Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The Company has prepared the accompanying financial statements in conformity with generally accepted accounting principles in the United States of America (“GAAP”). Such financial statements reflect all adjustments that are, in management’s opinion, necessary to present fairly, in all material respects, the Company’s financial position, results of operations and cash flows and are presented in U.S. Dollars.

Going Concern

The Company’s financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company's operations have consisted primarily of developing its technology, developing products, prosecuting its intellectual property and securing financing. The Company has incurred recurring losses and cash outflows from operations, has an accumulated deficit, and has debt principal payments that commenced in the

first

quarter of

2020.

The Company expects to continue to incur losses in the foreseeable future and will require additional financial resources to continue to advance its products and intellectual property, in addition to repaying its maturing debt and other obligations. These conditions raise substantial doubt regarding the Company’s ability to continue as a going concern.

The Company believes that its existing cash will enable it to fund its operating expenses and capital expenditure requirements, make payments of interest and principal on its term loan facility with Pacific Western Bank, and remain in compliance with its minimum cash covenant of

$8.5

million pursuant to this term loan facility, through

August 2020.

The Company has based these estimates on assumptions that

may

prove to be wrong, and it could utilize its available capital resources sooner than it expects. The Company will need to raise substantial additional capital to continue its business operations and remain in compliance with the minimum cash covenant of

$8.5

million on its debt during and beyond the

third

quarter of

2020,

in addition to commercializing

LIQ861,

if approved. Such capital

may

not

be available on a timely basis, on terms that are favorable to the Company, or at all. Alternatively, in light of the Company's current limited cash resources, the recent trading price of the Company's common stock, outstanding debt and associated minimum cash covenant, and based on a review of the status of its programs, resources and capabilities, the Company continues to explore a wide range of strategic alternatives with the support of its financial advisor, Jefferies LLC, that could maximize stockholder value. The Company's efforts have been and continue to be focused primarily upon the potential formation of a partnership or a licensing transaction with respect to its lead program,

LIQ861,

for the treatment of PAH. Strategic alternatives

may

also include the sale of some of the Company’s assets or proprietary technologies, or a potential merger or sale of the Company. There can be

assurance that the Company will be able to enter into such a transaction or transactions on a timely basis, on terms that are favorable to the Company, or at all. The financial statements do

not

include any adjustments that might result from the outcome of this uncertainty.

Reverse Stock Split

July 12, 2018

and

July 19, 2018,

the Company’s Board of Directors and stockholders, respectively, approved an amendment to the Company’s amended and restated certificate of incorporation effecting a

-for-

16.827

reverse stock split of the Company’s issued and outstanding shares of common stock and convertible preferred stock. The reverse stock split was effective on

July 19, 2018.

The par value of the common and redeemable convertible preferred stock was

not

adjusted as a result of the reverse stock split. All issued and outstanding share and per share amounts included in the accompanying financial statements have been adjusted to reflect this reverse stock split for all periods presented.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from those estimates.

Summary of Significant Accounting Policies

Cash

The Company considers all highly liquid investments with a maturity of

three

months or less, when purchased, to be cash equivalents. The Company had

cash equivalents as of

December

31,

2019

and

2018.

Accounts Receivable

Accounts receivable are stated at net realizable value including an allowance for doubtful accounts as of each balance sheet date. The Company has

not

recorded an allowance for doubtful accounts during the years ended

December 31, 2019

and

2018.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and accounts receivable. The Company is exposed to credit risk, subject to federal deposit insurance, in the event of default by the financial institutions holding its cash to the extent of amounts recorded on the balance sheet. With regard to cash,

100%

of the Company’s cash is held on deposit with Pacific Western Bank. With regard to revenues and concentration of credit risk, GlaxoSmithKline plc (“GSK” and “GSK Inhaled”) accounted for

$8.1

and

$0.4

million of our revenue during the years ended

December

31,

2019

and

2018,

respectively, or

100%

and

15%,

respectively, of our total revenue, and

of the Company’s accounts receivable as of

December 31, 2019

and

2018.

