What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2021-03-22 compared with 2020-03-27 · 656 added, 577 removed, 287 unchanged (81% of the section changed)

7 unchanged sentences

Notes to Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC

ACCOUNTING FIRM

Board of Directors and Stockholders of Seneca Biopharma, Inc.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Seneca Biopharma, Inc.

(the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of operations and comprehensive

loss, changes in stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2019, and

the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated

financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and

2018, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2019, in

conformity with U.S.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders of

Seneca Biopharma, Inc.

Opinion on the Consolidated Financial

We have audited the accompanying consolidated

balance sheets of Seneca Biopharma, Inc.

(the “Company”) as of December 31, 2020 and 2019, and the related consolidated

statements of operations and comprehensive loss, changes in stockholders’

equity, and cash flows for each of the two years

in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company

as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period

ended December 31, 2020, in conformity with U.S.

generally accepted accounting principles.

Substantial Doubt about the Company’s Ability to Continue as a Going Concern

The accompanying consolidated financial statements have been prepared assuming the Company

will continue as a going concern.

As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring

losses from operations and has accumulated deficit that raises substantial doubt about its ability to continue as a going concern.

Management’s plans in regard to these matters are also described in Note 1 to the consolidated financial statements.

consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Substantial Doubt about the Company’s

Ability to Continue as a Going Concern

The accompanying consolidated financial

statements have been prepared assuming the Company will continue as a going concern.

As discussed in Note 1 to the consolidated

financial statements, the Company has suffered recurring losses from operations and has accumulated deficit that raises substantial

doubt about its ability to continue as a going concern.

Management’s plans in regard to these matters are also described

in Note 1 to the consolidated financial statements.

The consolidated financial statements do not include any adjustments that might

result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)

and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and applicable

rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards

require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements

are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform,

an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of

internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s

internal control over financial reporting.

These consolidated financial statements

are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated

financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight

Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the

federal securities laws and applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with

the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether

the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required

to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are

required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion

on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement

of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial

Our audits also included evaluating the accounting principles used and significant estimates made by management, as

well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable

basis for our opinion.

Our audits included performing procedures

to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing

procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and

disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant

estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matter communicated

below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required

to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated

financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical

audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not,

by communicating the critical audit matter(s) below, providing separate opinions on the critical audit matter or on the accounts

or disclosures to which it relates.

Accounting for Warrant Inducement

As discussed in Note 4 to the consolidated

financial statements, the Company issued replacement warrants as an inducement for warrant exercises.

In January 2020, pursuant

to the terms of an inducement offer, certain holders of 5,555,554 of the Company’s common stock purchase warrants exercised

such warrants at a reduced exercise price of $1.36 per share generating approximately $7.6 million of gross proceeds.

were evaluated for proper classification on the balance sheet and it was determined that the replacement warrants issued in the

inducement offer should be classified within stockholders’

The Company incurred expense in the consolidated statement

of operations and comprehensive loss for the year ended December 31, 2020 of approximately $5.6 million representing the fair value

of the inducement offer.

The fair value is comprised of the fair value of the modification of the original warrants (the reduction

in exercise price) and the fair value of the replacement warrants.

The fair values were calculated using the Black-Scholes option

pricing model.

We identified the accounting for the warrant

inducement transaction as a critical audit matter.

The principal considerations for our determination included the significant

auditor judgments required to evaluate the accounting treatment of the replacement warrants, including the modification treatment

and classification of the warrants.

The primary procedures we performed to

address this critical audit matter included:

We evaluated the appropriateness of the Company’s methodology to assess the accounting treatment

associated with the warrant inducement.

We read the agreements related to the replacement warrants issued and evaluated the

completeness and accuracy of management’s technical accounting analyses and application of the relevant account

We utilized subject matter experts in debt and equity accounting to assist in the evaluation

of the appropriateness of management’s interpretation and application of relevant accounting guidance.

/s/ Dixon Hughes Goodman LLP

We have served as the Company’s auditor since 2016.

Baltimore, Maryland

We have served as the Company’s auditor

Raleigh, North Carolina

March 22, 2021

4 unchanged sentences

Trade and other receivables

Current portion of related party receivable, net of discount

Prepaid expenses

Assets held for sale

Total current assets

Property and equipment, net

Related party receivable, net of discount and current portion

ROU and other assets

2 unchanged sentences

Accounts payable and accrued expenses

Accrued bonuses

Accrued severance and bonuses

Short-term notes and other current liabilities

Liabilities associated with assets held for sale

Total current liabilities

5 unchanged sentences

Preferred stock, 7,000,000 shares authorized, $0.01 par value;

200,000 and 1,000,000 shares issued and outstanding in 2019 and 2018, respectively

200,000 shares issued and outstanding in 2020 and 2019

Common stock, $0.01 par value;

7 unchanged sentences

Total liabilities and stockholders' equity

See accompanying notes to consolidated financial statements.

See accompanying notes to consolidated financial

Seneca Biopharma, Inc.

Consolidated Statements of Operations and Comprehensive Loss

Consolidated Statements

of Operations and Comprehensive Loss

Year Ended December 31,

4 unchanged sentences

Operating loss

(10,675,546 )

Other income (expense):

2 unchanged sentences

Gain from change in fair value of liability classified warrants

Write-off of related party receivable and other income (expense)

Warrant inducement and other expense

Total other income (expense)

24 unchanged sentences

$ (213,623,893 )

Share rounding adjustment related to 1:20 reverse stock split

Share-based payments

Issuance of common stock and warrants from capital raises, net

Issuance of common stock for conversion of Series A Preferred Stock

Issuance of restricted stock awards

Issuance of common stock for warrant exercises

Issuance of common stock for RSU exercises

Foreign currency translation adjustments

1 unchanged sentence

(221,975,544 )

Share rounding adjustment related to 1:20 reverse stock split

Share-based payments

Issuance of common stock and warrants from capital raises, net

Issuance of common stock for conversion of Series A Preferred Stock

Issuance of restricted stock awards

Issuance of commn stock and inducement warrants for warrant exercises

Issaunce of common stock and warrants from capital raises, net

Issuance of common stock for warrant exercises

Issuance of common stock for RSU exercises

Forfeiure of restricted stock awards

Foreign currency translation adjustments

(16,266,820 )

Balance at December 31, 2020

3 unchanged sentences

Seneca Biopharma, Inc.

Consolidated Statements of Cash Flows

Consolidated Statements

of Cash Flows

Year Ended December 31,

6 unchanged sentences

Change in fair value of liability classified warrants

Provision for bad debt

Loss on disposal of fixed assets and patent abandonment

Allowance for bad debt

Warrant inducement expense

Changes in operating assets and liabilities:

Trade and other receivables

Related party receivable

Prepaid expenses

1 unchanged sentence

Accounts payable and accrued expenses

Accrued bonuses

Accrued severance and bonuses

Other current liabilities

2 unchanged sentences

Cash flows from investing activities:

Maturity of short-term investments

Purchase of property and equipment

Net cash provided by investing activities

Cash flows from financing activities:

Net proceeds from the sale of common stock and warrants

Proceeds from the sale of common stock and warrants, net

Proceeds from warrant exercises

6 unchanged sentences

Cash and cash equivalents, end of year

See accompanying notes to consolidated financial statements.

Seneca Biopharma, Inc.

Consolidated Statements of Cash Flows (continued)

Year Ended December 31,

Supplemental cash flow information:

Cash paid for interest

See accompanying notes to consolidated financial statements.

See accompanying notes to consolidated financial

SENECA BIOPHARMA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Organization and Business and Financial

Organization and Business and Financial Condition

Nature of Business

In October 2019, we changed our name from

Neuralstem, Inc.

to Seneca Biopharma, Inc.

In October 2019, we changed our name from Neuralstem, Inc.

Biopharma, Inc.

Seneca Biopharma, Inc.

and its subsidiary are referred to as “Seneca,” the

“Company,” “us,” or “we” throughout this report.

The operations of our wholly-owned and controlled

subsidiary located in the People’s Republic of China are consolidated in our condensed consolidated financial statements

and all intercompany activity has been eliminated.

and its subsidiary are referred to as “Seneca,” the “Company,” “us,”

or “we” throughout this report.

The operations of our wholly-owned and controlled subsidiary located in the People’s

Republic of China are consolidated in our condensed consolidated financial statements and all intercompany activity has been eliminated.

