| SIGNIFICANT ACCOUNTING POLICIES | 3. SIGNIFICANT
ACCOUNTING POLICIES A
summary of the significant accounting policies followed by the Company in the preparation of the financial statements is as follows: Use
of Estimates The
process of preparing financial statements in conformity with accounting principles generally accepted in the United States of
America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those estimates and changes in estimates may occur.
The most significant estimates are related to stock-based compensation, the accrual of research, product development and clinical
obligations, the recognition of revenue under the Investment Agreement (See Note 9), the valuation of the CFF and K2HV warrants
discussed in Note 12 and Note 7, and the derivative liability associated with the K2 Security and Loan agreement (see Note 7). Cash
and Cash Equivalents The
Company considers only those investments which are highly liquid, readily convertible to cash, and that mature within three months
from date of purchase to be cash equivalents. Marketable investments are those with original maturities in excess of three months.
At September 30, 2020 and December 31, 2019, cash equivalents were comprised of money market funds. The Company had no Restricted
cash as of September 30, 2020 included a collateral account for the Company’s corporate credit cards and is classified in
current assets in the amount of $ 250,000 769,900 100,000 669,900 Cash,
cash equivalents, and restricted stock consisted of the following: Schedule
of Cash and Cash Equivalents
September 30,
2020 December 31, 2019
Cash $ 3,962,572 $ 884,115
Money market fund 77,908,079 30,864,571
Cash and cash equivalents 81,870,651 $ 31,748,686
Restricted cash, current 350,000 —
Restricted cash, noncurrent 669,900 —
Restricted cash 1,019,900 —
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows $ 82,890,551 $ 31,748,686 As
of September 30, 2020, all of the Company’s cash and cash equivalents was held in the United States, except for approximately
$ 1,595,000
of cash which was held in our subsidiaries
in the United Kingdom and Australia. As of December 31, 2019, all of the Company’s cash was held in the United States, except
for approximately $ 466,000
of cash which was held in our subsidiaries
in the United Kingdom and Australia. Financial
Instruments The
carrying values of the notes payable and debt approximate their fair value due to the fact that they are at market terms. Fair
Value Measurements The
valuation of the company’s debt and embedded derivatives are determined primarily by an income approach that considers the
present value of net cash flows of the debt with and without prepayment and default features. In accordance with ASC 815 “ Accounting
for Derivative Instruments and Hedging Activities” Level
1 – Unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access
as of the measurement date Level
2 – Inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly
observable through corroboration with observable market data Level
3 – Unobservable inputs for the asset or liability only used when there is little, if any, market activity for the asset
or liability at the measurement date To
determine the fair value of our embedded derivatives, management evaluates assumptions regarding the probability of certain future
events. Other factors used to determine fair value include the discount rate, risk free interest rate and derivative term. The
fair value recorded for the derivative liability varies from period to period. This variability may result in the actual derivative
liability for a period either above or below the estimates recorded on our consolidated financial statements, resulting in fluctuations
in other income (expense) because of the corresponding non-cash gain or loss recorded. Property
and Equipment The
estimated life for the Company’s property and equipment is as follows: three years for computer hardware and software and
three to five years for office furniture and equipment. Research
and Development Expenses Costs
incurred for research and development are expensed as incurred. Nonrefundable
advance payments for goods or services that have the characteristics that will be used or rendered for future research and development
activities pursuant to executory contractual arrangements with third party research organizations are deferred and recognized
as an expense as the related goods are delivered or the related services are performed. Accruals
for Research and Development Expenses and Clinical Trials As
part of the process of preparing its financial statements, the Company is required to estimate its expenses resulting from its
obligations under contracts with vendors, clinical research organizations and consultants and under clinical site agreements in
connection with conducting clinical trials. The financial terms of these contracts are subject to negotiations, which vary from
contract to contract and may result in payment terms that do not match the periods over which materials or services are provided
under such contracts. The Company’s objective is to reflect the appropriate expenses in its financial statements by matching
those expenses with the period in which services are performed and efforts are expended. The Company accounts for these expenses
according to the timing of various aspects of the expenses. The Company determines accrual estimates by taking into account discussion
with applicable internal personnel and outside service providers as to the progress of clinical trials, or the services completed.
During the course of a clinical trial, the Company adjusts its clinical expense recognition if actual results differ from its
estimates. The Company makes estimates of its accrued expenses as of each balance sheet date based on the facts and circumstances
known to it at that time. The Company’s clinical trial accruals are dependent upon the timely and accurate reporting of
contract research organizations and other third-party vendors. Although the Company does not expect its estimates to be materially
different from amounts actually incurred, its understanding of the status and timing of services performed relative to the actual
status and timing of services performed may vary and may result in it reporting amounts that are too high or too low for any particular
period. For the three and nine months ended September 30, 2020 and 2019, there were no material adjustments to the Company’s
prior period estimates of accrued expenses for clinical trials. Leases The
Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”)
assets, other current liabilities and operating lease liabilities in the Company’s consolidated balance sheets. ROU
assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation
to make lease payments arising from the lease. ROU assets and liabilities are recognized at commencement date based on the present
value of lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company uses an
incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.
