NOTE 15 — STOCKHOLDERS’ EQUITY (DEFICIENCY)

Preferred Stock

Pursuant to the Company’s Second Amended and Restated Certificate of Incorporation filed on November 6, 2020, the Company has 5,000,000 preferred shares authorized at a par value of $0.0001 per share, of which 1,000,000 shares are designated as Series A Convertible Preferred Stock (“Series A Preferred”), 1 share is designated as the Class K Special Voting Share and 1 share is designated as the Class C Special Voting Share. The Class K Special Voting Share and the Class C Special Voting Share are together, the “Special Voting Shares”. As of December 31, 2020, there is no Series A Preferred issued or outstanding; there is one Class K Special Voting Share and one Class C special Voting Share issued and outstanding.

Series A Preferred Stock

The Series A Preferred is convertible into common stock at an initial conversion price of $5.28 per share, at the election of the holder, at any time following issuance, subject to certain anti-dilution adjustments. Upon a dilutive issuance (as defined) at a price per share lower than the existing conversion price, the conversion price will adjust to the lower of (a) the dilutive issuance price per share; or (b) the lowest volume-weighted-average-price during the five days preceding the dilutive issuance. Upon any conversion, a make-whole amount (as defined in the Certificate of Designation of the Series A Preferred) shall be due with respect to each share of Series A Preferred converted. At any time following the three-month anniversary of the Business Combination, the holder of the Series A Preferred had the right to force the Company to redeem all or any portion of the Series A Preferred then owned by the holder in cash. Series A Preferred stockholders were entitled to 10% dividends. Holders of the Series A Preferred had no voting rights.

The Company assumed 1,000,000 shares of issued and outstanding Series A Preferred in connection with the Business Combination with a carrying value of $1,411,265, which was net of a $1,922,068 discount from its stated value of $3,333,333. The discount included an original issuance discount of $333,333, cash issuance costs of $318,333, warrant issuance costs of $103,402 (fair value of warrant issued to placement agent), and a bifurcated redemption feature that was valued at $1,167,000 at issuance (see Note 11 – Derivative Liabilities). No accretion of the Series A Preferred discount was required because redemption wasn’t deemed to be probable.

On November 25, 2020, a dilutive issuance reduced the conversion price to the lower of (a) 96% of the lowest volume-weighted-average-price of the common stock during the five-day period preceding the conversion date; or (b) $5.28, both subject to a floor of $2.00 per share. The conversion price adjustment was treated as an extinguishment and reissuance of the outstanding Series A Preferred. On the extinguishment date, the bifurcated redemption feature was marked-to-market, increasing the value by $606,000 and recognizing a corresponding charge to change in fair value of derivative liabilities. The $1,411,265 carrying value of the preferred stock and the $1,773,000 fair value of the derivative liability were derecognized and we recognized the new $3,531,924 fair value of the preferred stock and the new $218,000 value of the bifurcated redemption feature. The difference of $565,659 was recognized as a deemed dividend.

During the period from November 30, 2020 to December 18, 2020, the 1,000,000 shares of Series A Preferred of the Company with a total conversion value of $3,666,667 were converted into shares of the Company’s common stock at conversion prices of between $2.00 and $2.31 per share, pursuant to the terms of such preferred stock. The bifurcated redemption features were marked-to-market just prior to each conversion, resulting in an aggregate charge of $42,068 to change in fair value of derivative liabilities and the $260,068 fair value of the bifurcated redemption features were derecognized on the conversion dates. At conversion, the aggregate $3,531,924 carrying value of the preferred stock and the $260,068 fair value of the derivative liability were derecognized and we recognized the $4,349,035 fair value of the 1,614,144 shares of common stock issued. The difference of $557,043 was recorded as deemed dividend expense, including $333,333 associated with the make-whole premiums and $223,710 associated with the contingent beneficial conversion feature. Due to such conversions, the Company currently has no shares of Series A Preferred issued or outstanding.

The aggregate deemed dividend presented on the income statement is comprised of the $333,333 make-whole dividend, the $223,710 beneficial conversion feature and a $565,659 extinguishment loss associated with the conversion price adjustment.