The Company operates in one business segment.

Seneca Biopharma, Inc., is a clinical-stage

biopharmaceutical company developing novel treatments for various diseases of high unmet medical need.

The Company is in the process

of transforming the organization through the acquisition or in-licensing of new science and technologies, to develop with the

goal of providing meaningful therapies for patients.

On October 31, 2019, in furtherance of

our in-licensing strategy, we announced that we had entered into a non-binding term sheet with Jiangsu QYuns Therapeutics Co.,

Ltd., (“QYuns”) for an exclusive license to certain of QYuns Therapeutics’ assets, including a pipeline of cytokine-targeted

monoclonal antibodies for the treatment of a range of auto-immune disease.

Subsequently, on January 10, 2020, we disclosed that

we were not able to reach a definitive licensing agreement with QYuns and accordingly, no longer expected to complete this transaction.

In addition to the anticipated development

of in-licensed or acquired technologies, the Company plans to continue to maintain NSI-566 (stem cell) and NSI-189 (small molecule)

and related clinical programs and will seek to partner these assets for further development.

The Company was founded in 1997 and currently

has laboratory and office space in Germantown, Maryland and laboratory facilities in the People’s Republic of China.

operations to date have primarily focused on developing business strategies, raising capital, research and development activities,

and conducting pre-clinical testing and human clinical trials of our product candidates.

The Company’s operations will continue

to be focused on development activities, including conducting pre-clinical testing and human clinical trials of novel product

candidates that we may in-license or acquire in the future.

On July 17, 2019, we effected a 1-for-20

reverse stock split of our common stock.

Stockholders’ equity and all references to share and per share amounts in the accompanying

consolidated financial statements have been retroactively adjusted to reflect the 1-for-20 reverse stock split for all periods

The Company was founded in 1997 and currently has laboratory and

office space in Germantown, Maryland and laboratory facilities in the People’s Republic of China.

Our operations to date

have primarily focused on developing business strategies, raising capital, research and development activities, and conducting

pre-clinical testing and human clinical trials of our product candidates.

Seneca Biopharma, Inc., is a clinical-stage biopharmaceutical company

developing novel treatments for diseases of high unmet medical need.

The Company had been in the process of transforming the organization

through the acquisition and/or in-licensing of new science and technologies with the goal of developing and providing meaningful

therapies for patients.

In December 2020, the Company entered into an Agreement and Plan

of Merger (the “Merger Transaction”) with Leading BioSciences, Inc.

(“LBS”) in an all-stock transaction.

Upon completion of the Merger Transaction, the combined company will focus on advancing LBS’ lead asset.

The closing of the

Merger Transaction is subject to approval by the Company’s and LBS stockholders and such closing is expected to be in the

first half of 2021.

On July 17, 2019, we effected a 1-for-20 reverse stock split of

our common stock.

Stockholders’ equity and all references to share and per share amounts in the accompanying unaudited consolidated

financial statements have been retroactively adjusted to reflect the 1-for-20 reverse stock split for all periods presented.

Liquidity and Going Concern

The Company has incurred losses since

its inception and has not demonstrated an ability to generate significant revenues from the sales of its therapies or services

and have not yet achieved profitable operations.

There can be no assurance that profitable operations will ever be achieved, or

if achieved, could be sustained on a continuing basis.

In addition, development activities, clinical and pre-clinical testing,

and commercialization of our products will require significant additional financing.

These factors create substantial doubt about

the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements

The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable

to continue as a going concern.

Accordingly, the consolidated financial

statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the

realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.

In making this

assessment we performed a comprehensive analysis of our current circumstances including:

our financial position at December 31,

2019, our cash flow and cash usage forecasts for the period covering one-year from the issuance date of this Annual Report filed

on Form 10-K and our current capital structure including outstanding warrants and other equity-based instruments and our obligations

We expect that

our existing cash and cash equivalents as of December 31, 2019, along with the proceeds from our January inducement offer will

be sufficient to enable us to fund our anticipated level of operations based on our current operating plans for more than 12 months

after this filing.

Accordingly, we will require additional capital to further develop our product candidates, conduct our pre -clinical

and clinical development programs and to fund our operations.

We anticipate raising additional capital through the private and

public sales of our equity or debt securities, collaborative arrangements, licensing agreements or a combination thereof.

management believes that such capital sources will be available, there can be no assurance that any such collaborative or licensing

arrangements will be entered into or that financing will be available to us when needed in order to allow us to continue our operations,

or if available, on terms acceptable to us.

If we do not raise sufficient capital in a timely manner, among other things, we may

be forced to delay, scale back or elimi nate some or all of our research and product development programs, planned clinical

trials, and/or our capital expenditures or to license our potential products or technologies to third parties on unfavorable terms.

We currently do not have any commitments for future funding from any source.

We have spent

and will continue to spend substantial funds in the research, development, pre-clinical and clinical testing of our small molecule

and stem cell product candidates and we anticipate spending additional funds to maintain these programs as we seek partners to

further their clinical development.

We have also begun spending funds on the evaluation and new assets and technologies with the

goal of acquisition and development.

No assurance can be given that (i) the FDA or any other regulatory agency will grant approval

for us to market and sell our product candidates, (ii) if regulatory approval is granted, that we will ever be able to sell our

proposed products or be profitable, or (iii) that we will be able to identify and acquire and/or in-license promising new assets

or technologies.

Significant Accounting Policies

and Basis of Presentation

The Company has incurred losses since its inception and has not

demonstrated an ability to generate significant revenues from the sales of its therapies or services and has not yet achieved

profitable operations.

There can be no assurance that profitable operations will ever be achieved, or if achieved, could be sustained

on a continuing basis.

In addition, development activities, clinical and pre-clinical testing, and commercialization of our products

will require significant additional financing.

These factors create substantial doubt about the Company’s ability to continue

as a going concern beyond one year after the date that the audited consolidated financial statements are issued.

consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue

as a going concern.

Accordingly, the audited consolidated financial statements have been prepared on a basis that assumes the

Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and

commitments in the ordinary course of business.

making this assessment we performed a comprehensive analysis of our current circumstances including:

our financial position at

December 31, 2020, our cash flow and cash usage forecasts for the period covering one-year from the issuance date of this Annual

Report filed on Form 10-K and our current capital structure including outstanding warrants and other equity-based instruments and

our obligations and debts.

Assuming the Merger is not consummated,

we expect that our existing cash and cash equivalents as of December 31, 2020 will be sufficient

to enable us to fund our anticipated level of operations based on our current operating plans at least 12 months after this filing.

However, we will require additional capital to execute our acquisition and/or in-licensing strategy as well as out-licensing initiatives

and to fund our operations.

We anticipate raising additional capital through the private and public sales of our equity or debt

securities, collaborative arrangements, licensing agreements or a combination thereof.

Although management believes that such capital

sources will be available, there can be no assurance that any such collaborative or licensing arrangements will be entered into

or that financing will be available to us when needed in order to allow us to continue our operations, or if available, on terms

acceptable to us.

If we do not raise sufficient capital in a timely manner, among other things, we may be forced to license our

potential products or technologies to third parties on unfavorable terms or materially curtail our operations.

We currently do

not have any commitments for future funding from any source.

upon our out-licensing strategy, we have greatly reduced our spending on the research, development, pre-clinical and clinical testing

of our small molecule and stem cell product candidates and have increased our spending on the evaluation of new assets and technologies

with the goal of acquisition and/or entry into a strategic transaction.

No assurance can be given that we will be successful in

our out-licensing strategy and/or entry into a strategic transaction.

Significant Accounting Policies and Basis of Presentation

Basis of Presentation

Our consolidated

financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America

The financial statements include the accounts of the Company and our wholly owned subsidiary.

All significant

intercompany transactions and balances have been eliminated.

consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United

States of America (“U.S.

The consolidated financial statements include the accounts of the Company and our

wholly owned subsidiary.

All significant intercompany transactions and balances have been eliminated.

Use of Estimates

The preparation

of financial statements in accordance with U.S.

GAAP requires management to make estimates and assumptions that affect the reported

amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements

and the reported amounts of revenues and expenses during the reporting period.

The consolidated financial statements include significant

estimates for the expected economic life and value of our licensed technology and related patents, our net operating loss and

related valuation allowance for tax purposes, the fair value of our liability classified warrants and our share-based compensation

related to employees and directors, consultants and advisors, among other things.