This is the rate the Company would have to pay if borrowing on a collateralized basis over a similar term to each lease. The ROU
asset also includes any lease payments made and excludes lease incentives. Lease expense for lease payments is recognized on a
straight-line basis over the lease term. Concentrations
of Credit Risk The
Company has no significant off-balance-sheet concentration of credit risk such as foreign exchange contracts, option contracts
or other hedging arrangements. The Company may from time to time have cash in banks in excess of Federal Deposit Insurance Corporation
insurance limits. However, the Company believes the risk of loss is minimal as these banks are large financial institutions. Segment
Information Operating
segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation
by the chief operating decision maker, or decision making group, in making decisions regarding resource allocation and assessing
performance. To date, the Company has viewed its operations and manages its business as principally one
operating segment, which is developing
and commercializing therapeutics to treat rare life-threatening, inflammatory fibrotic diseases. As of September 30, 2020 all
of the Company’s assets were located in the United States, except for approximately $ 1,595,000
of cash, $ 1,207,000
of prepaid expenses, and $ 30,000
of property and equipment, net which were
held outside of the United States, principally in our subsidiary in the United Kingdom. As of December 31, 2019, all of the Company’s
assets were located in the United States, except for approximately $ 466,000
of cash, $ 1,606,000
of prepaid expenses, $ 23,000
of other assets, and $ 52,000
of property and equipment, net which were
held outside of the United States, principally in our subsidiary in the United Kingdom. Income
Taxes For
federal and state income taxes, deferred tax assets and liabilities are recognized based upon temporary differences between the
financial statement and the tax basis of assets and liabilities. Deferred income taxes are based upon prescribed rates and enacted
laws applicable to periods in which differences are expected to reverse. A valuation allowance is recorded to reduce a net deferred
tax benefit when it is not more likely than not that the tax benefit from the deferred tax assets will be realized. Accordingly,
given the cumulative losses since inception, the Company has provided a valuation allowance equal to 100% Tax
positions taken or expected to be taken in the course of preparing the Company’s tax returns are required to be evaluated
to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority.
Tax positions not deemed to meet a more-likely-than-not threshold, as well as accrued interest and penalties, if any, would be
recorded as a tax expense in the current year. There were no Impairment
of Long-lived Assets The
Company continually monitors events and changes in circumstances that could indicate that carrying amounts of long-lived assets
may not be recoverable. An impairment loss is recognized when expected undiscounted cash flows of an asset are less than an asset’s
carrying value. Accordingly, when indicators of impairment are present, the Company evaluates the carrying value of such assets
in relation to the operating performance and future undiscounted cash flows of the underlying assets. An impairment loss equal
to the excess of the fair value of the asset over its carrying amount, is recorded when it is determined that the carrying value
of the asset may not be recoverable. No Stock-based
Payments The
Company recognizes compensation costs resulting from the issuance of stock-based awards to employees, non-employees and directors
as an expense in the statement of operations over the service period based on a measurement of fair value for each stock-based
award. The fair value of each option grant is estimated as of the date of grant using the Black-Scholes option-pricing model,
net of estimated forfeitures. The fair value of each option grant is amortized as compensation cost on a straight-line basis over
the requisite service period of the awards, which is generally the vesting period. Foreign
Currency Transaction
gains and losses arising from currency exchange rate fluctuations on transactions denominated in a currency other than the U.S.
Dollar functional currency are recorded in the Company’s statement of operations. Such transaction gains and losses may
be realized or unrealized depending upon whether the transaction settled during the period or remains outstanding at the balance
sheet date. Net
Loss Per Common Share Net
loss per share was computed as follows: Schedule of Computation of Net Loss Per Common Share
Three
Months Ended September
30 Nine
Months Ended September
30
2020 2019 2020 2019
Net loss $ (34,895,349 ) $ (20,790,801 ) $ (102,657,472 ) $ (44,872,957 )
Weighted average
number of common shares-diluted* 81,879,119 64,660,017 75,037,418 63,638,447
Net
loss per share of common stock-basic and diluted* $ (0.43 ) $ (0.32 ) $ (1.37 ) $ (0.71 )
* * Warrants
and options that have not been exercised have been excluded from the diluted calculation as all periods presented have a net
loss and the impact of these securities would be anti-dilutive Recent
Accounting Pronouncements Accounting
for Income Taxes In
December 2019, the FASB issued ASU 2019-12 , Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes Accounting
for Convertible Instruments and Contracts in an Entity’s Own Equity In
August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives
and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts
in an Entity’s Own Equity Collaborative
Arrangements In
November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic
808 and Topic 606 (“ASU 2018-18”) .
ASU 2018-18 clarifies the interaction between the accounting guidance for collaborative arrangements and revenue from contracts
with customers. . The Company’s as of January 1, 2019 . |
