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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 20212022
Or
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                           to                           
Commission File Number 001-36856
hepa-20220930_g1.jpg
HEPION PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
46-2783806
(I.R.S. Employer
Identification Number)
399 Thornall Street, First Floor
Edison, New Jersey 08837
(Address of Principal Executive Offices)
(732) 902-4000
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.0001 per shareHEPAThe Nasdaq Capital Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes  No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.:
Large accelerated filer
Accelerated filer
Non-accelerated filer 
Smaller reporting company ☒Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 
The number of shares of the registrant’s Common Stock outstanding as of November 11, 20219, 2022 was 76,225,254.76,229,617.



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HEPION PHARMACEUTICALS, INC.
FORM 10-Q
TABLE OF CONTENTS
Page



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NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q for Hepion Pharmaceuticals, Inc. may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements are characterized by future or conditional verbs such as “may,” “will,” “expect,” “intend,” “anticipate,” believe,” “estimate” and “continue” or similar words. You should read statements that contain these words carefully because they discuss future expectations and plans, which contain projections of future results of operations or financial condition or state other forward-looking information. Such statements are only predictions and our actual results may differ materially from those anticipated in these forward-looking statements. We believe that it is important to communicate future expectations to investors. However, there may be events in the future that we are not able to accurately predict or control. Factors that may cause such differences include, but are not limited to, those discussed under Item 1A. Risk Factors and elsewhere in the audited condensed consolidated financial statements as of and for the year ended December 31, 20202021 contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2021.April 8, 2022. These factors include the uncertainties associated with product development, the risk that products that appeared promising in early clinical trials do not demonstrate safety and efficacy in larger-scale clinical trials, the risk that we will not obtain approval to market our products, the risks associated with dependence upon key personnel and the need for additional financing. We do not assume any obligation to update forward-looking statements as circumstances change and thus you should not unduly rely on these statements. Cautionary Note Regarding Forward-Looking Statements.
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PART I—FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
HEPION PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30,
2021
December 31,
2020
September 30,
2022
December 31,
2021
(Note 2)
AssetsAssetsAssets
Current assets:Current assets:Current assets:
CashCash$98,731,233 $40,726,838 Cash$59,145,193 $91,348,967 
Prepaid expensesPrepaid expenses6,769,045 1,907,461 Prepaid expenses6,524,337 6,102,801 
Total current assetsTotal current assets105,500,278 42,634,299 Total current assets65,669,530 97,451,768 
Property and equipment, netProperty and equipment, net176,188 108,440 Property and equipment, net82,986 152,772 
Right-of-use assetsRight-of-use assets369,165 556,492 Right-of-use assets100,241 303,689 
In-process research and developmentIn-process research and development3,190,000 3,190,000 In-process research and development3,190,000 3,190,000 
GoodwillGoodwill1,870,924 1,870,924 Goodwill— 1,870,924 
Other assetsOther assets495,180 285,098 Other assets654,521 583,326 
Total assetsTotal assets$111,601,735 $48,645,253 Total assets$69,697,278 $103,552,479 
Liabilities and Stockholders’ EquityLiabilities and Stockholders’ EquityLiabilities and Stockholders’ Equity
Current liabilities:Current liabilities:Current liabilities:
Accounts payableAccounts payable$1,793,522 $3,722,429 Accounts payable$2,626,577 $2,445,837 
Accrued expensesAccrued expenses2,211,009 659,572 Accrued expenses4,757,159 2,505,625 
Operating lease liabilities, currentOperating lease liabilities, current285,280 279,826 Operating lease liabilities, current105,578 266,650 
Short-term portion of contingent considerationShort-term portion of contingent consideration2,792,546 — Short-term portion of contingent consideration— 2,988,284 
Total current liabilitiesTotal current liabilities7,082,357 4,661,827 Total current liabilities7,489,314 8,206,396 
Contingent considerationContingent consideration1,367,454 2,570,000 Contingent consideration2,540,000 1,891,716 
Long-term debt— 176,585 
Deferred tax liabilityDeferred tax liability409,022 409,022 Deferred tax liability409,022 409,022 
Operating lease liabilities, non-currentOperating lease liabilities, non-current99,135 295,755 Operating lease liabilities, non-current— 50,342 
Derivative financial instruments, at estimated fair value—warrants762 11,673 
Total liabilitiesTotal liabilities8,958,730 8,124,862 Total liabilities10,438,336 10,557,476 
Commitments and contingencies (Note 11)00
Stockholders’ equity:
Series A convertible preferred stock, stated value $10 per share, 85,581 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively855,808 855,808 
Series C convertible preferred stock, stated value $1,000 per share, 1,806 and 1,817 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively851,136 856,320 
Common stock—$0.0001 par value per share; 120,000,000 shares authorized, 76,225,254 and 32,025,153 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively7,623 3,203 
Commitments and contingenciesCommitments and contingencies
Stockholders' equity:Stockholders' equity:
Series A convertible preferred stock, stated value $10 per share, 85,581 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectivelySeries A convertible preferred stock, stated value $10 per share, 85,581 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively855,808 855,808 
Series C convertible preferred stock, stated value $1,000 per share, 1,801 and 1,806 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectivelySeries C convertible preferred stock, stated value $1,000 per share, 1,801 and 1,806 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively840,320 845,320 
Common stock—$0.0001 par value per share; 120,000,000 shares authorized, 76,229,617 and 76,225,254 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectivelyCommon stock—$0.0001 par value per share; 120,000,000 shares authorized, 76,229,617 and 76,225,254 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively7,623 7,623 
Additional paid-in capitalAdditional paid-in capital228,023,085 142,910,523 Additional paid-in capital226,535,396 224,787,547 
Accumulated other comprehensive lossAccumulated other comprehensive loss(90,335)— 
Accumulated deficitAccumulated deficit(127,094,647)(104,105,463)Accumulated deficit(168,889,870)(133,501,295)
Total stockholders’ equity102,643,005 40,520,391 
Total liabilities and stockholders’ equity$111,601,735 $48,645,253 
Total stockholders' equityTotal stockholders' equity59,258,942 92,995,003 
Total liabilities and stockholders' equityTotal liabilities and stockholders' equity$69,697,278 $103,552,479 
The accompanying notes are an integral part of these condensed consolidated financial statements (unaudited).
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HEPION PHARMACEUTICALS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)

Three Months Ended
September 30,
Nine Months Ended
September 30,
Three Months Ended
September 30,
Nine Months Ended
September 30,
20212020202120202022202120222021
RevenuesRevenues$— $— $— $— Revenues$— $— $— $— 
Costs and expenses:
Cost and expenses:Cost and expenses:
Research and developmentResearch and development5,800,464 3,782,505 13,485,061 9,370,176 Research and development5,740,122 5,800,464 25,753,211 13,485,061 
General and administrativeGeneral and administrative2,716,892 2,448,489 7,918,357 5,823,169 General and administrative2,725,204 2,716,892 9,962,704 7,918,357 
Total operating expensesTotal operating expenses8,517,356 6,230,994 21,403,418 15,193,345 Total operating expenses8,465,326 8,517,356 35,715,915 21,403,418 
Loss from operationsLoss from operations(8,517,356)(6,230,994)(21,403,418)(15,193,345)Loss from operations(8,465,326)(8,517,356)(35,715,915)(21,403,418)
Other income (expense):Other income (expense):Other income (expense):
Interest expenseInterest expense(2,131)(16,159)(6,677)(16,159)Interest expense(2,265)(2,131)(7,652)(6,677)
Change in fair value of derivative instruments-warrants and contingent consideration(747,230)(46,433)(1,579,089)(155,208)
Change in fair value of contingent considerationChange in fair value of contingent consideration(80,000)(749,986)334,992 (1,590,000)
Loss before income taxesLoss before income taxes(9,266,717)(6,293,586)(22,989,184)(15,364,712)Loss before income taxes(8,547,591)(9,269,473)(35,388,575)(23,000,095)
Income tax benefit (expense)Income tax benefit (expense)— 62,044 — (33,527)Income tax benefit (expense)— — — — 
Net loss and comprehensive loss(9,266,717)(6,231,542)(22,989,184)(15,398,239)
Preferred stock deemed dividend (see Note 5)(529)(5,287)(5,816)(5,287)
Net loss attributable to common shareholders$(9,267,246)$(6,236,829)$(22,995,000)$(15,403,526)
Net lossNet loss$(8,547,591)$(9,269,473)$(35,388,575)$(23,000,095)
Weighted average common shares outstanding:
Weighted-average common shares outstanding:Weighted-average common shares outstanding:
Basic and dilutedBasic and diluted76,225,249 9,025,139 68,291,894 7,294,790 Basic and diluted76,229,617 76,225,249 76,229,380 68,291,894 
Net loss per common share: (see Note 10)Net loss per common share: (see Note 10)Net loss per common share: (see Note 10)
Basic and dilutedBasic and diluted$(0.12)$(0.69)$(0.34)$(2.11)Basic and diluted$(0.11)$(0.12)$(0.46)$(0.34)









The accompanying notes are an integral part of these condensed consolidated financial statements (unaudited).


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HEPION PHARMACEUTICALS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Stockholders’ EquityComprehensive Loss
(Unaudited)

Preferred StockPreferred StockAdditional Paid in CapitalAccumulated DeficitTotal Stockholders' Equity
Series ASeries CCommon Stock
SharesAmountSharesAmountSharesAmount
Balance at December 31, 202085,581 $855,808 1,817 $856,320 32,025,153 $3,203 $142,910,523 $(104,105,463)$40,520,391 
Net loss— — — — — — — (6,057,306)(6,057,306)
Stock-based compensation expense— — — — — — 957,871 — 957,871 
Conversion of preferred stock to common— — (10)(10,000)92 — 10,000 — — 
Accretion of discount - preferred stock conversion— — — 5,287 — — (5,287)— — 
Issuance of common stock, net— — — — 44,200,000 4,420 82,149,180 — 82,153,600 
Balance at March 31, 202185,581 855,808 1,807 851,607 76,225,245 7,623 226,022,287 (110,162,769)117,574,556 
Net loss— — — — — — — (7,665,161)(7,665,161)
Stock-based compensation expense— — — — — — 811,952 — 811,952 
Balance at June 30, 202185,581 855,808 1,807 851,607 76,225,245 7,623 226,834,239 (117,827,930)110,721,347 
Net loss— — — — — — — (9,266,717)(9,266,717)
Stock-based compensation expense— — — — — — 1,188,375 — 1,188,375 
Conversion of preferred stock to common— — (1)(1,000)— 1,000 — — 
Accretion of discount - preferred stock conversion— — — 529 — — (529)— — 
Balance at September 30, 202185,581 $855,808 1,806 $851,136 76,225,254 $7,623 $228,023,085 $(127,094,647)$102,643,005 
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022202120222021
Net loss$(8,547,591)$(9,269,473)$(35,388,575)$(23,000,095)
Other comprehensive loss:
Foreign currency translation(60,368)— (90,335)— 
Total other comprehensive loss(60,368)— (90,335)— 
Comprehensive loss$(8,607,959)$(9,269,473)$(35,478,910)$(23,000,095)








The accompanying notes are an integral part of these condensed consolidated financial statements (unaudited).
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HEPION PHARMACEUTICALS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited)

Preferred StockPreferred StockAdditional Paid in CapitalAccumulated DeficitTotal Stockholders’ Equity 
Series ASeries CCommon Stock
SharesAmountSharesAmountSharesAmount
Balance at December 31, 201985,581 $855,808 1,827 $861,033 3,760,255 $375 $97,651,006 $(83,751,525)$15,616,697 
Net loss— — — — — — — (4,226,617)(4,226,617)
Stock-based compensation expense— — — — — — 8,246 — 8,246 
Issuance of common stock, net— — — — 2,311,867 231 6,788,234 — 6,788,465 
Warrant exercises— — — — 2,000 — 12,000 — 12,000 
Balance at March 31, 202085,581 855,808 1,827 861,033 6,074,122 606 104,459,486 (87,978,142)18,198,791 
Net loss— — — — — — — (4,940,080)(4,940,080)
Stock-based compensation expense— — — — — — 4,123 — 4,123 
Issuance of common stock, net— — — — 2,950,939 295 4,460,054 — 4,460,349 
Balance at June 30, 202085,581 855,808 1,827 861,033 9,025,061 901 108,923,663 (92,918,222)17,723,183 
Net loss— — — — — — — (6,231,542)(6,231,542)
Stock-based compensation expense— — — — — — 1,381,165 — 1,381,165 
Conversion of preferred stock to common— — (10)(10,000)92 — 10,000 — — 
Accretion of discount - preferred stock conversion— — — 5,287 — — (5,287)— — 
Balance at September 30, 202085,581 $855,808 1,817 $856,320 9,025,153 $901 $110,309,541 $(99,149,764)$12,872,806 




















The accompanying notes are an integral part of these condensed consolidated financial statements (unaudited).
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HEPION PHARMACEUTICALS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited)

Preferred StockPreferred StockAdditional Paid in CapitalAccumulated other Comprehensive Income (Loss)Accumulated DeficitTotal Stockholders' Equity
Series ASeries CCommon Stock
SharesAmountSharesAmountSharesAmount
Balance at December 31, 202185,581 $855,808 1,806 $845,320 76,225,254 $7,623 $224,787,547 $— $(133,501,295)$92,995,003 
Net loss— — — — — — — — (6,929,685)(6,929,685)
Other comprehensive income (loss)— — — — — — — 9,146 — 9,146 
Stock-based compensation expense— — — — — — 556,610 — — 556,610 
Conversion of Series C to common— — (5)(5,000)46 — 5,000 — — — 
Issuance of common stock, net— — — — 4,317 — 5,008 — — 5,008 
Balance at March 31, 202285,581 855,808 1,801 840,320 76,229,617 7,623 225,354,165 9,146 (140,430,980)86,636,082 
Net loss— — — — — — — — (19,911,299)(19,911,299)
Other comprehensive income (loss)— — — — — — — (39,113)— (39,113)
Stock-based compensation expense— — — — — — 634,651 — — 634,651 
Balance at June 30, 202285,581 855,808 1,801 840,320 76,229,617 7,623 225,988,816 (29,967)(160,342,279)67,320,321 
Net loss— — — — — — — — (8,547,591)(8,547,591)
Other comprehensive income (loss)— — — — — — — (60,368)— (60,368)
Stock-based compensation expense— — — — — — 546,580 — — 546,580 
Balance at September 30, 202285,581 $855,808 1,801 $840,320 76,229,617 $7,623 $226,535,396 $(90,335)$(168,889,870)$59,258,942 