Leases

February 2016,

the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)

2016

02,

Leases

, as amended (Topic

842

) (“ASU

2016

02”

). The provisions of ASU

2016

set out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or

not

the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than

months regardless of their classification. The Company has elected to account for leases with a term of

months or less in a similar manner as under existing guidance for operating leases. ASU

2016

supersedes the previous lease standard, Topic

840,

Leases

. The guidance is effective for public companies with annual periods and interim periods within those annual periods beginning after

December 15, 2018.

The Company adopted Topic

842,

as amended, as of

January 1, 2019,

using the modified retrospective approach. The modified retrospective approach provides a method for recording existing leases at adoption that approximates the results of a full retrospective approach in the year of adoption. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among others, allowed the Company to carry forward the historical lease classification. Adoption of the new standard resulted in the recording of net lease assets and lease liabilities of approximately

$6.4

million and

$9.1

million respectively, as of

January 1, 2019.

The standard had

impact on cash flows. For operating leases, the asset and liability will be expensed over the lease term on a straight-line basis, with all cash flows classified as an operating activity in the Statement of Cash Flows. For finance leases, interest on the lease liability will be recognized separately from the amortization of the right-of-use asset in the Statement of Operations and Comprehensive Loss and the repayment of the principal portion of the lease liability will be classified as a financing activity, while the interest component will be classified as an operating activity in the Statement of Cash Flows.

The net impact of applying Topic

842

was recorded as an adjustment to accumulated deficit of

$0.6

million as of

January 1, 2019

as follows:

	Balance at			Adjustments			Balance at
	December 31,			Due to			January 1,
	2018			Topic 842			2019
Balance Sheet:
Assets
Property, plant and equipment, net	$	8,130,708		$	(107,734	)	$	8,022,974
Operating lease right-of-use assets, net		—			3,985,071			3,985,071

Liabilities
Deferred rent		2,674,683			(2,674,683	)		—
Operating lease liabilities		—			6,659,725			6,659,725
Finance lease liabilities		828,785			1,636,185			2,464,970
Long-term debt		11,944,549			(1,141,792	)		10,802,757

Stockholders’ equity (deficit)
Accumulated deficit		(167,053,897	)		(602,098	)		(167,655,995	)

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Depreciation of property, plant and equipment is computed using the straight-line method over the estimated useful lives of the assets beginning when the assets are placed in service. Estimated useful lives for the major asset categories are:

Lab and build-to-suit equipment (years)	5	-	7
Office equipment (years)		5
Furniture and fixtures (years)		10
Computer equipment (years)		3
Leasehold improvements	Lesser of life of the asset or remaining lease term

Major renewals and improvements are capitalized to the extent that they increase the useful economic life or increase the expected economic benefit of the underlying asset. Maintenance and repairs are charged to operations as incurred. When items of property, plant and equipment are sold or retired, the related cost and accumulated depreciation or amortization is removed from the accounts, and any gain or loss is included in operating expenses in the accompanying Statements of Operations and Comprehensive Loss.

Impairment of Long-Lived Assets

The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset

may

not

be recoverable. If the estimated future cash flows (undiscounted and without interest charges) from the use of an asset are less than the carrying value, an impairment is recorded to reduce the related asset to its estimated fair value. To date,

such impairments have occurred.

Deferred Rent

Rent expense is recognized on a straight-line basis over the life of the lease. The difference between rent expense recognized and rental payments, as stipulated in the lease, is reflected as deferred rent in the accompanying Balance Sheets and amortized over the life of the lease. In addition, deferred rent also includes landlord incentives on a portion of the leasehold improvement cost, which is amortized over the life of the lease.

Revenue Recognition

The Company adopted ASU

2014

09,

Revenue from Contracts with Customers

(“Topic

606”

) and all the related amendments as of

January 1, 2018.

