Basis of Presentation

12 Months Ended

Dec. 31, 2021

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation

Basis of Presentation

Basis of presentation

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Any reference in these notes to applicable guidance is meant to refer to U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”).

Principles of Consolidation

The accompanying consolidated financial statements include our accounts and the accounts of our subsidiaries, Contravir Research Inc. and Hepion Research Corp, which conduct their operations in Canada. All intercompany balances and transactions have been eliminated in consolidation.

Immaterial Revisions

Adoption of New Accounting Standard

On January 1, 2021, we adopted ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). The amendments in ASU No. 2020-06 removed the requirement that an instrument or embedded feature must permit settlement in unregistered shares in order to qualify for equity classification. The removal of this criterion allowed us to reclassify the common stock liability to equity upon adoption. In connection with the preparation of our consolidated financial statements for the year ended December 31, 2021, we determined that revisions were required to be made to previously reported balances associated with adoption of ASU 2020-06, including the cumulative effect upon adoption.

We revised the consolidated financial statements as follows: (a) reclassification of $11,673 from non-current liabilities included in Derivative financial instruments to Additional paid-in capital related to warrants previously issued in connection with our Series C convertible preferred stock in 2018 that were recorded as liabilities and are reclassified to equity upon adoption of ASU 2020-06; (b) reversal of $10,911 of corresponding changes in fair value for liability classified warrants in (a) above recorded through September 30, 2021; (c) reclassification of $4,529,980 representing an increase to additional paid-in capital and offset to accumulated deficit related to historical changes in fair value of liability classified warrants, offset by the initial allocation of offering costs recorded as an expense at the time of issuance in 2018; (d) above from issuance through September 30, 2021 net of original issuance costs that were allocated to the previously classified liability warrants; (d) reversal of $5,816 for the 2021 accretion of a discount for our previously issued Series C convertible preferred stock is no longer required with the adoption of ASU 2020-06; and (e) reclassification of $7,844,643 representing a beneficial conversion feature related to our previously issued Series A and B convertible preferred stock previously recorded as a deemed dividend in accumulated deficit that is being reclassified from accumulated deficit to additional paid-in capital.

The above revisions did not have a material impact on the consolidated statement of operations or statement of cash flows. We assessed the materiality of the misstatements both quantitatively and qualitatively and determined the revisions of these errors to be immaterial to all prior consolidated financial statements taken as a whole and, therefore, amending previously filed reports to correct for the immaterial errors was not required. We have included a line item titled “adoption of new accounting standard” in the consolidated statement of changes in stockholders’ equity for the year ended December 31, 2021 that includes the cumulative effect on adoption of the above revisions.

The following tables present the amounts as reported, net revisions, and as revised amounts for the immaterial revisions to previously reported amounts which are which is shown in the following tables:

	For the Three Months Ended March 31, 2021
	As Reported	Revisions	As Revised
Series C convertible preferred stock	851,607	(5,287)	846,320
Additional paid-in capital	226,022,287	(3,309,376)	222,712,911
Net loss	(6,057,306)	(6,211)	(6,063,517)
Accumulated deficit	(110,162,769)	3,320,124	(106,842,645)
Total stockholders' equity	117,574,556	5,461	117,580,017

	For the Three Months Ended June 30, 2021
	As Reported	Revisions	As Revised
Series C convertible preferred stock	851,607	(5,287)	846,320
Additional paid-in capital	226,834,239	(3,309,376)	223,524,863
Net loss	(7,665,161)	(1,944)	(7,667,105)
Accumulated deficit	(117,827,930)	3,318,180	(114,509,750)
Total stockholders' equity	110,721,347	3,517	110,724,864

	For the Three Months Ended September 30, 2021
	As Reported	Revisions	As Revised
Series C convertible preferred stock	851,136	(5,816)	845,320
Additional paid-in capital	228,023,085	(3,308,847)	224,714,238
Net loss	(9,266,717)	(2,756)	(9,269,473)
Accumulated deficit	(127,094,647)	3,315,424	(123,779,223)
Total stockholders' equity	102,643,005	761	102,643,766

Income Taxes

During the year ended December 31 2021, we performed an Internal Revenue Code Section 382 analysis of our historical net operating loss ("NOL") carry-forward amounts. As more fully disclosed in Note 10, our NOLs may become subject to an annual limitation under Section 382. In connection with our September 30, 2021 Form 10-Q, we previously disclosed that we performed a study through September 30, 2021 and concluded that we have experienced ownership changes since inception through September 30, 2021 that we believe will result in limitations on our ability to use certain pre-ownership change NOLs and credits. We updated our study through the fourth quarter of 2021 and concluded that there were no additional limitations identified.