The accompanying notes are an integral part of these condensed consolidated financial statements (unaudited).
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HEPION PHARMACEUTICALS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited)

Preferred StockPreferred StockAdditional Paid in CapitalAccumulated other Comprehensive Income (Loss)Accumulated DeficitTotal Stockholders’ Equity 
Series ASeries CCommon Stock
SharesAmountSharesAmountSharesAmount
Balance at December 31, 202085,581 $855,808 1,817 $856,320 32,025,153 $3,203 $142,910,523 $— $(104,105,463)$40,520,391 
Adoption of new accounting standard— — — — — — (3,314,663)— 3,326,335 11,672 
Net loss— — — — — — — — (6,063,517)(6,063,517)
Other comprehensive income (loss)— — — — — — — — — — 
Stock-based compensation expense— — — — — — 957,871 — — 957,871 
Conversion of Series C to common— — (10)(10,000)92 — 10,000 — — — 
Issuance of common stock, net— — — — 44,200,000 4,420 82,149,180 — — 82,153,600 
Balance at March 31, 202185,581 855,808 1,807 846,320 76,225,245 7,623 222,712,911 $— (106,842,645)117,580,017 
Net loss— — — — — — — — (7,667,105)(7,667,105)
Other comprehensive income (loss)— — — — — — — — — — 
Stock-based compensation expense— — — — — — 811,952 — — 811,952 
Balance at June 30, 202185,581 855,808 1,807 846,320 76,225,245 7,623 223,524,863 — (114,509,750)110,724,864 
Net loss— — — — — — — — (9,269,473)(9,269,473)
Other comprehensive income (loss)— — — — — — — — — — 
Stock-based compensation expense— — — — — — 1,188,375 — — 1,188,375 
Conversion of Series C to common— — (1)(1,000)— 1,000 — — — 
Balance at September 30, 202185,581 $855,808 1,806 $845,320 76,225,254 $7,623 $224,714,238 $— $(123,779,223)$102,643,766 









The accompanying notes are an integral part of these condensed consolidated financial statements (unaudited).
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HEPION PHARMACEUTICALS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)

Nine Months Ended
September 30,
Nine Months Ended
September 30,
2021202020222021
Cash flows from operating activities:Cash flows from operating activities:Cash flows from operating activities:
Net lossNet loss$(22,989,184)$(15,398,239)Net loss$(35,388,575)$(23,000,095)
Adjustments to reconcile net loss to net cash used in operating activities:Adjustments to reconcile net loss to net cash used in operating activities:Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensationStock-based compensation3,821,295 1,393,534 Stock-based compensation2,320,793 3,821,295 
Depreciation and amortization62,658 20,933 
Change in fair value of derivative instrument-warrants(10,911)25,208 
DepreciationDepreciation58,985 62,658 
Change in fair value of contingent considerationChange in fair value of contingent consideration1,590,000 130,000 Change in fair value of contingent consideration(334,992)1,590,000 
Impairment of goodwillImpairment of goodwill1,870,924 — 
Changes in operating assets and liabilities:Changes in operating assets and liabilities:Changes in operating assets and liabilities:
Accounts payable and accrued expensesAccounts payable and accrued expenses(1,240,567)2,337,919 Accounts payable and accrued expenses1,849,760 (1,240,567)
Right of use assetRight of use asset203,448 187,327 
Operating lease liabilityOperating lease liability(211,414)(191,166)
Prepaid expenses and other assetsPrepaid expenses and other assets(5,075,505)(149,149)Prepaid expenses and other assets(532,599)(5,071,666)
Net cash used in operating activitiesNet cash used in operating activities(23,842,214)(11,639,794)Net cash used in operating activities(30,163,670)(23,842,214)
Cash flows from investing activities:Cash flows from investing activities:Cash flows from investing activities:
Purchase of property and equipment(130,406)(11,437)
Purchases of property and equipmentPurchases of property and equipment— (130,406)
Proceeds from disposal of property and equipmentProceeds from disposal of property and equipment— 2,194 Proceeds from disposal of property and equipment2,266 — 
Net cash used in investing activities(130,406)(9,243)
Net cash provided by (used in) investing activitiesNet cash provided by (used in) investing activities2,266 (130,406)
Cash flows from financing activities:Cash flows from financing activities:Cash flows from financing activities:
Proceeds from the issuance of common stock, net of issuance costsProceeds from the issuance of common stock, net of issuance costs82,153,600 11,248,814 Proceeds from the issuance of common stock, net of issuance costs— 82,153,600 
Proceeds from debt financing— 176,585 
Contingent consideration milestone paymentContingent consideration milestone payment(2,000,000)— 
Repayment of debt financingRepayment of debt financing(176,585)— Repayment of debt financing— (176,585)
Proceeds from the exercise of warrants— 12,000 
Net cash provided by financing activities81,977,015 11,437,399 
Net increase in cash58,004,395 (211,638)
Net cash (used in) provided by financing activitiesNet cash (used in) provided by financing activities(2,000,000)81,977,015 
Effect of exchange rates on cashEffect of exchange rates on cash(42,370)— 
Net (decrease) increase in cashNet (decrease) increase in cash(32,203,774)58,004,395 
Cash at beginning of periodCash at beginning of period40,726,838 13,922,972 Cash at beginning of period91,348,967 40,726,838 
Cash at end of periodCash at end of period$98,731,233 $13,711,334 Cash at end of period$59,145,193 $98,731,233 
Supplementary disclosure of cash flow information:Supplementary disclosure of cash flow information:Supplementary disclosure of cash flow information:
Cash paid for interestCash paid for interest$2,024 $— Cash paid for interest$941 $2,024 
Supplementary disclosure of non-cash financing activities:Supplementary disclosure of non-cash financing activities:Supplementary disclosure of non-cash financing activities:
Conversion of Series C convertible preferred stock (part of Series C deemed dividend)$11,000 $10,000 
Accretion of Series C preferred stock discount upon conversion$5,816 $5,287 
Warrants issued to placement agent$2,013,055 $— 
Conversion of Series C convertible preferred stockConversion of Series C convertible preferred stock$5,000 $11,000 
Issuance of common stock in conjunction with milestone paymentIssuance of common stock in conjunction with milestone payment5,008 — 
Fair value of warrants issued to placement agentFair value of warrants issued to placement agent— 2,013,055 
Adoption of new accounting standardAdoption of new accounting standard— 11,672 