The cumulative effect of the change was an increase of

$0.5

million to the balance of accumulated deficit on the Balance Sheet as of

January 1, 2018.

The Company derives revenues primarily from licensing its proprietary PRINT technology and from performing research and development services. Revenues are recognized as services are performed in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services and technology.

The Company’s research, development and licensing agreements provide for multiple promised goods and services to be satisfied by the Company and include a license to the Company’s technology in a particular field of study, participation in collaboration committees, performance of certain research and development services and obligations for certain manufacturing services.

The transaction price for these contracts includes non-refundable fees and fees for research and development services. Non-refundable up-front fees which

may

include, for example, an initial payment upon effectiveness of the contractual relationship or payment to secure a right for a future license, are recorded as deferred revenue and recognized into revenue over time as the Company provides the research services under the contract required to advance the products to the point where the Company is able to transfer control of the licensed technology to the customer (“Technology Transfer”). The contract consideration

may

also include additional non-refundable payments due to the Company based on the achievement of research, development, regulatory or commercialization milestone events. In agreements involving multiple goods or services promised to be transferred to customers, the Company must assess, at the inception of the contract, whether each promise represents a separate performance obligation (i.e., is “distinct”), or whether such promises should be combined as a single performance obligation. As these goods and services are considered to be highly interrelated, they

may

be considered to represent a single, combined performance obligation. The Company includes an estimate of the probable amount of milestone payments to which it will be entitled in the transaction price. The estimate requires evaluation of factors which are outside of the Company’s control and significantly limit the Company’s ability to achieve the remaining milestone payments. Therefore, the Company has

not

included any future milestone payments in the transaction price allocated to research, development and licensing agreements as of

December

31,

2018

December 31, 2019.

The Company revises the transaction price to include milestone payments once the specific milestone achievement is

not

considered to be subject to a significant reversal of revenue. At that time, the estimated transaction price is adjusted and a cumulative catch-up adjustment is recorded to adjust the amount of revenue to be recognized from the license inception to the date the milestone was deemed probable of achievement. The milestone is included with other non-refundable up-front fees and recognized into revenue over time as the Company continues to provide services under the contract through the Company’s Technology Transfer. The amount of revenue recognized is based on the proportion of total research services performed to date to the expected services to be provided through the Technology Transfer.

The estimate of the research services to be provided through the Technology Transfer requires significant judgment to evaluate assumptions regarding the level of effort required for the Company to have performed sufficient obligations for the customer to be able to utilize the licensed technology without requiring further services from the Company. If the estimated level of effort changes, the remaining deferred revenue is recognized over the revised period in which the expected research services and Technology Transfer are required. Changes in estimates occur for a variety of reasons, including but

not

limited to (i) research and development acceleration or delays, (ii) customer prioritization of research projects, or (iii) results of research and development activities. The Company recognizes the consideration it is entitled to receive for research and development services, which are primarily billed quarterly in arrears on a time and materials basis, as the services are performed (under a proportional performance model) and collection is reasonably assured. Additionally, any up-front or development milestone payments received are also recognized as revenues, over time, under this same proportional performance model.

Royalties related to product sales will be recognized as revenue when the sale occurs since payments relate directly to products that will have been fully developed and for which the Company will have satisfied all of its performance obligations.

Segment Data

Operating segments are defined as components of an enterprise engaging in business activities from which it

may

earn revenues and incur expenses, for which discrete financial information is available and whose operating results are regularly reviewed by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business in

one

operating segment and all of the Company operations and long-lived assets are in the United States.

Research and Development Expense

Research and development costs are expensed as incurred and include direct costs incurred to

third

parties related to the salaries of, and stock-based compensation for, personnel involved in research and development activities, contractor fees, grant expenses, administrative expenses and allocations of research-related overhead costs. Administrative expenses and research-related overhead costs included in research and development expense consist of allocations of facility and equipment lease charges, depreciation and amortization of assets and insurance directly related to research and development activities.

