PALISADE BIO, INC. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm 32 Consolidated Balance Sheets 34 Consolidated Statements of Operations and Comprehensive Loss 35 Consolidated Statements of Changes in Stockholders’ Equity 36 Consolidated Statements of Cash Flows 37 Notes to Consolidated Financial Statements 38 31 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, 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. 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 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 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. 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 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. We believe 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. 32 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. The warrants 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’ equity. 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 guidance. · 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. Raleigh, North Carolina March 22, 2021 33 Seneca Biopharma, Inc. Consolidated Balance Sheets December 31, 2020 2019 ASSETS CURRENT ASSETS Cash and cash equivalents $ 10,529,244 $ 5,114,917 Trade and other receivables 116,279 21,064 Prepaid expenses 1,399,790 510,900 Assets held for sale 835,483 - Total current assets 12,880,796 5,646,881 Property and equipment, net 10,776 41,036 Patents, net 147,133 668,936 ROU and other assets 10,439 227,036 Total assets $ 13,049,144 $ 6,583,889 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and accrued expenses $ 649,345 $ 824,406 Accrued severance and bonuses 2,322,241 135,686 Short-term notes and other current liabilities - 264,665 Liabilities associated with assets held for sale 234,344 - Total current liabilities 3,205,930 1,224,757 Warrant liabilities, at fair value 75,298 84,596 Lease liability, net of current portion - 148,543 Total liabilities 3,281,228 1,457,896 Commitments and contingencies (Note 8) STOCKHOLDERS' EQUITY Preferred stock, 7,000,000 shares authorized, $0.01 par value; 200,000 shares issued and outstanding in 2020 and 2019 2,000 2,000 Common stock, $0.01 par value; 300 million shares authorized, 17,295,703 and 3,866,457 shares issued and outstanding in 2020 and 2019, respectively 172,957 38,665 Additional paid-in capital 247,836,057 227,067,058 Accumulated other comprehensive loss (734 ) (6,186 ) Accumulated deficit (238,242,364 ) (221,975,544 ) Total stockholders' equity 9,767,916 5,125,993 Total liabilities and stockholders' equity $ 13,049,144 $ 6,583,889 See accompanying notes to consolidated financial statements. 34 Seneca Biopharma, Inc. Consolidated Statements of Operations and Comprehensive Loss Year Ended December 31, 2020 2019 Revenues $ 13,520 $ 15,394 Operating expenses: Research and development costs 2,018,454 4,061,450 General and administrative expenses 8,670,612 4,585,638 Total operating expenses 10,689,066 8,647,088 Operating loss (10,675,546 ) (8,631,694 ) Other income (expense): Interest income 33,532 67,731 Interest expense (14,015 ) (8,920 ) Gain from change in fair value of liability classified warrants 9,298 499,138 Warrant inducement and other expense (5,620,089 ) (277,906 ) Total other income (expense) (5,591,274 ) 280,043 Net loss $ (16,266,820 ) $ (8,351,651 ) Net loss per common share - basic and diluted $ (1.17 ) $ (3.80 ) Weighted average common shares outstanding - basic and diluted 13,869,272 2,197,434 Comprehensive loss: Net loss $ (16,266,820 ) $ (8,351,651 ) Foreign currency translation adjustment 5,452 (5,773 ) Comprehensive loss $ (16,261,368 ) $ (8,357,424 ) See accompanying notes to consolidated financial statements. 35 Seneca Biopharma, Inc. Consolidated Statements of Changes In Stockholders' Equity Preferred Stock Shares Preferred Stock Amount Common Stock Shares Common Stock Amount Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders' Equity Balance at January 1, 2019 1,000,000 $ 10,000 910,253 $ 9,103 $ 219,654,753 $ (413 ) $ (213,623,893 ) $ 6,049,550 Share rounding adjustment related to 1:20 reverse stock split - - 6,117 61 (61 ) - - - Share-based payments - - - - 880,789 - - 880,789 Issuance of common stock and warrants from capital raises, net - - 416,315 4,163 6,548,679 - - 6,552,842 Issuance of common stock for conversion of Series A Preferred Stock (800,000 ) (8,000 ) 155,496 1,555 6,445 - - - Issuance of restricted stock awards - - 15,688 157 (157 ) - - - Issuance of common stock for warrant exercises - - 2,361,462 23,615 (23,379 ) - - 236 Issuance of common stock for RSU exercises - - 1,126 11 (11 ) - - - Foreign currency translation adjustments - - - - - (5,773 ) - (5,773 ) Net loss - - - - - - (8,351,651 ) (8,351,651 ) Balance at December 31, 2019 200,000 2,000 3,866,457 38,665 227,067,058 (6,186 ) (221,975,544 ) 5,125,993 Share-based payments - - - - 584,991 - - 584,991 Issuance of commn stock and inducement warrants for warrant exercises - - 5,561,554 55,615 12,296,637 - - 12,352,252 Issaunce of common stock and warrants from capital raises, net - - 5,000,000 50,000 4,384,354 - - 4,434,354 Issuance of common stock for warrant exercises - - 2,871,296 28,713 3,502,981 - - 3,531,694 Issuance of common stock for RSU exercises - - 563 6 (6 ) - - - Forfeiure of restricted stock awards - - (4,167 ) (42 ) 42 - - - Foreign currency translation adjustments - - - - - 5,452 - 5,452 Net loss - - - - - - (16,266,820 ) (16,266,820 ) Balance at December 31, 2020 200,000 $ 2,000 17,295,703 $ 172,957 $ 247,836,057 $ (734 ) $ (238,242,364 ) $ 9,767,916 See accompanying notes to consolidated financial statements. 