The accompanying notes are an integral part of these condensed consolidated financial statements (unaudited).
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HEPION PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Business Overview
Hepion Pharmaceuticals, Inc. (we, our, or us) is a biopharmaceutical company headquartered in Edison, New Jersey, focused on the development of drug therapy for treatment of chronic liver diseases. This therapeutic approach targets fibrosis, inflammation, and shows potential for the treatment of hepatocellular carcinoma (“HCC”) associated with non-alcoholic steatohepatitis (“NASH”), viral hepatitis, and other liver diseases. Our cyclophilin inhibitor, CRV431,Rencofilstat (formerly CRV431), is being developed to offer benefits to address these multiple complex pathologies. CRV431pathologies related to advanced liver disease. Rencofilstat is a cyclophilin inhibitor that targets multiple pathologic pathways involved in the progression of liver disease. Preclinical studies with CRV431 in NASH models demonstrated consistent reductions in liver fibrosis and additional reductions in inflammation and cancerous tumors in some studies. CRV431 additionally showed in vitro antiviral activity towards hepatitis B, C, and D viruses which also trigger liver disease. Preclinical studies also have shown potentially therapeutic activities of CRV431 in experimental models of acute lung injury, platelet activation, and SARS-CoV-2 coronavirus replication.
We are developing CRV431Rencofilstat as our lead molecule. CRV431Rencofilstat is a compound that binds and inhibits the function of a specific class of isomerase enzymes called cyclophilins that regulate protein folding. Many closely related isoforms of cyclophilins exist in humans. Cyclophilins A, B, and D are the best characterized cyclophilin isoforms. Inhibition of cyclophilins has been shown in the scientific literature to have therapeutic effects in a variety of experimental models, including liver disease models. In preclinical in vitro and/or in vivo experiments to date CRV431 decreased liver fibrosis, liver inflammation, liver tumors, and titers of HBV, HCV, HDV, and HIV-1. Importantly, reduction in liver fibrosis by CRV431 was observed in vivo in several experimental models and studies of NASH and liver fibrosis. Findings to date suggest that CRV431 might treat certain inciting agents of liver disease such as hepatitis viruses and also the ensuing disease processes resulting from those agents such as fibrosis.
On May 10, 2018, we submitted an Investigational New Drug Application (“IND”) to the U.S. Food and Drug Administration (“FDA”) to support initiation of our CRV431Rencofilstat HBV clinical development program in the United States and received approval in June 2018. We completed the first segment of our Phase 1 clinical activities for CRV431Rencofilstat in October 2018 wherein we reached a major clinical milestone of positive data from a Phase I trial of CRV431Rencofilstat in humans. This achievement triggered the first milestone payment, as stated in the Merger AgreementMay 26, 2016 acquisition agreement between the Company and Ciclofilin Pharmaceuticals, Inc. (“Ciclofilin”) (the “Merger Agreement") for the acquisition of Ciclofilin Pharmaceuticals, Inc. (“Ciclofilin”) and we paid a related milestone payment of approximately $0.3 million to Aurinia Pharmaceuticals, Inc. ("Aurinia") and $0.7 million to the former Ciclofilin shareholders along with the issuance of 1,439 shares of our common stock with a fair value of $0.1 million, representing 2.5% of our issued and outstanding common stock as of June, 2016, to the former Ciclofilin shareholders. Our CEO is a former Ciclofilin shareholder and received approximately $0.3 million and 603 shares of common stock and Petrus Wijngaard, a director of our company, received $2,805 and 6 shares of common stock.
Additional milestone payments could potentially be payableThe Merger Agreement was amended on January 14, 2022 for the following: (i) upon receipt of Phase II positive data from the first Phase II clinical trial of Rencofilstat in NASH patients which has been achieved: (1) such number of validly issued, fully paid and non-assessable shares of our common stock equal to 7.5% of the formerissued and outstanding of our common stock on the Closing Date as defined in the original agreement, which 4,317 was issued in March 2022, and (2) a payment of $2.0 million, made in January 2022 to Ciclofilin shareholders, pursuantincluding a payment to our CEO of $0.8 million and other Hepion employees of $0.2 million, (ii) a payment of $1.0 million upon the Ciclofilin Merger Agreement as follows: (i)positive read out of the first planned interim futility analysis of a Phase IIb clinical trial of Rencofilstat in NASH patients, supporting the continuation of the Phase IIb trial. The original agreement required a $3.0 million payment upon receipt of Phase II positive data from a proof-of-concept clinical trial of CRV431, in humans - 4,317 shares(iii) a payment of common stock and $3.0$5.0 million (ii) upon initiation of athe first Phase III trial of CRV431 -Rencofilstat in patients, where initiation occurs with first patient in the study dosed with study medication, which remains unchanged from the original agreement, (iv) a payment of $5.0 million upon the filing and (iii) upon acceptance by the FDAU.S. Food and Drug Administration of athe first new drug application for CRV431 –Rencofilstat, which was $8.0 million. In addition, on February 14, 2014, Ciclofilin had entered intomillion in the original agreement; and (v) a Purchasepayment of $8.0 million upon the regulatory approval by the U.S. Food and Sale Agreement to acquire Aurinia’s entire interest in CRV431. This agreement contains future milestone payments payable by us based on clinical and marketing milestones of up to CAD $2.45 million. The milestone payments payable to the former Ciclofilin shareholders will be subject to offset by certainDrug Administration of the clinical and marketing milestone payments payable to Aurinia as follows: (a) the payments to the former Ciclofilin shareholders pursuant to (ii) above would be offset by payment to Aurinia of CAD $0.5 million, and (b) the payments to the former Ciclofilin shareholders pursuant to (iii) above would be subject to offset by payment to Aurinia of up to CAD $2.0 million. In addition to the above clinical and milestone payments, the Aurinia Agreement providesfirst new drug application for the following additional contingent payment obligations: (x) a royalty of 2.5% on net sales of CRV431 which is uncapped, (y) a royalty of 5% on license revenue from CRV431 and (z) a payment equal to 30% of the proceeds from a Liquidity Event (as defined in the Purchase and Sale Agreement) with respect to Ciclofilin, of which approximately $0.2 million plus interest will be owed. The maximum obligation under both (y) and (z) is CAD $5.0 million.Rencofilstat.
On June 17, 2019, we submitted an IND to the FDA to support initiation of our CRV431Rencofilstat NASH clinical development program in the United States and received approval in July 2019. We completed dosing of CRV431Rencofilstat in our multiple ascending dose (“MAD’MAD") clinical trial in September 2020.
On July 13, 2021, we announced positive topline results from our Phase 2a "Ambition""AMBITION" NASH clinical trial. All primary endpoints of the trial were met. This Phase 2a study confirmed CRV431Rencofilstat tolerability and successfully elucidated the drug dosedosing range for the upcoming Phase 2b trial.
On September 13, 2021, we announced additional positive data from the Phase 2a AMBITION trial and the initiation of the Phase 2b "ASCEND" NASH clinical trial.
On November 20, 2020, we submitted an IND to the FDA to support initiation of a Rencofilstat clinical development program in the United States for COVID-19. We received approval December 17, 2020, to conduct a COVID-19 clinical trial and are investigating potential sources of collaboration and/or funding for the trial. Effective June 15, 2022, the IND for the COVID-19 indication is in inactive status with the FDA.
On November 19, 2021, we submitted an IND to the FDA to support initiation of a Rencofilstat clinical development program in the United States for the treatment of HCC and received approval on December 17, 2021.
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On September 13,November 30, 2021, we announced additional positive data from the Phase 2a Ambition trialFDA granted Fast Track designation for our lead drug candidate, Rencofilstat, for the treatment of NASH. The FDA Fast Track designation allows sponsors to gain access to expedited drug approval reviews for medical conditions that are serious and the initiation of the Phase 2b "Ascend" NASH clinical trial.
On November 20, 2020, we submittedpotentially life-threatening, and where there is an INDunmet medical need. The program is also designed to facilitate drug development by making provisions for more frequent meetings with the FDA to support initiationdiscuss drug development plans, and Fast Track designation can lead to Accelerated Approval and/or Priority Review eligibility if certain criteria are met.
On June 20, 2022, the FDA granted Orphan Drug Designation to Rencofilstat, a liver-targeting, orally administered, novel cyclophilin inhibitor, for the treatment of a CRV431 clinical developmentHCC. The FDA Orphan Drug Designation program provides orphan status to drugs or biologics intended for the prevention, diagnosis, or treatment of diseases that affect fewer than 200,000 people in the United StatesStates. Sponsors of medicines that are granted Orphan Drug Designation are entitled to certain incentives, including tax credits for COVID-19. We received approval on December 17, 2020, to conduct a COVID-19qualified clinical trialtrials, prescription drug user-fee exemptions, and are investigating potential sources of collaboration and/or funding for the trial. To date, we have not sourced funding yet.seven-year marketing exclusivity upon FDA approval.
2. Basis of Presentation
Basis of Presentation
These unaudited condensed consolidated financial statements have been prepared following the requirements of the Securities and Exchange Commission (“SEC”) and accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim reporting. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, which include only normal recurring adjustments, necessary to present fairly our interim financial information. The consolidated balance sheet as of December 31, 20202021, was derived from the audited annual consolidated financial statements but does not include all disclosures required by U.S. GAAP. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto as of and for the year ended December 31, 20202021, contained in our Annual Report on Form 10-K filed with the SEC on March 31, 2021.April 8, 2022.
Principles of Consolidation
The accompanying condensed 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 Revision
In 2021, we performed an Internal Revenue Code Section 382 analysis of our historical net operating loss ("NOL") carry-forward amounts. As a result, the NOL carry-forward amounts for December 31, 2020 and 2019 were determined to be limited. See Note 3, Income Taxes.
Liquidity
As of September 30, 2021,2022, we had $98.7$59.1 million in cash, an accumulated deficit of $127.1$168.9 million, and working capital of $98.4$58.2 million. For the nine months ended September 30, 2021,2022, cash used in operating activities was $23.8$30.2 million and we had a net loss of $23.0$35.4 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 CRV431.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 condensed consolidated financial statements. These condensed 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 future years to continue the development and commercialization of our current product candidatescandidate 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
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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 condensed consolidated financial statements for the three and nine months ended September 30, 2021,2022, a prolongedcontinued 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 relatingAlthough we have data 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.suggest Rencofilstat may be beneficial in the aggregate amounttreatment of $0.2 million, pursuant toCOVID-19 and other viral infections (e.g., HBV), the PPP under Division A, Title Imain focus of our company is currently on liver disease. We may, at some point, re-visit the CARES Act and bears interest at a rate of 0.98% per annum. In June 2021,antiviral indications should the Loan plus interest was repaid in full.opportunity arise (e.g., external funding/collaboration).
3. Summary of Significant Accounting Policies
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of expenses during the reporting period. Changes in estimates and assumptions are reflected in reported results in the period in which they become known. Actual results could differ from those estimates.
Our significant accounting policies are disclosed in the audited consolidated financial statements for the year ended December 31, 20202021, included in our Annual Report on Form 10-K. Since the date of such consolidated financial statements, there have been no changes to our significant accounting policies.
Cash
As of September 30, 20212022 and December 31, 2020,2021, cash was $98.7$59.1 million and $40.7$91.3 million, respectively, consisting of checking accounts held at U.S. and Canadian commercial banks. Cash is maintained atAt certain times, our cash balances with any one financial institutions and, at times, balancesinstitution may exceed federally insuredFederal Deposit Insurance Corporation insurance limits. We believe it mitigates our risk by depositing our cash balances with high credit, quality financial institutions. We have never experienced losses related to these balances.
Fair Value of Financial Instruments
Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurement (“ASC 820”), establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and our own assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of us. Unobservable inputs are inputs that reflect our assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances.
ASC 820 identifies fair value as the exchange price, or exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As a basis for considering market participant assumptions in fair value measurements, ASC Topic 820 establishes a three-tier fair value hierarchy that distinguishes among the following:
Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that we can access.
Level 2—Valuations based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and models for which all significant inputs are observable, either directly or indirectly.
Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by us in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
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Financial instruments consist of cash, and accounts payable, long-term debt, derivative instruments including warrants and contingent consideration. These financial instruments are stated at their respective historical carrying amounts, which approximate fair value due to their short-term nature, except for derivative instruments including warrants and contingent consideration, which wereis recorded at fair value at the end of each reporting period. See Note 5 for additional information of the fair value of the derivative liabilities. We recorded contingent
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consideration from the 2016 acquisition of Ciclofilin, which is required to be carried at fair value. See Note 65 for additional information on the fair value of the contingent consideration.
Derivative Financial Instruments
We issued common stock warrants in connection with the execution of certain equity financings. The fair value of the warrants, which were deemed to be derivative instruments based on certain contingent put features, was recorded as a derivative liability under the provisions of ASC Topic 815 Derivatives and Hedging (“ASC 815”) upon issuance. Subsequently, the liability is adjusted to fair value as of the end of each reporting period and the changes in the fair value of derivative liabilities are recorded in the statements of operations under the caption “Change in fair value of derivative financial instruments—warrants.” See Note 5 for additional information.
The fair value of the warrants, issued in connection with the April 2017 common stock offering was deemed to be a derivative instrument due to certain contingent put features, was determined using the Black-Scholes option pricing model, deemed to be an appropriate model due to the terms of the warrants issued, including a fixed term and exercise price.
The warrants, issued in connection with the July 2018 Rights Offering (See Note 5) are deemed to be derivative instruments since if we do not maintain an effective registration statement, we are obligated to deliver registered shares upon exercise and settlement of the warrant because there are further registration and prospectus delivery requirements that are outside our control. Therefore, the fair value of the warrants was determined using the Black-Scholes option pricing model, deemed to be an appropriate model due to the terms of the warrants issued, including a fixed term and exercise price.
The fair value of warrants is affected by changes in inputs to the Black-Scholes option pricing model including our stock price, expected stock price volatility, the contractual term, and the risk-free interest rate. This model uses Level 3 inputs, including stock price volatility, in the fair value hierarchy established by ASC 820 Fair Value Measurement. At September 30, 2021 and December 31, 2020, the fair value of all warrants was $762 and $11,673, respectively, which are classified as a long-term derivative liability on our condensed consolidated balance sheets.
Property, equipment and depreciation
As of September 30, 20212022 and December 31, 2020,2021, we had $0.2$0.1 million and $0.1$0.2 million, respectively, of property and equipment, consisting primarily of lab equipment, computer equipment, and furniture and fixtures. Expenditures for additions, renewals and improvements will be capitalized at cost. Depreciation will generally be computed on a straight-line method based on the estimated useful lives of the related assets. The estimated useful lives of the depreciable assets are 3 to 57 years. Leasehold improvements are amortized using the straight-line method over their estimated useful lives, or the remaining term of the lease, whichever is shorter. Depreciation expense for the three months ended September 30, 2021 and 2020 was $23,106 and $7,204, respectively, and was $0.1 million and $20,933 for the nine months ended September 30, 2021 and 2020, respectively. Expenditures for repairs and maintenance are charged to operations as incurred. We will periodically evaluate whether current events or circumstances indicate that the carrying value of our depreciable assets may not be recoverable. There were no adjustments to the carrying value of property and equipment at September 30, 20212022 or December 31, 2020.2021.
Goodwill and In-Process Research & Development
In accordance with ASC Topic 350, Intangibles — Goodwill and Other (“ASC Topic 350”), goodwill and acquired IPR&D are determined to have indefinite lives and, therefore, are not amortized. Instead, they are tested for impairment annually, in our fourth quarter, and between annual tests if we become aware of an event or a change in circumstances that would indicate the carrying value may be impaired.
In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-4, Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment, which eliminates Step 2 from the goodwill impairment test. The annual, or interim (if events or changes in circumstances indicate that it is more likely than not that the asset is impaired), goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit's fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects from any tax deductibletax-deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable.
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Notesthe impairment test, we may elect to Condensed Consolidated Financial Statements
(Unaudited)
The amendments also eliminateperform an assessment of qualitative factors. If this qualitative assessment indicates that it is more likely than not that the requirements for anyfair value of a reporting unit, with a zero or negativeincluding goodwill, is less than its carrying amount, or if we elect to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option to performbypass the qualitative assessment, forwe would then proceed with the quantitative impairment test. The impairment test involves comparing the fair values of the reporting units to their carrying amounts. If the carrying amount of a reporting unit exceeds its fair value, we recognize a goodwill loss in an amount equal to determine if the quantitative impairment test is necessary.any excess.
Goodwill relates to amounts that arose in connection with the acquisition of Ciclofilin. Goodwill represents the excess of the purchase price over the fair value of the net assets acquired when accounted for using the acquisition method of accounting for business combinations. We performed
Interim Assessment of Goodwill
During the six months ended June 30, 2022, increases in interest rates, higher than expected inflation in the U.S., a qualitative assessmentreduction of value of associated companies developing drug therapy for NASH along with other macroeconomic factors impacted key assumptions used to value goodwill on our balance sheet. These facts and determined that it was not more likely than notcircumstances indicate that the fair value of our reporting unitgoodwill was less than its carrying value. Thereamount at the reporting date, and therefore a quantitative fair value test was no impairment of goodwillperformed for the ninereporting unit.
We performed a trigger-based goodwill impairment test at June 30, 2022. We are a single reporting unit with an actively traded stock. As part of our impairment testing procedures for goodwill, we relied upon the observed equity premiums paid for a set of guideline merger and acquisition transactions. The application of a control premium to our closing stock price at June 30, 2022 led to an indication of fair value for our equity on a controlling, marketable basis that was less than its carrying value as of June 30, 2022. As a result, we recognized an impairment charge of $1.9 million during the three months ended SeptemberJune 30, 20212022 as general and 2020.administrative costs in our condensed consolidated statement of operations.
In-Process Research and Development ("IPR&D") acquired in a business combination is capitalized as indefinite-lived assets on our condensed consolidated balance sheets at the acquisition-date fair value. IPR&D relates to amounts that arose in connection with the acquisition of Ciclofilin. Once the project is completed, the carrying value of the IPR&D is reclassified to other intangible assets, net and is amortized over the estimated useful life of the asset. Post-acquisition research and development expenses related to the IPR&D projects are expensed as incurred. The projected discounted cash flow models used to estimate the fair values of our IPR&D assets, acquired in connection with the Ciclofilin acquisition, reflect significant assumptions regarding the estimates a market participant would make in order to evaluate a drug development asset, including: (i)
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probability of successfully completing clinical trials and obtaining regulatory approval; (ii) market size, market growth projections, and market share; (iii) estimates regarding the timing of and the expected costs to advance clinical programs to commercialization; (iv) estimates of future cash flows from potential product sales; and (v) a discount rate. These assumptions are based on significant inputs not observable in the market and thus represent Level 3 measurements within the fair value hierarchy. The use of different inputs and assumptions could increase or decrease our estimated discounted future cash flows, the resulting estimated fair values and the amounts of related impairments, if any.
The annual, or interim (if events or changes in circumstances indicate that it is more likely than not that the asset is impaired), IPR&D impairment test is performed by comparing the fair value of the asset to the asset’s carrying amount. When testing indefinite-lived intangibles for impairment, we may assess qualitative factors for its indefinite-lived intangibles to determine whether it is more likely than not that the asset is impaired. Alternatively, we may bypass this qualitative assessment for our indefinite-lived intangible asset and perform the quantitative impairment test that compares the fair value of the indefinite-lived intangible asset with the asset’s carrying amount. If IPR&D becomes impaired or is abandoned, the carrying value of the IPR&D is written down to the revised fair value with the related impairment charge recognized in the period in which the impairment occurs. If the carrying value of the asset becomes impaired as the result of unfavorable data from any ongoing or future clinical trial, changes in assumptions that negatively impact projected cash flows, or because of any other information regarding the prospects of successfully developing or commercializing our programs, we could incur significant charges in the period in which the impairment occurs.
We performed a qualitativequantitative assessment of IPR&D at September 30, 2022 and for fiscal year 2021 and determined that it was not more likely than not that the asset was not impaired. There was no impairment of IPR&D for the nine months ended September 30, 2021 and 2020.
Income Taxes
We account for income taxes under the asset and liability method. We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as for operating loss and tax credit carryforwards. We measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which we expect to recover or settle those temporary differences. We recognize the effect of a change in tax rates on deferred tax assets and liabilities in the results of operations in the period that includes the enactment date. We reduce the measurement of a deferred tax asset, if necessary, by a valuation allowance if it is more likely than not that we will not realize some or all of the deferred tax asset. We account for uncertain tax positions by recognizing the financial statement effects of a tax position only when, based upon technical merits, it is “more-likely-than-not” that the position will be sustained upon examination. Potential interest and penalties associated with unrecognized tax positions are recognized in income tax expense.
We continue to maintain a full valuation allowance for our U.S and foreign net deferred tax assets. Income tax expense for the three and nine months ended September 30, 20202022 and 2021 is related to our foreign operations.
Under the provisions of the Internal Revenue Code, ("the Code"), our NOL and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. NOL and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code of 1986, respectively, as well as similar state tax provisions. This could limit the amount of tax attributes that we can utilize annually to offset future taxable income or tax liabilities. The amount of the annual limitation, if any, will be determined based on our value immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. The utilization of these NOLs is subject to limitations based on past and future changes in our ownership pursuant to Section 382382. We completed a Section 382 study of transactions in our stock through September 30,December 31, 2021 and concluded that we have experienced ownership changes since inception that we believe under Section 382 and 383 of the Code will result in
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limitations on our ability to use certain pre-ownership change NOLs and credits. In addition, we may experience subsequent ownership changes as a result of future equity offerings or other changes in the ownership of our stock, some of which are beyond our control. As a result, the amount of the NOLs and tax credit carryforwards presented in our consolidated financial statements could be limited. Similar provisions of state tax law may also apply to limit the use of accumulated state tax attributes.
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, 2020Year ended December 31, 2019
As
Reported
RevisionsAs
Revised
As
Reported
RevisionsAs
Revised
Federal NOL$19,665,840 $(11,279,909)$8,385,931 $16,812,626 $(12,056,292)$4,756,334 
State NOL4,497,069 (3,697,061)800,008 2,439,015 — 2,439,015 
Research and development credits2,099,921 (1,596,515)503,406 1,350,305 (1,178,674)171,631 
Lease liability172,674 — 172,674 242,234 — 242,234 
Stock compensation and other1,108,314 — 1,108,314 889,167 — 889,167 
Deferred tax asset valuation allowance(26,812,522)16,573,485 (10,239,037)(20,945,997)13,234,966 (7,711,031)
Total deferred tax asset731,296 — 731,296 787,350 — 787,350 
Deferred tax liability (In process R&D)(957,000)— (957,000)(957,000)— (957,000)
Right-of-use asset(183,318)— (183,318)(239,372)— (239,372)
Total deferred tax liability(1,140,318)— (1,140,318)(1,196,372)— (1,196,372)
Net deferred tax liability$(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.
Contingencies
In the normal course of business, we are subject to loss contingencies, such as legal proceedings and claims arising out of our business that cover a wide range of matters, including, among others, government investigations, shareholder lawsuits, product and environmental liability, and tax matters. In accordance with ASC Topic 450, Accounting for Contingencies, (“ASC 450”), we record accruals for such loss contingencies when it is probable that a liability will be incurred, and the amount of loss
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can be reasonably estimated. In accordance with this guidance, we do not recognize gain contingencies until realized.
Research and Development
Research and development costs, which include expenditures in connection with an in-house research and development laboratory, salaries and staff costs, application and filing for regulatory approval of proposed products, purchased in-process research and development, license costs, regulatory and scientific consulting fees, as well as contract research, insurance and FDA consultants, are accounted for in accordance with ASC Topic 730, Research and Development, (“ASC 730”). Also, as prescribed by this guidance, patent filing and maintenance expenses are considered legal in nature and therefore classified as general and administrative expense, if any.
We do not currently have any commercial biopharmaceutical products and do not expect to have such for several years, if at all. Accordingly, our research and development costs are expensed as incurred. While certain of our research and development costs may have future benefits, our policy of expensing all research and development expenditures is predicated on the fact that we have no history of successful commercialization of product candidates to base any estimate of the number of future periods that would be benefited.
Also as prescribed by ASC 730, non-refundable advance payments for goods or services that will be used or rendered for future research and development activities should be deferred and capitalized. As the related goods are delivered or the services are performed, or when the goods or services are no longer expected to be provided, the deferred amounts would be
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(Unaudited)
recognized as an expense. At September 30, 20212022 and December 31, 2020,2021, we had prepaid research and development costs of $6.4$6.2 million and $1.8$5.9 million, respectively.
Share-based payments
ASC Topic 718, “Compensation—Compensation—Stock Compensation”Compensation (“ASC 718”), requires companies to measure the cost of employee and non-employee services received in exchange for the award of equity instruments based on the estimated fair value of the award at the date of grant. The expense is to be recognized over the period during which an employee is required to provide services in exchange for the award. Generally, we issue stock options with only service-based vesting conditions and record the expense for awards using the straight-line method (see Note 9). We account for awards granted to employees that are in excess of what is available to grant as a liability recorded at fair value each reporting period in the consolidated financial statements.
The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The estimated expected stock volatility is based on the historical volatility of our own traded stock price. The expected term of stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options. The expected term of stock options granted to non-employees is equal to the contractual term of the option award. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that we have never paid cash dividends and do not expect to pay any cash dividends in the foreseeable future.
Foreign Exchange
TheFor 2022, the functional currency of Hepion Pharmaceuticals, Inc. and ContraVir Research Inc. is the U.S. dollar. The functional currency of Hepion Research Corp. is the Canadian dollar. OurThe change in the functional currency for Hepion Research Corp. was applied on a prospective basis starting January 1, 2022. Prior to 2022, the functional and reporting currency isof Hepion Pharmaceuticals, Inc., Hepion Research Corp. and ContraVir Research Inc. was the U.S. dollar. TheFor 2022, the assets and liabilities of Hepion Research Corp. are translated into U.S. dollars using period-end exchange rates; income and expenses are translated using the average exchange rates for the reporting period. Unrealized foreign currency translation adjustments are deferred in accumulated other comprehensive loss, a separate component of shareholders’ equity. The amount of currency translation adjustment was immaterial$90,335 at September 30, 2021 and December 31, 2020.
2022. Transactions in foreign currencies are remeasured into the functional currency of the relevant subsidiaries at the exchange rate in effect at the date of the transaction. Any monetary assets and liabilities arising from these transactions are translated into the functional currency at exchange rates in effect at the balance sheet date or on settlement. Resulting gains and losses are recorded in other foreign exchange (gain) lossgeneral and administrative expense within the consolidated statements of operations. The impact of foreign exchange gains (losses) was immaterial at$27,601 and $26,134 for the three months ended September 30, 2022 and 2021, respectively, and December 31, 2020.was $(4,917) and $115,500 for the nine months ended September 30, 2022 and 2021, respectively.