The following tables present the amounts as reported, revisions, and as revised amounts for note disclosures affected by the immaterial revisions for the years ended December 31, 2020 and 2019:

	Year ended December 31, 2020						Year ended December 31, 2019
	As Reported		Revisions		As Revised		As Reported		Revisions		As Revised
Federal NOL	$	19,665,840	$	(11,279,909)	$	8,385,931	$	16,812,626	$	(12,056,292)	$	4,756,334
State NOL	4,497,069		(3,697,061)		800,008		2,439,015		—		2,439,015
Research and development credits	2,099,921		(1,596,515)		503,406		1,350,305		(1,178,674)		171,631
Lease liability	172,674		—		172,674		242,234		—		242,234
Stock compensation and other	1,108,314		—		1,108,314		889,167		—		889,167
Deferred tax asset valuation allowance	(26,812,522)		16,573,485		(10,239,037)		(20,945,997)		13,234,966		(7,711,031)
Total deferred tax asset	731,296		—		731,296		787,350		—		787,350
Deferred tax liability (In process R&D)	(957,000)		—		(957,000)		(957,000)		—		(957,000)
Right-of-use asset	(183,318)		—		(183,318)		(239,372)		—		(239,372)
Total deferred tax liability	(1,140,318)		—		(1,140,318)		(1,196,372)		—		(1,196,372)
Net deferred tax liability	$	(409,022)	$	—	$	(409,022)	$	(409,022)	$	—	$	(409,022)

In addition, certain disclosures of gross NOLs that are included in the Income Tax Note disclosure in our 2020 Annual Report on Form 10-K are updated as follows to reflect the changes to the gross NOLs as a result of the above revisions.

As of December 31, 2020 and 2019, we had U.S. federal and state net operating loss carryforwards of $49.6 million and $56.8 million, respectively, which may be available to offset future income tax liabilities and will begin to expire at various dates starting in December 2037.

Liquidity

As of December 31, 2021, we had $91.3 million in cash, an accumulated deficit of $133.5 million, and working capital of $89.2 million. For the year ended December 31, 2021, cash used in operating activities was $31.2 million and we had a net loss of $32.7 million. We have not generated revenue to date and have incurred substantial losses and negative cash flows from operations since our inception. We have historically funded our operations through issuances of convertible debt, common stock and preferred stock. We expect to continue to incur losses for the next several years as we expand our research, development and clinical trials of Rencofilstat. We are unable to predict the extent of any future losses or when we will become profitable, if at all. We believe that our cash and cash equivalents balances are sufficient to fund our anticipated operating cash requirements for more than one year from the date of issuance of these consolidated financial statements. These consolidated financial statements have been prepared under the assumption that we will continue as a going concern.

We will be required to raise additional capital in a future year to continue the development and commercialization of current product candidates and to continue to fund operations at the current cash expenditure levels. We cannot be certain that additional funding will be available on acceptable terms, or at all. To the extent that we raise additional funds by issuing equity securities, our stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that impact our ability to conduct business. If we are unable to raise additional capital when required or on acceptable terms, we may have to (i) significantly delay, scale back or discontinue the development and/or commercialization of one or more product candidates; (ii) seek collaborators for product candidates at an earlier stage than otherwise would be desirable and on terms that are less favorable than might otherwise be available; or (iii) relinquish or otherwise dispose of rights to technologies, product candidates or products that we would otherwise seek to develop or commercialize on unfavorable terms.

COVID-19 Pandemic

The COVID-19 outbreak in the United States has caused significant business disruption. The extent of the impact of COVID-19 on our future operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, and impact on our clinical trials, employees and vendors, all of which are uncertain and cannot be predicted. At this point, the extent to which COVID-19 may impact our future financial condition or results of operations is uncertain. While there has not been a material impact on our consolidated financial statements for the year ended December 31, 2021, a prolonged outbreak could have a material adverse impact on our financial results and business operations, including the timing and our ability to complete certain clinical trials and other efforts required to advance the development of our product candidate and raise additional capital.

In March, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was signed into law, as amended on June 5, 2020 by the Paycheck Protection Program (“PPP”). The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. On April 13, 2020, we were granted a loan (the “Loan”) from JPMorgan Chase Bank, N.A. in the aggregate amount of $0.2 million, pursuant to the PPP under Division A, Title I of the CARES Act and bears interest at a rate of 0.98% per annum. In June 2021, the Loan plus interest was repaid in full.