial Statements

Note 1 - The Company, Recent Development, 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 BioPharma SAS (formerly “ProteaBio Europe SAS”), a company incorporated in October 2008 under the laws of France that had been a wholly-owned subsidiary of Protea Biosciences, Inc., or Protea Sub, in turn a wholly-owned subsidiary of Protea Biosciences Group, Inc., a publicly-traded company. AzurRx and its wholly-owned subsidiary, AzurRx BioPharma SAS (“ABS”), are collectively referred to as the “Company.”

AzurRx, through its ABS subsidiary, is engaged in the research and development of non-systemic biologics for the treatment of patients with gastrointestinal disorders. Non-systemic biologics are non-absorbable drugs that act locally, i.e. the intestinal lumen, skin or mucosa, without reaching an individual’s systemic circulation.

Within our current product pipeline, our two most advanced therapeutic programs are described below:

MS1819-SD

MS1819-SD is a yeast derived recombinant lipase for exocrine pancreatic insufficiency (“EPI”) associated with chronic pancreatitis (“CP”) and cystic fibrosis (“CF”). A lipase is an enzyme that breaks up fat molecules. MS1819-SD is considered recombinant because it was created from new combinations of genetic material in yeast calledYarrowia lipolytica. The Company recently completed an open-label, dose escalation Phase IIa trial of MS1819-SD in France, Australia, and New Zealand to investigate both the safety of escalating doses of MS1819-SD, and the efficacy of MS1819-SD through the analysis of each patient’s coefficient of fat absorption (“CFA”) and its change from baseline. A total of 11 patients with EPI were enrolled in the study and initial data show a strong safety and efficacy profile. Both clinical activity and a clear dose response were observed, with the highest MS1819-SD dose cohort showing greater than 21% improvement in CFA in evaluable patients. Additionally, maximal absolute CFA response to treatment was up to 57%, with an inverse relationship to baseline CFA. Favorable trends were also observed on other evaluated endpoints, including Bristol stool scale, number of daily evacuations and weight of stool, and these were consistent with the CFA results. The Company expects to provide formal data from the Phase IIa study in the fall of 2018 and expects to begin a planned Phase IIb study focused on enrolling patients with CF in the second half of 2018.

B-Lactamase Program

The Company’s b-lactamase program focuses on products with an enzymatic combination of bacterial origin for the prevention of hospital-acquired infections and antibiotic-associated diarrhea (“AAD”) by resistant bacterial strains induced by parenteral administration of several antibiotic classes. Currently, the Company has two compounds in pre-clinical development in this program, AZX1101 and AZX1103. Both AZX1101 and AZX1103 are composed of several distinct enzymes that break up individual classes of antibiotic molecules. AZX1103 is a b-lactamase enzyme combination that has shown positive pre-clinical activity, with degradation of amoxicillin in the presence of clavulanic acid in the upper gastrointestinal tract in the Gottingen minipig model. Currently, the Company is focused on advancing pre-clinical development of AZX1103 and expects to file an Investigational New Drug application (an “IND”) for AZX1103 with the U.S. Food and Drug Administration (“FDA”) in 2019. At this time, the Company is currently assessing its plans for the continuation of the development of AZX1101.

-6-

Notes to Unaudited Consolidated Financial Statements

 

Recent Developments

Public Offering of Common Stock

On May 3, 2018, the Company completed an underwritten, public offering of 4,160,000 shares of its common stock, par value $0.0001 per share, at a public offering price per share of $2.50, resulting in gross proceeds of $10.4 million (the “May 2018 Public Offering”) with associated expenses of approximately $800,000. The May 2018 Public Offering was completed pursuant to the terms of an underwriting agreement executed by the Company and Oppenheimer & Co. Inc. (“Oppenheimer”) on May 1, 2018. After deducting the underwriting discount paid to Oppenheimer, estimated legal fees, and other offering expenses payable by the Company, the Company received net proceeds of approximately $9.6 million.

The May 2018 Public Offering was conducted pursuant to the Company’s effective shelf registration statement on Form S-3 (File No. 333-221275), filed with the SEC on November 1, 2017, and declared effective on November 17, 2017, including the base prospectus dated November 1, 2017 included therein and the related prospectus supplement, and a registration statement on Form S-3 filed pursuant to Rule 462(b) of the Securities Act of 1933, as amended (the “Securities Act”), (File No. 333-224562) filed on May 1, 2018.

In addition to the underwriting discount received by Oppenheimer, the Company also issued unregistered warrants to Oppenheimer to purchase up to 208,000 shares of its common stock (the “Underwriter Warrants”). The Underwriter Warrants, valued at $349,232, will become exercisable six months from the date of issuance, expire on May 1, 2023 and have an exercise price of $2.55 per share. As a result of certain investors participating in the Offering, the Company also paid a financial advisory fee to Alexander Capital, LP, consisting of a cash payment of approximately $104,000 and the issuance of warrants valued at $67,194, substantially similar to the Underwriter Warrants, to purchase up to 36,400 shares of its common stock at an exercise price of $2.75 per share.

Basis of Presentation and Principles of Consolidation

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). 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, 2017, 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 U.S. GAAP have been omitted pursuant to instructions, rules, and regulations prescribed by the SEC. We believe 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, 2017, filed with the SEC on March 16, 2018.

The unaudited interim consolidated financial statements include the accounts of AzurRx and its wholly-owned subsidiary, AzurRx Europe SAS. Intercompany transactions and balances have been eliminated upon consolidation.

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, had working capital at June 30, 2018 of approximately $6,023,000, and had an accumulated deficit of approximately $40,926,000 at June 30, 2018. The Company currently believes that its cash on hand will sustain its operations until July 2019. The Company is dependent on obtaining, and continues to pursue, the necessary funding from outside sources, including obtaining additional funding from the sale of securities in order to continue operations. Without adequate funding, the Company may not be able to meet its obligations. Management believes these conditions raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

-7-

Notes to Unaudited Consolidated Financial Statements

 

Note 2 - Significant Accounting Policies and Recent Accounting Pronouncements

Use of Estimates

The accompanying consolidated financial statements are prepared in conformity with U.S. GAAP and include certain estimates and assumptions which affect the reported amounts of assets and liabilities at the date of the financial statements (including goodwill, intangible assets and contingent consideration), and the reported amounts of revenues and expenses during the reporting period, including contingencies. Accordingly, actual results may differ from those estimates.

Concentrations

Financial instruments that potentially expose the Company to concentrations of credit risk consist of cash. The Company primarily maintains its cash balances with financial institutions in federally-insured accounts in the U.S. The Company may from time to time have cash in banks in excess of FDIC insurance limits. At June 30, 2018 and December 31, 2017, the Company had approximately $6,418,602 and $78,859, 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 also has exposure to foreign currency risk as its subsidiary in France has a functional currency in Euros.

Equity-Based Payments to Non-Employees

The Company accounts for equity instruments, including restricted stock, stock options and warrants, issued to non-employees in accordance with authoritative guidance for equity-based payments to non-employees. All transactions in which goods or services are received in exchange for equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date of the fair value of the equity instrument issued is the earlier of (i) the date of grant if nonforfeitable and fully vested, or (ii) the date the non-employee's performance is completed and there is no further associated performance commitment. The fair value of unvested equity instruments granted to non-employees is re-measured at each reporting date, and the resulting change in value, if any, is recognized as expense during the period the related services are rendered. The expense is recognized in the same manner as if we had paid cash for the services provided by the non-employees.

Research and Development

Research and development (“R&D”) costs are charged to operations when incurred and are included in operating expenses. R&D costs consist principally of compensation of employees and consultants that perform the Company’s research activities, the fees paid to maintain the Company’s licenses, and the payments to third parties for clinical trial and additional product development and testing.

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 shareholders’ equity.

Revenue Recognition

The Company is still in its startup phase and is not generating revenues at this time. When revenues are generated, the Company will follow the provisions of FASB Accounting Standards Codification (“ASC” or the “Codification”) Topic 606, Revenue From Contracts With Customers.

Recent Accounting Pronouncements

In June 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which amends the Codification to expand the scope of FASB ASC Topic 718, Compensation—Stock Compensation, to include share-based payment transactions for acquiring goods and services from non-employees. Guidance on accounting for non-employee share-based payment arrangements, which differs significantly in many respects from that for employee share-based payment transactions, was included in FASB ASC Subtopic 505-50, Equity—Equity Based Payments to Non-Employees. The ASU is effective for fiscal years beginning after December 15, 2018, including interim periods. The Company is currently assessing this pronouncement and believes this will have an impact on the Company’s financial statements.

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Notes to Unaudited Consolidated Financial Statements

 

In July 2017, the FASB issued ASU 2017-11, Earnings per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815). ASU 2017-11 provides guidance on accounting for financial instruments with down round features and clarifies the deferral of certain provisions in Topic 480. ASU 2017-11 will become effective for annual periods beginning after December 15, 2018 and interim periods within those periods. Early adoption is permitted. The adoption of this pronouncement did not have an impact on the Company’s financial statements.

In January 2017, the FASB issued guidance to simplify the subsequent measurement of goodwill impairment. The new guidance eliminates the two-step process that required identification of potential impairment and a separate measure of the actual impairment. Goodwill impairment charges, if any, would be determined by reducing the goodwill balance by the difference between the carrying value and the reporting unit’s fair value (impairment loss is limited to the carrying value). This standard is effective for annual or any interim goodwill impairment tests beginning after December 15, 2019. The Company believes that the adoption of this pronouncement will not have an impact on the Company’s measurement of goodwill impairment.

In February 2016, the FASB issued an ASU which requires lessees to recognize lease assets and lease liabilities arising from operating leases on the balance sheet. This ASU is effective for annual and interim reporting periods beginning after December 15, 2018 using a modified retrospective approach, with early adoption permitted. The Company believes that the adoption of this pronouncement will not have a material impact on the Company's financial statements. We believe that the most significant changes relate to the recognition of new right-of-use assets and lease liabilities on the balance sheet for office space and research facilities.

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.

At June 30, 2018 and December 31, 2017, the Company had Level 3 instruments consisting of contingent consideration in connection with the Protea Europe SAS acquisition, see Note 7.

The following tables summarize the Company’s financial instruments measured at fair value on a recurring basis:

	Fair Value Measurements at Reporting Date Using
	Total	Level 1	Level 2	Level 3
At June 30, 2018:
Contingent consideration	$1,500,000	$-	$-	$1,500,000
At December 31, 2017:
Contingent consideration	$1,340,000	$-	$-	$1,340,000

-9-

Notes to Unaudited Consolidated Financial Statements

 

The following table provides a reconciliation of the fair value of liabilities using Level 3 significant unobservable inputs:

	Contingent
	Consideration
Balance at December 31, 2017	$1,340,000
Change in fair value	160,000
Balance at June 30, 2018	$1,500,000

The contingent consideration was valued by incorporating a series of Black-Scholes Option Pricing Models (“BSM”) into a discounted cash flow framework. Significant unobservable inputs used in this calculation at June 30, 2018 and December 31, 2017 included projected net sales over a period of patent exclusivity (seven years), discounted by (i) the Company’s weighted average cost of capital (32.8% and 32.4%, respectively), (ii) the contractual hurdle amount of $100 million that replaces the strike price input in the traditional BSM, (iii) asset volatility (85.2% and 83.1%, respectively), that replaces the equity volatility in the traditional BSM, (iv) risk-free rates (ranging from 2.3% to 2.8% and 1.8% to 2.4%, respectively), and (v) an option-adjusted spread (1.2% and 0.6%, respectively) that is applied to these payments to account for the payer’s risk and arrive at a fair value of the expected payment.

The fair value of the Company's financial instruments are as follows:

	Carrying	Fair Value Measured at Reporting Date Using			Fair
	Amount	Level 1	Level 2	Level 3	Value
At June 30, 2018:
Cash	$7,420,425	$-	$7,420,425	$-	$7,420,425
Other receivables	$1,081,378	$-	$-	$1,081,378	$1,081,378
Notes payable	$26,836	$-	$-	$26,836	$26,836
Convertible debt	$281,024	$-	$-	$286,529	$286,529
At December 31, 2017:
Cash	$573,471	$-	$573,471	$-	$573,471
Other receivables	$1,104,134	$-	$-	$1,104,134	$1,104,134
Notes payable	$159,180	$-	$-	$159,180	$159,180
Convertible debt	$257,365	$-	$-	$387,201	$387,201

The fair value of other receivables approximates carrying value as these consist primarily of French R&D tax credits that are normally received within nine months from year end and amounts due from our collaboration partner Laboratoires Mayoly Spindler SAS (“Mayoly”), see Note 15.

The fair value of note payable approximates carrying value due to the terms of such instruments and applicable interest rates.

The fair value of convertible debt is based on the par value plus accrued interest through the date of reporting due to the terms of such instruments and interest rates, or the current interest rates of similar instruments.

-10-

Notes to Unaudited Consolidated Financial Statements

 

Note 4 - Other Receivables

Other receivables consisted of the following:

	June 30,	December 31,
	2018	2017
R&D tax credits	$931,421	$954,897
Other	149,957	149,237
Total other receivables	$1,081,378	$1,104,134

The R&D tax credits are refundable tax credits for research conducted in France. Other consists primarily of amounts due from collaboration partner Mayoly, see Note 15, and non-income tax related items from French government entities.

Note 5 - Property, Equipment and Leasehold Improvements

Property, equipment and leasehold improvements consisted of the following:

	June 30,	December 31,
	2018	2017
Laboratory equipment	$188,558	$165,611
Computer equipment	62,878	44,364
Office equipment	36,334	36,334
Leasehold improvements	29,163	29,163
Total property, plant and equipment	316,933	275,472
Less accumulated depreciation	(171,909)	(141,485)
Property, plant and equipment, net	$145,024	$133,987

Depreciation expense for the three months ended June 30, 2018 and 2017 was $15,657 and $12,527, respectively. Depreciation expense for the six months ended June 30, 2018 and 2017 was $30,420 and $23,124, respectively. Depreciation expense is included in general and administrative (“G&A”) expense.

Note 6 - Intangible Assets and Goodwill

Intangible assets are as follows:

	June 30,	December 31,
	2018	2017
In process research and development	$425,656	$436,385
Less accumulated amortization	(143,363)	(128,794)
In process research and development, net	$282,293	$307,591
License agreements	$3,472,581	$3,560,107
Less accumulated amortization	(2,807,003)	(2,521,743)
License agreements, net	$665,578	$1,038,364

Amortization expense for the three months ended June 30, 2018 and 2017 was $185,818 and $189,669, respectively. Amortization expense for the six months ended June 30, 2018 and 2017 was $377,499 and $355,857, respectively.

-11-

Notes to Unaudited Consolidated Financial Statements

 

As of June 30, 2018, amortization expense is expected to be as follows for the next five years:

2018 (balance of year)	$364,994
2019	353,791
2020	35,471
2021	35,471
2022	35,471
2023	35,471

Goodwill is as follows:

	Goodwill
Balance at December 31, 2017	$2,016,240
Foreign currency translation	(49,570)
Balance at June 30, 2018	$1,966,670

Note 7 - Contingent Consideration

On June 13, 2014, the Company executed a stock purchase agreement (the “SPA”) with Protea Biosciences Group, Inc. (“Protea Group”). Pursuant to the SPA, the Company is obligated to pay Protea certain contingent consideration in U.S. dollars upon the satisfaction of certain events, including (i) a one-time milestone payment of $2,000,000 due within (10) days of receipt of the first approval by the FDA of a New Drug Application (“NDA”) or Biologic License Application (“BLA”) for a Business Product (as such term is defined in the SPA). (ii) royalty payments equal to 2.5% of net sales of Business Product up to $100,000,000 and 1.5% of net sales of Business Product in excess of $100,000,000, and (iii) 10% of the Transaction Value (as defined in the SPA) received in connection with a sale or transfer of the pharmaceutical development business of Protea Europe, see Note 3.

Note 8 - Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consisted of the following:

	June 30,	December 31,
	2018	2017
Trade payables	$453,244	$705,041
Accrued expenses	302,430	182,200
Accrued bonus	350,000	80,000
Accrued payroll	154,215	219,993
Total accounts payable and accrued expenses	$1,259,889	$1,187,234

Note 9 - Note Payable

On October 30, 2017, the Company entered into a nine-month financing agreement for its directors and officer’s liability insurance in the amount of $237,137 that bears interest at an annual rate of 5.537%. Monthly payments, including principal and interest, are $26,960 per month. The balance due under this financing agreement at June 30, 2018 and December 31, 2017 was $26,836 and $159,180, respectively.