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Segment Information
Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. Our chief operating decision maker views our operations and manages the business in 1one segment.
Net loss per share
Basic and diluted net loss per share is presented in conformity with ASC Topic 260, Earnings per Share, (“ASC 260”) for all periods presented. In accordance with this guidance, basic and diluted net loss per common share was determined by dividing net loss attributable to common stockholders by the weighted-average common shares outstanding during the period.
4. Recent Accounting Pronouncements
In May 2021, the FASB issued ASU No. 2021-04 ("ASU 2021-04), Earnings Per Share (Topic 260), Debt—Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force). The amendments in this update are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. We are currently evaluating the impactadopted this standard on January 1, 2022. The adoption of this standard did not have a material effect on our condensed consolidated financial statements and related disclosures.
5.4. Stockholders’ Equity and Derivative Liability — Warrants
Series A Convertible Preferred Stock
On October 14, 2014, our Board of Directors authorized the sale and issuance of up to 1,250,000 shares of Series A Convertible Preferred Stock (the “Series A”). All shares of the Series A were issued between October 2014 and February 2015. Each share of the Series A is convertible at the option of the holder into the number of shares of common stock determined by
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(Unaudited)
dividing the stated value of such share by the conversion price that is subject to adjustment. As of September 30, 2021,2022, there were 85,581 shares outstanding. During the nine months ended September 30, 2022 and 2021, no shares of the Series A were converted. If we sell common stock or equivalents at an effective price per share that is lower than the conversion price, the conversion price may be reduced to the lower conversion price. The Series A will be automatically convertible into common stock in the event of a fundamental transaction as defined in the offering.
Series C Convertible Preferred Stock Issuance
On July 3, 2018, we completed a rights offering pursuant to our effective registration statement on Form S-1. We offered for sale units in the rights offering and each unit sold in connection with the rights offering consisted of 1 share of our Series C Convertible Preferred Stock, or Series C, and common stock warrants (the “Rights Offering”). Upon completion of the offering, pursuant to the rights offering, we sold an aggregate of 10,826 units at an offering price of $1,000 per unit comprised of 10,826 shares of Series C and 88,928 common stock warrants. As of September 30, 2021,2022, there were 1,8061,801 shares outstanding. During the nine months ended September 30, 2022, 5 shares of the Series C were converted into 46 shares of our common stock and during the nine months ended September 30, 2021, 11 shares of the Series C were converted into 101 shares of our common stock. Each share of Series C is convertible into common stock at any time at the option of the holder thereof at the conversion price then in effect. The conversion price for the Series C is determined by dividing the stated value of $1,000 per share by $1.55 per share (subject to adjustments upon the occurrence of certain dilutive events).
Common Stock and Warrant Offerings
On October 7, 2015,In April 2017, and July 2018, we entered into an underwriting agreement related to the public offering and sale of 8,929 shares ofissued common stock and warrants to purchase up to 5,357 sharesin connection with public offerings. In April 2022, the remaining April 2017 warrants expired. Based on the terms of common stock, at a fixed combined price to the public of $1,680 under our prior shelfJuly 2018 offering and warrant agreements, if we do not maintain an effective registration statement, on Form S-3. The shares of common stock and warrants were issued separately on October 13, 2015. The warrants were immediately exercisable and will be exercisable for a period of five years from the date of issuance at an exercise price of $2,380.00 per share. These warrants expired in October 2020.
On April 4, 2016, we closed a public offering of 8,803 shareswhich is outside of our common stockcontrol, we are obligated to deliver registered shares upon the exercise and warrants to purchase up to 4,401 shares of common stock, at a fixed combined price to the public of $795.20 under our prior shelf registration statement on Form S-3. The warrants were immediately exercisable and were exercisable for a period of five years from the date of issuance at an exercise price of $952.00 per share. The gross proceeds to us were $7.0 million, before deducting the underwriting discount and other offering expenses payable by us of approximately $0.7 million. These warrants expired in April 2021.
On April 25, 2017, we closed a public offering of 21,429 shares of our common stock and warrants to purchase up to 10,714 shares of common stock, at a fixed combined price to the public of $560.00 under our prior shelf registration statement on Form S-3. The warrants are exercisable for a period of five years from the date of issuance at an exercise price of $700.00 per share. The gross proceeds to us were $12.0 million, before deducting the underwriting discount and other offering expenses payable by us of approximately $0.5 million. If the warrants were exercised in full, we would receive additional proceeds of approximately $7.5 million.
If we consummate any merger, consolidation, sale or other reorganization event in which our common stock is converted into or exchanged for securities, cash or other property (“Fundamental Transaction”), then we shall pay at the holder’s option, exercisable at any time commencing on the occurrence or the consummationsettlement of the Fundamental Transaction and continuing for 90 days, an amount of cash equal to the value of the remaining unexercised portion of the warrant as determined in accordance with the Black-Scholes option pricing model on the date of such Fundamental Transaction.warrant. As a result of thesethe aforementioned terms and in accordance with the guidance contained in ASC Topic 815-40, we have determined that the April 2017 and July 2018 warrants issued in connection with this financing transaction must bethese offerings were recorded as derivative liabilities upon issuance and marked to market on a quarterly basis in our condensed consolidated statement of operations and comprehensive loss. UponIn connection with the issuanceadoption of theseASU 2020-06, we reclassified the July 2018 warrants the fair value of approximately $4.0 million was recorded as derivative financial instruments liability-warrants. “Refer to Note 6”.
The fair value of these liability classified warrants was estimated using the Black-Scholes option pricing model. Other than for the fair value of common stock, we developed our own assumptions for use in the Black-Scholes option pricing model that do not have observable inputs or available market data to support the fair value. This method of valuation involves using inputs such as the fair value of our common stock, our stock price volatility, the contractual term of the warrants, risk free interest rates and dividend yields. Due to the nature of these inputs, the valuation of the warrants is considered a Level 3 measurement.





