Annual report pursuant to Section 13 and 15(d)

Net (Loss) Income Per Share Of Common Stock, Basic And Diluted

Net (Loss) Income Per Share Of Common Stock, Basic And Diluted

12 Months Ended

Dec. 31, 2019

Net (Loss) Income Per Share of Common Stock, Basic and Diluted

The Company computes earnings per share ("EPS") using the two-class method. The two-class method of computing EPS is an earnings allocation formula that determines EPS for common stock and any participating securities according to dividends declared and participation rights in undistributed earnings. The Company has two classes of stock outstanding, common stock and preferred stock. The preferred stock was issued in December 2018, upon Armistice exercising warrants to acquire an aggregate of 2,857,143 shares of the Series B Convertible Preferred Stock ("convertible preferred stock"). The convertible preferred stock has the same rights and preferences as the Company’s common stock, other than being non-voting, and is convertible into shares of common stock on a 1-for-5 ratio. The convertible preferred stock is considered a separate class of stock for EPS purposes, however basic and diluted EPS was not provided for the convertible preferred stock for the year ended December 31, 2018 because the shares were only outstanding for five days in 2018, and therefore, EPS for the preferred stock is immaterial for the year ended December 31, 2018. EPS for both common stock and preferred stock is disclosed for the year ended December 31, 2019.

EPS for common stock and EPS for preferred stock is computed by dividing the sum of distributed earnings and undistributed earnings for each class of stock by the weighted average number of shares outstanding for each class of stock for the period. In applying the two-class method, undistributed earnings are allocated to common stock and preferred stock based on the weighted average shares outstanding during the period, which assumes the convertible preferred stock has been converted to common stock.

Diluted net (loss) income per share includes the potential dilutive effect of common stock equivalents as if such securities were converted or exercised during the period, when the effect is dilutive. Common stock equivalents include: (i) outstanding stock options and restricted stock units, which are included under the "treasury stock method" when dilutive; (ii) common stock to be issued upon the assumed conversion of the Company's unit purchase option (the "UPO") shares, which are included under the "if-converted method" when dilutive; and (iii) common stock to be issued upon the exercise of outstanding warrants, which are included under the "treasury stock method" when dilutive. Because the impact of these items is generally anti-dilutive during periods of net loss, there is no difference between basic and diluted loss per common share for periods with net losses. In periods of net loss, losses are allocated to the participating security only if the security has not only the right to participate in earnings, but also a contractual obligation to share in the Company's losses.

The following table sets forth the computation of basic and diluted net loss per share of common stock for continuing and discontinued operations for the years ended December 31, 2019 and 2018, which includes both classes of participating securities:



	Year Ended
	December 31, 2019
	Common stock					Preferred Stock
	Continuing Operations			Discontinued Operations		Continuing Operations			Discontinued Operations
Numerator:
Allocation of undistributed net (loss) income	$	(12,204,552	)	$	148,673	$	(4,066,201	)	$	49,533
Denominator:
Weighted average shares	42,878,040			42,878,040		2,857,143			2,857,143
Basic and diluted net loss per share	$	(0.28	)	$	0.00	$	(1.42	)	$	0.01



	Year Ended
	December 31, 2018
	Common stock
	Continuing Operations			Discontinued Operations			Total
Numerator:
Net loss	$	(35,274,099	)	$	(4,778,711	)	$	(40,052,810	)
Deemed distribution to stockholder	1,657,383			—			1,657,383
Allocation of undistributed net loss to common stockholders	$	(36,931,482	)	$	(4,778,711	)	$	(41,710,193	)
Denominator:
Weighted average shares	34,773,613			34,773,613			34,773,613
Basic and diluted net loss per share	$	(1.06	)	$	(0.14	)	$	(1.20	)

As part of a private placement with Armistice entered into during the fourth quarter of 2018, the Company also entered into a securities purchase agreement with Armistice pursuant to which the Company issued warrants to purchase up to 4,000,000 shares of the Company's common stock with a term of 5.5 years and an exercise price of $12.50 per share (the "incentive warrants"). For accounting purposes, the Company calculated the fair value of the incentive warrants of $1.7 million, which was considered a deemed distribution to Armistice for the year ended December 31, 2018. Therefore, the net loss of $40.1 million for the year ended December 31, 2018 was increased by the deemed distribution of $1.7 million to arrive at the net loss attributable to common stockholders of $41.7 million. While the incentive warrants do have the rights to participate in undistributed earnings, the incentive warrants issued do not share in net losses of the Company. As such, the incentive warrants are excluded from the weighted average shares and warrants outstanding during periods of net loss.

The following outstanding securities at December 31, 2019 and 2018 have been excluded from the computation of diluted weighted shares outstanding, as they could have been anti-dilutive:



	December 31,
	2019	2018
Stock options	4,480,606	4,246,597
Warrants on common stock	4,024,708	4,024,708
Restricted Stock Units	267,500	445,000
Underwriters' unit purchase option	40,000	40,000