-12-

Notes to Unaudited Consolidated Financial Statements

 

Note 10 - Original Issue Discounted Convertible Notes and Warrants

LPC OID Debenture

On April 11, 2017, the Company entered into a Note Purchase Agreement with Lincoln Park Capital Fund, LLC (“LPC”), pursuant to which the Company issued a 12% Senior Secured Original Issue Discount Convertible Debenture (the “Debenture”) to LPC. The principal and original issue discount of $1,120,000 due under the terms of the Debenture were due on the Maturity Date, which is defined as the earlier to occur of (i) November 10, 2017 or (ii) on the fifth business day following the receipt by the Company or its wholly-owned subsidiary, ABS, of certain tax credits that the Company received prior to November 10, 2017 (the “Tax Credit”). In connection with the issuance of the Debenture, the Company issued to LPC a warrant giving LPC the right to purchase 164,256 shares of the Company’s common stock at an exercise price of $4.2592 per share (“LPC Series A Warrant”) that will terminate five years after the date of issuance.

On November 10, 2017, the Company and LPC modified the Debenture to extend the Maturity Date to November 29, 2017, subject to the Company’s right to extend the Maturity Date to July 11, 2018 (the “Extension Option”) in exchange for 30,000 shares of the Company’s common stock which were valued at $90,300 and charged to interest expense. The Company exercised its Extension Option on November 29, 2017 and issued LPC an additional warrant to purchase 164,256 shares of the Company’s common stock at an exercise price of $3.17 per share (“LPC Series B Warrant”) that will terminate five years after the date of issuance. The Company accounted for the LPC Series B Warrant feature of the Debenture based upon the relative fair value of the warrants on the date of issuance of the Debenture of $164,325, which was recorded as additional paid in capital and a discount to the Debenture.

The principal and original issue discount amount of the Debenture is convertible into shares of the Company’s common stock at LPC’s option, at a conversion price equal to $3.872 (“Conversion Price”). Provided certain conditions related to compliance with the terms of the Debenture are satisfied, the closing price of the Company’s common stock exceeds 150% of the Conversion Price, the median daily volume for the preceding 30 days exceeds 50,000 shares per day, among other conditions, the Company may, at its option, force conversion of the Debenture for an amount equal to the outstanding balance of the principal and original issue discount of the Debenture. During the year ended December 31, 2017, LPC elected to convert $717,126 of the Debenture pursuant to which LPC received 189,256 shares of common stock. On January 10, 2018, LPC elected to convert $100,672 of the Debenture pursuant to which LPC received 26,000 shares of common stock.

On July 11, 2018, the Company paid off this Debenture for the amount of approximately $286,529.

The obligations under the Debenture are guaranteed by ABS, as well as a security agreement providing LPC with a secured interest in the Tax Credit.

For the three months ended June 30, 2018 and 2017, the Company recorded $45,537 and $287,055, respectively, of interest expense related to the amortization of the debt discount and beneficial conversion feature related to the warrant features of the Debenture. For the six months ended June 30, 2018 and 2017, the Company recorded $92,332 and $287,055, respectively, of interest expense related to the amortization of the debt discount and beneficial conversion feature related to the warrant features of the Debenture.

Convertible Debt consisted of:

	June 30,	December 31,
	2018	2017
Convertible debt	$261,008	$352,713
Accreted OID interest	25,521	34,488
Unamortized debt discount - warrants	(5,505)	(129,836)
Total convertible debt	$281,024	$257,365

-13-

Notes to Unaudited Consolidated Financial Statements

 

Note 11 - Equity

Common Stock

At June 30, 2018 and December 31, 2017, the Company had 16,792,395 and 12,042,574, respectively, of shares of its common stock issued and outstanding.

Stock Option Plan

The Company’s board of directors 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. During the three months ended June 30, 2018 and 2017, the Company granted 539,000 and 0, respectively, of stock options under the 2014 Plan. During the six months ended June 30, 2018 and 2017, the Company granted 539,000 and 190,000, respectively, of stock options under the 2014 Plan, see Note 13.

Series A Convertible Preferred Stock

At June 30, 2018 and December 31, 2017, there were no Series A outstanding and all terms of the Series A are still in effect.

June 2017 Private Placement

On June 5, 2017, the Company entered into Securities Purchase Agreements (the “Purchase Agreements”) with certain accredited investors (“Investors”), pursuant to which the Company issued an aggregate of 1,428,572 units for $3.50 per unit, with each unit consisting of one share of Common Stock, one Series A Warrant to purchase 0.25 shares of Common Stock at $4.00 per share exercisable immediately through December 31, 2017, and one Series A-1 Warrant to purchase 0.75 shares of Common Stock at $5.50 per share exercisable beginning six months from the date of issuance through June 5, 2022 (together, “Units”) (the “Financing ”). At closing of the Financing, the Company issued Units resulting in the issuance of an aggregate of 1,428,572 shares of Common Stock, Series A Warrants to purchase up to 357,144 shares of Common Stock, and Series A-1 Warrants to purchase up to 1,071,431 shares of Common Stock, resulting in gross proceeds of $5,000,000.

Placement agent fees of $350,475 were paid to Alexander Capital L.P. (“Alexander Capital”), based on 8% of the aggregate principal amount of the Units issued to certain investors identified by Alexander Capital (“Alexander Investors”), which amount includes both an 8% success fee and a 1% expense fee, and Series A-1 Warrants to purchase 77,950 shares of Common Stock were issued to Alexander Capital (the “Placement Agent Warrants”), reflecting warrants for that number of shares of Common Stock equal to 7% of the aggregate number of shares of Common Stock purchased by Alexander Investors. The Placement Agent Warrants are exercisable beginning December 2, 2017 at a fixed price of $6.05 per share, through June 5, 2022. The Company also incurred $4,000 in other fees associated with this placement. The placement agent and other fees are netted against the proceeds in the Consolidated Statements of Changes in Stockholders' Equity.

On June 20, 2017, the Company and Investors executed an amendment to the Purchase Agreements authorizing the Company to issue up to $400,000 in additional Units, and on July 5, 2017, the Company issued additional Units resulting in gross proceeds of $400,000 (“Subsequent Closing”). Placement agent fees of $36,000 were paid to Alexander Capital, as well as additional Placement Agent Warrants to purchase 5,760 shares of Common Stock. In connection with the Subsequent Closing, the Company issued 114,287 shares of Common Stock, Series A and A-1 Warrants to purchase 28,572 and 85,715 shares, respectively. The placement agent fees are netted against the proceeds in the Consolidated Statements of Changes in Stockholders' Equity.

Restricted Stock

During the three months ended June 30, 2018, 317,500shares of restricted common stock were granted or accrued to employees and consultants with a total value of $986,160. During the three months ended June 30 31, 2018, 91,917 shares of restricted common stock vested with a value of $333,671 of which an aggregate of 30,000 shares with a value of $96,300 have been issued to our directors as a part of Board compensation. During the six months ended June 30, 2018, 379,000shares of restricted common stock were granted or accrued to employees and consultants with a total value of $1,188,970. During the six months ended June 30, 2018, 158,834 shares of restricted common stock vested with a value of $555,981 of which an aggregate of 60,000 shares with a value of $190,500 have been issued to our directors as a part of Board compensation. The restricted common stock granted have vesting terms ranging from immediately to three years or based on the Company achieving certain milestones as set forth in the following paragraph.

-14-

Notes to Unaudited Consolidated Financial Statements

 

As of June 30, 2018, the Company had unrecognized restricted common stock expense of $1,264,686. $471,696 of this unrecognized expense will be recognized over the average remaining vesting term of the restricted common stock of 2.73 years. $505,204 of this unrecognized expense vests upon an FDA acceptance of an IND application in the United States. $186,453 of this unrecognized expense vests upon the first dosing of a cystic fibrosis patient with MS1819 anywhere in the world. $101,333 vests upon the enrollment of the first 30 patients in a cystic fibrosis trial. As of June 30, 2018, the probability of these milestones being reached could not be determined.

During the three months ended June 30, 2017, 37,500 shares of restricted common stock were granted to employees and consultants with a total value of $140,425. During the three months ended June 30, 2017, 30,387 of these shares vested with a value of $114,678. During the six months ended June 30, 2017, 58,500 shares of restricted common stock were granted to employees and consultants with a total value of $221,485. During the six months ended June 30, 2017, 51,387 of these shares vested with a value of $195,738.

On July 24, 2017, the Company entered into a consulting agreement that includes a grant of 40,000 shares of restricted common stock to the consultant contingent upon the approval of the Board, which as of Aug 10, 2018 has not yet been granted.

On January 2, 2018, the Company entered into a consulting agreement that includes a grant of 43,000 shares of restricted common stock to the consultant contingent upon the approval of the Board. The Board approved this restricted stock on June 28, 2018 and the shares were issued on July 19, 2018.

Note 12 - Warrants

In January 2018, the Company offered warrant holders the opportunity to exercise their warrants at a reduced strike price of $2.50, and if so elected, would also have the opportunity to reprice other warrants that they continue to hold unexercised to $3.25. The offer, which was effective January 12, 2018, was for the repricing only and did not modify the life of the warrants. Warrant holders of approximately 503,000 shares exercised their warrants and also had other warrants modified on approximately 197,000 shares, which resulted in a charge of approximately $429,000 in the six months ended June 30, 2018. Cash proceeds on the exercise of these warrants as well as the stock subscriptions as of December 31, 2017 of $1,071,070 amounted to approximately $2,300,000 in January 2018.

Stock warrant transactions for the periods January 1 through June 30, 2018 and 2017 are as follows:

		Exercise Price Per	Weighted Average Exercise
	Warrants	Share	Price
Warrants outstanding and exercisable at January 1, 2017	1,858,340	$4.76 - $7.37	$5.66
Granted during the period	1,920,781	$3.53 - $6.50	$5.16
Expired during the period	-	-	-
Exercised during the period	-	-	-
Warrants outstanding and exercisable at June 30, 2017	3,779,121	$4.76 - $7.37	$5.41
Warrants outstanding and exercisable at January 1, 2018	3,371,385	$3.17 - $7.37	$5.28
Granted during the period	244,400	$2.55 - $2.75	$2.58
Expired during the period	-	-	-
Exercised during the period	(503,070)	$2.50	$2.50
Warrants outstanding and exercisable at June 30, 2018	3,112,715	$2.55 - $7.37	$4.83

	Number of	Weighted Average	Weighted
	Shares Under	Remaining Contract	Average
Exercise Price	Warrants	Life in Years	Exercise Price
$2.55 - $3.99	881,372	4.10
$4.00 - $4.99	196,632	3.51
$5.00 - $5.99	1,815,041	3.47
$6.00 - $6.99	187,750	3.26
$7.00 - $7.37	31,920	2.46
Total	3,112,715	3.63	$4.83

-15-

Notes to Unaudited Consolidated Financial Statements

 

During the three and six months ended June 30, 2018, 244,400 warrants were issued to investment bankers in association with the May 2018 Public Offering with a value of $416,426 that had no effect on expenses or stockholders’ equity.

During the three months ended June 30, 2017, 50,000 warrants were issued to consultants. 47,771 warrants issued to consultants were earned and expensed in the three months ended June 30, 2017 with a value of $82,732. During the six months ended June 30, 2017, 250,000 warrants were issued to consultants. 214,438 warrants issued to consultants were earned and expensed in the six months ended June 30, 2017 with a value of $485,050. The earned and expensed amounts were included in G&A expenses.

The weighted average fair value of warrants granted to non-employees during the three months ended June 30, 2018 and 2017 was $1.70 and $2.13. The weighted average fair value of warrants granted to non-employees during the six months ended June 30, 2018 and 2017 was $1.70 and $2.40. The fair value was estimated on the grant dates using the Black-Scholes option-pricing model with the following weighted-average assumptions:

	June 30,	June 30,
	2018	2017
Expected life (in years)	5	5
Volatility	84%	87%
Risk-free interest rate	2.70%	1.82% - 1.92%
Dividend yield	-%	-%

The expected term of the warrants is based on the actual term of the warrants. Volatility is based on the historical volatility of several public entities that are similar to the Company. The Company bases volatility this way because it does 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.

Note 13 - Stock-Based Compensation Plan

Under the 2014 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 and six months ended June 30, 2018, 539,000 stock options were granted with an exercise price of $3.04 and a life of five years. 96,250 of these options vested in the three months ended June 30, 2018 having a fair value of $248,930. 103,750 of these options vested in the six months ended June 30, 2018 having a fair value of $277,948. The weighted average fair value of stock options granted to employees during the three and six months ended June 30, 2018 was $2.07.

During the three and six months ended June 30, 2017, 190,000 stock options were granted with an exercise price of $4.48 and a life of 10 years. 7,500 of these options vested in the three months ended June 30, 2017. 142,500 of these options vested in the six months ended June 30, 2017. The weighted average fair value of stock options granted to employees during the three and six months ended June 30, 2017 was $3.87.

The fair values were estimated on the grant dates using the Black-Scholes option-pricing model with the following weighted-average assumptions:

	June 30,	June 30,
	2018	2017
Expected life (in years)	5	10
Volatility	85%	90%
Risk-free interest rate	2.82%	2.48%
Dividend yield	-%	-%

-16-

Notes to Unaudited Consolidated Financial Statements

 

The expected term of the options is based on expected future employee exercise behavior. Volatility is based on the historical volatility of several public entities that are similar to the Company. The Company bases volatility this way because it does not have sufficient historical transactions in its own shares on which to solely base expected volatility. The risk-free interest rate is based on the U.S. Treasury rates at the date of grant with maturity dates approximately equal to the expected term at the grant date. The Company has not historically declared any dividends and does not expect to in the future.

The Company realized no income tax benefit from stock option exercises in each of the periods presented due to recurring losses and valuation allowances.

Stock option activity under the 2014 Plan for the periods January 1 through June 30, 2017 and 2018 is as follows:

	Number	Weighted Average	Weighted Average Remaining Contract	Aggregate
	of Shares	Exercise Price	Life in Years	Intrinsic Value
Stock options outstanding at January 1, 2017	-	-
Granted during the period	190,000	$4.48	9.60	$-
Expired during the period	-	-
Exercised during the period	-	-
Stock options outstanding at June 30, 2017	190,000	$4.48	9.60	$-
Exercisable at June 30, 2017	142,500	$4.48	9.60	$-
Non-vested stock options outstanding at January 1, 2017	-	-
Granted during the period	47,500	$4.48	9.60	$-
Expired during the period	-	-
Exercised during the period	-	-
Non-vested stock options outstanding at June 30, 2017	47,500	$4.48	9.60	$-
Stock options outstanding at January 1, 2018	545,000	$4.05	7.13	$-
Granted during the period	539,000	$3.04	5.00	$-
Expired during the period	-	-
Exercised during the period	-	-
Stock options outstanding at June 30, 2018	1,084,000	$3.72	5.82	$-
Exercisable at June 30, 2018	261,250	$4.26	8.60	$-
Non-vested stock options outstanding at January 1, 2018	387,500	$3.89	6.39	$-
Granted during the period	539,000	$3.04	5.00	$-
Vested during the period	(103,750)	$3.92	6.02	$-
Expired during the period	-	-
Exercised during the period	-	-
Non-vested stock options outstanding at June 30, 2018	822,750	$3.32	5.77	$-

287,911 shares were available for future issuance under the 2014 Plan as of June 30, 2018.

-17-

Notes to Unaudited Consolidated Financial Statements

 

As of June 30, 2018, the Company had unrecognized stock-based compensation expense of $1,844,792. $67,708 of this unrecognized expense will be recognized over the average remaining vesting term of the options of 0.60 years. $1,218,410 of this unrecognized expense vests upon FDA acceptance of a U.S. IND application for MS1819-SD. $558,674 of this unrecognized expense vests upon the first dosing of a cystic fibrosis patient with MS1819-SD anywhere in the world. As of June 30, 2018, the probability of these milestones being reached could not be determined.

Note 14 - Interest Expense

During the three months ended June 30, 2018 and 2017, the Company incurred $46,154 and $287,347, respectively, of interest expense. During the three months ended June 30, 2018 and 2017, $45,537 and $287,055, respectively, of this amount was in connection with the convertible notes issued by the Company in the form of amortization of debt discount and beneficial conversion feature related to the warrants. During the three months ended June 30, 2018 and 2017, the Company also incurred $617 and $292, respectively, of miscellaneous interest expense.

During the six months ended June 30, 2018 and 2017, the Company incurred $94,789 and $288,221, respectively, of interest expense. During the six months ended June 30, 2018 and 2017, $92,332 and $287,055, respectively, of this amount was in connection with the convertible notes issued by the Company in the form of amortization of debt discount and beneficial conversion feature related to the warrants. During the six months ended June 30, 2018 and 2017, the Company also incurred $2,457 and $1,166, respectively, of miscellaneous interest expense.