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(Unaudited)
The following assumptions were used to measure the warrants at issuance and to remeasure the liability as of September 30, 2021 and December 31, 2020:
September 30,
2021
December 31,
2020
Price of Hepion common stock$1.53 $2.19 
Expected warrant term (years)0.56 years1.31 years
Risk-free interest rate0.71 %0.27 %
Expected volatility110 %115 %
Dividend yield— — 
The warrants issued in connection with the July 2018 Rights Offering are deemed to be derivative instruments since if we do not maintain an effective registration statement, we are obligated to deliver registered shares upon exercise and settlement of the warrant because there are further registration and prospectus delivery requirements that are outside of our control. Therefore, the fair value of the warrants was determined using the Black-Scholes option pricing model, deemed to be an appropriate model due to the terms of the warrants issued, including a fixed term and exercise price.
The fair value of these liability classified warrants was estimated using the Black-Scholes option pricing model. Other than for the fair value of common stock, we developed our own assumptions for use in the Black-Scholes option pricing model that do not have observable inputs or available market data to support the fair value. This method of valuation involves using inputs such as the fair value of our common stock, our stock price volatility, the contractual term of the warrants, risk free interest rates and dividend yields. Due to the nature of these inputs, the valuation of the warrants is considered a Level 3 measurement.
The following assumptions were used to measure the warrants at issuance and to remeasure the liability as of September 30, 2021 and December 31, 2020:
September 30,
2021
December 31,
2020
Price of Hepion common stock$1.53 $2.19 
Expected warrant term (years)1.75 years2.50 years
Risk-free interest rate0.71 %0.27 %
Expected volatility112 %118 %
Dividend yield— — 
The following table sets forth the components of changes in our derivative financial instruments liability balance for the nine months ended September 30, 2021:2022:
DateDescriptionNumber of Warrants OutstandingDerivative Instrument Liability
December 31, 2020Balance of derivative financial instruments liability102,642 $11,673 
Expiration of warrants(4,314)— 
Change in fair value of warrants for the nine months ended September 30, 2021— (10,911)
September 30, 2021Balance of derivative financial instruments liability98,328 $762 
Common Stock Offering
On February 16, 2021, we entered into an underwriting agreement ("Underwriting Agreement") with ThinkEquity, a division of Fordham Financial Management, Inc., as the representative (the Representative") of the underwriters ("collectively, the Underwriters") listed therein, with respect to an underwritten public offering ("Offering") of 44,200,000 shares of our common stock, par value $0.0001, at a public offering price of $2.00 per share, which resulted in net proceeds to us of $82.1 million, after deducting underwriting discounts and commissions and offering expenses payable by us. We intend to use the net proceeds to fund our research and development activities and general corporate purposes, including working capital, operating expenses and capital expenditures. Upon closing of the Offering, we issued to the Representative as compensation warrants to purchase 1,105,000 shares of common stock, or the Representative’s Warrants. The Representative’s Warrants will be exercisable at $2.50 per share. The Representative’s Warrants are exercisable at any time and from time to time, in whole or in
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(Unaudited)
part, during the four and one half year period commencing 180 days from February 19, 2021. We determined that the Representative Warrants should be recorded in the consolidated financial statements as equity classified.
DateDescriptionNumber of Warrants OutstandingDerivative Instrument Liability
December 31, 2021Balance of derivative financial instruments liability10,714 $— 
Expiration of warrants(10,714)— 
September 30, 2022Balance of derivative financial instruments liability— $— 
6.5. Fair Value Measurements
The following table presents our liabilities that are measured and recognized at fair value on a recurring basis classified under the appropriate level of the fair value hierarchy at September 30, 20212022 and December 31, 2020.2021.
Fair Value Measurement at Reporting Date Using
DescriptionFair value(Level 1)(Level 2)(Level 3)
As of September 30, 2021:
Contingent consideration$4,160,000 $— $— $4,160,000 
Derivative liabilities related to warrants$762 $— $— $762 
As of December 31, 2020:
Contingent consideration$2,570,000 $— $— $2,570,000 
Derivative liabilities related to warrants$11,673 $— $— $11,673 
The unrealized gains or losses on the derivative liabilities are recorded as a change in fair value of derivative liabilities- warrants in our condensed consolidated statement of operations. See Note 5 for a rollforward of the derivative liability for the nine months ended September 30, 2021. The financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. At each reporting period, we review the assets and liabilities that are subject to ASC 815-40. At each reporting period, all assets and liabilities for which the fair value measurement is based on significant unobservable inputs or instruments which trade infrequently and therefore have little or no price transparency are classified as Level 3.
Fair Value Measurement at Reporting Date Using
DescriptionFair value(Level 1)(Level 2)(Level 3)
As of September 30, 2022:
Contingent consideration$2,540,000 $— $— $2,540,000 
As of December 31, 2021:
Contingent consideration$4,880,000 $— $— $4,880,000 
Contingent consideration was recorded for the acquisition of Ciclofilin Pharmaceuticals, Inc. (Ciclofilin) on June 10, 2016. The contingent consideration represented the acquisition date fair value of potential future payments, to be paid in cash and our stock, upon the achievement of certain milestones and was estimated based on a probability-weighted discounted cash flow model utilizing a discount rate of 6.5% and a stock price of $19.60.
At September 30, 20212022 and December 31, 2020,2021, the assumptions we used to calculate the fair value were as follows:
AssumptionsAssumptions
September 30,
2021
December 31,
2020
September 30,
2022
December 31,
2021
Discount rateDiscount rate7.0%8.0%Discount rate7.0%7.0%
Stock priceStock price$1.53$2.19Stock pricen/a$1.14
Projected milestone achievement datesProjected milestone achievement datesJanuary 2022July 2026June 2021January 2025Projected milestone achievement datesDecember 2023December 2028December 2021June 2026
Probability of success of milestone achievementsProbability of success of milestone achievements13 %95%13 %40%Probability of success of milestone achievements13 %40%18 %100%
We completed the first segment of our Phase 1I clinical activities for CRV431Rencofilstat in October 2018 wherein we reached a major clinical milestone of positive data from a Phase I trial of CRV431Rencofilstat in humans. This achievement triggered the first milestone payment, as stated in the Merger Agreement for the acquisition of Ciclofilin and in the fourth quarter of 2018, we paid a related milestone payment of $1,000,000 and issued 1,439 shares of our common stock with a fair value of $55,398, representing 2.5% of our issued and outstanding common stock as of June 2016, to the Ciclofilin shareholders. As
The Merger Agreement was amended on January 14, 2022 for the following: (i) upon receipt of September 30, 2021, $2,792,546Phase II positive data from the first Phase II clinical trial of Rencofilstat in NASH patients which has been achieved: (1) such number of validly issued, fully paid and non-assessable shares of our common stock equal to 7.5% of the issued and outstanding of our common stock on the Closing Date as defined in the original agreement, which 4,317 was classified asissued in March 2022, and (2) a current liabilitypayment of $2.0 million, made in January 2022 to Ciclofilin shareholders, including a payment to our CEO of $0.8 million and $1,367,454 asother Hepion employees of $0.2 million, (ii) a non-current liability basedpayment of $1.0 million upon management's best estimate using the latest available information. Management reviewedpositive read out of the assumptions at September 30, 2021first planned interim futility analysis of a Phase IIb clinical trial of Rencofilstat in NASH patients, supporting the continuation of the Phase IIb trial. The original agreement required a $3.0 million payment upon receipt of Phase II positive data from a proof-of-concept clinical trial of CRV431, (iii) a payment of $5.0 million upon initiation of the first Phase III trial of Rencofilstat in patients, where initiation occurs with first patient in the study dosed with study medication, which remains unchanged from the original agreement, (iv) a payment of $5.0 million upon the filing and reducedacceptance by the discount rate based on comparable companies, increasedU.S. Food and Drug Administration of the probabilityfirst new drug application for Rencofilstat, which was $8.0 million in the original agreement; and (v) a payment of success$8.0 million upon the regulatory approval by the U.S. Food and Drug Administration of the first new drug application for milestone 2 and extended the projected achievement dates for milestones 3 and 4 based on new information.




Rencofilstat.
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As of September 30, 2022, $2,540,000 was classified as a non-current liability based upon management's best estimate using the latest available information. Management reviewed and updated the assumptions at September 30, 2022 for the amendment of the Merger Agreement.
The following table presents the change in fair value of the contingent consideration for the nine months ended September 30, 2021.2022.
Acquisition- relatedAcquisition-related Contingent Consideration
Liabilities:
Balance at December 31, 20202021$2,570,000 4,880,000 
Contingent consideration payments (includes common shares with a fair value of $5,008)(2,005,008)
Change in fair value recorded in earnings1,590,000 (334,992)
Balance at September 30, 20212022$4,160,0002,540,000 
6. Property and Equipment, net
Property and equipment are stated at cost and depreciated using the straight-line method, based on useful lives as follows:
Estimated Useful Life (in years)September 30,
2022
December 31,
2021
Equipment3 years$307,844 $330,830 
Furniture and fixtures7 years62,183 62,183 
Less: Accumulated depreciation(287,041)(240,241)
$82,986 $152,772 
Depreciation expense for the three months ended September 30, 2022 and 2021 was $17,726 and $23,106, respectively, and was $58,985 and $62,658 for the nine months ended September 30, 2022 and 2021, respectively.
7. Indefinite-lived Intangible Assets and Goodwill
IPR&D
Our IPR&D asset consisted of the following at:
Indefinite-lived
Intangible Asset
CRV431Rencofilstat balance at December 31, 20202021$3,190,000 
Change during the nine months ended September 30, 20212022— 
CRV431Rencofilstat balance at September 30, 20212022$3,190,000 
No impairment losses were recorded on IPR&D during the nine months ended September 30, 20212022 and 2020.2021.
Goodwill
The table below provides a roll-forward of our goodwill balance:
Amount
Goodwill balance at December 31, 20202021$1,870,924 
ChangeImpairment of goodwill (see Note 3) during the nine months ended September 30, 20212022— (1,870,924)
Goodwill balance at September 30, 20212022$1,870,924 
No impairment losses wereloss was recorded to goodwill during the nine months ended September 30, 2021 and 2020.2021.

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(Unaudited)
8. Accrued Liabilities
Accrued expensesliabilities consisted of the following:
September 30,
2021
December 31,
2020
September 30,
2022
December 31,
2021
Payroll and related costsPayroll and related costs$779,235 $150,702 Payroll and related costs$852,000 $— 
Stock-based compensation - see Note 9Stock-based compensation - see Note 9863,097 — Stock-based compensation - see Note 92,220,260 1,637,308 
Research and developmentResearch and development517,399 438,856 Research and development1,287,588 536,965 
Legal feesLegal fees27,478 — Legal fees119,153 57,345 
Accrued taxes— 37,160 
Professional feesProfessional fees60,518 167,346 
OtherOther23,800 32,854 Other217,640 106,661 
Total accrued expensesTotal accrued expenses$2,211,009 $659,572 Total accrued expenses$4,757,159 $2,505,625 
9. Accounting for Share-Based Payments
On June 3, 2013, we adopted the 2013 Equity Incentive Plan (the “Plan”). Stock options granted under the Plan typically will vest after three years of continuous service from the grant date and will have a contractual term of ten years. We granted certain stock option awardsoptions during the three months ended June 30, 2022 and 2021, and at the time that these grants were made, we had 35,229 shares of common stockdid not have any options available for grant under the Plan. We accounted for thethese option grantgrants as liability-classified awards requiring us to measure the fair value of the awards each reporting period since there were not enough shares available at the time of the grant. As of September 30, 2021,2022, the liability related to the awards was $0.9$2.2 million and has been
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(Unaudited)
is included in accrued expenses in our condensed consolidated balance sheetsheets with the corresponding expense included in our condensed consolidated statements of operations and comprehensive loss. At our annual meeting of stockholders on October 7, 2021,June, 2022, shareholders voted against our 2021 Omnibus Equity Incentive Plan. Therefore, we will continue to account for this option grant as liability-classified until we receive stockholder approval to increase the available sharesoptions to grant.
We classify stock-based compensation expense in our condensed consolidated statement of operations in the same way the award recipient's payroll costs are classified or in which the award recipients' service payments are classified. We recorded stock-based compensation expense as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
Three Months Ended
September 30,
Nine Months Ended
September 30,
20212020202120202022202120222021
General and administrativeGeneral and administrative$1,032,119 $750,168 $2,737,732 $1,066,796 General and administrative$350,990 $1,032,119 $1,561,574 $2,737,732 
Research and developmentResearch and development436,406 240,509 1,083,563 326,738 Research and development265,845 436,406 759,219 1,083,563 
Total stock-based compensation expenseTotal stock-based compensation expense$1,468,525 $990,677 $3,821,295 $1,393,534 Total stock-based compensation expense$616,835 $1,468,525 $2,320,793 $3,821,295 
A summary of stock option activity under the Plan is presented as follows:
Number of OptionsExercise Price
Per Share
Weighted
Average Exercise Price Per Share
Intrinsic
Value
Weighted
Average Remaining Contractual Team
Number of OptionsExercise Price
Per Share
Weighted
Average Exercise Price Per Share
Intrinsic
Value
Weighted
Average Remaining Contractual Team
Balance outstanding, December 31, 20202,460,677 $1.63 -$2,452.80 $4.17 $990,930 9.40 years
Balance outstanding, December 31, 2021Balance outstanding, December 31, 20218,774,974 $1.63 -$2,016.00 $2.33 $— 9.10 years
GrantedGranted6,315,000 $1.70 -$— $1.70 $— Granted120,000 $0.69 -$0.69 $0.69 $— 
ExercisedExercised— $— -$— $— $— Exercised— $— -$— $— $— 
ForfeitedForfeited— $— -$— $— $— Forfeited— $— -$— $— $— 
CancelledCancelled(703)$— -$— $820.13 $— Cancelled(1)$— -$— $515.20 $— 
Balance outstanding, September 30, 20218,774,974 $1.63 -$2,452.80 $2.33 $— 9.36 years
Awards outstanding, vested awards and those expected to vest at September 30, 20218,513,581 $1.63 -$2,452.80 $2.34 $— 9.36 years
Vested and exercisable at September 30, 20211,197,115 $1.63 -$2,452.80 $5.44 $— 8.64 years
Balance outstanding, September 30, 2022Balance outstanding, September 30, 20228,894,973 $0.69 -$2,016.00 $2.31 $— 8.63 years
Awards outstanding, vested awards and those expected to vest at September 30, 2022Awards outstanding, vested awards and those expected to vest at September 30, 20228,808,270 $0.69 -$2,016.00 $2.31 $— 8.29 years
Vested and exercisable at September 30, 2022Vested and exercisable at September 30, 20225,345,352 $0.69 -$2,016.00 $2.64 $— 8.38 years
There were 2,423,500 options granted to employees during the nine months ended September 30, 2020. The total fair value of awards vested during the nine months ended September 30, 2021 was $4.1 million. The total fair value of awards vested during the nine months ended September 30, 2020 was de minimis.
The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of our common stock for those stock options that had exercise prices lower than the fair value of our common stock.
As of September 30, 2021, the unrecognized compensation cost related to non-vested stock options outstanding, net of expected forfeitures, was $10.4 million to be recognized over a weighted-average remaining vesting period of approximately 2.1 years.
The following weighted-average assumptions are used in the Black-Scholes valuation model to estimate fair value of stock option awards when granted to employees.
Nine Months Ended
September 30,
20212020
Stock price$1.70 $2.50 
Risk-free interest rate1.04 %0.34 %
Dividend yield— — 
Expected volatility120.8 %126.3 %
Expected term (in years)5.96.0