Because of the use of estimates inherent in

the financial reporting process, actual results could differ significantly from those estimates.

preparation of consolidated financial statements in accordance with U.S.

GAAP requires management to make estimates and assumptions

that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of

the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

The consolidated

financial statements include significant estimates for the expected economic life and value of our licensed technology and related

patents, our net operating loss and related valuation allowance for tax purposes, the fair value of our liability classified warrants

and our share-based compensation related to employees and directors, consultants and advisors, among other things.

Because of the

use of estimates inherent in the financial reporting process, actual results could differ significantly from those estimates.

Fair Value Measurements

The carrying amounts of our short-term

financial instruments, which primarily include cash and cash equivalents, short-term investments, accounts payable and accrued

expenses, approximate their fair values due to their short maturities.

The fair value of our long-term indebtedness was estimated

based on the quoted prices for the same or similar issues or on the current rates offered to the Company for debt of the same

remaining maturities and approximates the carrying value.

The fair values of our liability classified warrants were estimated

using Level 3 unobservable inputs.

The carrying amounts of our short-term financial instruments, which

primarily include cash and cash equivalents, accounts payable and accrued expenses, approximate their fair values due to their

short maturities.

The fair value of our long-term indebtedness was estimated based on the quoted prices for the same or similar

issues or on the current rates offered to the Company for debt of the same remaining maturities and approximates the carrying value.

The fair values of our liability classified warrants were estimated using Level 3 unobservable inputs.

See Note 3 for further details.

Foreign Currency Translation

The functional currency of our wholly

owned foreign subsidiary is its local currency.

Assets and liabilities of our foreign subsidiary are translated into

United States dollars based on exchange rates at the end of the reporting period;

income and expense items are translated at the

weighted average exchange rates prevailing during the reporting period.

Translation adjustments for subsidiary are accumulated

in other comprehensive income or loss, a component of stockholders' equity.

Transaction gains or losses are included

in the determination of net loss.

The functional currency of our wholly owned foreign subsidiary is

its local currency.

Assets and liabilities of our foreign subsidiary are translated into United States dollars based

on exchange rates at the end of the reporting period;

income and expense items are translated at the weighted average exchange

rates prevailing during the reporting period.

Translation adjustments for subsidiary are accumulated in other comprehensive

income or loss, a component of stockholders' equity.

Transaction gains or losses are included in the determination

Cash, Cash Equivalents and Credit Risk

Cash equivalents consist of investments

in low risk, highly liquid money market accounts and certificates of deposit with original maturities of 90 days or less.

deposited with banks and other financial institutions may exceed the amount of insurance provided on such deposits.

If the amount

of a deposit at any time exceeds the federally insured amount at a bank, the uninsured portion of the deposit could be lost, in

whole or in part, if the bank were to fail.

Financial instruments that potentially

subject us to concentrations of credit risk consist primarily of cash equivalents.

Our investment policy, approved by our Board

of Directors, limits the amount we may invest in any one type of investment issuer, thereby reducing credit risk concentrations.

We attempt to limit our credit and liquidity risks through our investment policy and through regular reviews of our portfolio

against our policy.

To date, we have not experienced any loss or lack of access to cash in our operating accounts or to our cash

The Company analyzes contracts to determine

the appropriate revenue recognition using the following steps:

Cash equivalents consist of investments in low risk, highly liquid

money market accounts and certificates of deposit with original maturities of 90 days or less.

Cash deposited with banks and other

financial institutions may exceed the amount of insurance provided on such deposits.

If the amount of a deposit at any time exceeds

the federally insured amount at a bank, the uninsured portion of the deposit could be lost, in whole or in part, if the bank were

Financial instruments that potentially subject us to concentrations

of credit risk consist primarily of cash equivalents.

Our investment policy, approved by our Board of Directors, limits the amount

we may invest in any one type of investment issuer, thereby reducing credit risk concentrations.

We attempt to limit our credit

and liquidity risks through our investment policy and through regular reviews of our portfolio against our policy.

have not experienced any loss or lack of access to cash in our operating accounts or to our cash equivalents.

Cash and cash equivalents at December 31, 2020 consist of approximately

$10,529,200 of cash held and used and $25,300 of cash included in disposal group assets held for sale.

The Company analyzes contracts to determine the appropriate revenue

recognition using the following steps:

(i) identification of contracts with customers;

(ii) identification

of distinct performance obligations in the contract;

(ii) identification of distinct performance

obligations in the contract;

(iii) determination of contract transaction price;

(iv) allocation of contract

transaction price to the performance obligations;

and (v) determination of revenue recognition based on timing of satisfaction

of the performance obligation.

The Company recognizes revenues upon the satisfaction of its performance obligation (upon transfer

of control of promised goods or services to customers) in an amount that reflects the consideration to which it expects to be

entitled to in exchange for those goods or services.

Deferred revenue results from cash receipts from or amounts billed to customers

in advance of the transfer of control of the promised services to the customer and is recognized as performance obligations are

When sales commissions or other costs to obtain contracts with customers are considered incremental and recoverable,

those costs are deferred and then amortized as selling and marketing expenses on a straight-line basis over an estimated period

development costs are expensed as they are incurred.

Research and development expenses consist primarily of costs associated with

the pre-clinical development and clinical trials of our product candidates.

For the years ended December 31, 2019 and 2018,

we recorded approximately $459,000 and $538,000, respectively of cost reimbursements from our grants as an offset to research

and development expenses.

The Company evaluated the grants and concluded that, based on the specific terms, they represent a cost

reimbursement activity as opposed to a revenue generating activity, and are best reflected as an offset to the underlying research

and development expense.

Income (Loss)

per Common Share

(loss) per common share is computed by dividing total net income (loss) available to common stockholders by the weighted average

number of common shares outstanding during the period.

For periods of

net income when the effects are dilutive, diluted earnings per share is computed by dividing net income available to common stockholders

by the weighted average number of shares outstanding and the dilutive impact of all dilutive potential common shares.

potential common shares consist primarily of convertible preferred stock, stock options, restricted stock units and common stock

purchase warrants.

The dilutive impact of potential common shares resulting from common stock equivalents is determined by applying

the treasury stock method.

Our unvested restricted shares contain non-forfeitable rights to dividends, and therefore are considered

to be participating securities;

the calculation of basic and diluted income per share excludes net income attributable to the

unvested restricted shares from the numerator and excludes the impact of the shares from the denominator.

For all periods

of net loss, diluted loss per share is calculated similarly to basic loss per share because the impact of all dilutive potential

common shares is anti-dilutive due to the net losses;

accordingly, diluted loss per share is the same as basic loss per share

(iv) allocation of contract transaction price to

the performance obligations;

and (v) determination of revenue recognition based on timing of satisfaction of the performance obligation.

The Company recognizes revenues upon the satisfaction of its performance obligation (upon transfer of control of promised goods

or services to customers) in an amount that reflects the consideration to which it expects to be entitled to in exchange for those

goods or services.

Deferred revenue results from cash receipts from or amounts billed to customers in advance of the transfer of

control of the promised services to the customer and is recognized as performance obligations are satisfied.

When sales commissions

or other costs to obtain contracts with customers are considered incremental and recoverable, those costs are deferred and then

amortized as selling and marketing expenses on a straight-line basis over an estimated period of benefit.

and Development

and development costs are expensed as they are incurred.

Research and development expenses consist primarily of costs associated

with the pre-clinical development and clinical trials of our product candidates.

For the years ended December 31, 2020 and

A total of approximately 7.3 million and 0.6 million potential dilutive shares

have been excluded in the calculation of diluted net income per share for the years ended December 31, 2019 and 2018, respectively

as their inclusion would be anti-dilutive.

We account for

share-based compensation at fair value.

Share-based compensation cost for stock options and stock purchase warrants granted to

employees and board members is generally determined at the grant date while awards granted to non-employee consultants are generally

valued at the vesting date using an option pricing model that uses Level 3 unobservable inputs;

share-based compensation cost

for restricted stock and restricted stock units is determined at the grant date based on the closing price of our common stock

on that date.

The value of the award is recognized as expense on a straight-line basis over the requisite service period.

2019, we recorded approximately $60,000 and $459,000 , respectively of cost reimbursements

from our grants as an offset to research and development expenses.