Special Voting Shares

The Special Voting Shares were issued to the former shareholders of CBR Pharma and Katexco in connection with the Reorganization. The Special Voting Shares are exchangeable by the holder for shares of the Company’s common stock and vote together as a single class with the Company’s common stockholders. Special Voting Shares are not entitled to receive any dividend of distributions.

The following table summarizes the Special Voting Shares activity during the years ended December 31, 2020 and 2019:

Included in the 2,990,904 special voting shares in the table above, are 1,664,072 special voting shares issued to CBR Pharma stockholders in connection with the Reorganization. See Note 4 – Reorganization and Recapitalization for additional details.

Common Stock

The Company is authorized to issue 100,000,000 shares of the Company’s common stock with a par value of $0.0001 per share. Holders of the Company’s shares of the Company’s common stock are entitled to one vote for each share.

During the year ended December 31, 2019, the Company issued 12,800,454 shares of its common stock, of which 64,657 shares were issued for cash consideration of $1,130,656 and services valued at $333,145, 2,854,012 shares with an aggregate issuance date fair value of $12,992,470 were issued in full satisfaction of accrued issuable equity and investors deposits, and 9,881,785 shares with an aggregate fair value at issuance of $45,866,502 were issued to the accounting acquiree stockholders in connection with the Reorganization.

On March 10, 2020, the Company issued 12,292 shares of common stock for cash proceeds of $72,500.

On November 6, 2020, the Company issued 240,540 shares with a grant date value of $1,057,989 as compensation to a consultant as part of the business combination that was granted on May 13, 2018. See Note 14 – Commitments and Contingencies for more information related to Yissum Research and License Agreement.

On November 6, 2020, the Company effectively issued 1,519,628 shares of common stock to the KBL shareholders upon the consummation of the Reverse Merger.

During November and December 2020, the Company issued 2,102,038 shares of its common stock upon the conversion of convertible debt and interest in the aggregate amount of $6,466,353.

During the period from November 30, 2020 to December 18, 2020, the Company issued 1,619,144 shares of common stock upon the conversion of $4,349,035 of Series A Preferred Stock as described above.

During the year ended December 31, 2020, the Company issued 1,521,157 shares of its common stock upon the exchange of common stock equivalents associated with the Special Voting Shares.

Stock Options

On December 3, 2020, the Company issued ten-year options for the purchase of an aggregate of 50,000 shares of its common stock to two members of the board of directors. The options are exercisable at $2.49 per share and vest in equal monthly installments over the twelve months following the grant date. The grant date value of $93,575 was estimated using the Black Scholes valuation method with the following assumptions used:

The options expire on December 31, 2030. As of December 31, 2020, there was $85,777 of unrecognized stock-based compensation expense related to the stock options that will be recognized over the weighted average remaining vesting period of 0.9 years. During the year ended December 31, 2020, the Company recorded stock-based compensation expense of $7,798 related to the amortization of the grant date value of the options.

Adoption of 2020 Omnibus Incentive Plan

At a special meeting of stockholders held on November 5, 2020, the stockholders of the Company considered and approved the 2020 Omnibus Incentive Plan (the “Incentive Plan”) and reserved 3,718,140 shares of common stock for issuance thereunder. The Incentive Plan was previously approved on October 24, 2019, subject to stockholder approval, by the Board of Directors of the Company. The Incentive Plan became effective on November 6, 2020, immediately upon the closing of the Business Combination.

Contingently Redeemable Shares

On July 16, 2019, in connection with the Reorganization, the Company issued 2,694,053 shares to a consultant that were subject to redemption by 180 for an aggregate redemption price of $4.00 if (i) the closing of the Business Combination did not occur on or prior to October 31, 2019; or (ii) the consultant terminated his service with 180 prior to October 31, 2019.

On November 11, 2019, the Board of Directors authorized management to waive its right of redemption in connection with the Contingently Redeemable Shares. This was accounted for as a modification of the stock award. During the year ended December 31, 2019, the Company recorded a charge related to a modification of a stock award – related parties of $12,959,360 in connection with the waiver of the Company’s right of redemption related to the Contingently Redeemable Shares. See Note 17 – Related Parties for more information about Modification of Stock Award – Related Party.