Note 15 - Agreements

TransChem Sublicense Agreement

On August 7, 2017, the Company entered into a Sublicense Agreement with TransChem, Inc. (“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 “Licensed Patents”) currently held by TransChem (the “Sublicense Agreement”). The Company may terminate the Sublicense Agreement and the licenses granted therein for any reason and without further liability on 60 days’ notice. Unless terminated earlier, the Sublicense Agreement will expire upon the expiration of the last 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 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 Licensed Patents are achieved. The Licensed Patents will allow the Company to develop compounds for treating gastrointestinal, lung 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. No payments were made under this agreement in the three and six months ended June 30, 2018.

Mayoly Agreement

During the three months ended June 30, 2018 and 2017, the Company was reimbursed $399,622 and $107,299, respectively, from Mayoly under the Mayoly Agreement. During the six months ended June 30, 2018 and 2017, the Company was reimbursed $525,605 and $360,718, respectively, from Mayoly under the Mayoly Agreement.

The Mayoly Agreement includes a €1,000,000 payment due to Mayoly upon the U.S. FDA approval of MS1819-SD. At this time, based on management’s assessment of ASC Topic 450, Contingencies, the Company has not recorded any contingent liability related to this payment.

Employment Agreements

Johan (Thijs) Spoor

On January 3, 2016, the Company entered into an employment agreement with its President and Chief Executive Officer, Johan (Thijs) Spoor. The employment agreement provides for a term expiring January 2, 2019.

-18-

Notes to Unaudited Consolidated Financial Statements

 

Mr. Spoor was originally entitled to 380,000 10-year stock options pursuant to the 2014 Plan. In the first quarter of 2017, 100,000 options having a value of $386,900 were granted and expensed. On September 29, 2017, Mr. Spoor was granted 100,000 shares of restricted common stock subject to vesting conditions as follows: (i) 75% upon FDA acceptance of a U.S. IND application for MS1819-SD, and (ii) 25% upon the Company completing a Phase IIa clinical trial for MS1819-SD, in satisfaction of the Company’s obligation to issue the additional 280,000 options to Mr. Spoor described above, with an estimated fair value at the grant date of $425,000 to be expensed when the probability of these milestones can be determined.

On September 29, 2017, the Board approved a 2016 annual incentive bonus equal to 40% of Mr. Spoor’s current base salary pursuant to his employment agreement in the amount of $170,000.

On June 28, 2018, the Board approved a 2017 annual incentive bonus pursuant to his employment agreement in the amount of $212,500.

Maged Shenouda

On September 26, 2017, the Company entered into an employment agreement with Maged Shenouda, a member of the Company’s Board of Directors, pursuant to which Mr. Shenouda serves as the Company’s Chief Financial Officer. Mr. Shenouda’s employment agreement provides for the issuance of stock options to purchase 100,000 shares of the Company’s common stock, issuable pursuant to the 2014 Plan. These options will vest as follows so long as Mr. Shenouda is serving as either Executive Vice-President of Corporate Development or as Chief Financial Officer (i) 75% upon FDA acceptance of a U.S. IND application for MS1819-SD, and (ii) 25% upon the Company completing a Phase IIa clinical trial for MS1819-SD. The option is exercisable for $4.39 per share and will expire on September 25, 2027.

On June 28, 2018, the Board approved a 2017 annual incentive bonus pursuant to his employment agreement in the amount of $82,500.

Dr. James E. Pennington

On May 28, 2018, the Company entered into an employment agreement with Dr. Pennington to serve as the Company’s Chief Medical Officer. The employment agreement with Dr. Pennington provides for a base annual salary of $250,000. In addition to his salary, Dr. Pennington is eligible to receive an annual milestone bonus, awarded at the sole discretion of the Board based on his attainment of certain financial, clinical development, and/or business milestones established annually by the Board or Compensation Committee. The employment agreement is terminable by either party at any time. In the event of termination by 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, Dr. Pennington will receive six months’ severance payable over such period.

Note 16 - Leases

The Company leases its office and research facilities under operating leases which are subject to various rent provisions and escalation clauses expiring at various dates through 2020. The escalation clauses are indeterminable and considered not material and have been excluded from minimum future annual rental payments. Rental expense, which is calculated on a straight-line basis, amounted to $36,766 and $31,537, respectively, in the three months ended June 30, 2018 and 2017. Rental expense, which is calculated on a straight-line basis, amounted to $67,993 and $65,564, respectively, in the six months ended June 30, 2018 and 2017.

Minimum future annual rental payments are as follows:

2018 (balance of the year)	$75,596
2019	$118,382
2020	$92,708

-19-

Notes to Unaudited Consolidated Financial Statements 

Note 17 - Income Taxes

The Company is subject to taxation at the federal level in both the United States and France and at the state level in the United States. At June 30, 2018 and December 31, 2017, the Company had no tax provision for either jurisdictions.

The Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”), which was signed into law on December 22, 2017, has resulted in significant changes to the U.S. corporate income tax system. These changes include a federal statutory rate reduction from 35% to 21% and the elimination or reduction in the deductibility of certain credits and limitations, such as net operating losses, interest expense, and executive compensation. The federal statutory rate reduction took effect on January 1, 2018. On December 22, 2017, Staff Accounting Bulletin No. 118 (“SAB 118”) was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the 2017 Tax Act. In accordance with SAB 118, the Company continues to evaluate the impact of the 2017 Tax Act, which may impact its current conclusions.

At June 30, 2018 and December 31, 2017, the Company had gross deferred tax assets of approximately $11,317,000 and $9,918,000, 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 $11,317,000 and $9,918,000, respectively, has been established at June 30, 2018 and December 31, 2017.

At June 30, 2018, the Company has gross net operating loss (“NOL”) carry-forwards for U.S. federal and state income tax purposes of approximately $18,126,000 and $16,695,000, respectively. 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.

At June 30, 2018 and December 31, 2017, the Company had approximately $14,692,000 and $12,374,000, respectively, in net operating losses which it can carryforward indefinitely to offset against future French income.

At June 30, 2018 and December 31, 2017, the Company had taken no uncertain tax positions that would require disclosure under ASC 740, Accounting for Income Taxes.

Note 18 - Net Loss per Common Share

Basic net loss per share is computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect, in periods in which they have a dilutive effect, the impact of common shares issuable upon exercise of stock options and warrants and conversion of convertible debt that are not deemed to be anti-dilutive. The dilutive effect of the outstanding stock options and warrants is computed using the treasury stock method.

At June 30, 2018, diluted net loss per share did not include the effect of 3,112,715 shares of common stock issuable upon the exercise of outstanding warrants, 1,084,000 shares of common stock issuable upon the exercise of outstanding options, and 74,000 shares of common stock issuable upon the conversion of convertible debt as their effect would be antidilutive during the periods prior to conversion.

At June 30, 2017, diluted net loss per share did not include the effect of 3,779,121 shares of common stock issuable upon the exercise of outstanding warrants, 190,000 shares of common stock issuable upon the exercise of outstanding options, and 289,256 shares of common stock issuable upon the conversion of convertible debt as their effect would be antidilutive during the periods prior to conversion.

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Notes to Unaudited Consolidated Financial Statements

 

Note 19 - Related Party Transactions

During the year ended December 31, 2015, the Company employed the services of JIST Consulting (“JIST”), a company controlled by Johan (Thijs) Spoor, the Company’s current Chief Executive Officer and President, as a consultant for business strategy, financial modeling, and fundraising. Included in accounts payable at both June 30, 2018 and December 31, 2017 is $478,400 for JIST relating to Mr. Spoor’s services. Mr. Spoor received no other compensation from the Company other than as specified in his employment agreement.

During the year ended December 31, 2015, the Company's President, Christine Rigby-Hutton, was employed through Rigby-Hutton Management Services (“RHMS”). Ms. Rigby-Hutton resigned from the Company effective April 20, 2015. Included in accounts payable at both June 30, 2018 and December 31, 2017 is $38,453 for RHMS for Ms. Rigby-Hutton’s services.

From October 1, 2015 through December 31, 2015, the Company used the services of Edward Borkowski, a member of our Board of Directors and the Company’s Audit Committee Chair, as a financial consultant. Included in accounts payable at December 31, 2017 is $90,000 for Mr. Borkowski’s services. This amount was paid to Mr. Borkowski in the six months ended June 30, 2018.

Starting on October 1, 2016 until his appointment as the Company’s Chief Financial Officer on September 25, 2017, the Company used the services of Maged Shenouda as a financial consultant. Expense recorded in G&A expense in the accompanying statements of operations related to Mr. Shenouda for the three months ended June 30, 2018 and 2017 was $0 and $30,000, respectively. Expense recorded in G&A expense in the accompanying statements of operations related to Mr. Shenouda for the six months ended June 30, 2018 and 2017 was $0 and $60,000, respectively. Included in accounts payable at June 30, 2018 and December 31, 2017 is $50,000 and $70,000, respectively, for Mr. Shenouda’s services.

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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 SAS, 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, 2017, filed with the SEC on March 16, 2018. Readers are cautioned not to place undue reliance on these forward-looking statements.

Overview

AzurRx BioPharma, Inc. 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 BioPharma SAS (formerly “ProteaBio Europe SAS”), a company incorporated in October 2008 under the laws of France that had been a wholly-owned subsidiary of Protea Biosciences, Inc., or Protea Sub, in turn a wholly-owned subsidiary of Protea Biosciences Group, Inc., a publicly-traded company (“ABS”).

AzurRx, through its ABS subsidiary, is engaged in the research and development of non-systemic biologics for the treatment of patients with gastrointestinal disorders. Non-systemic biologics are non-absorbable drugs that act locally, i.e. the intestinal lumen, skin or mucosa, without reaching an individual’s systemic circulation. Our current product pipeline consists of two therapeutic programs under development, each of which are described below:

MS1819-SD

MS1819-SD is a yeast derived recombinant lipase for exocrine pancreatic insufficiency (“EPI”) associated with chronic pancreatitis (“CP”) and cystic fibrosis (“CF”). A lipase is an enzyme that breaks up fat molecules. MS1819-SD is considered recombinant because it was created from new combinations of genetic material in yeast called Yarrowia lipolytica. We recently completed an open-label, dose escalation Phase IIa trial of MS1819-SD in France, Australia, and New Zealand to investigate both the safety of escalating doses of MS1819-SD, and the efficacy of MS1819-SD through the analysis of each patient’s coefficient of fat absorption (“CFA”) and its change from baseline. A total of 11 patients with EPI were enrolled in the study and initial data show a strong safety and efficacy profile. Both clinical activity and a clear dose response were observed, with the highest MS1819-SD dose cohort showing greater than 21% improvement in CFA in evaluable patients. Additionally, maximal absolute CFA response to treatment was up to 57%, with an inverse relationship to baseline CFA. Favorable trends were also observed on other evaluated endpoints, including Bristol stool scale, number of daily evacuations and weight of stool, and these were consistent with the CFA results. We expect to provide formal data from the Phase IIa study in the fall of 2018 and we expect to begin a planned Phase IIb study focused on enrolling patients with CF in the second half of 2018.

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B-Lactamase Program

Our b-lactamase program focuses on products with an enzymatic combination of bacterial origin for the prevention of hospital-acquired infections and antibiotic-associated diarrhea (“AAD”) by resistant bacterial strains induced by parenteral administration of several antibiotic classes. Currently, we have two compounds in pre-clinical development in this program, AZX1101 and AZX1103. Both AZX1101 and AZX1103 are composed of several distinct enzymes that break up individual classes of antibiotic molecules. AZX1103 is a b-lactamase enzyme combination that has shown positive pre-clinical activity, with degradation of amoxicillin in the presence of clavulanic acid in the upper gastrointestinal tract in the Gottingen minipig model. Currently, we are focused on advancing pre-clinical development of AZX1103 and expect to file an Investigational New Drug application (an “IND”) for AZX1103 with the U.S. Food and Drug Administration (“FDA”) in 2019. At this time, the Company is currently assessing its plans for the continuation of the development of AZX1101.

Recent Developments

Public Offering of Common Stock

On May 3, 2018, we completed an underwritten, public offering of 4,160,000 shares of our common stock, par value $0.0001 per share (“Common Stock”), at a public offering price per share of $2.50, resulting in gross proceeds of $10.4 million (the “May 2018 Public Offering”). The May 2018 Public Offering was completed pursuant to the terms of an underwriting agreement executed by the Company and Oppenheimer & Co. Inc. (“Oppenheimer”) on May 1, 2018. After deducting the underwriting discount paid to Oppenheimer, estimated legal fees, and other offering expenses payable by us, we received net proceeds of approximately $9.6 million.

The May 2018 Public Offering was conducted pursuant to our effective shelf registration statement on Form S-3 (File No. 333-221275), filed with the SEC on November 1, 2017, and declared effective on November 17, 2017, including the base prospectus dated November 1, 2017 included therein and the related prospectus supplement, and a registration statement on Form S-3 filed pursuant to Rule 462(b) of the Securities Act of 1933, as amended (the “Securities Act”), (File No. 333-224562) filed on May 1, 2018.

In addition to the underwriting discount received by Oppenheimer, we also issued unregistered warrants to Oppenheimer to purchase up to 208,000 shares of our common stock (the “Underwriter Warrants”). The Underwriter Warrants will become exercisable six months from the date of issuance, expire on May 1, 2023 and have an exercise price of $2.55 per share. As a result of certain investors participating in the Offering, we also paid a financial advisory fee to Alexander Capital, LP, consisting of a cash payment and the issuance of warrants, substantially similar to the Underwriter Warrants, to purchase up to 36,400 shares of our common stock at an exercise price of $2.75 per share.

Update and Completion of the Phase IIa Trial of MS1819-SD

On April 23, 2018, we provided an update on the first nine patients treated in our ongoing open label, dose escalation Phase IIa trial of MS1819-SD. We observed both clinical activity and a clear dose response in these patients, where the highest MS1819-SD dose cohort continued to show greater than 21% improvement in the coefficient of fat absorption (“CFA”) in evaluable patients. Additionally, maximal absolute CFA response to treatment was up to 57%, with an inverse relationship to baseline CFA. Favorable trends were also observed on other evaluated endpoints, such as Bristol stool scale, number of daily evacuations and weight of stool, and these were consistent with the CFA results. With regard to safety, no serious adverse events or notable mild to moderate events have been reported in the open label, dose escalation Phase IIa trial. Other markers relating to nutritional status including patients’ plasma albumen were unchanged with treatment. Similarly, fecal nitrogen assessments and nitrogen output showed favorable trends.

On June 29, 2018, we announced the successful completion of our Phase IIa trial of MS1819-SD. As noted above, A total of 11 patients with EPI were enrolled in the study and initial data show a strong safety and efficacy profile. Both clinical activity and a clear dose response were observed, with the highest MS1819-SD dose cohort showing greater than 21% improvement in CFA in evaluable patients. Additionally, maximal absolute CFA response to treatment was up to 57%, with an inverse relationship to baseline CFA. Favorable trends were also observed on other evaluated endpoints, including Bristol stool scale, number of daily evacuations and weight of stool, and these were consistent with the CFA results. We expect to provide formal data from the Phase IIa study in the fall of 2018 and to begin a planned Phase IIb study focused on enrolling patients with CF in the second half of 2018.

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Preclinical Data for AZX1103

On April 18, 2018, we announced positive preclinical results for AZX1103. The results from the preclinical studies showed that AZX1103 had activity and degraded amoxicillin in the presence of clavulanic acid in the upper GI tract in the Gottingen minipig model. AZX1103 is designed to be a complementary treatment for patients receiving antibiotics in the hospital setting. The series of preclinical studies investigated oral delivery of AZX1103 using three different capsule formulations: immediate release, enteric delivery or colonic delivery. In all three formulations and at all doses tested, AZX1103 appeared to be well tolerated. No side effects were observed and the animals showed normal behavior, standard food consumption and body weight gain. There was no evidence of acute toxicity, and no severe immunoallergic reactions were seen at doses of up to 180mg/day. The favorable safety profile is partly the result of AZX1103 not being absorbed by the gut and entering the bloodstream. This property was confirmed by ELISA testing, which did not detect the enzyme in AZX1103 in the animal sera.

Liquidity and Capital Resources

We have experienced net losses and negative cash flows from operations since our inception. As of June 30, 2018, we had cash of approximately $7,420,000 and had an accumulated deficit of approximately $40,926,000. We believe that our cash on hand will sustain operations until July 2019. We are dependent on obtaining, and are continuing to pursue, funding necessary to continue our operations from outside sources, including obtaining additional funding from the sale of securities. Without adequate funding, we may not be able to meet our obligations. We believe these conditions raise substantial doubt about our ability to continue as a going concern.