Patent Maintenance

The Company is responsible for all patent costs, past and future, associated with the preparation, filing, prosecution, issuance, maintenance, enforcement and defense of United States patent applications. Such costs are recorded as general and administrative expenses as incurred. To the extent that the Company’s licensees share these costs, such benefit is recorded as a reduction of the related expenses.

Stock-Based Compensation

The Company estimates the grant date fair value of its share-based awards and amortizes this fair value to compensation expense over the requisite service period or vesting term (see Note

Net Loss Per Share

Basic net loss per share is calculated by dividing net loss attributable to common stockholders by the weighted average shares outstanding during the period, without consideration of common stock equivalents.

Diluted net loss per share is calculated by adjusting weighted average shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, determined using the treasury-stock method. For purposes of the diluted net loss per share calculation, stock options and warrants are considered to be common stock equivalents but are excluded from the calculation of diluted net loss per share because their effect would be anti-dilutive. Due to their anti-dilutive effect, the calculation of diluted net loss per share for the years ended

December

31,

2019

and

2018

does

not

include the following common stock equivalent shares:

	Year Ended December 31,
	2019		2018
Stock Options		1,979,411		1,658,112
Warrants		111,372		170,925
Total		2,090,783		1,829,037

For the years ended

December

31,

2019

and

2018

the only reconciling item between basic and diluted net loss per share is the impact of the common stock warrants that are included in the calculation of basic net loss per share since their exercise price is de minimis, but excluded from the calculation of diluted net loss per share since the impact of such warrants is antidilutive.

Fair Value of Financial Instruments

The carrying values of cash, accounts receivable, and accounts payable at

December

31,

2019

and

2018

approximated their fair value due to the short maturity of these instruments.

The Company’s valuation of financial instruments is based on a

three

-tiered approach, which requires that fair value measurements be classified and disclosed in

one

three

tiers. The fair value hierarchy defines a

three

-level valuation hierarchy for disclosure of fair value measurements as follows:

Level

— Quoted prices in active markets for identical assets or liabilities;

Level

— Other than quoted prices included in Level

inputs that are observable for the asset or liability, either directly or indirectly; and

Level

— Unobservable inputs for the asset and liability used to measure fair value, to the extent that observable inputs are

not

available.

The categorization of a financial instrument within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The following tables present the placement in the fair value hierarchy of financial liabilities measured at fair value as of

December 31, 2019

and

2018:

Significant

Quoted Prices

Other

in Active

Observable

Significant

Markets

Inputs

Unobservable

Carrying

December 31, 2019

(Level 1)

(Level 2)

Inputs (Level 3)

Value

Pacific Western Bank note - A&R LSA

—

14,094,792

—

15,878,121

			Significant
	Quoted Prices		Other
	in Active		Observable		Significant
	Markets		Inputs		Unobservable		Carrying
December 31, 2018	(Level 1)		(Level 2)		Inputs (Level 3)		Value
Pacific Western Bank Tranche I note - A&R LSA	$	—	$	10,412,650	$	—	$	10,802,355
CSC build-to-suit equipment financing		—		1,311,135		—		1,142,194
Total	$	—	$	11,723,785	$	—	$	11,944,549

The fair value of debt is measured in accordance with ASU

2016

01,

Financial Instruments–Overall: Recognition and Measurement of Financial Assets and Financial Liabilities

. The fair value is determined based on the exit price notion using credit spreads and an illiquidity premium for each loan. The credit spread is determined by the credit risk rating, loan rate index, and maturity date. The illiquidity premium is based on the loan’s credit risk rating.