36 Seneca Biopharma, Inc. Consolidated Statements of Cash Flows Year Ended December 31, 2019 2019 Cash flows from operating activities: Net loss $ (16,266,820 ) $ (8,351,651 ) Adjustments to reconcile net loss to cash used in operating activities: Depreciation and amortization 92,272 143,859 Share-based compensation expenses 584,991 880,789 Change in fair value of liability classified warrants (9,298 ) (499,138 ) Allowance for bad debt - 362,176 Warrant inducement expense 5,620,089 - Changes in operating assets and liabilities: Trade and other receivables (95,215 ) 272,993 Prepaid expenses (1,024,494 ) (142,310 ) ROU and other assets 24,537 39,643 Accounts payable and accrued expenses (105,043 ) (15,741 ) Accrued severance and bonuses 2,186,555 135,686 Other current liabilities 5,508 (47,414 ) Lease and other long term liabilities (38,211 ) (34,572 ) Net cash used in operating activities (9,025,129 ) (7,255,680 ) Cash flows from investing activities: Net cash provided by investing activities - - Cash flows from financing activities: Proceeds from the sale of common stock and warrants, net 11,150,318 6,552,842 Proceeds from warrant exercises 3,547,894 236 Proceeds from short-term notes payable - 414,320 Payments of short-term notes payable (232,296 ) (377,893 ) Net cash provided by financing activities 14,465,916 6,589,505 Effects of exchange rates on cash (1,185 ) (6,018 ) Net decrease in cash and cash equivalents 5,439,602 (672,193 ) Cash and cash equivalents, beginning of year 5,114,917 5,787,110 Cash and cash equivalents, end of year $ 10,554,519 $ 5,114,917 Supplemental cash flow information: Cash paid for interest 14,015 8,920 See accompanying notes to consolidated financial statements. 37 SENECA BIOPHARMA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Organization and Business and Financial Condition Nature of Business In October 2019, we changed our name from Neuralstem, Inc. to Seneca 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. The Company operates in one business segment. 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 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. The audited 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. In 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. Based 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. 38 Note 2. 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 (“U.S. GAAP”). 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 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, 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. 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. 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 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 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. Revenue 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; (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 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. Research and Development Research 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 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. 39 Income (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. 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 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. Share-Based Compensation 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 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. Intangible 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. 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, 2020 or 2019. Income Taxes 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. Significant New Accounting Pronouncements 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 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 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. 40 In August 2020, the FASB issued ASU No. 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. Lastly, the 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. Note 3. 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. U.S. 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 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: Level 1 Level 2 Level 3 Total Liabilities Liability classified stock purchase warrants $ - $ - $ 84,596 $ 84,596 Balance at December 31, 2019 $ - $ - $ 84,596 $ 84,596 Liability classified stock purchase warrants $ - $ - $ 75,298 $ 75,298 Balance at December 31, 2020 $ - $ - $ 75,298 $ 75,298 41 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 Balance at December 31, 2019 $ 84,596 Change in fair value - gain (9,298 ) Balance at December 31, 2020 $ 75,298 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 Balance at December 31, 2018 $ 583,734 Change in fair value - gain (499,138 ) Balance at December 31, 2019 $ 84,596 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 inputs identified above may change the embedded conversion options’ fair value; increases in expected term, anticipated volatility and expected dividends generally result in increases in fair value, while decreases in these unobservable inputs generally result in decreases in fair value. Note 4. Stockholders’ Equity We have granted share-based compensation awards to employees, board members and service providers. In addition, we have issued warrants to purchase common stock in conjunction with debt and equity offerings. Awards may consist of common stock, restricted common stock, restricted common stock units, common stock purchase warrants, or common stock purchase options. Our common stock purchase options and stock purchase warrants have lives of up to ten years from the grant date. Awards vest either upon the grant date or over varying periods of time. The stock options provide for exercise prices equal to or greater than the fair value of the common stock at the date of the grant. Restricted stock units grant the holder the right to receive fully paid common shares with various restrictions on the holder’s ability to transfer the shares. 