The Company evaluated the grants and concluded that, based on

the specific terms, they represent a cost reimbursement activity as opposed to a revenue generating activity, and are best reflected

as an offset to the underlying research and development expense.

(Loss) per Common Share

Basic income (loss) per common share is

computed by dividing total net income (loss) available to common stockholders by the weighted average number of common shares outstanding

during the period.

For periods of net income when the effects

are dilutive, diluted earnings per share is computed by dividing net income available to common stockholders by the weighted average

number of shares outstanding and the dilutive impact of all dilutive potential common shares.

Dilutive potential common shares

consist primarily of convertible preferred stock, stock options, restricted stock units and common stock purchase warrants.

dilutive impact of potential common shares resulting from common stock equivalents is determined by applying the treasury stock

Our unvested restricted shares contain non-forfeitable rights to dividends, and therefore are considered to be participating

the calculation of basic and diluted income per share excludes net income attributable to the unvested restricted shares

from the numerator and excludes the impact of the shares from the denominator.

For all periods of net loss, diluted loss

per share is calculated similarly to basic loss per share because the impact of all dilutive potential common shares is anti-dilutive

due to the net losses;

accordingly, diluted loss per share is the same as basic loss per share for the years ended December 31,

2020 and 2019.

A total of approximately 6.4 and 7.3 million potential dilutive shares have been excluded in the calculation of

diluted net income per share for the years ended December 31, 2020 and 2019, respectively as their inclusion would be anti-dilutive.

We account for share-based compensation

at fair value.

Share-based compensation cost for stock options and stock purchase warrants granted to employees, board members

and non-employee consultants is generally determined at the grant date using an option pricing model that uses Level 3 unobservable

share-based compensation cost for restricted stock and restricted stock units is determined at the grant date based on

the closing price of our common stock on that date.

The value of the award is recognized as expense on a straight-line basis over

the requisite service period.

and Long-Lived Assets

We assess impairment

of our long-lived assets using a "primary asset" approach to determine the cash flow estimation period for a group of

assets and liabilities that represents the unit of accounting for a long-lived asset to be held and used.

Long-lived assets to

be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of

an asset may not be recoverable.

assess impairment of our long-lived assets using a "primary asset" approach to determine the cash flow estimation period

for a group of assets and liabilities that represents the unit of accounting for a long-lived asset to be held and used.

assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount

of an asset may not be recoverable.

The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted

cash flows expected to result from the use and eventual disposition of the asset.

No impairment losses were recognized during

the years ended December 31, 2019 or 2018.

We account for income taxes using the

asset and liability approach, which requires the recognition of future tax benefits or liabilities on the temporary differences

between the financial reporting and tax bases of our assets and liabilities.

A valuation allowance is established when necessary

to reduce deferred tax assets to the amounts expected to be realized.

We also recognize a tax benefit from uncertain tax positions

only if it is “more likely than not” that the position is sustainable based on its technical merits.

Our policy is

to recognize interest and penalties on uncertain tax positions as a component of income tax expense.

No impairment losses were recognized during the

years ended December 31, 2020 or 2019.

We account for income taxes using the asset and liability approach,

which requires the recognition of future tax benefits or liabilities on the temporary differences between the financial reporting

and tax bases of our assets and liabilities.

A valuation allowance is established when necessary to reduce deferred tax assets

to the amounts expected to be realized.

We also recognize a tax benefit from uncertain tax positions only if it is “more

likely than not” that the position is sustainable based on its technical merits.

Our policy is to recognize interest and

penalties on uncertain tax positions as a component of income tax expense.

New Accounting Pronouncements

Recently Adopted

In February 2016,

the FASB issued ASU, No.

2016-02, Leases.

This ASU consists of a comprehensive lease accounting standard.

requires lessees to recognize assets and liabilities related to long-term leases on the balance sheet and expands disclosure requirements

regarding leasing arrangements.

The guidance is effective for reporting periods beginning after December 15, 2018 and early adoption

is permitted.

The guidance may be adopted on a modified retrospective basis and provides for certain practical expedients.

adopted this guidance effective January 1, 2019 as of the beginning of the period of adoption using the following practical expedients:

we did not evaluate any expired leases, nor did we reassess the classification of any existing leases.

The Company made an ongoing

policy election whereby it will not recognize a lease liability or right of use asset for our short-term leases and that it will

combine lease and non-lease elements of leases.

The new guidance changes the way we account for our operating leases including

recording the future benefits (“ROU assets”) of those leases and the related discounted minimum lease payments on

our consolidated balance sheets.

Upon adoption we recorded a right of use asset of approximately $53,000 and a lease liability

of approximately $75,700 on our consolidated balance sheet.

In June 2018,

the FASB issued ASU 2018-07, Compensation-Stock Compensation, Improvements to Nonemployee Share-Based Payment Accounting .

This ASU expands the scope of ASC 718, Compensation – Stock Compensation to include share-based payment transactions

for acquiring goods and services from nonemployees.

This guidance provides for the following changes:

(1) awards to nonemployees

will be measured at the grant date fair value of equity instruments that the entity is obligated to issue, (2) performance-based

awards to nonemployees will be measured based on the probability of the performance condition being met and (3) eliminating the

need to reassess the classification (equity or liability) of awards to nonemployees upon vesting.

The guidance is effective for

fiscal years beginning after December 15, 2018.

Recently Adopted Guidance

In August 2018, the FASB issued ASU

2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement .

This ASU addresses the disclosure requirements for fair value measurements.

The guidance intends to improve the effectiveness of

the disclosures relating to recurring and nonrecurring fair value measurements.

The guidance is effective for fiscal years beginning

after December 15, 2019.

Portions of the guidance are to be adopted prospectively while other portions are to be adopted retroactively.

We adopted this guidance effective January 1, 2020.

The adoption resulted in our

generally measuring awards to nonemployees using the grant date fair value.

The adoption did not have a material impact to our

financial statements.

In June 2016,

the FASB issued ASU No.

The adoption did not have a material impact to our consolidated financial statements.

Unadopted Guidance

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments – Credit Losses .

This ASU relates to measuring credit losses

on financial instruments, including trade receivables.

The guidance eliminates the probable initial recognition threshold that

was previously required prior to recognizing a credit loss on financial instruments.

The credit loss estimate can now reflect

an entity's current estimate of all future expected credit losses.

Under the previous guidance, an entity only considered past

events and current conditions.

The guidance is effective for smaller reporting companies for fiscal years beginning after December

This ASU relates to measuring credit losses on financial instruments,

including trade receivables.

The guidance eliminates the probable initial recognition threshold that was previously required prior

to recognizing a credit loss on financial instruments.

The credit loss estimate can now reflect an entity's current estimate of

all future expected credit losses.

Under the previous guidance, an entity only considered past events and current conditions.

guidance is effective for smaller reporting companies as defined by the SEC for fiscal years beginning after December 15, 2022,

including interim periods within those fiscal years and early adoption is permitted.

The adoption of certain amendments

of this guidance must be applied on a modified retrospective basis and the adoption of the remaining amendments must be applied

on a prospective basis.

We currently expect that the adoption of this guidance will likely change the way we assess the collectability

of our receivables and recoverability of other financial instruments.

We have not yet begun to evaluate the specific impacts of

this guidance nor have we determined the manner in which we will adopt this guidance.

In August 2018,

the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework—Changes to the Disclosure Requirements

for Fair Value Measurement .

This ASU addresses the disclosure requirements for fair value measurements.

The guidance intends

to improve the effectiveness of the disclosures relating to recurring and nonrecurring fair value measurements.

The guidance is

effective for fiscal years beginning after December 15, 2019 and early adoption is permitted.

Portions of the guidance are to

be adopted prospectively while other portions are to be adopted retroactively.

We are currently evaluating the impact, if any,

that this guidance will have on our consolidated financial statements but do not expect it to have a significant effect.

In August 2018,

the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software .

This ASU addresses the

accounting for implementation, setup and other upfront costs paid by a customer in a cloud computing or hosting arrangement.

guidance aligns the accounting treatment of these costs incurred in a hosting arrangement treated as a service contract with the

requirements for capitalization and amortization costs to develop or obtain internal-use software.

The guidance is effective for

fiscal years beginning after December 15, 2019 and early adoption is permitted.

The guidance can be adopted either retrospectively

or prospectively.