Deferred Offering Costs

The Company capitalizes certain legal, professional accounting and other

third

-party fees that are directly associated with in-process equity financings as deferred offering costs until such equity financings are consummated. After consummation of the equity financing, these costs are recorded in stockholders’ equity as a reduction of proceeds generated as a result of the offering. As of

December

31,

2019

and

2018,

the Company recorded deferred offering costs relating to its financing activities of

and

$110,365,

respectively, which is included in Prepaid Expenses and Other Assets on the Balance Sheets.

Convertible Instruments

The Company has utilized various types of financing to fund its business needs, including convertible debt and convertible preferred stock, in some cases with corresponding warrants. The Company considered guidance within FASB ASC

470

20,

Debt with Conversion and Other Options

, (“ASC

470

20”

), ASC

480,

Distinguishing Liabilities from Equity

(“ASC

480”

) and ASC

815,

Derivatives and Hedging

(“ASC

815”

), when accounting for the issuance of convertible securities. Additionally, the Company reviewed the instruments to determine whether they were freestanding or contain an embedded derivative and, if so, whether they should be classified in permanent equity, mezzanine equity or as a liability at each reporting period until the amount is settled and reclassified into equity.

When multiple instruments were issued in a single transaction, the Company allocated total proceeds from the transaction among the individual freestanding instruments identified. The allocation was made after identifying all the freestanding instruments and the subsequent measurement basis for those instruments. The subsequent measurement basis determines how the proceeds were allocated. Generally, proceeds were allocated based on

one

of the following methods:

•

Fair value method — The instrument being analyzed is allocated a portion of the proceeds equal to its fair value, with the remaining proceeds allocated to the other instruments as appropriate.

•

Relative fair value method — The instrument being analyzed is allocated a portion of the proceeds based on the proportion of its fair value to the sum of the fair values of all the instruments covered in the allocation.

•

Residual value method — The instrument being analyzed is allocated the remaining proceeds after an allocation is made to all other instruments covered in the allocation.

Generally, when there are multiple instruments issued in a single transaction that have different subsequent measurement bases, the proceeds from the transaction are

first

allocated to the instrument that is subsequently measured at fair value (i.e., instruments accounted for as derivative liabilities) at its issuance date fair value, with the residual proceeds allocated to the instrument

not

subsequently measured at fair value. In the event both instruments in the transaction are

not

subsequently measured at fair value (i.e., equity-classified instruments), the proceeds from the transaction are allocated to the freestanding instruments based on their respective fair values, using the relative fair value method.

After the proceeds are allocated to the freestanding instruments, resulting in an initial discount on the host contract, those instruments were further evaluated for embedded features (i.e., conversion options) that require bifurcation and separate accounting as a derivative financial instrument pursuant to ASC

815.

Embedded derivatives were initially and subsequently measured at fair value. Under ASC

815,

a portion of the proceeds received upon the issuance of the hybrid contract was allocated to the fair value of the derivative.

The Company accounted for convertible instruments in which it is determined that the embedded conversion options should

not

be bifurcated from their host instruments in accordance with ASC

470

20.

Under ASC

470

20,

the Company recorded, when necessary, discounts to convertible notes or convertible preferred stock for the intrinsic value of conversion options embedded in the convertible instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the transaction and the effective conversion price embedded in the convertible instrument, unless limited by the proceeds allocated to such instrument.

Warrant Liabilities

The Company had classified warrants to purchase shares of preferred stock as liabilities on its Balance Sheets as these warrants were freestanding financial instruments that would require the Company to issue convertible securities upon exercise. The warrants were initially recorded at fair value on date of grant, and were subsequently remeasured to fair value at each reporting period. Changes in fair value of the warrants were recognized as a component of other income (expense) in the Statements of Operations and Comprehensive Loss. In conjunction with the Company’s initial public offering (“IPO”) in

2018,

the warrants were converted to warrants for common stock. Following that conversion, these warrants

longer met the criteria to be presented as a liability and have been reclassified to additional paid-in capital. The Company will

longer include the warrants as liabilities or recognize changes in their fair value on the Statements of Operations and Comprehensive Loss.