We have funded our operations to date primarily through the completion of our initial public offering in October 2016 (“IPO”), the issuance of debt and convertible debt securities, as well as the issuance of common stock in various private placement transactions and the May 2018 Public Offering. We expect to incur substantial expenditures in the foreseeable future for the development of our product candidates. We will require additional financing to develop, prepare regulatory filings and obtain regulatory approvals, fund operating losses, and, if deemed appropriate, establish manufacturing, sales and marketing capabilities.

We are focused on expanding our product pipeline through collaborations, and also through potential acquisitions. We are continually evaluating potential asset acquisitions and business combinations. To finance such potential acquisitions, we might raise additional equity capital, incur additional debt, or both, which capital may not be available on a timely basis or on acceptable terms.

Off-Balance Sheet Arrangements

The following table summarizes our contractual obligations over the periods indicated, as well as our total contractual obligations: 

Contractual Obligation	Total	2018 (Balance of Year)	2019	2020	2021	2022
Operating Leases	$286,686	$75,596	$118,382	$92,708	$-	$-

Cash Flows for the Six Months Ended June 30, 2018 and 2017

Net cash used in operating activities for the six months ended June 30, 2018 was $4,862,323, which primarily reflected our net loss of $6,942,174plus adjustments to reconcile net loss to net cash used in operating activities of depreciation and amortization expense of $407,919, non-cash fair value adjustment of the contingent consideration of $160,000, non-cash stock-based compensation of $277,948, non-cash restricted stock granted to employees/directors of $335,751, non-cash restricted stock granted/accrued to consultants of $220,230, non-cash debt discount - warrants on a 12% Senior Secured Original Issue Discount Convertible Debenture issued to Lincoln Park Capital (“LPC”) in April 2017 (the “LPC Debenture”) of $92,332, and a non-cash warrant modification expense of $428,748. Changes in assets and liabilities are due to an increase in other receivables of $6,624due primarily to the billings to our research partner Laboratoires Mayoly Spindler SAS (“Mayoly”), a decrease in prepaid expense of $142,560due primarily to the expensing of prepaid insurance, and an increase in accounts payable and accrued expense of $35,989due primarily to increased research and development expenses as detailed below. 

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Net cash used in operating activities for the six months ended June 30, 2017 was $3,422,440, which primarily reflected our net loss of $5,481,148 plus adjustments to reconcile net loss to net cash used in operating activities of depreciation and amortization expense of $378,981, non-cash fair value adjustment of the contingent consideration of $360,000, non-cash stock-based compensation of $551,333, non-cash restricted stock granted to consultants of $221,485, non-cash warrant expense of $560,902, non-cash accreted interest on OID Notes and debt discount - warrants of $138,019, non-cash beneficial conversion feature on OID Notes of $149,036, a decrease in other receivables of $70,745 primarily due to payments from our research partner, and a decrease in prepaid expense of $6,449 due to the expensing of prepaid insurance offset by a decrease in accounts payable and accrued expense of $383,867 due to our better cash position.

Net cash used in investing activities for the six months ended June 30, 2018 and 2017 was $41,041 and $21,243, respectively, which consisted of the purchase of property and equipment.

Net cash provided by financing activities for the six months ended June 30, 2018 was $11,770,340, which consisted of $2,324,742 from the issuance of Common Stock in connection with the exercise of Repriced Warrants, $9,577,942 from the sale of Common Stock offered in our May 2018 Public Offering, offset by repayment of a note payable of $132,344. Net cash used in financing activities for the six months ended June 30, 2017 was $5,516,048, which consisted of the gross proceeds resulting from the issuance of the LPC Debenture to LPC of $1,000,000 and the net proceeds resulting from the issuance of certain units in connection with a financing of $4,645,225, offset by repayment of note payable of $129,177. 

Consolidated Results of Operations for the Three and Six Months Ended June 30, 2018 and 2017

Research and development (“R&D”) expense was $925,776and $743,422, respectively, for the three months ended June 30, 2018 and 2017, an increase of $182,354. R&D expense was $2,603,805 and $1,277,559, respectively, for the six months ended June 30, 2018 and 2017, which is an increase of $1,326,246. The increases in R & D expenses for the three and six months ended June 30, 2018 as compared to the same period in 2017 are primarily due to patient enrollment thresholds having been met thus triggering milestone-based payments for the ongoing Phase II study of MS1819-SD in chronic pancreatitis, the production of new batches of material for both the MS1819-SD program and the b-lactamase program, and the starting up of an R & D function in the U.S. We expect R&D expense to increase in future periods as our product candidates continue through clinical trials and we seek strategic collaborations.

General and administrative (“G&A”) expense was $2,167,247and $1,381,013, respectively, for the three months ended June 30, 2018 and 2017, an increase of $786,234. The increase for the three months ended June 30, 2018 as compared to the same period in 2017 was due primarily to an increase in compensation of $423,500due to the addition of a Chief Financial Officer and Chief Medical Officer as well as accruing bonuses, investor relations increased by $24,175due to efforts to increase the visibility of the Company, and an increase in non-cash restricted stock, stock-based compensation, and warrants granted accumulating to $356,173due to restricted stock and stock options vesting due to completing a Phase IIa clinical study of MS1819-SD. G&A expense was $4,083,580 and $3,555,368, respectively, for the six months ended June 30, 2018 and 2017, an increase of $528,212. The increase for the six months ended June 30, 2018 as compared to the same period in 2017 was due primarily to a warrant modification expense of $428,748, an increase in compensation of $497,000 due to the addition of a Chief Financial Officer and Chief Medical Officer as well as accruing bonuses, an increase in investor relations of $62,519 due to efforts to increase the visibility of the Company offset by a decrease in non-cash restricted stock, stock-based compensation, and warrants granted accumulating to $398,192 due to less grants made in 2018 than in the same period in 2017, and a decrease in website expense of $34,580 as the website was revamped in the first quarter of 2017. We expect G&A expense to increase going forward as we proceed closer to commercialization of our product candidates.

Fair value adjustment of our contingent consideration was $170,000 and $260,000, respectively, for the three months ended June 30, 2018 and 2017. Fair value adjustment of our contingent consideration was $160,000 and $360,000, respectively, for the six months ended June 30, 2018 and 2017. The difference in fair value adjustments in the three-month and six-month periods ended June 30, 2018 as compared to the same period in 2017 is due primarily to increased risk-free and corporate bond rates as well as a greater probability of achieving success due to the completion of the Phase IIa study of MS1819-SD.

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Interest expense was $46,154and $287,347, respectively, for the three months ended June 30, 2018 and 2017, a decrease of $241,193. Interest expense was $94,789 and $288,221, respectively, for the six months ended June 30, 2018 and 2017, a decrease of $193,432. The lower interest expense in the three and six months ended June 30, 2018 as compared to the same periods in 2017 is due to the lower amounts of LPC Debenture outstanding.

Net loss was $3,309,177and $2,671,782, respectively, for the three months ended Jun 30, 2018 and 2017. Net loss was $6,942,174 and $5,481,148, respectively, for the six months ended June 30, 2018 and 2017. The greater net loss for the three and six months ended June 30, 2018 compared to the same period in 2017 is due to the changes in expense as noted above.

 ITEM 3.  QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKETRISKS

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.

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.

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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, 2017, filed on March 16, 2018. 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 August 10, 2018, 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

None.

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
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

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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/ Johan M. (Thijs) Spoor
	Johan M. (Thijs) Spoor President and Chief Executive Officer (Principal Executive Officer)

	By	/s/ Maged Shenouda
		Maged Shenouda Chief Financial Officer (Principal Financial and Accounting Officer)
Date: August 10, 2018

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EX-31.1

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, Johan M. (Thijs) Spoor, 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: August 10, 2018 /s/ Johan M. (Thijs) Spoor Johan M. (Thijs) Spoor Chief Executive Officer (Principal Executive Officer)

EX-31.2

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, Maged Shenouda, 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: August 10, 2018 /s/ Maged Shenouda Maged Shenouda Chief Financial Officer (Principal Financial and Accounting Officer)

EX-32

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 June 30, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Johan M. (Thijs) Spoor, Chief Executive Officer of the Company, and Maged Shenouda, 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: August 10, 2018	/s/ Johan M. (Thijs) Spoor
	Johan M. (Thijs) Spoor President and Chief Executive Officer (Principal Executive Officer)
	/s/ Maged Shenouda Maged Shenouda Chief Financial Officer (Principal Financial and Accounting Officer)

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2018	Aug. 10, 2018
Document and Entity Information
Entity Registrant Name	AzurRx BioPharma, Inc.
Document Type	10-Q
Document Period End Date	Jun. 30, 2018
Amendment Flag	false
Entity Central Index Key	0001604191
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		16,910,462
Entity Filer Category	Smaller Reporting Company
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q2

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Consolidated Balance Sheets - USD ($)	Jun. 30, 2018	Dec. 31, 2017
Current Assets:
Cash	$ 7,420,425	$ 573,471
Other receivables	1,081,378	1,104,134
Prepaid expenses	132,324	274,963
Total Current Assets	8,634,127	1,952,568
Property, equipment, and leasehold improvements, net	145,024	133,987
Other Assets:
In process research & development, net	282,293	307,591
License agreements, net	665,578	1,038,364
Goodwill	1,966,670	2,016,240
Deposits	45,546	30,918
Total Other Assets	2,960,087	3,393,113
Total Assets	11,739,238	5,479,668
Current Liabilities:
Accounts payable and accrued expenses	1,259,889	1,187,234
Accounts payable and accrued expenses - related party	1,035,970	868,105
Notes payable	26,836	159,180
Convertible debt	281,024	257,365
Interest payable	7,192	7,192
Total Current Liabilities	2,610,911	2,479,076
Contingent consideration	1,500,000	1,340,000
Total Liabilities	4,110,911	3,819,076
Stockholders' Equity:
Convertible preferred stock - Par value $0.0001 per share; 10,000,000 shares authorized and 0 shares issued and outstanding at June 30, 2018 and December 31, 2017; liquidation preference approximates par value	0	0
Common stock - Par value $0.0001 per share; 100,000,000 shares authorized; 16,792,395 and 12,042,574 shares issued and outstanding, respectively, at June 30, 2018 and December 31, 2017	1,679	1,205
Additional paid in capital	49,611,859	37,669,601
Subscriptions receivable	0	(1,071,070)
Accumulated deficit	(40,925,603)	(33,983,429)
Accumulated other comprehensive loss	(1,059,608)	(955,715)
Total Stockholders' Equity	7,628,327	1,660,592
Total Liabilities and Stockholders' Equity	$ 11,739,238	$ 5,479,668

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Consolidated Balance Sheets (Parenthetical) - $ / shares	Jun. 30, 2018	Dec. 31, 2017
Statement of Financial Position [Abstract]
Preferred stock shares, par value	$ 0.0001	$ 0.0001
Preferred stock shares, authorized	10,000,000	10,000,000
Preferred stock shares, issued	0	0
Preferred stock shares, outstanding	0	0
Common stock shares, par value	$ 0.0001	$ 0.0001
Common stock shares, authorized	100,000,000	100,000,000
Common stock shares, issued	16,792,395	12,042,574
Common stock shares, outstanding	16,792,395	12,042,574

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Consolidated Statements of Operations and Comprehensive Loss - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Income Statement [Abstract]
Research and development expenses	$ 925,776	$ 743,422	$ 2,603,805	$ 1,277,559
General & administrative expenses	2,167,247	1,381,013	4,083,580	3,555,368
Fair value adjustment, contingent consideration	170,000	260,000	160,000	360,000
Loss from operations	(3,263,023)	(2,384,435)	(6,847,385)	(5,192,927)
Other:
Interest expense	(46,154)	(287,347)	(94,789)	(288,221)
Total other	(46,154)	(287,347)	(94,789)	(288,221)
Loss before income taxes	(3,309,177)	(2,671,782)	(6,942,174)	(5,481,148)
Income taxes	0	0	0	0
Net loss	(3,309,177)	(2,671,782)	(6,942,174)	(5,481,148)
Other comprehensive loss:
Foreign currency translation adjustment	(209,913)	230,170	(103,893)	291,856
Total comprehensive loss	$ (3,519,090)	$ (2,441,612)	$ (7,046,067)	$ (5,189,292)
Basic and diluted weighted average shares outstanding	15,300,197	10,064,713	13,881,698	9,849,098
Loss per share - basic and diluted	$ (0.22)	$ (0.27)	$ (0.50)	$ (0.56)

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Consolidated Statements of Changes in Stockholders' Equity (Deficit) - USD ($)	Convertible Preferred Stock	Common Stock	Additional Paid-In Capital	Subscriptions Receivable	Accumulated Deficit	Accumulated Other Comprehensive Loss	Total
Beginning Balance, Shares at Dec. 31, 2016	0	9,631,088
Beginning Balance, Amount at Dec. 31, 2016	$ 0	$ 963	$ 27,560,960	$ 0	$ (22,887,046)	$ (1,461,875)	$ 3,213,002
Common stock and warrants issued from private placement, Shares		1,428,572
Common stock and warrants issued from private placement, Amount		$ 143	4,645,082				4,645,225
Stock-based compensation			551,333				551,333
Restricted stock granted to consultants, Shares		58,500
Restricted stock granted to consultants, Amount		$ 6	221,479				221,485
Warrants issued to investment consultants			560,902				560,902
Warrants issued in association with convertible debt issuances			246,347				246,347
Warrant modification							0
Beneficial conversion feature on convertible debt issuances			395,589				395,589
Foreign currency translation adjustment						291,856	291,856
Net loss					(5,481,148)		(5,481,148)
Ending Balance, Shares at Jun. 30, 2017	0	11,118,160
Ending Balance, Amount at Jun. 30, 2017	$ 0	$ 1,112	34,181,692	0	(28,368,195)	(1,170,019)	4,644,590
Beginning Balance, Shares at Dec. 31, 2017	0	12,042,574
Beginning Balance, Amount at Dec. 31, 2017	$ 0	$ 1,205	37,669,601	(1,071,070)	(33,983,429)	(955,715)	1,660,592
Common stock issued from public offering, Shares		4,160,000
Common stock issued from public offering, Amount		$ 416	9,577,524				9,577,940
Common stock issued to consultants		751
Common stock issued for warrant exercises, Shares		503,070
Common stock issued for warrant exercises, Amount		$ 49	1,253,623	1,071,070			2,324,742
Stock-based compensation			$ 277,948				277,948
Restricted stock granted to employees/directors, Shares			60,000
Restricted stock granted to employees/directors, Amount			$ 6	335,745			335,751
Convertible debt converted into common stock, Shares		26,000
Convertible debt converted into common stock, Amount		$ 3	68,670				68,673
Warrant modification			428,748				(428,748)
Foreign currency translation adjustment						(103,893)	(103,893)
Net loss					(6,942,174)		(6,942,174)
Ending Balance, Shares at Jun. 30, 2018	0	16,792,395
Ending Balance, Amount at Jun. 30, 2018	$ 0	$ 1,679	$ 49,611,859	$ 0	$ (40,925,603)	$ (1,059,608)	$ 7,628,327

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Consolidated Statements of Cash Flows - USD ($)	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017
Cash flows from operating activities:
Net loss	$ (6,942,174)	$ (5,481,148)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	30,420	23,124
Amortization	377,499	355,857
Fair value adjustment, contingent consideration	160,000	360,000
Stock-based compensation	277,948	551,333
Restricted stock granted to employees/directors	335,751	0
Restricted stock granted/accrued to consultants	220,230	221,485
Warrants issued to consultants	0	560,902
Accreted interest on convertible debt	0	45,209
Convertible debt beneficial conversion feature	0	149,036
Accreted interest on debt discount - warrants	92,332	92,810
Warrant modification	(428,748)	0
Changes in assets and liabilities, net of effects of acquisition:
Other receivables	(6,624)	70,745
Prepaid expenses	142,560	6,449
Deposits	(15,000)	5,625
Accounts payable and accrued expenses	35,989	(383,867)
Net cash used in operating activities	(4,862,321)	(3,422,440)
Cash flows from investing activities:
Purchase of property and equipment	(41,041)	(21,243)
Net cash used in investing activities	(41,041)	(21,243)
Cash flows from financing activities:
Net proceeds from issuances of common stock and warrants	9,577,940	4,645,225
Net proceeds from common stock issued for warrant exercises	2,324,742	0
Proceeds from issuances of convertible debt	0	1,000,000
Repayments of notes payable	(132,344)	(129,177)
Net cash provided by financing activities	11,770,338	5,516,048
Increase in cash	6,866,976	2,072,365
Effect of exchange rate changes on cash	(20,022)	(17,302)
Cash, beginning balance	573,471	1,773,525
Cash, ending balance	7,420,425	3,828,588
Supplemental disclosures of cash flow information:
Cash paid for interest	2,457	1,166
Cash paid for income taxes	0	0
Non-cash investing and financing activities:
Conversion of convertible debt into common shares	$ 68,673	$ 0

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The Company, Basis of Presentation, and Recent Accounting Pronouncements

6 Months Ended

Jun. 30, 2018

Disclosure Text Block [Abstract]

The Company, Basis of Presentation, and Recent Accounting Pronouncements

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 BioPharma SAS (formerly “ProteaBio Europe SAS”), a company incorporated in October 2008 under the laws of France that had been a wholly-owned subsidiary of Protea Biosciences, Inc., or Protea Sub, in turn a wholly-owned subsidiary of Protea Biosciences Group, Inc., a publicly-traded company. AzurRx and its wholly-owned subsidiary, AzurRx BioPharma SAS (“ABS”), are collectively referred to as the “Company.”