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Risk-free interest rate—Based on the daily yield curve rates for U.S. Treasury obligations with maturities which correspond to the expected term of our stock options.
Dividend yield— We have not paid any dividends on our common stock since inception and do not anticipate paying dividends on our common stockThe following weighted-average assumptions were used in the foreseeable future.Black-Scholes valuation model to estimate the fair value of stock option awards when granted to employees.
Expected volatility—We base
Nine Months Ended
September 30,
20222021
Stock price$0.69 $1.70 
Risk-free interest rate4.02 %1.04 %
Dividend yield— — 
Expected volatility115.4 %120.8 %
Expected term (in years)6.05.9
The total fair value of awards vested during the nine months ended September 30, 2022 and 2021 was $4.3 million and $4.1 million, respectively.
As of September 30, 2022, the unrecognized compensation cost related to non-vested stock options outstanding, net of expected volatility on the trading price of our common stock.
Expected term—The expected option term represents the period that stock-based awards are expectedforfeitures, was $2.6 million to be outstanding based on the simplified method provided in SAB No. 107, which SAB No. 107, options are considered to be “plain vanilla” if they have the following basic characteristics: (i) granted “at-the-money”; (ii) exercisability is conditioned upon service through the vesting date; (iii) termination of service prior to vesting results in forfeiture; (iv) limited exercise period following termination of service; and (v) options are non-transferable and non-hedgeable.
In December 2007, the SEC issued SAB No. 110, Share-Based Payment, (“SAB No. 110”). SAB No. 110 was effective January 1, 2008 and expresses the views of the Staff of the SEC with respect to extending the use of the simplified method, as discussed in SAB No. 107, in developing an estimate of the expected term of “plain vanilla” share options in accordance with ASC 718. We will use the simplified method until we have the historical data necessary to providerecognized over a reasonable estimate of expected life in accordance with SAB No. 107, as amended by SAB No. 110. For the expected term, we have “plain-vanilla” stock options, and therefore used a simple average of theweighted-average remaining vesting period and the contractual term for options granted as permitted by SAB No. 107.
Forfeitures—ASC 718 allows for the election of forfeitures to be estimated at the time of grant and revised if necessary, in subsequent periods if actual forfeitures differ from those estimates.approximately 1.1 years.
10. Loss per Share
Basic and diluted net loss per common share was determined by dividing net loss by the weighted-average common shares outstanding during the period. Prior to the adoption of ASU 2020-06 in 2021, basic and diluted net loss per common share was determined by dividing net loss applicable to common stockholders by the weighted-average common shares outstanding during the period. In addition, theperiod with net loss attributable to common stockholders’ isbeing adjusted for the preferred stock deemed dividends related accretion of the beneficial conversion feature and other discount on this instrument for the periods in which the preferred stock is outstanding.
The following table sets forth the computation of basic and diluted net loss per share for the periods indicated:
Three Months Ended
September 30,
Nine Months Ended
September 30,
Three Months Ended
September 30,
Nine Months Ended
September 30,
Basic and diluted net loss per common shareBasic and diluted net loss per common share2021202020212020Basic and diluted net loss per common share2022202120222021
Numerator:Numerator:Numerator:
Net lossNet loss$(9,266,717)$(6,231,542)$(22,989,184)$(15,398,239)Net loss$(8,547,591)$(9,269,473)$(35,388,575)$(23,000,095)
Preferred stock deemed dividend(529)(5,287)(5,816)(5,287)
Net loss attributable to common stockholders$(9,267,246)$(6,236,829)$(22,995,000)$(15,403,526)
Denominator:Denominator:Denominator:
Weighted average common shares outstandingWeighted average common shares outstanding76,225,249 9,025,139 68,291,894 7,294,790 Weighted average common shares outstanding76,229,617 76,225,249 76,229,380 68,291,894 
Net loss per share of common stock—basic and dilutedNet loss per share of common stock—basic and diluted$(0.12)$(0.69)$(0.34)$(2.11)Net loss per share of common stock—basic and diluted$(0.11)$(0.12)$(0.46)$(0.34)
The following outstanding securities at September 30, 20212022 and 20202021 have been excluded from the computation of basic and diluted weighted shares outstanding, as they would have been anti-dilutive:
Nine Months Ended
September 30,
20212020
Common shares issuable upon conversion of Series A preferred stock3,184 3,184 
Common shares issuable upon conversion of Series C preferred stock16,645 16,747 
Stock options8,774,974 2,464,771 
Warrants – liability classified98,328 107,998 
Warrants – equity classified4,223,568 2,428,568 
Total13,116,699 5,021,268 
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HEPION PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Nine Months Ended
September 30,
20222021
Common shares issuable upon conversion of Series A preferred stock3,184 3,184 
Common shares issuable upon conversion of Series C preferred stock16,599 16,654 
Stock options8,894,973 8,774,974 
Warrants – liability classified— 98,328 
Warrants – equity classified4,311,182 4,223,568 
Total13,225,938 13,116,708 
The liability and equity classified warrants disclosed above have been excluded from the computation of basic and diluted earnings per share because the exercise price of the warrants exceeds the average market price of our common stock for the period they were outstanding.
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HEPION PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
11.Commitments and Contingencies
Contractual Obligations
In August 2014, we entered into a lease for corporate office space in Edison, New Jersey. In December 2017, we entered an amendment to the lease for corporate office space in Edison, New Jersey expanding the office footprint and extending the lease for an approximate 5-year period. In May 2018, we entered into a 3-yearThis lease for office equipment to be used at our corporate office spacewill expire in Edison, New Jersey.March 2023. In October 2019, we entered into a 3-year lease for office and research laboratory space in Edmonton, Canada. Prior to signing this lease, the space was previouslyCanada, which expired on September 30, 2022 and will be subsequently on a month-to-month basis.
Legal Proceedings
We are involved in legal proceedings of various types from time to time. Significant judgment is required to determine both the likelihood and the estimated amount of a loss related to such matters. Additionally, while any litigation contains an element of uncertainty, we have at this time no reason to believe that the outcome of such proceedings or claims will have a material adverse effect on our condensed consolidated financial condition or results of operations.
Leases
We account for leases in accordance with ASC Topic 842, Leases, (“ASC 842”). We determine if an arrangement is a lease at contract inception. A lease exists when a contract conveys to the customer the right to control the use of identified property or equipment for a period in exchange for consideration. The definition of a lease embodies two conditions: (1) there is an identified asset in the contract that is land or a depreciable asset (i.e., property and equipment), and (2) the customer has the right to control the use of the identified asset.
Operating leases where we are the lessee are included under the caption “Right of Use Assets” on our condensed consolidated balance sheets. The lease liabilities are initially and subsequently measured at the present value of the unpaid lease payments at the lease commencement date. Key estimates and judgments include how we determine (1) the discount rate used to discount the unpaid lease payments to present value, (2) lease term and (3) lease payments.
The Right-Of-Use (“ROU”) asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred less any lease incentives received. For operating leases, the ROU asset is subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
As of September 30, 2021,2022, the ROU assets were $0.4$0.1 million, the current lease liabilities were $0.3$0.1 million, and thethere were no non-current lease liabilities were $0.1 million.liabilities. The discount rate used to account for our operating leases under ASC 842 is our estimated incremental borrowing rate of 6.5%.
Rent expense for the three months ended September 30, 20212022 and 20202021 was $0.1 million and $0.1 million, respectively, and was $0.2$0.3 million and $0.2 million for the nine months ended September 30, 2022 and 2021, and 2020, respectively.
The weighted average remaining term of our noncancelable operating leases is 1.400.50 years.
Future minimum rental payments under our noncancelable operating leases at September 30, 20212022 is as follows:
Remainder of 2021$72,810 
2022273,941 
Remainder of 2022Remainder of 2022$53,097 
2023202353,902 202353,902 
20242024— 2024— 
2025 and thereafter— 
20252025— 
2026 and thereafter2026 and thereafter— 
TotalTotal400,653 Total106,999 
Present value adjustmentPresent value adjustment(16,238)Present value adjustment(1,421)
Lease liability at September 30, 2021$384,415 
Lease liability at September 30, 2022Lease liability at September 30, 2022$105,578 
12.Subsequent Events
On November 4, 2022, we entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain institutional investors (the “Investors”), pursuant to which we agreed to issue and sell, in a private placement (the “Offering”), 1,900,000 shares of our Series F Convertible Redeemable Preferred Stock, par value $0.0001 per share (the “Series F Preferred
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HEPION PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Employment Agreements
We have employment agreements with certain employees which require the fundingStock”), and 100,000 shares of a specific level of payments, if certain events, such as a change in control, termination without cause or retirement, occur.
Related Party Transaction
In May 2021, we entered into an agreementour Series G Convertible Redeemable Preferred Stock, par value $0.0001 per share (the “Series G Preferred Stock,” and together with the Baruch S. Blumberg Institute (BSBI)Series F Preferred Stock, the “Preferred Stock”), at an offering price of $9.50 per share, representing a 5% original issue discount to conduct a laboratory studythe stated value of $10.00 per share, for gross proceeds of $20 million in the aggregate for the Offering, before the deduction of discounts, fees and evaluation (Study) with a total costoffering expenses. The shares of $60,000. During the three months ended September 30, 2021, we paid $30,000 to BSBI. The StudyPreferred Stock will be supervised by Timothy Block,convertible, at a Principal Investigator at BSBI. Mr. Block is also oneconversion price of our board members. Except as set forth above, we have not entered$1.00 per share (subject in certain circumstances to adjustments), into any material transactions with any director, executive officer, and promoter, beneficial owner of five percent or moreshares of our common stock, par value $0.0001 per share, at the option of the holders and, in certain circumstances, by us. The Purchase Agreement contains customary representations, warranties and agreements by us and customary conditions to closing. The Offering closed on November 8, 2022.
We intend to call a special meeting of shareholders to consider an amendment (the “Amendment”) to our Certificate of Incorporation, as amended, to authorize a reverse split of the Common Stock (the “Reverse Split”). The Investors have agreed in the Purchase Agreement to not transfer, offer, sell, contract to sell, hypothecate, pledge or family membersotherwise dispose of the shares of the Preferred Stock until the Reverse Split. Pursuant to the certificate of designation of the Series F Preferred Stock, the shares of Series F Preferred Stock have the right to vote on such persons.Amendment on an as-converted to Common Stock basis. In addition, pursuant to the certificate of designation of the Series G Preferred Stock, the shares of Series G Preferred Stock have the right to vote on such Amendment. Each Investor has separately agreed pursuant to a side letter (the “Side Letter”) entered into in conjunction with the Purchase Agreement to vote the shares of the Series F Preferred Stock in favor of the Amendment and that the shares of the Series G Preferred Stock shall automatically be voted in a manner that “mirrors” the proportions on which the shares of Common Stock (excluding any shares of Common Stock that are not voted) and Series F Preferred Stock are voted on the Amendment. The Amendment requires the approval of the majority of the votes associated with our outstanding stock entitled to vote on the proposal. Because the Series G Preferred Stock will automatically and without further action of the purchaser be voted in a manner that “mirrors” the proportions on which the shares of Common Stock (excluding any shares of Common Stock that are not voted) and Series F Preferred Stock are voted on the Reverse Split, abstentions by common stockholders will not have any effect on the votes cast by the holders of the Series G Preferred Stock.
The proceeds of the Offering will be held in an escrow account, along with the additional amount that would be necessary to fund the 105% redemption price until the expiration of the redemption period for the Preferred Stock, as applicable, subject to the earlier payment to redeeming holders. Upon expiration of the redemption period, any proceeds remaining in the escrow account will be disbursed to us.