We are currently evaluating the impact, if any, that this guidance will have on our consolidated financial statements

but do not expect it to have a significant effect.

We have reviewed

other recent accounting pronouncements and concluded that they are either not applicable to our business, or that no material effect

is expected on the consolidated financial statements as a result of future adoption.

Fair Value Measurements

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.

GAAP establishes a hierarchical disclosure framework which prioritizes and ranks the level

of observability of inputs used in measuring fair value.

The adoption of certain amendments of this

guidance must be applied on a modified retrospective basis and the adoption of the remaining amendments must be applied on a prospective

We currently expect that the adoption of this guidance will likely change the way we assess the collectability of our receivables

and recoverability of other financial instruments.

We have not yet begun to evaluate the specific impacts of this guidance nor

have we determined the manner in which we will adopt this guidance.

In August 2020, the FASB issued ASU

2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts

in Entity’s Own Equity (Subtopic 815-40) .

This ASC addresses (i) accounting for convertible instruments, (ii) accounting

for contracts in an entity’s own equity as derivatives and (iii) earnings per share calculations.

The guidance attempts to

simplify the accounting for convertible instruments by eliminating the requirement to separate embedded conversion options in certain

circumstances.

The guidance also provides for updated disclosure requirements for convertible instruments.

The guidance further

updates the criteria for determining whether a contract in an entity’s own equity can be classified as equity.

guidance specifically addresses how to account for the effect of convertible instruments and potential cash settled instruments

in calculating diluted earnings per share.

The guidance is effective for smaller reporting companies as defined by the SEC for

fiscal years beginning after December 15, 2023, including interim periods within those fiscal years and early adoption is permitted.

The adoption of this guidance may be applied on a modified retrospective basis or a full retrospective basis.

We have not yet begun

to evaluate the specific impacts of this guidance nor have we determined the manner in which we will adopt this guidance.

We have reviewed other recent accounting

pronouncements and concluded that they are either not applicable to our business, or that no material effect is expected on our

consolidated financial statements as a result of future adoption.

Value Measurements

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

GAAP establishes a hierarchical disclosure framework which prioritizes and ranks the level of observability of inputs

used in measuring fair value.

These levels are:

Level 1 – inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.

Level 2 – inputs are based upon quoted prices

for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and

model-based valuation techniques (e.g.

the Black-Scholes model) for which all significant inputs are observable in the market or

can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Where applicable, these

models project future cash flows and discount the future amounts to a present value using market-based observable inputs including

interest rate curves, foreign exchange rates, and forward and spot prices for currencies and commodities.

Level 3 – inputs are generally unobservable

and typically reflect management's estimates of assumptions that market participants would use in pricing the asset or liability.

The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow

Financial Assets

and Liabilities Measured at Fair Value on a Recurring Basis

We have segregated

our financial assets and liabilities that are measured at fair value on a recurring into the most appropriate level within the

fair value hierarchy based on the inputs used to determine the fair value at the measurement date.

At December 31,

2019 and December 31, 2018, we had certain common stock purchase warrants that were originally issued in connection with our May

2016 and August 2017 capital raises (See Note 4) that are accounted for as liabilities whose fair value was determined using Level

The following table identifies the carrying amounts of such liabilities:

1 – inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.

2 – inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar

instruments in markets that are not active, and model-based valuation techniques (e.g.

the Black-Scholes model) for which all

significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term

of the assets or liabilities.

Where applicable, these models project future cash flows and discount the future amounts to a present

value using market-based observable inputs including interest rate curves, foreign exchange rates, and forward and spot prices

for currencies and commodities.

3 – inputs are generally unobservable and typically reflect management's estimates of assumptions that market participants

would use in pricing the asset or liability.

The fair values are therefore determined using model-based techniques, including

option pricing models and discounted cash flow models.

Financial Assets and Liabilities Measured

at Fair Value on a Recurring Basis

We have segregated our financial assets

and liabilities that are measured at fair value on a recurring into the most appropriate level within the fair value hierarchy

based on the inputs used to determine the fair value at the measurement date.

At December 31, 2020 and 2019, we had certain

common stock purchase warrants that were originally issued in connection with our May 2016 and August 2017 capital raises (See

Note 4) that are accounted for as liabilities whose fair value was determined using Level 3 inputs.

The following table identifies

the carrying amounts of such liabilities:

Liability classified stock purchase warrants

2 unchanged sentences

Balance at December 31, 2020

The following table presents the activity

for those items measured at fair value on a recurring basis using Level 3 inputs for the year ended December 31, 2019:

The following table presents the activity for those items measured

at fair value on a recurring basis using Level 3 inputs for the year ended December 31, 2020:

Mark-to-market liabilities - stock purchase warrants

2 unchanged sentences

Balance at December 31, 2020

The following table presents the activity

for those items measured at fair value on a recurring basis using Level 3 inputs for the year ended December 31, 2018:

The following table presents the activity for those items measured

at fair value on a recurring basis using Level 3 inputs for the year ended December 31, 2019:

Mark-to-market liabilities - stock purchase warrants

2 unchanged sentences

Balance at December 31, 2019

resulting from the changes in the fair value of the liability classified warrants are classified as other income or expense in

the accompanying consolidated statements of operations.

The fair value of the common stock purchase warrants is determined based

on the Black-Scholes option pricing model or other option pricing models as appropriate and includes the use of unobservable inputs

such as the expected term, anticipated volatility and expected dividends.

The gains resulting from the changes in

the fair value of the liability classified warrants are classified as other income or expense in the accompanying consolidated

statements of operations and comprehensive loss.

The fair value of the common stock purchase warrants is determined based on the

Black-Scholes option pricing model or other option pricing models as appropriate and includes the use of unobservable inputs such

as the expected term, anticipated volatility and expected dividends.

Changes in any of the assumptions related to the unobservable

17 unchanged sentences

on the holder’s ability to transfer the shares.

As of December 31, 2019, we have approximately 7,441,532 million shares of

common stock reserved for issuance upon the exercise of share-based awards.

As of December 31, 2020, we have approximately 6.7 million shares of common

stock reserved for issuance upon the exercise of share-based awards.

record share-based compensation expense on a straight-line basis over the requisite service period.

Share-based compensation expense included

in the statements of operations was as follows:

in the statements of operations and comprehensive loss was as follows:

Year Ended December 31,

1 unchanged sentence

General and administrative expenses

summary of stock option activity and related information for the year ended December 31, 2019 follows:

Stock Options

A summary of stock option

activity and related information for the year ended December 31, 2020 follows:

Number of Options

11 unchanged sentences

Aggregate Intrinsic Value

$5.90 - $8.80

$22.20 - $80.60

$107.40 - $1,102.40

Company uses the Black-Scholes option pricing model for “plain vanilla” options and other pricing models as appropriate

11 unchanged sentences

over approximately 2.2 years.

the three months ended March 31, 2019, the Company modified certain awards in conjunction with an employee’s termination.

The modification provided for the accelerated vesting of all unvested awards and the extension of the post-employment exercise

The modifications resulted in approximately $102,000 of additional research and development expenses in the three months

ended March 31, 2019.

2019, the Company modified certain awards in conjunction with an employee’s termination.

The modification provided for the

accelerated vesting of all unvested awards and the extension of the post-employment exercise period.

The modifications resulted

in approximately $102,000 of additional research and development expenses in 2019.

have granted restricted stock units (RSU’s) that entitle the holders to receive shares of our common stock upon vesting and

14 unchanged sentences

The total value

of all RSU’s that were converted in the year ended December 31, 2019 was approximately $10,400.

No RSU’s were converted

in the year ended December 31, 2018.

of all RSU’s that were converted in the years ended December 31, 2020 and 2019 was approximately $300 and $10,400, respectively.

compensation cost for unvested RSU’s outstanding at December 31, 2020 was approximately $4,000 to be recognized over approximately

We have granted

restricted stock to certain board members.

Restricted Stock

have granted restricted stock to certain board members.

summary of our restricted stock activity for the year ended December 31, 2020 is as follows:

3 unchanged sentences

Outstanding at December 31, 2020

total intrinsic value of the outstanding restricted stock at December 31, 2019 was approximately $7,900.

The total intrinsic

value of all restricted stock vested in the year ended December 31, 2019 was approximately $18,500.

compensation cost for unvested restricted stock outstanding at December 31, 2019 was approximately $47,500 to be recognized over

approximately 0.5 years.

stock vesting in the year ended December 31, 2020 and 2019, had a total intrinsic value of approximately $2,600 and $14,500, respectively.