Embedded Derivatives

Embedded derivatives that were required to be bifurcated from the underlying instrument were accounted for and valued as a separate financial instrument. In conjunction with the Company’s convertible notes, embedded derivatives exist associated with the future consummation of a qualified financing event, as defined in the notes, and a subsequent discounted conversion of the instrument to capital stock. The embedded derivatives were bifurcated and classified as derivative liabilities on the Balance Sheets and separately adjusted to their fair values at the end of each reporting period. Changes in fair values of the derivative liabilities are recognized as a component of other income (expense) in the Statements of Operations and Comprehensive Loss. These embedded derivatives were eliminated upon conversion of the underlying convertible notes into Series D preferred stock,

$0.001

par value per share (“Series D”) (see Note

Issuance Costs Related to Equity and Debt

The Company allocated issuance costs between the individual freestanding instruments identified on the same basis as proceeds were allocated. Issuance costs associated with the issuance of stock or equity contracts (i.e., equity-classified warrants and convertible preferred stock) were recorded as a charge against the gross proceeds of the offering. Any issuance costs associated with the issuance of liability-classified warrants were expensed as incurred. Issuance costs associated with the issuance of debt (i.e., convertible debt) was recorded as a direct reduction of the carrying amount of the debt liability, but limited to the notional value of the debt. The Company accounted for debt as liabilities measured at amortized cost and amortizes the resulting debt discount to interest expense using the straight-line method over the expected term of the notes pursuant to ASC

835,

Interest

(“ASC

835”

). To the extent that the reduction from issuance costs of the carrying amount of the debt liability would reduce the carrying amount below zero, such excess was recorded as interest expense.

Income Taxes

The asset and liability method is used in the Company’s accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. The Company records a valuation allowance against deferred tax assets when realization of the tax benefit is uncertain.

A valuation allowance is recorded, if necessary, to reduce net deferred taxes to their realizable values if management believes it is more likely than

not

that the net deferred tax assets will

not

be realized.

The Company

may

recognize the tax benefit from an uncertain tax position only if it is more likely than

not

that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than

50%

likelihood of being realized upon ultimate settlement.

December 22, 2017,

the Tax Cuts and Jobs Act (the "TCJA") was enacted into law. This law includes significant changes to the U.S. corporate income tax system, including a permanent reduction in the corporate income tax rate from

35%

21%,

limitations on the deductibility of interest expense and executive compensation and the transition of U.S. international taxation from a worldwide system to a territorial tax system. For taxpayers with revenues over a certain threshold, the TCJA also limits interest expense deductions to

30%

of taxable income before interest, depreciation and amortization from

2018

2021

and then taxable income before interest thereafter. The TCJA permits disallowed interest expense to be carried forward indefinitely. The Company calculated its best estimate of the impact of the TCJA in its income tax provision for the year ended

December 31, 2017

in accordance with its understanding of the TCJA and guidance available at the time. The overall impact of the TCJA resulted in a decrease to the deferred tax assets and a corresponding decrease to the valuation allowance of

$14.1

million. Using the guidance issued by the SEC staff in Staff Accounting Bulletin

No.

118,

the Company completed its accounting for the TCJA during the

fourth

quarter of

2018.

Recent Accounting Pronouncements

October 2018,

the FASB issued ASU

2018

18,

Collaborative Arrangements

(Topic

808

): Clarifying the Interaction between Topic

808

and Topic

606

("ASU

2018

17"

). The provisions of ASU

2018

clarify when certain transactions between collaborative arrangement participants should be accounted for under ASC

606

and incorporates unit-of-account guidance consistent with ASC

606

to aid in this determination. The guidance is effective for annual periods and interim periods within those annual periods beginning after

December 15, 2019,

with early adoption permitted, and is effective for the Company for the year ending

December 31, 2020.

The Company is currently evaluating the impact that the implementation of this standard will have on the Company's financial statements.