AzurRx, through its ABS subsidiary, is engaged in the research and development of non-systemic biologics for the treatment of patients with gastrointestinal disorders. Non-systemic biologics are non-absorbable drugs that act locally, i.e. the intestinal lumen, skin or mucosa, without reaching an individual’s systemic circulation.

Within our current product pipeline, our two most advanced therapeutic programs are described below:

MS1819-SD

MS1819-SD is a yeast derived recombinant lipase for exocrine pancreatic insufficiency (“EPI”) associated with chronic pancreatitis (“CP”) and cystic fibrosis (“CF”). A lipase is an enzyme that breaks up fat molecules. MS1819-SD is considered recombinant because it was created from new combinations of genetic material in yeast called Yarrowia lipolytica. The Company recently completed an open-label, dose escalation Phase IIa trial of MS1819-SD in France, Australia, and New Zealand to investigate both the safety of escalating doses of MS1819-SD, and the efficacy of MS1819-SD through the analysis of each patient’s coefficient of fat absorption (“CFA”) and its change from baseline. A total of 11 patients with EPI were enrolled in the study and initial data show a strong safety and efficacy profile. Both clinical activity and a clear dose response were observed, with the highest MS1819-SD dose cohort showing greater than 21% improvement in CFA in evaluable patients. Additionally, maximal absolute CFA response to treatment was up to 57%, with an inverse relationship to baseline CFA. Favorable trends were also observed on other evaluated endpoints, including Bristol stool scale, number of daily evacuations and weight of stool, and these were consistent with the CFA results. The Company expects to provide formal data from the Phase IIa study in the fall of 2018 and expects to begin a planned Phase IIb study focused on enrolling patients with CF in the second half of 2018.

B-Lactamase Program

The Company’s b-lactamase program focuses on products with an enzymatic combination of bacterial origin for the prevention of hospital-acquired infections and antibiotic-associated diarrhea (“AAD”) by resistant bacterial strains induced by parenteral administration of several antibiotic classes. Currently, the Company has two compounds in pre-clinical development in this program, AZX1101 and AZX1103. Both AZX1101 and AZX1103 are composed of several distinct enzymes that break up individual classes of antibiotic molecules. AZX1103 is a b-lactamase enzyme combination that has shown positive pre-clinical activity, with degradation of amoxicillin in the presence of clavulanic acid in the upper gastrointestinal tract in the Gottingen minipig model. Currently, the Company is focused on advancing pre-clinical development of AZX1103 and expects to file an Investigational New Drug application (an “IND”) for AZX1103 with the U.S. Food and Drug Administration (“FDA”) in 2019. At this time, the Company is currently assessing its plans for the continuation of the development of AZX1101.

Recent Developments

Public Offering of Common Stock

On May 3, 2018, the Company completed an underwritten, public offering of 4,160,000 shares of its common stock, par value $0.0001 per share, at a public offering price per share of $2.50, resulting in gross proceeds of $10.4 million (the “May 2018 Public Offering”) with associated expenses of approximately $800,000. The May 2018 Public Offering was completed pursuant to the terms of an underwriting agreement executed by the Company and Oppenheimer & Co. Inc. (“Oppenheimer”) on May 1, 2018. After deducting the underwriting discount paid to Oppenheimer, estimated legal fees, and other offering expenses payable by the Company, the Company received net proceeds of approximately $9.6 million.

The May 2018 Public Offering was conducted pursuant to the Company’s effective shelf registration statement on Form S-3 (File No. 333-221275), filed with the SEC on November 1, 2017, and declared effective on November 17, 2017, including the base prospectus dated November 1, 2017 included therein and the related prospectus supplement, and a registration statement on Form S-3 filed pursuant to Rule 462(b) of the Securities Act of 1933, as amended (the “Securities Act”), (File No. 333-224562) filed on May 1, 2018.

In addition to the underwriting discount received by Oppenheimer, the Company also issued unregistered warrants to Oppenheimer to purchase up to 208,000 shares of its common stock (the “Underwriter Warrants”). The Underwriter Warrants, valued at $349,232, will become exercisable six months from the date of issuance, expire on May 1, 2023 and have an exercise price of $2.55 per share. As a result of certain investors participating in the Offering, the Company also paid a financial advisory fee to Alexander Capital, LP, consisting of a cash payment of approximately $104,000 and the issuance of warrants valued at $67,194, substantially similar to the Underwriter Warrants, to purchase up to 36,400 shares of its common stock at an exercise price of $2.75 per share.

Basis of Presentation and Principles of Consolidation

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). 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, 2017, 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 U.S. GAAP have been omitted pursuant to instructions, rules, and regulations prescribed by the SEC. We believe 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, 2017, filed with the SEC on March 16, 2018.

The unaudited interim consolidated financial statements include the accounts of AzurRx and its wholly-owned subsidiary, AzurRx Europe SAS. Intercompany transactions and balances have been eliminated upon consolidation.

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, had working capital at June 30, 2018 of approximately $6,023,000, and had an accumulated deficit of approximately $40,926,000 at June 30, 2018. The Company currently believes that its cash on hand will sustain its operations until July 2019. The Company is dependent on obtaining, and continues to pursue, the necessary funding from outside sources, including obtaining additional funding from the sale of securities in order to continue operations. Without adequate funding, the Company may not be able to meet its obligations. Management believes these conditions raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

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Significant Accounting Policies and Recent Accounting Pronouncements

6 Months Ended

Jun. 30, 2018

Significant Accounting Policies And Recent Accounting Pronouncements

Significant Accounting Policies and Recent Accounting Pronouncements

Use of Estimates

The accompanying consolidated financial statements are prepared in conformity with U.S. GAAP and include certain estimates and assumptions which affect the reported amounts of assets and liabilities at the date of the financial statements (including goodwill, intangible assets and contingent consideration), and the reported amounts of revenues and expenses during the reporting period, including contingencies. Accordingly, actual results may differ from those estimates.

Concentrations

Financial instruments that potentially expose the Company to concentrations of credit risk consist of cash. The Company primarily maintains its cash balances with financial institutions in federally-insured accounts in the U.S. The Company may from time to time have cash in banks in excess of FDIC insurance limits. At June 30, 2018 and December 31, 2017, the Company had approximately $6,418,602 and $78,859, 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 also has exposure to foreign currency risk as its subsidiary in France has a functional currency in Euros.

Equity-Based Payments to Non-Employees

The Company accounts for equity instruments, including restricted stock, stock options and warrants, issued to non-employees in accordance with authoritative guidance for equity-based payments to non-employees. All transactions in which goods or services are received in exchange for equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date of the fair value of the equity instrument issued is the earlier of (i) the date of grant if nonforfeitable and fully vested, or (ii) the date the non-employee's performance is completed and there is no further associated performance commitment. The fair value of unvested equity instruments granted to non-employees is re-measured at each reporting date, and the resulting change in value, if any, is recognized as expense during the period the related services are rendered. The expense is recognized in the same manner as if we had paid cash for the services provided by the non-employees.

Research and Development

Research and development (“R&D”) costs are charged to operations when incurred and are included in operating expenses. R&D costs consist principally of compensation of employees and consultants that perform the Company’s research activities, the fees paid to maintain the Company’s licenses, and the payments to third parties for clinical trial and additional product development and testing.

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 shareholders’ equity.

Revenue Recognition

The Company is still in its startup phase and is not generating revenues at this time. When revenues are generated, the Company will follow the provisions of FASB Accounting Standards Codification (“ASC” or the “Codification”) Topic 606, Revenue From Contracts With Customers.

Recent Accounting Pronouncements

In June 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which amends the Codification to expand the scope of FASB ASC Topic 718, Compensation—Stock Compensation, to include share-based payment transactions for acquiring goods and services from non-employees. Guidance on accounting for non-employee share-based payment arrangements, which differs significantly in many respects from that for employee share-based payment transactions, was included in FASB ASC Subtopic 505-50, Equity—Equity Based Payments to Non-Employees. The ASU is effective for fiscal years beginning after December 15, 2018, including interim periods. The Company is currently assessing this pronouncement and believes this will have an impact on the Company’s financial statements.

In July 2017, the FASB issued ASU 2017-11, Earnings per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815). ASU 2017-11 provides guidance on accounting for financial instruments with down round features and clarifies the deferral of certain provisions in Topic 480. ASU 2017-11 will become effective for annual periods beginning after December 15, 2018 and interim periods within those periods. Early adoption is permitted. The adoption of this pronouncement did not have an impact on the Company’s financial statements.

In January 2017, the FASB issued guidance to simplify the subsequent measurement of goodwill impairment. The new guidance eliminates the two-step process that required identification of potential impairment and a separate measure of the actual impairment. Goodwill impairment charges, if any, would be determined by reducing the goodwill balance by the difference between the carrying value and the reporting unit’s fair value (impairment loss is limited to the carrying value). This standard is effective for annual or any interim goodwill impairment tests beginning after December 15, 2019. The Company believes that the adoption of this pronouncement will not have an impact on the Company’s measurement of goodwill impairment.

In February 2016, the FASB issued an ASU which requires lessees to recognize lease assets and lease liabilities arising from operating leases on the balance sheet. This ASU is effective for annual and interim reporting periods beginning after December 15, 2018 using a modified retrospective approach, with early adoption permitted. The Company believes that the adoption of this pronouncement will not have a material impact on the Company's financial statements. We believe that the most significant changes relate to the recognition of new right-of-use assets and lease liabilities on the balance sheet for office space and research facilities.

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Fair Value Disclosures

6 Months Ended

Jun. 30, 2018

Fair Value Disclosures [Abstract]

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.

At June 30, 2018 and December 31, 2017, the Company had Level 3 instruments consisting of contingent consideration in connection with the Protea Europe SAS acquisition, see Note 7.

The following tables summarize the Company’s financial instruments measured at fair value on a recurring basis:

	Fair Value Measurements at Reporting Date Using
	Total		Level 1		Level 2		Level 3
At June 30, 2018:
Contingent consideration	$	1,500,000	$	-	$	-	$	1,500,000
At December 31, 2017:
Contingent consideration	$	1,340,000	$	-	$	-	$	1,340,000

The following table provides a reconciliation of the fair value of liabilities using Level 3 significant unobservable inputs:

	Contingent
	Consideration
Balance at December 31, 2017	$	1,340,000
Change in fair value		160,000
Balance at June 30, 2018	$	1,500,000

The contingent consideration was valued by incorporating a series of Black-Scholes Option Pricing Models (“BSM”) into a discounted cash flow framework. Significant unobservable inputs used in this calculation at June 30, 2018 and December 31, 2017 included projected net sales over a period of patent exclusivity (seven years), discounted by (i) the Company’s weighted average cost of capital (32.8% and 32.4%, respectively), (ii) the contractual hurdle amount of $100 million that replaces the strike price input in the traditional BSM, (iii) asset volatility (85.2% and 83.1%, respectively), that replaces the equity volatility in the traditional BSM, (iv) risk-free rates (ranging from 2.3% to 2.8% and 1.8% to 2.4%, respectively), and (v) an option-adjusted spread (1.2% and 0.6%, respectively) that is applied to these payments to account for the payer’s risk and arrive at a fair value of the expected payment.

The fair value of the Company's financial instruments are as follows:

	Carrying	Carrying	Fair Value Measured at Reporting Date Using						Fair	Fair
	Amount		Level 1		Level 2		Level 3		Value
At June 30, 2018:
Cash	$	7,420,425	$	-	$	7,420,425	$	-	$	7,420,425
Other receivables	$	1,081,378	$	-	$	-	$	1,081,378	$	1,081,378
Notes payable	$	26,836	$	-	$	-	$	26,836	$	26,836
Convertible debt	$	281,024	$	-	$	-	$	286,529	$	286,529
At December 31, 2017:
Cash	$	573,471	$	-	$	573,471	$	-	$	573,471
Other receivables	$	1,104,134	$	-	$	-	$	1,104,134	$	1,104,134
Notes payable	$	159,180	$	-	$	-	$	159,180	$	159,180
Convertible debt	$	257,365	$	-	$	-	$	387,201	$	387,201

The fair value of other receivables approximates carrying value as these consist primarily of French R&D tax credits that are normally received within nine months from year end and amounts due from our collaboration partner Laboratoires Mayoly Spindler SAS (“Mayoly”), see Note 15.

The fair value of note payable approximates carrying value due to the terms of such instruments and applicable interest rates.

The fair value of convertible debt is based on the par value plus accrued interest through the date of reporting due to the terms of such instruments and interest rates, or the current interest rates of similar instruments.

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Other Receivables

6 Months Ended

Jun. 30, 2018

Other Receivables

Other Receivables

Other receivables consisted of the following:

	June 30,		December 31,
	2018		2017
R&D tax credits	$	931,421	$	954,897
Other		149,957		149,237
Total other receivables	$	1,081,378	$	1,104,134

The R&D tax credits are refundable tax credits for research conducted in France. Other consists primarily of amounts due from collaboration partner Mayoly, see Note 15, and non-income tax related items from French government entities.

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Property, Equipment, and Leasehold Improvements

6 Months Ended

Jun. 30, 2018

Property Equipment And Leasehold Improvements

Property, Equipment, and Leasehold Improvements

Property, equipment and leasehold improvements consisted of the following:

	June 30,			December 31,
	2018			2017
Laboratory equipment	$	188,558		$	165,611
Computer equipment		62,878			44,364
Office equipment		36,334			36,334
Leasehold improvements		29,163			29,163
Total property, plant and equipment		316,933			275,472
Less accumulated depreciation		(171,909	)		(141,485	)
Property, plant and equipment, net	$	145,024		$	133,987

Depreciation expense for the three months ended June 30, 2018 and 2017 was $15,657 and $12,527, respectively. Depreciation expense for the six months ended June 30, 2018 and 2017 was $30,420 and $23,124, respectively. Depreciation expense is included in general and administrative (“G&A”) expense.

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Intangible Assets and Goodwill

6 Months Ended

Jun. 30, 2018

Intangible Assets And Goodwill

Intangible Assets and Goodwill

Intangible assets are as follows:

	June 30,			December 31,
	2018			2017
In process research and development	$	425,656		$	436,385
Less accumulated amortization		(143,363	)		(128,794	)
In process research and development, net	$	282,293		$	307,591
License agreements	$	3,472,581		$	3,560,107
Less accumulated amortization		(2,807,003	)		(2,521,743	)
License agreements, net	$	665,578		$	1,038,364

Amortization expense for the three months ended June 30, 2018 and 2017 was $185,818 and $189,669, respectively. Amortization expense for the six months ended June 30, 2018 and 2017 was $377,499 and $355,857, respectively.

As of June 30, 2018, amortization expense is expected to be as follows for the next five years:

2018 (balance of year)	$	364,994
2019		353,791
2020		35,471
2021		35,471
2022		35,471
2023		35,471

Goodwill is as follows:

	Goodwill
Balance at December 31, 2017	$	2,016,240
Foreign currency translation		(49,570	)
Balance at June 30, 2018	$	1,966,670

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Contingent Consideration

6 Months Ended

Jun. 30, 2018

Contingent Consideration

Contingent Consideration

On June 13, 2014, the Company executed a stock purchase agreement (the “SPA”) with Protea Biosciences Group, Inc. (“Protea Group”). Pursuant to the SPA, the Company is obligated to pay Protea certain contingent consideration in U.S. dollars upon the satisfaction of certain events, including (i) a one-time milestone payment of $2,000,000 due within (10) days of receipt of the first approval by the FDA of a New Drug Application (“NDA”) or Biologic License Application (“BLA”) for a Business Product (as such term is defined in the SPA). (ii) royalty payments equal to 2.5% of net sales of Business Product up to $100,000,000 and 1.5% of net sales of Business Product in excess of $100,000,000, and (iii) 10% of the Transaction Value (as defined in the SPA) received in connection with a sale or transfer of the pharmaceutical development business of Protea Europe, see Note 3.