Stock Purchase Warrants

We have issued

warrants to purchase common stock to certain officers, directors, stockholders and service providers as well as in conjunction

with debt and equity offerings and at various times replacement warrants were issued as an inducement for warrant exercises.

In May 2016 and

August 2017, we issued a total of 87,309 and 112,500 common stock purchase warrants, respectively in conjunction with the offering

of our securities.

Such warrants are classified as liabilities due to the existence of certain net cash settlement provisions

contained in the warrants.

At December 31, 2019, after giving effect to exercises, 149,136 of these common stock purchase warrants

remain outstanding and are recorded at fair value as mark-to-market liabilities (see Note 3).

In February 2019,

we granted 25,000 warrants to an outside third party as partial compensation for services.

The warrants have an exercise price

of $6.00, expire January 2024 and have a grant date fair value of $3.80 per warrant.

The warrants vest 25% on grant and 75% on

completion of initial services;

the warrants were fully vested as of September 30, 2019.

The warrants were valued using the Black-Scholes

option pricing model with the following inputs:

no annual dividend, expected life of 2.5 years, risk-free rate of 2.5% and expected

volatility of 110%.

In July 2019,

in connection with our underwritten public offering, we issued the following equity classified common stock purchase warrants:

(i) 3,194,443 short-term common stock purchase warrants with an exercise price of $2.70 per share, exercisable immediately and

expiring on December 31, 2020;

(ii) 3,194,443 long-term common stock purchase warrants with an exercise price of $2.70 per share,

exercisable immediately and expiring 5-years from issuance and (iii) 2,361,462 “prefunded” common stock purchase warrants

with an exercise price of $0.0001 per share, exercisable immediately with no expiration date.

As of December 31, 2019, all of

the “prefunded warrants” had been exercised generating approximately $200 in proceeds.

In connection

with the July public offering we also granted the underwriters 222,223 equity classified common stock purchase warrants with an

exercise price of $3.375 per share, exercisable immediately and expiring 5-years from issuance.

A summary of outstanding warrants

at December 31, 2019 follows:

have issued warrants to purchase common stock to certain officers, directors, stockholders and service providers as well as in

conjunction with debt and equity offerings and at various times replacement warrants were issued as an inducement for warrant exercises.

In May 2016 and August 2017, we issued

a total of 87,309 and 112,500 common stock purchase warrants, respectively in conjunction with the offering of our securities.

Such warrants are classified as liabilities due to the existence of certain net cash settlement provisions contained

in the warrants.

At December 31, 2020, after giving effect to exercises, 149,136 of these common stock purchase warrants remain

outstanding and are recorded at fair value as mark-to-market liabilities (see Note 3).

January 2020, pursuant to the terms of an inducement offer, certain holders of 5,555,554 of our common stock purchase warrants

exercised such warrants at an exercise price of $1.36 per share generating approximately $7.6 million of gross proceeds.

inducement to exercise, we reduced the exercise price on the existing warrants from $2.70 to $1.36 and issued 5,555,554 replacement

warrants with an exercise price of $1.23 per share.

Of the replacement warrants, 2,777,777 have a two-year term and 2,777,777 have

a five-year term.

In conjunction with the transaction, we issued to the placement agent 444,445 common stock purchase warrants

with an exercise price of $1.70 and a five-year term.

recognized an expense in the accompanying consolidated statement of operations and comprehensive loss for the year ended December

31, 2020 of approximately $5.6 million representing the fair value of the inducement offer.

The fair value is comprised of the

fair value of the modification of the original warrants (the reduction in exercise price) and the fair value of the replacement

The fair values were calculated using the Black-Scholes option pricing model.

conjunction with our May 2020 Offering, we issued to the placement agent 400,000 common stock purchase warrants with an exercise

price of $1.25 and a five-year term.

A summary of outstanding

warrants at December 31, 2020 follows:

Range of Exercise Prices

1 unchanged sentence

Range of Expiration Dates

December 2020

In January 2020,

pursuant to the terms of an inducement offer, certain holders of 5,555,554 of our common stock purchase warrants exercised such

warrants at an exercise price of $1.36 per share generating approximately $7.6 million of gross proceeds.

As an inducement to

exercise we reduced the exercise price on the existing warrants from $2.70 to $1.36 and issued 5,555,554 replacement warrants

with an exercise price of $1.23 per share.

Of the replacement warrants, 2,777,777 have a two-year term and 2,777,777 have a five-year

In conjunction with the transaction we issued to the placement agent 444,445 common stock purchase warrants with an exercise

price of $1.70 and a five-year term.

and Common Stock

We have outstanding

200,000 shares of Series A 4.5% Convertible Preferred Stock issued in December 2016.

Shares of the Series A 4.5% Convertible Preferred

Stock are convertible into 38,873 shares of the Company’s common stock subject to certain ownership restrictions.

and July 2019, 800,000 Series A 4.5% Convertible Preferred Stock shares were converted into 155,496 shares of common stock in

accordance with their terms.

In July 2019, we completed an underwritten

public offering of 416,315 units (“Units”) and 2,361,462 prefunded units (“Prefunded Units”) at a price

of $2.70 per each unit resulting in gross proceeds of approximately $7.5 million.

Each Unit was comprised of one share of common

stock, one short-term warrant and one long-term warrant.

Each Prefunded Unit was comprised of one prefunded-warrant, one short-term

warrant and one long-term warrant.

The prefunded warrants have an exercise price of $0.0001 per share and are exercisable at any

time from issuance until all prefunded warrants are exercised.

The short-term and long-term warrants have an exercise price of

$2.70 per share and are exercisable immediately.

The short-term warrant expires December 31, 2020 and the long-term warrant expires

five-years from issuance.

The net proceeds of the offering were approximately $6.6 million, after deducting underwriting discounts

and commissions and offering expenses.

In addition to the above units, the underwriters exercised their option and purchased an

additional short-term 416,666 additional short-term and 416,666 additional long-term warrant combinations at the public offering

price per share and per warrant combination, before deducting underwriting discounts and commissions.

The securities were sold

pursuant to a registration statement on Form S-1 (file no.

$0.90 - $1.25

May 2021 - May 2025

$1.70 - $3.38

July 2024 - January 2025

$6.00 - $782.60

July 2021 - April 2024

Preferred and Common Stock

have outstanding 200,000 shares of Series A 4.5% Convertible Preferred Stock issued in December 2016.

Shares of the Series A 4.5%

Convertible Preferred Stock are convertible into 38,873 shares of the Company’s common.

In April and July 2019, 800,000 Series

A 4.5% Convertible Preferred Stock shares were converted into 155,496 shares of common stock in accordance with their terms.

May 2020, we completed a direct offering of 5,000,000 shares of common stock at a price of $1.00 per each share resulting in gross

proceeds of $5.0 million.

After deducting placement agent and other expenses related to the offering, we received approximately

$4.4 million.

The securities were sold pursuant to a registration statement on Form S-3 (file no.

333- 218608).

In connection with

the offering, we issued to the placement agent warrants to purchase 400,000 shares of our common stock at an exercise price of

$1.25 per share.

The warrants are exercisable immediately and expire 5 years from issuance.

Property and Equipment

The major classes of property and equipment consist

of the following at December 31:

The major classes of property and equipment consist of the following at December

Furniture and fixtures

3 unchanged sentences

Property and equipment, net

The above includes approximately $70,000 of equipment located

at our research facility in China.

Property and equipment are recorded at cost and are depreciated using the straight-line method

over the estimated useful lives of the respective assets.

Depreciation expense for the years ended December 31, 2019 and 2018,

was approximately $49,000 and $84,000, respectively

The Company holds

patents related to its stem cell and small molecule technologies.

Patent costs are capitalized and are being amortized over the

life of the patents.

The weighted average remaining unamortized life of issued patents was approximately 8.6 years at December

Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate

that the carrying amount of an asset may not be recoverable.

The carrying amount of a long-lived asset is not recoverable if it

exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset.

assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell.

During the years ended

December 31, 2019 and 2018, no impairment losses were recognized.

The Company’s intangible assets and accumulated amortization

consisted of the following at December 31:

In addition to the above, we have approximately $1,000 of equipment, net located at our

research facility in China which is classified as assets held for sale at December 31, 2020.