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. We 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 and comprehensive loss was as follows: Year Ended December 31, 2020 2019 Research and development costs $ 30,883 $ 200,337 General and administrative expenses 554,108 680,452 Total $ 584,991 $ 880,789 42 Stock Options A summary of stock option activity and related information for the year ended December 31, 2020 follows: Number of Options Weighted-Average Exercise Price Weighted-Average Remaining Contractual Life (in years) Aggregate Intrinsic Value Outstanding at January 1, 2020 271,660 $ 61.83 7.8 $ - Granted 1,686,466 $ 0.62 $ - Exercised - - Forfeited/Expired (160,750 ) $ 23.82 Outstanding at December 31, 2020 1,797,376 $ 7.80 9.0 $ 438,650 Exercisable at December 31, 2020 812,742 $ 16.42 8.7 $ 182,771 Range of Exercise Prices Number of Options Outstanding Weighted-Average Exercise Price Weighted-Average Remaining Contractual Life (in years) Aggregate Intrinsic Value $0.62 1,686,466 $ 0.62 9.3 $ 438,650 $5.90 - $8.80 51,758 $ 6.32 8.5 - $22.20 - $80.60 23,326 $ 29.21 4.5 - $107.40 - $1,102.40 35,826 $ 333.81 1.8 - 1,797,376 $ 7.80 9.0 $ 438,650 The Company uses the Black-Scholes option pricing model for “plain vanilla” options and other pricing models as appropriate to calculate the fair value of options. Significant assumptions used in these models include: Year Ended December 31, 2020 2019 Annual dividend - - Expected life (in years) 4.0 - 5.2 4.8 - 5.5 Risk free interest rate 0.2% - 0.4% 1.8% - 2.5% Expected volatility 110% - 111% 97% - 115% Options granted in the years ended December 31, 2020 and 2019 had weighted average grant date fair values of $0.52 and $3.45, respectively. The total fair value of the options vested during the years ended December 31, 2020 and 2019 was approximately $500,000 and $671,100, respectively. Unrecognized compensation cost for unvested stock option awards outstanding at December 31, 2020 was approximately $530,000 to be recognized over approximately 2.2 years. In 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. RSUs We have granted restricted stock units (RSU’s) that entitle the holders to receive shares of our common stock upon vesting and subject to certain restrictions regarding the exercise of the RSU’s and the holders’ ability to transfer the shares received upon exercise. The fair value of RSU’s granted is based upon the market price of the underlying common stock as if they were vested and issued on the date of grant. 43 A summary of our RSU activity for the year ended December 31, 2020 follows: Number of RSU's Weighted-Average Grant Date Fair Value Outstanding at January 1, 2020 5,467 $ 29.62 Granted 24,000 $ 0.70 Exercised and converted to common shares (563 ) $ 236.20 Forfeited - $ - Outstanding at December 31, 2020 28,904 $ 1.58 Exercisable at December 31, 2020 22,904 $ 1.81 The total intrinsic value of the outstanding RSU’s at December 31, 2020 was approximately $25,400. The total fair value of RSU’s vested during the years ended December 31, 2020 and 2019, was approximately $27,600 and $13,900, respectively. The total value of all RSU’s that were converted in the years ended December 31, 2020 and 2019 was approximately $300 and $10,400, respectively. Unrecognized compensation cost for unvested RSU’s outstanding at December 31, 2020 was approximately $4,000 to be recognized over approximately 0.3 years. Restricted Stock We have granted restricted stock to certain board members. A summary of our restricted stock activity for the year ended December 31, 2020 is as follows: Shares of Restricted Stock Weighted-Average Grant Date Fair Value Outstanding at January 1, 2020 7,981 $ 5.95 Granted - $ - Vested (3,814 ) $ 5.90 Forfeited (4,167 ) $ 6.00 Outstanding at December 31, 2020 - $ - Restricted 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, 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). 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 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. 44 We 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 warrants. The fair values were calculated using the Black-Scholes option pricing model. In 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 Number of Warrants Outstanding Range of Expiration Dates $0.90 - $1.25 3,233,407 May 2021 - May 2025 $1.70 - $3.38 1,080,333 July 2024 - January 2025 $6.00 - $782.60 195,489 July 2021 - April 2024 4,509,229 Preferred 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. 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. In 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. Note 5. Property and Equipment The major classes of property and equipment consist of the following at December 31: 2020 2019 Furniture and fixtures $ 32,272 $ 35,407 Computers and office equipment 138,897 138,897 Lab equipment 744,787 817,149 915,956 991,453 Less accumulated depreciation (905,180 ) (950,417 ) Property and equipment, net $ 10,776 $ 41,036 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. Depreciation expense for the years ended December 31, 2020 and 2019, was approximately $29,000 and 49,000, respectively. Note 6. Patents 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 7.3 years at December 31, 2020. 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. 