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Accounts Payable and Accrued Expenses

6 Months Ended

Jun. 30, 2018

Accounts Payable

Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consisted of the following:

	June 30,		December 31,
	2018		2017
Trade payables	$	453,244	$	705,041
Accrued expenses		302,430		182,200
Accrued bonus		350,000		80,000
Accrued payroll		154,215		219,993
Total accounts payable and accrued expenses	$	1,259,889	$	1,187,234

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Notes Payable

6 Months Ended

Jun. 30, 2018

Convertible Promissory Notes

Notes Payable

On October 30, 2017, the Company entered into a nine-month financing agreement for its directors and officer’s liability insurance in the amount of $237,137 that bears interest at an annual rate of 5.537%. Monthly payments, including principal and interest, are $26,960 per month. The balance due under this financing agreement at June 30, 2018 and December 31, 2017 was $26,836 and $159,180, respectively.

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Original Issue Discounted Convertible Notes and Warrants

6 Months Ended

Jun. 30, 2018

Original Issue Discounted Convertible Notes

Original Issue Discounted Convertible Notes and Warrants

LPC OID Debenture

On April 11, 2017, the Company entered into a Note Purchase Agreement with Lincoln Park Capital Fund, LLC (“LPC”), pursuant to which the Company issued a 12% Senior Secured Original Issue Discount Convertible Debenture (the “Debenture”) to LPC. The principal and original issue discount of $1,120,000 due under the terms of the Debenture were due on the Maturity Date, which is defined as the earlier to occur of (i) November 10, 2017 or (ii) on the fifth business day following the receipt by the Company or its wholly-owned subsidiary, ABS, of certain tax credits that the Company received prior to November 10, 2017 (the “Tax Credit”). In connection with the issuance of the Debenture, the Company issued to LPC a warrant giving LPC the right to purchase 164,256 shares of the Company’s common stock at an exercise price of $4.2592 per share (“LPC Series A Warrant”) that will terminate five years after the date of issuance.

On November 10, 2017, the Company and LPC modified the Debenture to extend the Maturity Date to November 29, 2017, subject to the Company’s right to extend the Maturity Date to July 11, 2018 (the “Extension Option”) in exchange for 30,000 shares of the Company’s common stock which were valued at $90,300 and charged to interest expense. The Company exercised its Extension Option on November 29, 2017 and issued LPC an additional warrant to purchase 164,256 shares of the Company’s common stock at an exercise price of $3.17 per share (“LPC Series B Warrant”) that will terminate five years after the date of issuance. The Company accounted for the LPC Series B Warrant feature of the Debenture based upon the relative fair value of the warrants on the date of issuance of the Debenture of $164,325, which was recorded as additional paid in capital and a discount to the Debenture.

The principal and original issue discount amount of the Debenture is convertible into shares of the Company’s common stock at LPC’s option, at a conversion price equal to $3.872 (“Conversion Price”). Provided certain conditions related to compliance with the terms of the Debenture are satisfied, the closing price of the Company’s common stock exceeds 150% of the Conversion Price, the median daily volume for the preceding 30 days exceeds 50,000 shares per day, among other conditions, the Company may, at its option, force conversion of the Debenture for an amount equal to the outstanding balance of the principal and original issue discount of the Debenture. During the year ended December 31, 2017, LPC elected to convert $717,126 of the Debenture pursuant to which LPC received 189,256 shares of common stock. On January 10, 2018, LPC elected to convert $100,672 of the Debenture pursuant to which LPC received 26,000 shares of common stock.

On July 11, 2018, the Company paid off this Debenture for the amount of approximately $286,529.

The obligations under the Debenture are guaranteed by ABS, as well as a security agreement providing LPC with a secured interest in the Tax Credit.

For the three months ended June 30, 2018 and 2017, the Company recorded $45,537 and $287,055, respectively, of interest expense related to the amortization of the debt discount and beneficial conversion feature related to the warrant features of the Debenture. For the six months ended June 30, 2018 and 2017, the Company recorded $92,332 and $287,055, respectively, of interest expense related to the amortization of the debt discount and beneficial conversion feature related to the warrant features of the Debenture.

Convertible Debt consisted of:

	June 30,			December 31,
	2018			2017
Convertible debt	$	261,008		$	352,713
Accreted OID interest		25,521			34,488
Unamortized debt discount - warrants		(5,505	)		(129,836	)
Total convertible debt	$	281,024		$	257,365

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Equity

6 Months Ended

Jun. 30, 2018

Equity [Abstract]

Equity

Common Stock

At June 30, 2018 and December 31, 2017, the Company had 16,792,395 and 12,042,574, respectively, of shares of its common stock issued and outstanding.

Stock Option Plan

The Company’s board of directors 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. During the three months ended June 30, 2018 and 2017, the Company granted 539,000 and 0, respectively, of stock options under the 2014 Plan. During the six months ended June 30, 2018 and 2017, the Company granted 539,000 and 190,000, respectively, of stock options under the 2014 Plan, see Note 13.

Series A Convertible Preferred Stock

At June 30, 2018 and December 31, 2017, there were no Series A outstanding and all terms of the Series A are still in effect.

June 2017 Private Placement

On June 5, 2017, the Company entered into Securities Purchase Agreements (the “Purchase Agreements”) with certain accredited investors (“Investors”), pursuant to which the Company issued an aggregate of 1,428,572 units for $3.50 per unit, with each unit consisting of one share of Common Stock, one Series A Warrant to purchase 0.25 shares of Common Stock at $4.00 per share exercisable immediately through December 31, 2017, and one Series A-1 Warrant to purchase 0.75 shares of Common Stock at $5.50 per share exercisable beginning six months from the date of issuance through June 5, 2022 (together, “Units”) (the "Financing"). At closing of the Financing, the Company issued Units resulting in the issuance of an aggregate of 1,428,572 shares of Common Stock, Series A Warrants to purchase up to 357,144 shares of Common Stock, and Series A-1 Warrants to purchase up to 1,071,431 shares of Common Stock, resulting in gross proceeds of $5,000,000.

Placement agent fees of $350,475 were paid to Alexander Capital L.P. (“Alexander Capital”), based on 8% of the aggregate principal amount of the Units issued to certain investors identified by Alexander Capital (“Alexander Investors”), which amount includes both an 8% success fee and a 1% expense fee, and Series A-1 Warrants to purchase 77,950 shares of Common Stock were issued to Alexander Capital (the “Placement Agent Warrants”), reflecting warrants for that number of shares of Common Stock equal to 7% of the aggregate number of shares of Common Stock purchased by Alexander Investors. The Placement Agent Warrants are exercisable beginning December 2, 2017 at a fixed price of $6.05 per share, through June 5, 2022. The Company also incurred $4,000 in other fees associated with this placement. The placement agent and other fees are netted against the proceeds in the Consolidated Statements of Changes in Stockholders' Equity.

On June 20, 2017, the Company and Investors executed an amendment to the Purchase Agreements authorizing the Company to issue up to $400,000 in additional Units, and on July 5, 2017, the Company issued additional Units resulting in gross proceeds of $400,000 (“Subsequent Closing”). Placement agent fees of $36,000 were paid to Alexander Capital, as well as additional Placement Agent Warrants to purchase 5,760 shares of Common Stock. In connection with the Subsequent Closing, the Company issued 114,287 shares of Common Stock, Series A and A-1 Warrants to purchase 28,572 and 85,715 shares, respectively. The placement agent fees are netted against the proceeds in the Consolidated Statements of Changes in Stockholders' Equity.

Restricted Stock

During the three months ended June 30, 2018, 317,500shares of restricted common stock were granted or accrued to employees and consultants with a total value of $986,160. During the three months ended June 30 31, 2018, 91,917 shares of restricted common stock vested with a value of $333,671 of which an aggregate of 30,000 shares with a value of $96,300 have been issued to our directors as a part of Board compensation. During the six months ended June 30, 2018, 379,000shares of restricted common stock were granted or accrued to employees and consultants with a total value of $1,188,970. During the six months ended June 30, 2018, 158,834 shares of restricted common stock vested with a value of $555,981 of which an aggregate of 60,000 shares with a value of $190,500 have been issued to our directors as a part of Board compensation. The restricted common stock granted have vesting terms ranging from immediately to three years or based on the Company achieving certain milestones as set forth in the following paragraph.

As of June 30, 2018, the Company had unrecognized restricted common stock expense of $1,264,686. $471,696 of this unrecognized expense will be recognized over the average remaining vesting term of the restricted common stock of 2.73 years. $505,204 of this unrecognized expense vests upon an FDA acceptance of an IND application in the United States. $186,453 of this unrecognized expense vests upon the first dosing of a cystic fibrosis patient with MS1819 anywhere in the world. $101,333 vests upon the enrollment of the first 30 patients in a cystic fibrosis trial. As of June 30, 2018, the probability of these milestones being reached could not be determined.

During the three months ended June 30, 2017, 37,500 shares of restricted common stock were granted to employees and consultants with a total value of $140,425. During the three months ended June 30, 2017, 30,387 of these shares vested with a value of $114,678. During the six months ended June 30, 2017, 58,500 shares of restricted common stock were granted to employees and consultants with a total value of $221,485. During the six months ended June 30, 2017, 51,387 of these shares vested with a value of $195,738.

On July 24, 2017, the Company entered into a consulting agreement that includes a grant of 40,000 shares of restricted common stock to the consultant contingent upon the approval of the Board, which as of Aug 10, 2018 has not yet been granted.

On January 2, 2018, the Company entered into a consulting agreement that includes a grant of 43,000 shares of restricted common stock to the consultant contingent upon the approval of the Board. The Board approved this restricted stock on June 28, 2018 and the shares were issued on July 19, 2018.

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Warrants

6 Months Ended

Jun. 30, 2018

Warrants Abstract

Warrants

In January 2018, the Company offered warrant holders the opportunity to exercise their warrants at a reduced strike price of $2.50, and if so elected, would also have the opportunity to reprice other warrants that they continue to hold unexercised to $3.25. The offer, which was effective January 12, 2018, was for the repricing only and did not modify the life of the warrants. Warrant holders of approximately 503,000 shares exercised their warrants and also had other warrants modified on approximately 197,000 shares, which resulted in a charge of approximately $429,000 in the six months ended June 30, 2018. Cash proceeds on the exercise of these warrants as well as the stock subscriptions as of December 31, 2017 of $1,071,070 amounted to approximately $2,300,000 in January 2018.

Stock warrant transactions for the periods January 1 through June 30, 2018 and 2017 are as follows:

				Exercise Price Per		Weighted Average Exercise
	Warrants			Share		Price
Warrants outstanding and exercisable at January 1, 2017		1,858,340		$	4.76 - $7.37	$	5.66
Granted during the period		1,920,781		$	3.53 - $6.50	$	5.16
Expired during the period		-			-		-
Exercised during the period		-			-		-
Warrants outstanding and exercisable at June 30, 2017		3,779,121		$	4.76 - $7.37	$	5.41
Warrants outstanding and exercisable at January 1, 2018		3,371,385		$	3.17 - $7.37	$	5.28
Granted during the period		244,400		$	2.55 - $2.75	$	2.58
Expired during the period		-			-		-
Exercised during the period		(503,070	)	$	2.50	$	2.50
Warrants outstanding and exercisable at June 30, 2018		3,112,715		$	2.55 - $7.37	$	4.83

		Number of		Weighted Average		Weighted
		Shares Under		Remaining Contract		Average
Exercise Price		Warrants		Life in Years		Exercise Price
$	2.55 - $3.99		881,372		4.1
$	4.00 - $4.99		196,632		3.51
$	5.00 - $5.99		1,815,041		3.47
$	6.00 - $6.99		187,750		3.26
$	7.00 - $7.37		31,920		2.46
Total			3,112,715		3.63	$4.83

During the three and six months ended June 30, 2018, 244,400 warrants were issued to investment bankers in association with the May 2018 Public Offering with a value of $416,426 that had no effect on expenses or stockholders’ equity.

During the three months ended June 30, 2017, 50,000 warrants were issued to consultants. 47,771 warrants issued to consultants were earned and expensed in the three months ended June 30, 2017 with a value of $82,732. During the six months ended June 30, 2017, 250,000 warrants were issued to consultants. 214,438 warrants issued to consultants were earned and expensed in the six months ended June 30, 2017 with a value of $485,050. The earned and expensed amounts were included in G&A expenses.

The weighted average fair value of warrants granted to non-employees during the three months ended June 30, 2018 and 2017 was $1.70 and $2.13. The weighted average fair value of warrants granted to non-employees during the six months ended June 30, 2018 and 2017 was $1.70 and $2.40. The fair value was estimated on the grant dates using the Black-Scholes option-pricing model with the following weighted-average assumptions:

	June 30,			June 30,
	2018			2017
Expected life (in years)		5			5
Volatility		84	%		87	%
Risk-free interest rate		2.70	%		1.82% - 1.92	%
Dividend yield		-	%		-	%

The expected term of the warrants is based on the actual term of the warrants. Volatility is based on the historical volatility of several public entities that are similar to the Company. The Company bases volatility this way because it does 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.

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Stock-Based Compensation Plan

6 Months Ended

Jun. 30, 2018

Stock-based Compensation Plan

Stock-Based Compensation Plan

Under the 2014 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 and six months ended June 30, 2018, 539,000 stock options were granted with an exercise price of $3.04 and a life of five years. 96,250 of these options vested in the three months ended June 30, 2018 having a fair value of $248,930. 103,750 of these options vested in the six months ended June 30, 2018 having a fair value of $277,948. The weighted average fair value of stock options granted to employees during the three and six months ended June 30, 2018 was $2.07.

During the three and six months ended June 30, 2017, 190,000 stock options were granted with an exercise price of $4.48 and a life of 10 years. 7,500 of these options vested in the three months ended June 30, 2017. 142,500 of these options vested in the six months ended June 30, 2017. The weighted average fair value of stock options granted to employees during the three and six months ended June 30, 2017 was $3.87.

The fair values were estimated on the grant dates using the Black-Scholes option-pricing model with the following weighted-average assumptions:

	June 30,			June 30,
	2018			2017
Expected life (in years)		5			10
Volatility		85	%		90	%
Risk-free interest rate		2.82	%		2.48	%
Dividend yield		-	%		-	%

The expected term of the options is based on expected future employee exercise behavior. Volatility is based on the historical volatility of several public entities that are similar to the Company. The Company bases volatility this way because it does not have sufficient historical transactions in its own shares on which to solely base expected volatility. The risk-free interest rate is based on the U.S. Treasury rates at the date of grant with maturity dates approximately equal to the expected term at the grant date. The Company has not historically declared any dividends and does not expect to in the future.

The Company realized no income tax benefit from stock option exercises in each of the periods presented due to recurring losses and valuation allowances.

Stock option activity under the 2014 Plan for the periods January 1 through June 30, 2017 and 2018 is as follows:

	Number			Weighted Average		Weighted Average Remaining Contract		Aggregate
	of Shares			Exercise Price		Life in Years		Intrinsic Value
Stock options outstanding at January 1, 2017		-			-
Granted during the period		190,000		$	4.48		9.60	$	-
Expired during the period		-			-
Exercised during the period		-			-
Stock options outstanding at June 30, 2017		190,000		$	4.48		9.60	$	-
Exercisable at June 30, 2017		142,500		$	4.48		9.60	$	-
Non-vested stock options outstanding at January 1, 2017		-			-
Granted during the period		47,500		$	4.48		9.60	$	-
Expired during the period		-			-
Exercised during the period		-			-
Non-vested stock options outstanding at June 30, 2017		47,500		$	4.48		9.60	$	-
Stock options outstanding at January 1, 2018		545,000		$	4.05		7.13	$	-
Granted during the period		539,000		$	3.04		5.00	$	-
Expired during the period		-			-
Exercised during the period		-			-
Stock options outstanding at June 30, 2018		1,084,000		$	3.72		5.82	$	-
Exercisable at June 30, 2018		261,250		$	4.26		8.60	$	-
Non-vested stock options outstanding at January 1, 2018		387,500		$	3.89		6.39	$	-
Granted during the period		539,000		$	3.04		5.00	$	-
Vested during the period		(103,750	)	$	3.92		6.02	$	-
Expired during the period		-			-
Exercised during the period		-			-
Non-vested stock options outstanding at June 30, 2018		822,750		$	3.32		5.77	$	-

287,911 shares were available for future issuance under the 2014 Plan as of June 30, 2018.

As of June 30, 2018, the Company had unrecognized stock-based compensation expense of $1,844,792. $67,708 of this unrecognized expense will be recognized over the average remaining vesting term of the options of 0.60 years. $1,218,410 of this unrecognized expense vests upon FDA acceptance of a U.S. IND application for MS1819-SD. $558,674 of this unrecognized expense vests upon the first dosing of a cystic fibrosis patient with MS1819-SD anywhere in the world. As of June 30, 2018, the probability of these milestones being reached could not be determined.