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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our condensed consolidated financial statements and other financial information appearing elsewhere in this quarterly report. In addition to historical information, the following discussion and other parts of this quarterly report contain forward-looking statements. You can identify these statements by forward-looking words such as “plan,” “may,” “will,” “expect,” “intend,” “anticipate,” believe,” “estimate” and “continue” or similar words. Forward-looking statements include information concerning possible or assumed future business success or financial results. You should read statements that contain these words carefully because they discuss future expectations and plans, which contain projections of future results of operations or financial condition or state other forward-looking information. We believe that it is important to communicate future expectations to investors. However, there may be events in the future that we are not able to accurately predict or control. Accordingly, we do not undertake any obligation to update any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.
The forward-looking statements included herein are based on current expectations that involve a number of risks and uncertainties set forth under “Risk Factors” in our Annual Report on Form 10-K as of and for the year ended December 31, 20202021 filed with the United States Securities and Exchange Commission (“SEC”) on March 31, 2021.April 8, 2022. Accordingly, to the extent that this Report contains forward-looking statements regarding the financial condition, operating results, business prospects or any other aspect of us, please be advised that our actual financial condition, operating results and business performance may differ materially from that projected or estimated by us in forward-looking statements, and you should not unduly rely on such statements.
Business Overview
We are a biopharmaceutical company headquartered in Edison, New Jersey, focused primarily on the development of drug therapy for treatment of chronic liver diseases. This therapeutic approach targets fibrosis, inflammation, and shows potential for the treatment of hepatocellular carcinoma (“HCC”) associated with non-alcoholic steatohepatitis (“NASH”), viral hepatitis, and other liver diseases. Our cyclophilin inhibitor, CRV431,Rencofilstat (formerly CRV431), is being developed to offer benefits to address these multiple complex pathologies. CRV431pathologies relate to advanced liver disease. Rencofilstat is a pan cyclophilin inhibitor that targets multiple pathologic pathways involved in the progression of liver disease. Preclinical studies with CRV431Rencofilstat in NASH models demonstrated consistent reductions in liver fibrosis and additional reductions in inflammation and cancerous tumors in some studies. CRV431Rencofilstat additionally showed in vitro antiviral activity towards hepatitis B, C, and D viruses which also trigger liver disease. Preclinical studies also have shown potentially therapeutic activities of CRV431Rencofilstat in experimental models of acute lung injury, platelet activation, and SARS-CoV-2 coronavirus replication.
NASH is thea form of liver disease that is triggered by what has come to be known as the “Western diet”, characterized especially by high-fat, high-sugar, and processed foods. Among the effects of a prolonged Western diet is fat accumulation in liver cells (steatosis), which is described as NAFLDnon-alcoholic fatty liver disease ("NAFLD") and can predispose cells to injury. NAFLD may evolve into NASH when the fatty liver begins to progress through stages of cell injury, inflammation, fibrosis, and carcinogenesis. People who develop NASH often have additional predisposing conditions such as diabetes and hypertension, but the exact biochemical events that trigger and maintain the progression are not well known.fully understood. Many people in the early stages of disease do not have significant clinical symptoms and therefore do not know that they have it.NASH. NASH becomes evident and a major concern when the liver becomes fibrotic and puts the individual at increased risk of developing cirrhosis and other complications. Individuals with advanced liver fibrosis have significantly higher risk of developing liver cancer, although cancer may also arise in some patients before significant hepatitis or fibrosis. NASH is increasing worldwide at an alarming rate due to the spread of the Western diet, obesity, and other related conditions. Approximately 4–5%4-5% of the global population is estimated to have NASH, including the USA. NASH is the leading reason for individuals requiring a liver transplant in the USA. Considering the serious outcomes linked to advancing NASH, the economic and social burdenburdens of the disease isare enormous. There are no simple blood tests to diagnose or track the progression of NASH, and no drugs are approved to specifically treat the disease.
HCC is a major type of liver cancer, accounting for approximately 85% - 90% of all cases. NASH, hepatitis viral infections, and alcohol consumption are all major causes of HCC. Globally, over 700,000 people die each year from liver cancer which is second only to lung cancer among all cancer-related deaths. The high mortality is due to the fact that only around half of all people who develop HCC (in developed countries) receive the diagnosis early enough to have an opportunity for therapeutic intervention. Additionally, recurrence rates are high, and current treatment options remain limited.
HCC is a type of cancer in which the tissue microenvironment plays a major role in its development. In most cases HCC is preceded by significant, long-term damage to liver cells, inflammation, and fibrosis. One-third of people with cirrhosis, a very advanced stage of liver disease, will eventually progress to HCC. The chronic injury to the liver leads to many genetic mutations that eventually lead to transformation of cells and formation of tumors. The noxious tissue microenvironment also promotes cancer by altering the function of immune cells and endothelial cells which form tumor-supporting blood vessels.
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These various events underscore the importance of halting liver injury and scarring as early and effectively as possible to prevent cancer development.
Artificial Intelligence (AI)
We have created a proprietary AI tool called, “AI-POWR™”“AI-POWR to optimize the outcomes of our current clinical programs and to potentially identify novel indications for CRV431Rencofilstat and possibly identify new targets and new drug molecules to broaden our pipeline.
AI-POWR™ is our acronym for Artificial IntelligenceArtificial IntelligencePrecisionPrecision Medicine; OmicsOmics that include genomics, proteomics, metabolomics, transcriptomics, and lipidomics; WorldWorld database access; and ResponseResponse and clinical outcomes. AI-POWR™ allows for the selection of novel drug targets, biomarkers, and appropriate patient populations. AI-POWR™ is used to identify responders from big data sources using our multi-omics approach, while modelling inputs and scenarios to increase response rates. The components of AI-POWR™ include access to publicly available databases, and in-house genomic and multi-omic big data, processed via machine learning algorithms. We believe AI outputs will allow for improved response outcomes through enhanced patient selection, biomarker selection and drug target selection. We believe AI outputs will help identify responders a priori and reduce the need for large sample sizes through study design enrichment.
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We intend to use AI-POWR™ to help identify which NASH patients will best respond to CRV431.Rencofilstat. It is anticipated that applying this proprietary platform to our drug development program will ultimately save time, resources, and money. In so doing, we believe that AI-POWR™ is a risk-mitigation strategy that should reap benefits all the way through from clinical trials to commercialization. The AI-POWRplatform is continually updated with in-house and published data to further refine the accuracy of the neural network.
We believe that NASH is a heterogenous disease, and we need to have a better understanding of interactions among proteins, genes, lipids, metabolites, and other disease variables to help predict disease progression, regression, and responses to CRV431.Rencofilstat. All of this is further complicated by variable drug concentrations, patient traits and temporal factors. AI-POWR™ is designed to address many of the typical challenges in drug development, as we believe we can use our proprietary platform to shorten development timelines and increase the delta between placebo and treatment groups. AI-POWR™ will be used to drive our ongoing clinical programsPhase 2b Ascend-NASH program and identify additional potential indications for CRV431Rencofilstat to expand our footprint in the cyclophilin inhibition therapeutic space.
Impact of COVID-19
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 condensed consolidated financial statements for the three and nine months ended September 30, 2021,2022, a prolongedcontinued 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 relatingAlthough we have data 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.suggest Rencofilstat may be beneficial in the aggregate amounttreatment of $0.2 million, pursuant toCOVID-19 and other viral infections (e.g., HBV), the PPP under Division A, Title Imain focus of our company is currently on liver disease. We may, at some point, re-visit the CARES Act and bears interest at a rate of 0.98% per annum. In June 2021,antiviral indications should the Loan plus interest was repaid in full.opportunity arise (e.g., external funding/collaboration).
FINANCIAL OPERATIONS OVERVIEW
From our inception in May 2013 through September 30, 2021,2022, we have an accumulated deficit of $127.1$168.9 million and we have not generated any revenue from operations. We expect to incur additional losses to perform further research and development activities and do not currently have any commercial biopharmaceutical products. We do not expect to have such for several years, if at all.
On February 16, 2021, we entered into an underwriting agreement (the “Underwriting Agreement”) with ThinkEquity, a division of Fordham Financial Management, Inc., as the representative (the “Representative”) of the underwriters listed therein (collectively, the “Underwriters”), with respect to an underwritten public offering (the “Offering”) of 44,200,000 shares of our common stock, par value $0.0001 (the “Shares”), at a public offering price of $2.00 per share, which resulted in net proceeds to us of $82.1 million, after deducting underwriting discounts and commissions and offering expenses payable by us. We intend to use the net proceeds of this Offering to fund our research and development activities and general corporate purposes, including working capital, operating expenses and capital expenditures. The Offering closed on February 18, 2021.
Our product development efforts are in their early stages and we cannot make estimates of the costs or the time they will take to complete. The risk of completion of any program is high because of the many uncertainties involved in bringing new drugs to market including the long duration of clinical testing, the specific performance of proposed products under stringent clinical trial protocols, the extended regulatory approval and review cycles, our ability to raise additional capital, the nature and timing of research and development expenses and competing technologies being developed by organizations with significantly greater resources.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP). The preparation of these condensed consolidated financial statements requires us to
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make estimates and assumptions that affect the reported amounts of assets, liabilities, costs and expenses, income taxes and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.
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During the nine months ended September 30, 2021,2022, there were no significant changes to our critical accounting policies and estimates as described in the financial statements contained in the Annual Report on Form 10-K for the year ended December 31, 2020.
OFF-BALANCE SHEET ARRANGEMENTS
We had no off-balance sheet arrangements as of September 30, 2021.
RECENT ACCOUNTING PRONOUNCEMENTS
Please refer to Note 43 of Notes to Condensed Consolidated Financial Statements, Recent Accounting Pronouncements, in this Quarterly Report on Form 10-Q.
JOBS Act
On December 31, 2020, our status as an emerging growth company ended. To the extent that we continue to qualify as a “smaller reporting company,” as such term is defined in Rule 12b 2 under the Securities Exchange Act of 1934, after we ceased to qualify as an emerging growth company on December 31, 2020, certain of the exemptions available to us as an emerging growth company may continue to be available to us as a smaller reporting company, including: (1) not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes Oxley Act; (2) scaled executive compensation disclosures; and (3) the requirement to provide only two years of audited financial statements, instead of three years.
We expect to qualify as a “smaller reporting company” for the foreseeable future.
RESULTS OF OPERATIONS
Comparison of the three months ended September 30, 20212022 and 2020:2021:
Three Months Ended
September 30,
Three Months Ended
September 30,
20212020Change20222021Change
RevenuesRevenues$— $— $— Revenues$— $— $— 
Costs and Expenses:Costs and Expenses:Costs and Expenses:
Research and developmentResearch and development5,800,464 3,782,505 2,017,959 Research and development5,740,122 5,800,464 (60,342)
General and administrativeGeneral and administrative2,716,892 2,448,489 268,403 General and administrative2,725,204 2,716,892 8,312 
Loss from operationsLoss from operations(8,517,356)(6,230,994)(2,286,362)Loss from operations(8,465,326)(8,517,356)52,030 
Other income (expense):Other income (expense):Other income (expense):
Interest expenseInterest expense(2,131)(16,159)14,028 Interest expense(2,265)(2,131)(134)
Change in fair value of derivative instruments-warrants and contingent consideration(747,230)(46,433)(700,797)
Change in fair value of contingent considerationChange in fair value of contingent consideration(80,000)(749,986)669,986 
Loss before income taxesLoss before income taxes(9,266,717)(6,293,586)(2,973,131)Loss before income taxes(8,547,591)(9,269,473)721,882 
Income tax benefit (expense)Income tax benefit (expense)— 62,044 (62,044)Income tax benefit (expense)— — — 
Net lossNet loss$(9,266,717)$(6,231,542)$(3,035,175)Net loss$(8,547,591)$(9,269,473)$721,882 
We had no revenues during the three months ended September 30, 20212022 and 2020,2021, respectively, because we do not have any commercial biopharmaceutical products and we do not expect to have such products for several years, if at all.
Research and development expenses for the three months ended September 30, 2022 and 2021 and 2020 was $5.8$5.7 million and $3.8$5.8 million, respectively. The increasedecrease of $2.0$0.1 million was primarily due to an increasea decrease of $1.8$0.5 million in chemistry, manufacturing, and controls (or CMC) costs primarily relating to a decrease in animal study costs, a decrease of $0.2 million for costs related to various ongoing studiesconsulting fees and clinical trials,outside services, and a $0.2 million decrease in stock compensation expense. This was offset by an increase of $0.6 million in chemical, manufacturingclinical trial costs relating to our current studies, and controls (CMC) related costs, a $0.3$0.2 million increase in employee compensation costs relateddue to an increase in headcount, and a $0.2 million increase in stock-based compensation costs. This was offset by a decrease of $0.9 million in consulting costs related to our phase 2a trial.headcount.
General and administrative expenses for the three months ended September 30, 20212022 and 20202021 was $2.7 million and $2.4$2.7 million, respectively. The slight increase of $0.3 million iswas primarily relateddue to an increase of $0.3$0.2 million for employee compensation due to an increase in stock-based compensation costs,headcount, a $0.1 million increase in insurancetravel costs, and a $0.1$0.5 million increase in employee compensation costs related to an increase in headcount thatprofessional, consulting, and outside services. This was offset by a $0.7 million decrease of $0.2in stock comp expense and a $0.1 million decrease in foreign taxes related to refundable foreign tax credits.