Property and equipment are recorded

at cost and are depreciated using the straight-line method over the estimated useful lives of the respective assets.

expense for the years ended December 31, 2020 and 2019, was approximately $29,000 and 49,000, respectively.

The Company holds patents related to its

stem cell and small molecule technologies.

Patent costs are capitalized and are being amortized over the life of the patents.

weighted average remaining unamortized life of issued patents was approximately 7.3 years at December 31, 2020.

assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount

of an asset may not be recoverable.

The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted

cash flows expected to result from the use and eventual disposition of the asset.

Long-lived assets to be disposed of are reported

at the lower of carrying amount or fair value less cost to sell.

During the years ended December 31, 2020 and 2019, no impairment

losses were recognized.

The Company’s intangible assets and accumulated amortization consisted of the following at

Accumulated amortization

Net intangibles

Amortization expense for the years ended

December 31, 2019 and 2018 was approximately $95,000 and $102,000, respectively.

The expected average future annual amortization

expense over the next five years is approximately $75,000 based on current balances of our intangible assets.

Our provision for income taxes for the years ended December

31, 2019 and 2018 consists of the following:

In addition to the above we have approximately $459,000 of intangible

assets, net related to the Company’s neural stem cell program classified as

assets held for sale at December 31, 2020.

Amortization expense for the years ended December 31, 2020 and 2019

was approximately $63,000 and $95,000, respectively.

The expected average future annual amortization expense over the next five

years is approximately $18,000 based on current balances of our intangible assets.

Our provision for income taxes for the years ended December 31, 2020 and 2019 consists

of the following:

Current provision:

4 unchanged sentences

Consolidated income tax provision

We provide a full valuation allowance

on our net deferred tax assets because management has determined that it is more likely than not that we will not earn income

sufficient to realize the deferred tax assets during the asset reversal periods.

The difference between income taxes computed

by applying the statutory federal income tax rate to consolidated losses before income taxes and the consolidated provision for

income taxes is attributable to the following:

We provide a full valuation allowance on our net deferred tax assets

because management has determined that it is more likely than not that we will not earn income sufficient to realize the deferred

tax assets during the asset reversal periods.

The difference between income taxes computed by applying the statutory

federal income tax rate to consolidated losses before income taxes and the consolidated provision for income taxes is attributable

to the following:

Federal statutory rate

1 unchanged sentence

Change in fair value of liability classified warrants

Warrant inducement expense

Other, including non-deductible expenses

Valuation allowance

The tax effects of significant temporary

differences representing deferred tax assets as of December 31 are:

The tax effects of significant temporary differences representing

deferred tax assets as of December 31 are:

Net operating loss carryforwards

6 unchanged sentences

Net deferred tax assets

The Company had Federal net operating

loss (“NOL”) carryforwards of approximately $160 million at December 31, 2019 of which $146 million was created

prior to 2018 and began expiring in 2019.

The Company also has certain Federal tax credit carryforwards that will begin

expiring in 2020.

The timing and manner in which these net operating loss carryforwards and credits may be used in any year

will be limited to the Company’s ability to generate future earnings and also may be limited by certain provisions in

The Company has not identified any uncertain tax positions and did not recognize any adjustments for

unrecognized tax benefits.

The Company remains subject to examination for income tax returns dating back to 2016.

The Company had Federal net operating loss (“NOL”) carryforwards

of approximately $158 million at December 31, 2020 of which $146 million was created prior to 2018 and began expiring in 2019.

The Company also has certain Federal tax credit carryforwards that began expiring in 2020.

The timing and manner in which these

net operating loss carryforwards and credits may be used in any year will be limited to the Company’s ability to generate

future earnings and also may be limited by certain provisions in the U.S.

The Company has not identified any uncertain

tax positions and did not recognize any adjustments for unrecognized tax benefits.

The Company remains subject to examination for

income tax returns dating back to 2017.

Commitments and Contingencies

We currently operate one facility located

in the United States and one facility located in China under leases which are both classified as operating leases.

We currently operate one facility located in the United States and

one facility located in China under leases which are both classified as operating leases.

Our corporate offices and primary research facilities are located

2 unchanged sentences

$5,600 per month.

This lease had an initial term of 12 months and expired on December 31, 2019.

We are currently operating on a

month-to-month lease as we negotiate an extension.

We did not establish a right of use (“ROU”) asset or lease liability

for this short-term lease.

We also lease approximately 11,300 square

feet of research facility in the People’s Republic of China.

This lease commenced in September 2019, provides for minimum

lease payments of approximately $4,400 per month, expires in September 2024 and provides us with a future first right of refusal

for extending the lease beyond its expiration.

This lease has an initial term of 12 months and expires on December 31, 2021.

We did not establish a right of

use (“ROU”) asset or lease liability for this short-term lease.

We also lease approximately 11,300 square feet of research facility

in the People’s Republic of China.

This lease commenced in September 2019, provides for minimum lease payments of approximately

$4,400 per month, expires in September 2024 and provides us with a future first right of refusal for extending the lease beyond

its expiration.

This lease currently represents our lone long-term operating lease.

This new lease

obligation resulted in us obtaining an ROU asset of approximately $205,000.

Our long-term operating lease and related

sublease for our San Diego facility both terminated in August 2019.

We recognized other income of approximately $86,100 from this

sublease for the year ended December 31, 2019.

We recognized total rent expense of approximately

$194,200 and $164,000 in the years ended December 31, 2019 and 2018, respectively.

Included in the 2019 expense is approximately

$67,700 relating to our short-term leases.

Lease costs, net of sublease income, for the year ended December 31, 2019 consisted

of the following:

This new lease obligation resulted in us obtaining

an ROU asset of approximately $205,000.

Our long-term operating lease and related sublease for our San Diego

facility both terminated in August 2019.

We recognized other income of approximately $86,100 from this sublease for the year ended

December 31, 2019.

We recognized total rent expense of approximately $113,100 and $194,200,

in the years ended December 31, 2020 and 2019, respectively.

Included in the expense is approximately $67,700 in each of the years

ended December 31, 2020 and 2019 relating to our short-term leases.

Lease costs, net of sublease income, for the years ended December

31 consisted of the following:

Operating lease cost

2 unchanged sentences

Total net lease cost

In the year ended December 31, 2019, we

established approximately $204,300 of ROU assets as the result of entering into new lease arrangements.

In the year ended December 31, 2019, we established approximately

$204,300 of ROU assets as the result of entering into new lease arrangements.

At December 31, 2020, we have approximately $190,000 of ROU assets

included in ROU and Other Assets and approximately $180,900 of lease liability the current portion of which is included in Short-term

Notes and Other Current Liabilities and the long-term portion of which is included in Lease Liability, Net of Current Portion in

our consolidated balance sheets.

The lease liability was calculated using a discount rate of 12.75%.

Maturities of our lone long-term operating

lease as of December 31, 2019 were as follows:

included in Disposal Group Assets Held for Sale and approximately $159,000 of lease liability included in Disposal Group Liabilities

Associated with Assets Held for Sale in our consolidated balance sheets.

Future payments under our lone long-term operating lease as of December

31, 2020 are as follows:

Future undiscounted cash flows:

3 unchanged sentences

Non-current lease liability

From time to time, we are parties to legal

proceedings that we believe to be ordinary, routine litigation incidental to the business.

We are currently not a party to any

litigation or legal proceeding.

Party Receivable

Accrued Severance

In connection with the Company’s reorganization resulting from the proposed Merger

Transaction, the Company accrued approximately $2.3 million of severance payable to executives in accordance with their employment

Such payment is not contingent on the closing of the Merger.

The executives were terminated in March 2021 and the corresponding

severance amounts will be paid in accordance with the terms of the employment contracts.

From time to time, we are parties to legal proceedings that we believe

to be ordinary, routine litigation incidental to the business.

We are currently not a party to any litigation or legal proceeding.

As a result of the Merger, we are currently involved in litigation related thereto as noted below.

On January 8, 2021, Joseph Sheridan, a purported Seneca

stockholder, filed a complaint in the United States District Court for the Southern District of New York against Seneca, the

members of its board of directors, and LBS, captioned Sheridan v.

Seneca Biopharma, Inc., et al.

1:21-cv-00166 (the “Sheridan Complaint”).