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 December 31: 45 2020 2019 Patent asset $ 338,463 $ 2,006,443 Accumulated amortization (191,330 ) (1,337,507 ) Net intangibles $ 147,133 $ 668,936 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. Note 7. Income Taxes Our provision for income taxes for the years ended December 31, 2020 and 2019 consists of the following: 2020 2019 Current provision: Federal $ - $ - State - - Foreign - - Total current provision - - Deferred provision (benefit): Federal (192,953 ) (545,792 ) State (1,893,740 ) 1,001,786 Foreign - - Total deferred provision (benefit) (2,086,693 ) 455,994 Valuation allowance 2,086,693 (455,994 ) 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: 2020 2019 Federal statutory rate (21.0 %) (21.0 %) State income taxes, net of Federal benefits (5.0 %) (5.3 %) Rate changes 3.8 % (6.4 %) Change in fair value of liability classified warrants 0.0 % (1.6 %) Warrant inducement expense 9.0 % 0.0 % Other, including non-deductible expenses 26.0 % 28.8 % Valuation allowance (12.8 %) 5.5 % Total 0.0 % 0.0 % 46 The tax effects of significant temporary differences representing deferred tax assets as of December 31 are: 2020 2019 Net operating loss carryforwards $ 40,897,678 $ 43,190,604 Stock based compensation expense 2,323,607 2,605,277 Tax credit carryforwards and other 1,377,275 889,372 Gross deferred tax assets 44,598,560 46,685,253 Valuation allowance (44,598,560 ) (46,685,253 ) Net deferred tax assets $ - $ - 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. tax code. 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. Note 8. Commitments and Contingencies 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 in Germantown, Maryland, where we lease approximately 1,500 square feet. This lease provides for monthly payments of approximately $5,600 per month. 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 $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: 2020 2019 Operating lease cost $ 113,100 $ 171,000 Variable lease cost - 23,200 Sublease income - (86,100 ) Total net lease cost $ 113,100 $ 108,100 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 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. 47 Future payments under our lone long-term operating lease as of December 31, 2020 are as follows: Future undiscounted cash flows: 2021 $ 58,400 2022 60,200 2023 62,100 2024 14,600 Total 195,300 Discount factor (36,300 ) Lease liability 159,000 Less current liability (40,500 ) Non-current lease liability $ 118,500 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 contracts. 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. Other 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. , Case No. 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. Seneca Biopharma, Inc., et al. , Case No. 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. , Case No. 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. , Case No. 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. , Case No. 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. , Case No. 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, Inc. , et al., Case No. 1:21-cv-00980 (the “Valdez Complaint”). 48 On 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 al. , Case No. 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. , Case No. 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. 21-cv-0166. We believe the allegations in the Stockholder Complaints are without merit. 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. Note 9. Related Party Receivable On August 10, 2016, we entered into a reimbursement agreement with a former executive officer. Pursuant to the reimbursement agreement, the former officer agreed to repay the Company, over a six-year period, approximately $658,000 in expenses that the Company determined to have been improperly paid under the Company's prior expense reimbursement policies. The $658,000 non-interest-bearing receivable was recorded net of a $199,000 discount to reflect the net present value of the future cash payments. In 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. Note 10. Disposal Group Assets Held for Sale In 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. Assets and liabilities classified as held for sale will no longer be depreciated or amortized. Although the 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. Based 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. 49 The assets and liabilities classified as a disposal group held for sale at December 31, 2020 are comprised of the following: Amount Cash $ 25,275 Prepaid expesnes 146,051 Property and equipment, net 1,128 Patents, net 458,738 ROU and other assets 204,291 Disposal group assets held for sale $ 835,483 Accounts payable and accrued expenses $ 75,306 Lease liabilities 159,038 Disposal group liabilities associated with assets held for sale $ 234,344 Note 11. Subsequent Events 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. In 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: Name Severance and Bonus Kenneth Carter, PhD $ 816,995 Dane Saglio $ 452,572 Matthew Kalnik, PhD $ 599,868 Senior VP of R&D $ 384,702 Total: $ 2,254,137 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 Name CIC Severance and Bonus 1 Kenneth Carter, PhD $ 277,248 Dane Saglio $ 100,857 Matthew Kalnik, PhD $ 150,225 Senior VP of R&D $ 85,567 Total: $ 613,897 _____________ 1. 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: Name Option Repurchase Kenneth Carter, PhD $ 188,787 Dane Saglio $ 362,391 Matthew Kalnik, PhD $ 476,662 Senior VP of R&D $ 395,166 Total: $ 1,423,006 As a result of the Separation Agreements, the employment of the Employees was terminated on March 17, 2021. Dr. 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. Mr. Saglio will be paid on an hourly basis to perform such services at a rate of $250 per hour. 50 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None