miscellaneous taxes.
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Comparison of the nine months ended September 30, 20212022 and 2020:2021:
Nine Months Ended
September 30,
Nine Months Ended
September 30,
20212020Change20222021Change
RevenuesRevenues$— $— $— Revenues$— $��� $— 
Costs and Expenses:Costs and Expenses:Costs and Expenses:
Research and developmentResearch and development13,485,061 9,370,176 4,114,885 Research and development25,753,211 13,485,061 12,268,150 
General and administrativeGeneral and administrative7,918,357 5,823,169 2,095,188 General and administrative9,962,704 7,918,357 2,044,347 
Loss from operationsLoss from operations(21,403,418)(15,193,345)(6,210,073)Loss from operations(35,715,915)(21,403,418)(14,312,497)
Other income (expense):Other income (expense):Other income (expense):
Interest expenseInterest expense(6,677)(16,159)9,482 Interest expense(7,652)(6,677)(975)
Change in fair value of derivative instruments – warrants and contingent consideration(1,579,089)(155,208)(1,423,881)
Change in fair value of contingent considerationChange in fair value of contingent consideration334,992 (1,590,000)1,924,992 
Loss before income taxesLoss before income taxes(22,989,184)(15,364,712)(7,624,472)Loss before income taxes(35,388,575)(23,000,095)(12,388,480)
Income tax (expense) benefitIncome tax (expense) benefit— (33,527)33,527 Income tax (expense) benefit— — — 
Net lossNet loss$(22,989,184)$(15,398,239)$(7,590,945)Net loss$(35,388,575)$(23,000,095)$(12,388,480)
We had no revenues during the nine months ended September 30, 20212022 and 2020,2021, respectively, because we do not have any commercial biopharmaceutical products and we do not expect to have such products for several years, if at all.
Research and development expenses for the nine months ended September 30, 2022 and 2021 and 2020 was $13.5$25.8 million and $9.4$13.5 million, respectively. The increase of $4.1$12.3 million was primarily due to an increase of $2.4$0.8 million for costs related to various ongoing studies and clinical trials, an increase of $0.6 million for CMC costs, a $0.7 million increase in employee compensation costs relatedrelating to an increase in headcount, and a $0.8$3.3 million increase in stock-based compensationclinical trial costs relating to our current studies, a $9.7 million increase in CMC costs primarily for drug manufacturing costs, and a $0.2 million increase in miscellaneous research costs. This was offset by a decrease of $0.4$0.3 million in stock compensation costs and a decrease of $1.3 million in consulting costs related to our phase 2a trial.costs.
General and administrative expenses for the nine months ended September 30, 2022 and 2021 and 2020 was $7.9$10.0 million and $5.8$7.9 million, respectively. The increase of $2.1$2.0 million was primarily related to an increase of $1.7$1.9 million for goodwill impairment (see Note 3 to the condensed consolidated financial statements), a $0.4 million increase in stock-based compensation costs related to an increase in headcount, a $0.3$0.1 million increase in insurance costs, a $0.2 million increase in consultingtravels costs, and a $0.3$0.8 million increase in employee compensation related to an increase in headcount.professional and consulting fees. This was offset by a decrease of $0.3$1.2 million in foreign taxes related to refundable foreign tax credits.stock compensation costs and a $0.2 million decrease in miscellaneous taxes.
Liquidity and Capital Resources
AsSources of Liquidity
We have funded our operations through September 30, 2021,2022 primarily through the issuance of convertible preferred stock, the issuance of convertible debt, and issuances of shares of our common stock through at-the market offerings.
On November 4, 2022, we entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain institutional investors, pursuant to which we agreed to issue and sell, in a private placement (the “Offering”), 1,900,000 shares of our Series F Convertible Redeemable Preferred Stock, par value $0.0001 per share (the “Series F Preferred Stock”), and 100,000 shares of our Series G Convertible Redeemable Preferred Stock, par value $0.0001 per share (the “Series G Preferred Stock,” and together with the Series F Preferred Stock, the “Preferred Stock”), at an offering price of $9.50 per share, representing a 5% original issue discount to the stated value of $10.00 per share, for gross proceeds of $20 million in the aggregate for the Offering, before the deduction of discounts, fees and offering expenses. The shares of Preferred Stock will be convertible, at a conversion price of $1.00 per share (subject in certain circumstances to adjustments), into shares of our common stock, par value $0.0001 per share, at the option of the holders and, in certain circumstances, by us. The Purchase Agreement contains customary representations, warranties and agreements by us and customary conditions to closing. The Offering closed on November 8, 2022.
Future Funding Requirements
We have no products approved for commercial sale. To date, we have devoted substantially all of our resources to organizing and staffing our company, business planning, raising capital, undertaking preclinical studies and clinical trials of our product candidate. As a result, we are not profitable and have incurred losses in each period since our inception in 2013. As of
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September 30, 2022, we had working capitalan accumulated deficit of $98.4 million compared$168.9 million. We expect to working capital of $38.0 million as of September 30, 2020. The increase of $60.4 million in working capital is primarily relatedcontinue to our offering in February 2021 offset by cash used in 2021.
Cash Flows
The following table summarizes our cash flowsincur significant losses for the following periods:foreseeable future. We anticipate that our expenses will increase substantially as we:
Nine Months Ended
September 30,
20212020
Net cash provided by (used in):
Operating activities$(23,842,214)$(11,639,794)
Investing activities(130,406)(9,243)
Financing activities81,977,015 11,437,399 
Net increase (decrease) in cash$58,004,395 $(211,638)
pursue the clinical and preclinical development of our current product candidate;
As of September 30, 2021,leverage our technologies to advance product candidates into preclinical and clinical development;
seek regulatory approvals for our product candidate that successfully complete clinical trials, if any;
attract, hire and retain additional clinical, quality control and scientific personnel;
establish our manufacturing capabilities through third parties and scale-up manufacturing to provide adequate supply for clinical trials and commercialization;
expand our operational, financial and management systems and increase personnel, including personnel to support our clinical development, manufacturing and commercialization efforts and our operations as a public company;
expand and protect our intellectual property portfolio;
establish a sales, marketing, medical affairs and distribution infrastructure to commercialize any products for which we had $98.7 million in cash. Net cash usedmay obtain marketing approval and intend to commercialize on our own or jointly;
acquire or in-license other product candidates and technologies; and
incur additional legal, accounting and other expenses in operating our business, including ongoing costs associated with operating as a public company.
Even if we succeed in commercializing our product candidate, we will continue to incur substantial research and development and other expenditures to potentially develop and market additional product candidates. We may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenue. Our prior losses and expected future losses have had and will continue to have an adverse effect on our stockholders’ equity and working capital.
We will require substantial additional financing and a failure to obtain this necessary capital could force us to delay, limit, reduce or terminate our product development programs, commercialization efforts or other operations.
Since our inception, we have invested a significant portion of our efforts and financial resources in research and development activities was $23.8 millionfor our non-replicating and replicating technologies and our product candidates derived from these technologies. Preclinical studies and clinical trials and additional research and development activities will require substantial funds to complete. We believe that we will continue to expend substantial resources for the nine months ended September 30, 2021 consisting primarilyforeseeable future in connection with the development of our net losscurrent product candidates and programs as well as any future product candidates we may choose to pursue, as well as the gradual gaining of $23.0 million. Changes in non-cash operating activities was $5.5 million, primarilycontrol over our required manufacturing capabilities and other corporate uses. These expenditures will include costs associated with conducting preclinical studies and clinical trials, obtaining regulatory approvals, and manufacturing and supply, as well as marketing and selling any products approved for stock-based compensationsale. In addition, other unanticipated costs may arise. Because the outcome of any preclinical study or clinical trial is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of our current or future product candidates.
Our future capital requirements depend on many factors, including:
the scope, progress, results and costs of researching and developing our current and future product candidate and programs, and of conducting preclinical studies and clinical trials;
the number and development requirements of other product candidates that we may pursue, and other indications for our current product candidate that we may pursue;
the stability, scale and yields during the manufacturing process as we scale-up production and formulation of our product candidate for later stages of development and commercialization;
the timing of, and the changecosts involved in, fair valueobtaining regulatory and marketing approvals and developing our ability to establish sales and marketing capabilities, if any, for our current and future product candidates we develop if clinical trials are successful;
our ability to establish and maintain collaborations, strategic licensing or other arrangements and the financial terms of such agreements;
the contingent consideration. Changes in working capital accounts hadcost of commercialization activities for our current and future product candidates that we may develop, whether alone or with a negative impact of $6.3 million on cash primarily for an increase in prepaid expenses, and for a decrease in accounts payable and accrued expenses.collaborator;
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Netthe costs involved in preparing, filing, prosecuting, maintaining, expanding, defending and enforcing patent claims, including litigation costs and the outcome of such litigation;
the timing, receipt and amount of sales of, or royalties on, our future products, if any; and
A change in the outcome of any of these or other variables with respect to the development of any of our current and future product candidates could significantly change the costs and timing associated with the development of that product candidate. Furthermore, our operating plans may change in the future, and we will need additional funds to meet operational needs and capital requirements associated with such operating plans.
We believe we have enough cash used in operating activities was $11.6 millionon hand to fund our operations for the next twelve months after the date of this Quarterly Report on Form 10-Q for the nine months ended September 30, 2020 consisting primarily of our net loss of $15.4 million. Changes in working capital accounts had a positive impact of $2.2 million on cash primarily for an increase in accounts payable and accrued expenses.
Net cash used in investing activities during the nine months ended September 30, 2021 was $0.1 million related to equipment purchases for research and development.
Net cash used in investing activities for the nine months ended September 30, 2020 was immaterial.
Net cash provided by financing activities was $82.0 million for the nine months ended September 30, 2021 due primarily to the issuance of common stock, net of issuance costs.
Net cash provided by financing activities was $11.4 million for the nine months ended September 30, 2020 due primarily to the issuance of common stock, net of issuance costs.
Common Stock Offerings during 2021
On February 16, 2021, we entered into an underwriting agreement (the “Underwriting Agreement”) with ThinkEquity, a division of Fordham Financial Management, Inc., as the representative (the “Representative”) of the underwriters listed therein (collectively, the “Underwriters”), with respect to an underwritten public offering (the “Offering”) of 44,200,000 shares of our common stock, par value $0.0001 (the “Shares”), at a public offering price of $2.00 per share, which resulted in net proceeds to us of $82.1 million, after deducting underwriting discounts and commissions and offering expenses payable by us. We intend to use the net proceeds from the Offering to fund our research and development activities and general corporate purposes, including working capital, operating expenses and capital expenditures. The Offering closed on February 18, 2021.
Operating and Capital Expenditure Requirements
As of September 30, 2021, we had an accumulated deficit of $127.1 million and expect to incur a significant increase in operating losses for the next several years as we expand our research, development and clinical trials of CRV431. We are unable to predict the extent of any future losses or when we will become profitable, if at all. We believe that our cash and cash equivalent balances are sufficient to fund our anticipated operating cash requirements for more than one year from the date of issuance of these condensed consolidated financial statements. These condensed consolidated financial statements have been prepared under the assumption that we will continue as a going concern.
2022. We will be required to raise additional capital in future years to continue the development and commercialization of our current product candidatescandidate and to continue to fund operations at the current cash expenditure levels. We cannot be certain that additional funding will be available on acceptable terms, or at all. To the extent that we raise additional funds by issuing equity securities, our stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that impact our ability to conduct, delay, scale back or discontinue the development and/or commercialization of one or more product candidates; (ii) seek collaborators for product candidates at an earlier stage than otherwise would be desirable and on terms that are less favorable than might otherwise be available; or (iii) relinquish or otherwise dispose of rights to technologies, product candidates or products that we would otherwise seek to develop or commercialize on unfavorable terms.
Cash Flows
Contractual ObligationsThe following table summarizes our cash flows for the following periods:
Nine Months Ended
September 30,
20222021
Net cash (used in) provided by:
Operating activities$(30,163,670)$(23,842,214)
Investing activities2,266 (130,406)
Financing activities(2,000,000)81,977,015 
Effect of exchange rates(42,370)— 
Net (decrease) increase in cash$(32,203,774)$58,004,395 
As of September 30, 2022, we had working capital of $58.2 million compared to working capital of $89.2 million as of December 31, 2021. The decrease of $31.0 million in working capital is primarily related to our cash spend for the nine months ended September 30, 2022.
Operating Activities:
As of September 30, 2022, we had $59.1 million in cash. Net cash used in operating activities was $30.2 million for the nine months ended September 30, 2022 consisting primarily of our net loss of $35.4 million. Changes in non-cash operating activities was $3.9 million, primarily for stock-based compensation, goodwill impairment and Commitmentsthe change in fair value of the contingent consideration. Changes in working capital accounts had a positive impact of $1.3 million on cash primarily for an increase in accounts payable and accrued expenses of $1.8 million offset by an increase in prepaid expenses of $0.5 million.
Please refer to Note 11Net cash used in operating activities was $23.8 million for the nine months ended September 30, 2021 consisting primarily of Notes to Condensed Consolidated Financial Statementsour net loss of $23.0 million. Changes in this Quarterly Reportnon-cash operating activities was $5.5 million, primarily for stock-based compensation and the change in fair value of the contingent consideration. Changes in working capital accounts had a negative impact of $6.3 million on Form 10-Qcash primarily for an increase in prepaid expenses, and for a descriptiondecrease in accounts payable and accrued expenses.
Investing Activities:
Net cash provided by investing activities was nominal during the nine months ended September 30, 2022.
Net cash used in investing activities for the nine months ended September 30, 2021 of our contractual obligations$0.1 million was related to lab equipment purchases for research and commitments.development.
Financing Activities:
Net cash used in financing activities was $2.0 million for the nine months ended September 30, 2022 for the contingent consideration milestone payment per the Ciclofilin acquisition merger agreement.
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Net cash provided by financing activities was $82.0 million for the nine months ended September 30, 2021 due primarily to the issuance of common stock, net of issuance costs.
OFF-BALANCE SHEET ARRANGEMENTS
We had no off-balance sheet arrangements as of September 30, 2022.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of disclosure controlsDisclosure Controls and procedures. Based onProcedures
We have performed an evaluation under the supervision and with the participation of our management, including our principal executive officer (CEO) and principal financial officer (CFO), of the effectiveness of our disclosure controls and procedures, (asas defined in RulesRule 13a-15(e) and 15d-15(e) ofunder the Securities Exchange Act of 1934, as amended) required by paragraph (b) of Rule 13a-15 or Rule 15d-15, as of September 30, 2021,amended (the “Exchange Act”). Based on that evaluation, our Principal Executive Officerprincipal executive officer and Principal Financial Officer haveprincipal financial officer concluded that due to the material weaknesses in our internal control over financial reporting, our disclosure controls and procedures were effective as of September 30, 2022 to provide reasonable assurance that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives as specified above. Management does not effective.expect, however, that our disclosure controls and procedures will prevent or detect all errors and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within our company have been detected.
Changes in Internal Control over Financial Reporting
As required by Rule 13a-15(d) of the Exchange Act,There was no change in our management, including our principal executive officer and our principal financial officer, conducted an evaluation of the internal controlcontrols over financial reporting to determine whether any changes occurred during the quarterthree months ended September 30, 20212022 that have materially affected, or areis reasonably likely to materially affect, our internal control over financial reporting. There have been no changes in our internal controls over
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financial reporting during the three months ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Remediation of Material Weaknesses
We are committed to the remediation of the material weaknesses as further described in our Annual Report on Form 10-K filed on March 31, 2021, as well as the continued improvement of our internal control over financial reporting. We are in the process of taking steps to remediate the identified material weaknesses and continue to evaluate our internal controls over financial reporting, including the following:
Control environment:
We are utilizing the services of external consultants to review our internal control environment and make recommendations to remediate the material weaknesses in our financial reporting.
Period end financial close and reporting:
We assessed our company wide accounting resource requirements and as a result have hired a Director of Financial Reporting with the appropriate technical accounting and financial reporting experience and recently hired 2 additional staff accountants in order to improve the overall efficiency of our accounting and reporting processes.
We have implemented several software solutions including software for the reporting of stock-based compensation and software related to public company reporting in order to improve our financial reporting process.
We are utilizing the services of external consultants for non-routine and\or technical accounting issues as they arise.
We are utilizing the services of external tax consultants to improve our reporting process for income taxes including deferred tax assets, deferred tax liabilities, income taxes payable and the related income tax expense.
We have engaged a third-party consultant to assist us in reviewing our business process internal controls and improving our internal control documentation. We are in the process of implementing the recommendations provided by the third-party to improve our controls.
As we continue our evaluation and improve our internal control over financial reporting, management may identify and take additional measures to address control deficiencies. We cannot assure you that we will be successful in remediating the material weaknesses in a timely manner.

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PART II. OTHER INFORMATION
ITEM 1A. RISK FACTORS
There have been no material changes from the risk factors disclosed in our Form 10-K for the year ended December 31, 2020.2021.
ITEM 6. EXHIBITS
101.INSXBRL Instance Document-the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCHXBRL Taxonomy Extension Schema
101.CALXBRL Taxonomy Extension Calculation Linkbase
101.DEFXBRL Taxonomy Extension Definition Linkbase
101.LABXBRL Taxonomy Label Linkbase
101.PREXBRL Taxonomy Extension Presentation Linkbase
104Cover Page Interactive Data File (formatted as Inline XBRL in Exhibit 101)

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
HEPION PHARMACEUTICALS, INC. (Registrant)
Date: 11/15/202114/2022By:/s/ ROBERT FOSTER
Robert Foster
Chief Executive Officer
(Principal Executive Officer)
Date: 11/15/202114/2022By:/s/ JOHN CAVAN
John Cavan
Chief Financial Officer
(Principal Financial and Accounting Officer)

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