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Interest Expense

6 Months Ended

Jun. 30, 2018

Interest Expense [Abstract]

Interest Expense

During the three months ended June 30, 2018 and 2017, the Company incurred $46,154 and $287,347, respectively, of interest expense. During the three months ended June 30, 2018 and 2017, $45,537 and $287,055, respectively, of this amount was in connection with the convertible notes issued by the Company in the form of amortization of debt discount and beneficial conversion feature related to the warrants. During the three months ended June 30, 2018 and 2017, the Company also incurred $617 and $292, respectively, of miscellaneous interest expense.

During the six months ended June 30, 2018 and 2017, the Company incurred $94,789 and $288,221, respectively, of interest expense. During the six months ended June 30, 2018 and 2017, $92,332 and $287,055, respectively, of this amount was in connection with the convertible notes issued by the Company in the form of amortization of debt discount and beneficial conversion feature related to the warrants. During the six months ended June 30, 2018 and 2017, the Company also incurred $2,457 and $1,166, respectively, of miscellaneous interest expense.

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Agreements

6 Months Ended

Jun. 30, 2018

Agreements

Agreements

TransChem Sublicense Agreement

On August 7, 2017, the Company entered into a Sublicense Agreement with TransChem, Inc. (“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 “Licensed Patents”) currently held by TransChem (the “Sublicense Agreement”). The Company may terminate the Sublicense Agreement and the licenses granted therein for any reason and without further liability on 60 days’ notice. Unless terminated earlier, the Sublicense Agreement will expire upon the expiration of the last 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 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 Licensed Patents are achieved. The Licensed Patents will allow the Company to develop compounds for treating gastrointestinal, lung 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. No payments were made under this agreement in the three and six months ended June 30, 2018.

Mayoly Agreement

During the three months ended June 30, 2018 and 2017, the Company was reimbursed $399,622 and $107,299, respectively, from Mayoly under the Mayoly Agreement. During the six months ended June 30, 2018 and 2017, the Company was reimbursed $525,605 and $360,718, respectively, from Mayoly under the Mayoly Agreement.

The Mayoly Agreement includes a €1,000,000 payment due to Mayoly upon the U.S. FDA approval of MS1819-SD. At this time, based on management’s assessment of ASC Topic 450, Contingencies, the Company has not recorded any contingent liability related to this payment.

Employment Agreements

Johan (Thijs) Spoor

On January 3, 2016, the Company entered into an employment agreement with its President and Chief Executive Officer, Johan (Thijs) Spoor. The employment agreement provides for a term expiring January 2, 2019.

Mr. Spoor was originally entitled to 380,000 10-year stock options pursuant to the 2014 Plan. In the first quarter of 2017, 100,000 options having a value of $386,900 were granted and expensed. On September 29, 2017, Mr. Spoor was granted 100,000 shares of restricted common stock subject to vesting conditions as follows: (i) 75% upon FDA acceptance of a U.S. IND application for MS1819-SD, and (ii) 25% upon the Company completing a Phase IIa clinical trial for MS1819-SD, in satisfaction of the Company’s obligation to issue the additional 280,000 options to Mr. Spoor described above, with an estimated fair value at the grant date of $425,000 to be expensed when the probability of these milestones can be determined.

On September 29, 2017, the Board approved a 2016 annual incentive bonus equal to 40% of Mr. Spoor’s current base salary pursuant to his employment agreement in the amount of $170,000.

On June 28, 2018, the Board approved a 2017 annual incentive bonus pursuant to his employment agreement in the amount of $212,500.

Maged Shenouda

On September 26, 2017, the Company entered into an employment agreement with Maged Shenouda, a member of the Company’s Board of Directors, pursuant to which Mr. Shenouda serves as the Company’s Chief Financial Officer. Mr. Shenouda’s employment agreement provides for the issuance of stock options to purchase 100,000 shares of the Company’s common stock, issuable pursuant to the 2014 Plan. These options will vest as follows so long as Mr. Shenouda is serving as either Executive Vice-President of Corporate Development or as Chief Financial Officer (i) 75% upon FDA acceptance of a U.S. IND application for MS1819-SD, and (ii) 25% upon the Company completing a Phase IIa clinical trial for MS1819-SD. The option is exercisable for $4.39 per share and will expire on September 25, 2027.

On June 28, 2018, the Board approved a 2017 annual incentive bonus pursuant to his employment agreement in the amount of $82,500.

Dr. James E. Pennington

On May 28, 2018, the Company entered into an employment agreement with Dr. Pennington to serve as the Company’s Chief Medical Officer. The employment agreement with Dr. Pennington provides for a base annual salary of $250,000. In addition to his salary, Dr. Pennington is eligible to receive an annual milestone bonus, awarded at the sole discretion of the Board based on his attainment of certain financial, clinical development, and/or business milestones established annually by the Board or Compensation Committee. The employment agreement is terminable by either party at any time. In the event of termination by 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, Dr. Pennington will receive six months’ severance payable over such period.

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Leases

6 Months Ended

Jun. 30, 2018

Leases [Abstract]

Leases

The Company leases its office and research facilities under operating leases which are subject to various rent provisions and escalation clauses expiring at various dates through 2020. The escalation clauses are indeterminable and considered not material and have been excluded from minimum future annual rental payments. Rental expense, which is calculated on a straight-line basis, amounted to $36,766 and $31,537, respectively, in the three months ended June 30, 2018 and 2017. Rental expense, which is calculated on a straight-line basis, amounted to $67,993 and $65,564, respectively, in the six months ended June 30, 2018 and 2017.

Minimum future annual rental payments are as follows:

2018 (balance of the year)	$	75,596
2019	$	118,382
2020	$	92,708

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Income Taxes

6 Months Ended

Jun. 30, 2018

Income Taxes

Income Taxes

The Company is subject to taxation at the federal level in both the United States and France and at the state level in the United States. At June 30, 2018 and December 31, 2017, the Company had no tax provision for either jurisdictions.

The Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”), which was signed into law on December 22, 2017, has resulted in significant changes to the U.S. corporate income tax system. These changes include a federal statutory rate reduction from 35% to 21% and the elimination or reduction in the deductibility of certain credits and limitations, such as net operating losses, interest expense, and executive compensation. The federal statutory rate reduction took effect on January 1, 2018. On December 22, 2017, Staff Accounting Bulletin No. 118 (“SAB 118”) was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the 2017 Tax Act. In accordance with SAB 118, the Company continues to evaluate the impact of the 2017 Tax Act, which may impact its current conclusions.

At June 30, 2018 and December 31, 2017, the Company had gross deferred tax assets of approximately $11,317,000 and $9,918,000, 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 $11,317,000 and $9,918,000, respectively, has been established at June 30, 2018 and December 31, 2017.

At June 30, 2018, the Company has gross net operating loss (“NOL”) carry-forwards for U.S. federal and state income tax purposes of approximately $18,126,000 and $16,695,000, respectively. 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.

At June 30, 2018 and December 31, 2017, the Company had approximately $14,692,000 and $12,374,000, respectively, in net operating losses which it can carryforward indefinitely to offset against future French income.

At June 30, 2018 and December 31, 2017, the Company had taken no uncertain tax positions that would require disclosure under ASC 740, Accounting for Income Taxes.

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Net Loss per Common Share

6 Months Ended

Jun. 30, 2018

Net Loss Per Common Share

Net Loss per Common Share

Basic net loss per share is computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect, in periods in which they have a dilutive effect, the impact of common shares issuable upon exercise of stock options and warrants and conversion of convertible debt that are not deemed to be anti-dilutive. The dilutive effect of the outstanding stock options and warrants is computed using the treasury stock method.

At June 30, 2018, diluted net loss per share did not include the effect of 3,112,715 shares of common stock issuable upon the exercise of outstanding warrants, 1,084,000 shares of common stock issuable upon the exercise of outstanding options, and 74,000 shares of common stock issuable upon the conversion of convertible debt as their effect would be antidilutive during the periods prior to conversion.

At June 30, 2017, diluted net loss per share did not include the effect of 3,779,121 shares of common stock issuable upon the exercise of outstanding warrants, 190,000 shares of common stock issuable upon the exercise of outstanding options, and 289,256 shares of common stock issuable upon the conversion of convertible debt as their effect would be antidilutive during the periods prior to conversion.

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Related Party Transactions

6 Months Ended

Jun. 30, 2018

Disclosure Text Block [Abstract]

Related Party Transactions

During the year ended December 31, 2015, the Company employed the services of JIST Consulting (“JIST”), a company controlled by Johan (Thijs) Spoor, the Company’s current Chief Executive Officer and President, as a consultant for business strategy, financial modeling, and fundraising. Included in accounts payable at both June 30, 2018 and December 31, 2017 is $478,400 for JIST relating to Mr. Spoor’s services. Mr. Spoor received no other compensation from the Company other than as specified in his employment agreement.

During the year ended December 31, 2015, the Company's President, Christine Rigby-Hutton, was employed through Rigby-Hutton Management Services (“RHMS”). Ms. Rigby-Hutton resigned from the Company effective April 20, 2015. Included in accounts payable at both June 30, 2018 and December 31, 2017 is $38,453 for RHMS for Ms. Rigby-Hutton’s services.

From October 1, 2015 through December 31, 2015, the Company used the services of Edward Borkowski, a member of our Board of Directors and the Company’s Audit Committee Chair, as a financial consultant. Included in accounts payable at December 31, 2017 is $90,000 for Mr. Borkowski’s services. This amount was paid to Mr. Borkowski in the six months ended June 30, 2018.

Starting on October 1, 2016 until his appointment as the Company’s Chief Financial Officer on September 25, 2017, the Company used the services of Maged Shenouda as a financial consultant. Expense recorded in G&A expense in the accompanying statements of operations related to Mr. Shenouda for the three months ended June 30, 2018 and 2017 was $0 and $30,000, respectively. Expense recorded in G&A expense in the accompanying statements of operations related to Mr. Shenouda for the six months ended June 30, 2018 and 2017 was $0 and $60,000, respectively. Included in accounts payable at June 30, 2018 and December 31, 2017 is $50,000 and $70,000, respectively, for Mr. Shenouda’s services.

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Significant Accounting Policies and Recent Accounting Pronouncements (Policies)

6 Months Ended

Jun. 30, 2018

Significant Accounting Policies Policies

Use of Estimates

The accompanying consolidated financial statements are prepared in conformity with U.S. GAAP and include certain estimates and assumptions which affect the reported amounts of assets and liabilities at the date of the financial statements (including goodwill, intangible assets and contingent consideration), and the reported amounts of revenues and expenses during the reporting period, including contingencies. Accordingly, actual results may differ from those estimates.

Concentrations

Financial instruments that potentially expose the Company to concentrations of credit risk consist of cash. The Company primarily maintains its cash balances with financial institutions in federally-insured accounts in the U.S. The Company may from time to time have cash in banks in excess of FDIC insurance limits. At June 30, 2018 and December 31, 2017, the Company had approximately $6,418,602 and $78,859, 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 also has exposure to foreign currency risk as its subsidiary in France has a functional currency in Euros.

Equity-Based Payments to Non-Employees

The Company accounts for equity instruments, including restricted stock, stock options and warrants, issued to non-employees in accordance with authoritative guidance for equity-based payments to non-employees. All transactions in which goods or services are received in exchange for equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date of the fair value of the equity instrument issued is the earlier of (i) the date of grant if nonforfeitable and fully vested, or (ii) the date the non-employee's performance is completed and there is no further associated performance commitment. The fair value of unvested equity instruments granted to non-employees is re-measured at each reporting date, and the resulting change in value, if any, is recognized as expense during the period the related services are rendered. The expense is recognized in the same manner as if we had paid cash for the services provided by the non-employees.

Research and development

Research and development (“R&D”) costs are charged to operations when incurred and are included in operating expenses. R&D costs consist principally of compensation of employees and consultants that perform the Company’s research activities, the fees paid to maintain the Company’s licenses, and the payments to third parties for clinical trial and additional product development and testing.

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 shareholders’ equity.

Revenue recognition

The Company is still in its startup phase and is not generating revenues at this time. When revenues are generated, the Company will follow the provisions of FASB Accounting Standards Codification (“ASC” or the “Codification”) Topic 606, Revenue From Contracts With Customers.

Recent Accounting Pronouncements

In June 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which amends the Codification to expand the scope of FASB ASC Topic 718, Compensation—Stock Compensation, to include share-based payment transactions for acquiring goods and services from non-employees. Guidance on accounting for non-employee share-based payment arrangements, which differs significantly in many respects from that for employee share-based payment transactions, was included in FASB ASC Subtopic 505-50, Equity—Equity Based Payments to Non-Employees. The ASU is effective for fiscal years beginning after December 15, 2018, including interim periods. The Company is currently assessing this pronouncement and believes this will have an impact on the Company’s financial statements.

In July 2017, the FASB issued ASU 2017-11, Earnings per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815). ASU 2017-11 provides guidance on accounting for financial instruments with down round features and clarifies the deferral of certain provisions in Topic 480. ASU 2017-11 will become effective for annual periods beginning after December 15, 2018 and interim periods within those periods. Early adoption is permitted. The adoption of this pronouncement did not have an impact on the Company’s financial statements.

In January 2017, the FASB issued guidance to simplify the subsequent measurement of goodwill impairment. The new guidance eliminates the two-step process that required identification of potential impairment and a separate measure of the actual impairment. Goodwill impairment charges, if any, would be determined by reducing the goodwill balance by the difference between the carrying value and the reporting unit’s fair value (impairment loss is limited to the carrying value). This standard is effective for annual or any interim goodwill impairment tests beginning after December 15, 2019. The Company believes that the adoption of this pronouncement will not have an impact on the Company’s measurement of goodwill impairment.

In February 2016, the FASB issued an ASU which requires lessees to recognize lease assets and lease liabilities arising from operating leases on the balance sheet. This ASU is effective for annual and interim reporting periods beginning after December 15, 2018 using a modified retrospective approach, with early adoption permitted. The Company believes that the adoption of this pronouncement will not have a material impact on the Company's financial statements. We believe that the most significant changes relate to the recognition of new right-of-use assets and lease liabilities on the balance sheet for office space and research facilities.

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Fair Value Disclosures (Tables)

6 Months Ended

Jun. 30, 2018

Significant Accounting Policies Tables

Financial instruments measured at fair value on a recurring basis

	Fair Value Measurements at Reporting Date Using
	Total		Level 1		Level 2		Level 3
At June 30, 2018:
Contingent consideration	$	1,500,000	$	-	$	-	$	1,500,000
At December 31, 2017:
Contingent consideration	$	1,340,000	$	-	$	-	$	1,340,000

Fair value of liabilities using Level 3 significant unobservable inputs

	Contingent
	Consideration
Balance at December 31, 2017	$	1,340,000
Change in fair value		160,000
Balance at June 30, 2018	$	1,500,000

Fair value of other receivables, convertible debt, and loans payable

	Carrying	Carrying	Fair Value Measured at Reporting Date Using						Fair	Fair
	Amount		Level 1		Level 2		Level 3		Value
At June 30, 2018:
Cash	$	7,420,425	$	-	$	7,420,425	$	-	$	7,420,425
Other receivables	$	1,081,378	$	-	$	-	$	1,081,378	$	1,081,378
Notes payable	$	26,836	$	-	$	-	$	26,836	$	26,836
Convertible debt	$	281,024	$	-	$	-	$	286,529	$	286,529
At December 31, 2017:
Cash	$	573,471	$	-	$	573,471	$	-	$	573,471
Other receivables	$	1,104,134	$	-	$	-	$	1,104,134	$	1,104,134
Notes payable	$	159,180	$	-	$	-	$	159,180	$	159,180
Convertible debt	$	257,365	$	-	$	-	$	387,201	$	387,201

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Other Receivables (Tables)

6 Months Ended

Jun. 30, 2018

Other Receivables Tables

Other receivables

	June 30,		December 31,
	2018		2017
R&D tax credits	$	931,421	$	954,897
Other		149,957		149,237
Total other receivables	$	1,081,378	$	1,104,134

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Property, Equipment, and Leasehold Improvements (Tables)

6 Months Ended

Jun. 30, 2018

Property Equipment And Leasehold Improvements Tables

Property, equipment and leasehold improvements

	June 30,			December 31,
	2018			2017
Laboratory equipment	$	188,558		$	165,611
Computer equipment		62,878			44,364
Office equipment		36,334			36,334
Leasehold improvements		29,163			29,163
Total property, plant and equipment		316,933			275,472
Less accumulated depreciation		(171,909	)		(141,485	)
Property, plant and equipment, net	$	145,024		$	133,987

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Intangible Assets and Goodwill (Tables)