Also, on January 8, 2021, Hesam Pirjamaat, a purported Seneca

stockholder, filed a complaint in the United States District Court for the Southern District of New York against Seneca, the

members of its board of directors, Townsgate Acquisition Sub 1, Inc., and LBS, captioned Pirjamaat v.

Biopharma, Inc., et al.

1:21-cv-00172 (the “Pirjamaat Complaint”).

On January 13, 2021, Brian Johnson, a purported Seneca

stockholder, filed a complaint in the United States District Court for the Southern District of New York against Seneca and

the members of its board of directors, captioned Johnson v.

Seneca Biopharma, Inc., et al.

1:21-cv-00310 (the “Johnson Complaint”).

On January 15, 2021, Vipin Mathews, a purported Seneca stockholder,

filed a complaint in the United States District Court for the Eastern District of New York against Seneca and the members of

its board of directors, captioned Mathews v.

Seneca Biopharma, Inc., et al.

1:21-cv-00242 (the

“Mathews Complaint”).

On January 22,

2021, Emily Pechal, a purported Seneca stockholder, filed a complaint in the United States District Court for the Southern District

of New York against Seneca and the members of its board of directors, captioned Pechal v.

Seneca Biopharma, Inc., et al.

1:21-cv-00585 (the “Pechal Complaint”).

On February 25, 2021, Marcie Curtis, a purported

Seneca stockholder, filed a complaint in the United States District Court for the District of Delaware against Seneca and the

members of its board of directors, captioned Curtis v.

Seneca Biopharma, Inc., et al.

1:21-cv-00292 (the

“Curtis Complaint”).

On March 1, 2021, Juanesha Valdez, a purported

Seneca stockholder, filed a complaint in the United States District Court for the Eastern District of Pennsylvania against Seneca,

the members of its board of directors, Townsgate Acquisition Sub 1, Inc., and LBS, captioned Valdez v.

Seneca Biopharma,

, et al., Case No.

1:21-cv-00980 (the “Valdez Complaint”).

March 2, 2021, Bryan Anderson, a purported Seneca stockholder, filed a complaint in the United States District Court for the District

of Delaware against Seneca and the members of its board of directors, captioned Anderson v.

Seneca Biopharma, Inc., et

1:21-cv-00326 (the “Anderson Complaint”).

On March 3, 2021, Jack McIntire, a purported Seneca

stockholder, filed a complaint in the United States District Court for the Southern District of New York against Seneca and the

members of its board of directors, captioned McIntire v.

Seneca Biopharma, Inc., et al.

1:21-cv-01869 (the

“McIntire Complaint,”

and, together with the Sheridan Complaint, the Pirjamaat Complaint, the Johnson Complaint, the

Mathews Complaint, the Pechal Complaint, the Curtis Complaint, the Valdez Complaint, the Anderson Complaint, the “Stockholder

Complaints”).

On February 26, 2021, the United States District Court for the Southern District of New York entered an order

consolidating the Sheridan Complaint, the Pirjamaat Complaint, the Johnson Complaint, and the Pechal Complaint under Case No.

We believe the allegations in the Stockholder Complaints are without

Other stockholders may file additional lawsuits challenging the

Merger, which may name us as well as members of our boards of directors and/or others as defendants.

No assurance can be made as

to the outcome of such lawsuits or the Stockholder Complaints, including the amount of costs associated with defending, or any

other liabilities that may be incurred in connection with the litigation of, such claims.

Litigation often is expensive and diverts

management’s attention and resources, which could adversely affect our business.

At present, we are unable to estimate potential

losses, if any, related to the lawsuit.

Related Party Receivable

August 10, 2016, we entered into a reimbursement agreement with a former executive officer.

4 unchanged sentences

cash payments.

March 2019, in conjunction

with the former executive officer’s termination, we entered into a consulting agreement and release of claims agreement with

the former executive officer.

As partial consideration for the release, we modified the reimbursement agreement to change the payment

terms, extend the maturity and forgive approximately 50% or $229,000 of the outstanding receivable.

March 2019, in conjunction with the former executive officer’s termination, we entered into a consulting agreement and release

of claims agreement with the former executive officer.

As partial consideration for the release, we modified the reimbursement

agreement to change the payment terms, extend the maturity and forgive approximately 50% or $229,000 of the outstanding receivable.

At December 31, 2020, $229,000 remains outstanding and is due in installments through July 2025.

The Company has concluded that

this outstanding balance is not recoverable and recorded an allowance against the entire remaining balance in 2019.

Disposal Group Assets Held for Sale

late 2020, the Company engaged in negotiations with an interested third party for the sale of all of its assets and liabilities

related to its neural stem cell program (NSI-566).

Those negotiations have subsequently ended.

The Company is continuing the process

to identify a purchaser for the assets and liabilities.

The Company has concluded that it is probable that a sale will be completed

within one year and that the assets and liabilities should be classified as a disposal group held for sale in its balance sheet

at December 31, 2020.

remains outstanding and is due in installments through July 2025.

The Company has concluded that this outstanding balance is not

recoverable and recorded an allowance against the entire remaining balance.

Assets and liabilities classified as held for sale will no longer be depreciated or amortized.

Company believes a sale will be consummated, no binding agreements have been entered into and there can be no assurance that a

sale will ultimately be consummated or on what terms and conditions.

on current negotiations, the Company concluded the net proceeds from the sale are expected to exceed the net carrying value of

the assets and liabilities and accordingly, no impairment charge has been recognized as of December 31, 2020.

assets and liabilities classified as a disposal group held for sale at December 31, 2020 are comprised of the following:

Prepaid expesnes

Property and equipment, net

ROU and other assets

Disposal group assets held for sale

Accounts payable and accrued expenses

Lease liabilities

Disposal group liabilities associated with assets held for sale

Subsequent Events

In January 2020, pursuant to the terms

of an inducement offer, certain holders of 5,555,554 of our common stock purchase warrants exercised their warrants at an exercise

price of $1.36 per share generating approximately $7.6 million of gross proceeds.

See Note 4 for additional details over this transaction.

On March 23, 2020, in order to provide

the Company with flexibility in inducing new employees, the Board of Directors approved an amendment to the Company’s Inducement

Award Stock Option Plan, increasing the number of shares authorized under the plan by 500,000 for an aggregate total of 715,000

In December 2019 an outbreak of a novel

strain of coronavirus originated in Wuhan, China, and has since spread around the world, including to the United States.

outbreak has already resulted in extended shutdowns of many businesses around the world, including in the United States.

presently predict the scope, severity and longevity of any potential business shutdowns or disruptions, but business or economic

disruptions as are now being experienced, could adversely affect our ongoing or planned research and development activities as

well as the execution of our acquisition and/or in-licensing strategy.

On March 17, 2021, we terminated:

(i) Kenneth Carter, PhD, Seneca’s

executive chairman, (ii) Dane Saglio, Seneca’s chief financial officer, (iii) Matthew Kalnik, PhD, Seneca’s chief operating

officer and (iv) Seneca’s Senior Vice President of R&D (collectively, the “Employees”) without cause.

connection with the Employees’

terminations, the Company entered into separation agreements (“Separation Agreement(s)”).

The Separation Agreements contain mutual general releases of claims and acknowledge the amounts due to each Employee as a result

of their terminations without cause as provided for in each of their respective employment agreements.

Such amounts are as follows:

Kenneth Carter, PhD

Matthew Kalnik, PhD

Senior VP of R&D

Additionally, in the event that the Company consummates the Merger

(as defined below), each employment agreement provides for the following additional severance and benefits:

Severance in Connection with a Change in Control

Kenneth Carter, PhD

Matthew Kalnik, PhD

Senior VP of R&D

_____________

Represents additional severance benefits in connection with a termination without cause in connection

with a change in control.

Repurchase of Employee Stock Options

Immediately prior to the closing of the Merger, each respective

Employee’s outstanding common stock options will be purchased by the Company for the following consideration:

Kenneth Carter, PhD

Matthew Kalnik, PhD

Senior VP of R&D

As a result of the Separation Agreements, the employment of the

Employees was terminated on March 17, 2021.

Carter will remain chairman of the Board.

Appointment of Mr.

Saglio as Principal Executive Officer

On March 17, 2021, Mr.

Saglio entered into a consulting agreement

whereby he will perform the duties of principal executive and accounting officer of Seneca until such time as the Merger is consummated.

Saglio will be paid on an hourly basis to perform such services at a rate of $250 per hour.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data