6 Months Ended

Jun. 30, 2018

Intangible Assets And Goodwill Tables

Intangible assets

	June 30,			December 31,
	2018			2017
In process research and development	$	425,656		$	436,385
Less accumulated amortization		(143,363	)		(128,794	)
In process research and development, net	$	282,293		$	307,591
License agreements	$	3,472,581		$	3,560,107
Less accumulated amortization		(2,807,003	)		(2,521,743	)
License agreements, net	$	665,578		$	1,038,364

Future amortization expense

2018 (balance of year)	$	364,994
2019		353,791
2020		35,471
2021		35,471
2022		35,471
2023		35,471

Goodwill

	Goodwill
Balance at December 31, 2017	$	2,016,240
Foreign currency translation		(49,570	)
Balance at June 30, 2018	$	1,966,670

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Accounts Payable and Accrued Expenses (Tables)

6 Months Ended

Jun. 30, 2018

Accounts Payable Tables

Accounts payable and accrued expenses

	June 30,		December 31,
	2018		2017
Trade payables	$	453,244	$	705,041
Accrued expenses		302,430		182,200
Accrued bonus		350,000		80,000
Accrued payroll		154,215		219,993
Total accounts payable and accrued expenses	$	1,259,889	$	1,187,234

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Original Issue Discounted Convertible Notes and Warrants (Tables)

6 Months Ended

Jun. 30, 2018

Original Issue Discounted Convertible Notes And Warrants Tables

Convertible debt

	June 30,			December 31,
	2018			2017
Convertible debt	$	261,008		$	352,713
Accreted OID interest		25,521			34,488
Unamortized debt discount - warrants		(5,505	)		(129,836	)
Total convertible debt	$	281,024		$	257,365

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Warrants (Tables)

6 Months Ended

Jun. 30, 2018

Warrants Tables

Stock warrant transactions

				Exercise Price Per		Weighted Average Exercise
	Warrants			Share		Price
Warrants outstanding and exercisable at January 1, 2017		1,858,340		$	4.76 - $7.37	$	5.66
Granted during the period		1,920,781		$	3.53 - $6.50	$	5.16
Expired during the period		-			-		-
Exercised during the period		-			-		-
Warrants outstanding and exercisable at June 30, 2017		3,779,121		$	4.76 - $7.37	$	5.41
Warrants outstanding and exercisable at January 1, 2018		3,371,385		$	3.17 - $7.37	$	5.28
Granted during the period		244,400		$	2.55 - $2.75	$	2.58
Expired during the period		-			-		-
Exercised during the period		(503,070	)	$	2.50	$	2.50
Warrants outstanding and exercisable at June 30, 2018		3,112,715		$	2.55 - $7.37	$	4.83

Warrants by exercise price

		Number of		Weighted Average		Weighted
		Shares Under		Remaining Contract		Average
Exercise Price		Warrants		Life in Years		Exercise Price
$	2.55 - $3.99		881,372		4.1
$	4.00 - $4.99		196,632		3.51
$	5.00 - $5.99		1,815,041		3.47
$	6.00 - $6.99		187,750		3.26
$	7.00 - $7.37		31,920		2.46
Total			3,112,715		3.63	$4.83

Assumptions

	June 30,			June 30,
	2018			2017
Expected life (in years)		5			5
Volatility		84	%		87	%
Risk-free interest rate		2.70	%		1.82% - 1.92	%
Dividend yield		-	%		-	%

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Stock-Based Compensation Plan (Tables)

6 Months Ended

Jun. 30, 2018

Stock-based Compensation Plan Tables

Assumptions

	June 30,			June 30,
	2018			2017
Expected life (in years)		5			10
Volatility		85	%		90	%
Risk-free interest rate		2.82	%		2.48	%
Dividend yield		-	%		-	%

Stock option activity

	Number			Weighted Average		Weighted Average Remaining Contract		Aggregate
	of Shares			Exercise Price		Life in Years		Intrinsic Value
Stock options outstanding at January 1, 2017		-			-
Granted during the period		190,000		$	4.48		9.60	$	-
Expired during the period		-			-
Exercised during the period		-			-
Stock options outstanding at June 30, 2017		190,000		$	4.48		9.60	$	-
Exercisable at June 30, 2017		142,500		$	4.48		9.60	$	-
Non-vested stock options outstanding at January 1, 2017		-			-
Granted during the period		47,500		$	4.48		9.60	$	-
Expired during the period		-			-
Exercised during the period		-			-
Non-vested stock options outstanding at June 30, 2017		47,500		$	4.48		9.60	$	-
Stock options outstanding at January 1, 2018		545,000		$	4.05		7.13	$	-
Granted during the period		539,000		$	3.04		5.00	$	-
Expired during the period		-			-
Exercised during the period		-			-
Stock options outstanding at June 30, 2018		1,084,000		$	3.72		5.82	$	-
Exercisable at June 30, 2018		261,250		$	4.26		8.60	$	-
Non-vested stock options outstanding at January 1, 2018		387,500		$	3.89		6.39	$	-
Granted during the period		539,000		$	3.04		5.00	$	-
Vested during the period		(103,750	)	$	3.92		6.02	$	-
Expired during the period		-			-
Exercised during the period		-			-
Non-vested stock options outstanding at June 30, 2018		822,750		$	3.32		5.77	$	-

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Leases (Tables)

6 Months Ended

Jun. 30, 2018

Leases [Abstract]

Minimum future annual rental payments

2018 (balance of the year)	$	75,596
2019	$	118,382
2020	$	92,708

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The Company, Basis of Presentation, and Recent Accounting Pronouncements (Details Narrative) - USD ($)	6 Months Ended
	Jun. 30, 2018	Dec. 31, 2017
Company And Basis Of Presentation Details Narrative
State of incorporation	Delaware
Date of incorporation	Jan. 30, 2014
Accumulated deficit	$ (40,925,603)	$ (33,983,429)
Cash in excess of FDIC limit	$ 6,418,602	$ 78,859

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Fair Value Disclosures (Details) - USD ($)	Jun. 30, 2018	Dec. 31, 2017
Contingent Consideration	$ 1,500,000	$ 1,340,000
Level 1
Contingent Consideration	1,500,000	1,340,000
Level 2
Contingent Consideration	0	0
Level 3
Contingent Consideration	$ 0	$ 0

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Fair Value Disclosures (Details 1)	6 Months Ended
	Jun. 30, 2018 USD ($)
Significant Accounting Policies Details 3
Contingent consideration, beginning	$ 1,340,000
Change in fair value	160,000
Contingent consideration, ending	$ 1,500,000

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Fair Value Disclosures (Details 2) - USD ($)	Jun. 30, 2018	Dec. 31, 2017
Cash	$ 7,420,425	$ 573,471
Other receivables	1,081,378	1,104,134
Notes Payable	26,836	159,180
Convertible debt	281,024	257,365
Level 1
Cash	0	0
Other receivables	0	0
Notes Payable	0	0
Convertible debt	0	0
Level 2
Cash	7,420,425	573,471
Other receivables	0	0
Notes Payable	0	0
Convertible debt	0	0
Level 3
Cash	0	0
Other receivables	1,081,378	1,104,134
Notes Payable	26,836	159,180
Convertible debt	$ 286,529	$ 387,201

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Other Receivables (Details) - USD ($)	Jun. 30, 2018	Dec. 31, 2017
Other Receivables Details
R&D tax credits	$ 931,421	$ 954,897
Other	149,957	149,237
Other receivables	$ 1,081,378	$ 1,104,134

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Property, Equipment, and Leasehold Improvements (Details) - USD ($)	Jun. 30, 2018	Dec. 31, 2017
Property, equipment and leasehold improvements, gross	$ 316,933	$ 275,472
Less accumulated depreciation	(171,909)	(141,485)
Property, equipment and leasehold improvements, net	145,024	133,987
Laboratory Equipment
Property, equipment and leasehold improvements, gross	188,558	165,611
Computer Equipment
Property, equipment and leasehold improvements, gross	62,878	44,364
Office Equipment
Property, equipment and leasehold improvements, gross	36,334	36,334
Leasehold Improvements
Property, equipment and leasehold improvements, gross	$ 29,163	$ 29,163

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Property, Equipment, and Leasehold Improvements (Details Narrative) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Property Equipment And Leasehold Improvements Details Narrative
Depreciation expense	$ 15,657	$ 12,527	$ 30,420	$ 23,124

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Intangible Assets and Goodwill (Details) - USD ($)	Jun. 30, 2018	Dec. 31, 2017
License Agreements
Intangible assets, gross	$ 425,656	$ 436,385
Less accumulated amortization	(143,363)	(128,794)
Intangible assets, net	282,293	307,591
In Process Research and Development
Intangible assets, gross	3,472,581	3,560,107
Less accumulated amortization	(2,807,003)	(2,521,743)
Intangible assets, net	$ 665,578	$ 1,038,364

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Intangible Assets and Goodwill (Details 1)	Jun. 30, 2018 USD ($)
Amortization expense
2018	$ 364,994
2019	353,791
2020	35,471
2021	35,471
2022	35,471
2023	$ 35,471

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Intangible Assets and Goodwill (Details 2)	6 Months Ended
	Jun. 30, 2018 USD ($)
Intangible Assets And Goodwill Details 1
Goodwill, beginning	$ 2,016,240
Foreign currency translation	(49,570)
Goodwill, ending	$ 1,966,670

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Intangible Assets and Goodwill (Details Narrative) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Intangible Assets And Goodwill Details Narrative
Amortization expense	$ 185,818	$ 189,669	$ 377,499	$ 355,857

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Accounts Payable and Accrued Expenses (Details) - USD ($)	Jun. 30, 2018	Dec. 31, 2017
Accounts Payable Details
Trade payables	$ 453,244	$ 705,041
Accrued expenses	302,430	262,200
Accrued bonus	350,000	80,000
Accrued payroll	154,215	219,993
Accounts payable, net	$ 1,259,889	$ 1,187,234

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Original Issue Discounted Convertible Notes and Warrants (Details) - USD ($)	6 Months Ended	12 Months Ended
	Jun. 30, 2018	Dec. 31, 2017
Original Issue Discounted Convertible Notes And Warrants Details
Convertible Debt	$ 261,008	$ 352,713
Accreted OID Interest	25,521	34,488
Unamortized Debt Discount - Warrants	(5,505)	(129,836)
Convertible Debt, Net	$ 281,024	$ 257,365

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Equity (Details Narrative) - shares	Jun. 30, 2018	Dec. 31, 2017
Equity Details Narrative
Common stock shares, outstanding	16,792,395	12,042,574

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Warrants (Details) - $ / shares	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017
Warrants issued and exercisable, beginning	3,371,385	1,858,340
Granted	244,400	1,920,781
Expired	0	0
Exercised	(503,070)	0
Warrants issued and exercisable, ending	3,112,715	3,779,121
Exercise Price Exercised	$ 2.5
Weighted average exercise price, beginning	5.28	$ 5.66
Weighted average exercise price, Granted	2.58	5.16
Weighted average exercise price warrants, Expired	0
Weighted average exercise price warrants, Exercised	2.5
Weighted average exercise price, ending	4.83	5.41
Minimum
Exercise Price Outstanding, Beginning	3.17	4.76
Exercise Price Granted	2.55	3.53
Exercise Price Outstanding, Ending	2.55	4.76
Maximum
Exercise Price Outstanding, Beginning	7.37	7.37
Exercise Price Granted	2.75	6.50
Exercise Price Outstanding, Ending	$ 7.37	$ 7.37

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Warrants (Details 1)	6 Months Ended
	Jun. 30, 2018 $ / shares shares
Number of shares under warrants	3,112,715
Weighted average exercise price | $ / shares	$ 4.83
Warrant 1
Exercise price	$2.55 - $3.99
Number of shares under warrants	881,372
Weighted average remaining contract life in years	4 years 1 month 6 days
Warrant 2
Exercise price	$4.00 - $4.99
Number of shares under warrants	196,632
Weighted average remaining contract life in years	3 years 6 months 4 days
Warrant 3
Exercise price	$5.00 - $5.99
Number of shares under warrants	1,815,041
Weighted average remaining contract life in years	3 years 5 months 19 days
Warrant 4
Exercise price	$6.00 - $6.99
Number of shares under warrants	187,750
Weighted average remaining contract life in years	3 years 3 months 4 days
Warrant 5
Exercise price	$7.00 - $7.37
Number of shares under warrants	31,920
Weighted average remaining contract life in years	2 years 5 months 16 days

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Warrants (Details 2)	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017
Expected life (in years)	5 years	5 years
Volatility	84.00%	87.00%
Risk-free interest rate	2.70%
Dividend yield	0.00%	0.00%
Minimum
Risk-free interest rate		1.82%
Maximum
Risk-free interest rate		1.92%

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Stock-Based Compensation Plan (Details)	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017
Expected life (in years)	5 years	5 years
Volatility	84.00%	87.00%
Risk-free interest rate	2.70%
Dividend yield	0.00%	0.00%
Stock Option
Expected life (in years)	5 years	10 years
Volatility	85.00%	90.00%
Risk-free interest rate	2.82%	2.48%
Dividend yield	0.00%	0.00%

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Stock-Based Compensation Plan (Details 1) - USD ($)	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017
Number of Options Outstanding, Beginning	387,500	0
Number of Options Granted	539,000	47,500
Number of Options Vested	(103,750)
Number of Options Expired	0	0
Number of Options Exercised	0	0
Number of Options Outstanding, Ending	822,750	47,500
Weighted Average Exercise Price Outstanding, Beginning	$ 3.89	$ 0.00
Weighted Average Exercise Price Granted	3.04	4.48
Weighted Average Exercise Price Vested	3.92
Weighted Average Exercise Price Expired	0.00	0.00
Weighted Average Exercise Price Exercised	0.00	0.00
Weighted Average Exercise Price Outstanding, Ending	$ 3.32	$ 4.48
Weighted Average Remaining Contract Life in Years, Beginning	6 years 4 months 20 days	9 years 7 months 6 days
Weighted Average Remaining Contract Life in Years, Ending		9 years 7 months 6 days
Weighted Average Remaining Contract Life in Years Exercisable	5 years 9 months 7 days
Aggregate Intrinsic Value Outstanding, Beginning	$ 0	$ 0
Aggregate Intrinsic Value Outstanding, Ending	$ 0	$ 0
Stock Option
Number of Options Outstanding, Beginning	545,000	0
Number of Options Granted	539,000	190,000
Number of Options Expired	0	0
Number of Options Exercised	0	0
Number of Options Outstanding, Ending	1,084,000	190,000
Number of Options Exercisable		142,500
Weighted Average Exercise Price Outstanding, Beginning	$ 4.05	$ 0.00
Weighted Average Exercise Price Granted	3.04	4.48
Weighted Average Exercise Price Expired	0	0.00
Weighted Average Exercise Price Exercised	0	0.00
Weighted Average Exercise Price Outstanding, Ending	$ 3.72	4.48
Weighted Average Exercise Price Exercisable		$ 4.48
Weighted Average Remaining Contract Life in Years, Beginning	7 years 1 month 17 days	9 years 7 months 6 days
Weighted Average Remaining Contract Life in Years, Ending	5 years 9 months 25 days	9 years 7 months 6 days
Weighted Average Remaining Contract Life in Years Exercisable	8 years 7 months 6 days	9 years 7 months 6 days
Aggregate Intrinsic Value Outstanding, Beginning	$ 0	$ 0
Aggregate Intrinsic Value Outstanding, Ending	$ 0	0
Aggregate Intrinsic Value Exercisable		$ 0

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Interest Expense (Details Narrative) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Interest expense	$ 46,154	$ 287,347	$ 94,789	$ 288,221
Convertible Notes [Member]
Interest expense	$ 45,537	$ 287,055	$ 92,332	$ 287,055

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Leases (Details)	Jun. 30, 2018 USD ($)
Leases [Abstract]
2018 (balance of the year)	$ 75,596
2019	118,382
2020	$ 92,708

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Income Taxes (Details Narrative) - USD ($)	Jun. 30, 2018	Dec. 31, 2017
Income Taxes Details Narrative
Gross deferred tax asset	$ 11,317,000	$ 9,918,000
Deferred tax asset valuation allowance	(11,317,000)	(9,918,000)
Net operating loss carry-forwards	$ 14,692,000	$ 12,374,000

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Net Loss per Common Share (Details Narrative) - shares	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017
Warrants
Anti-dilutive shares excluded from earnings per share	3,112,715	3,779,121
Stock Option
Anti-dilutive shares excluded from earnings per share	1,084,000	190,000
Convertible Debt
Anti-dilutive shares excluded from earnings per share	74,000	289,256

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Related Party Transactions (Details Narrative) - USD ($)	Jun. 30, 2018	Dec. 31, 2017
Accounts payable	$ 1,259,889	$ 1,187,234
JIST
Accounts payable	478,400	478,400
RHMS
Accounts payable	38,453	38,453
Consultant [Member]
Accounts payable	$ 0	$ 90,000