| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use
of Estimates and Assumptions Preparation
of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the
amounts reported in the consolidated financial statements and disclosed in the accompanying notes. Actual results may differ from those
estimates and such differences may be material to the consolidated financial statements. The more significant estimates and assumptions
by management include, but are not limited to, the expense recognition for certain research and development services, the valuation allowance
of deferred tax assets resulting from net operating losses, the valuation of common stock, warrants, options to purchase the Company’s
common stock, and the notes payable. Cash
and Cash Equivalents For
purposes of the consolidated balance sheets and consolidated statements of cash flows, the Company considers all highly liquid instruments
with maturity of three months or less at the time of issuance to be cash equivalents. Concentrations
of credit risk and off-balance sheet risk Cash
and cash equivalents are financial instruments that are potentially subject to concentrations of credit risk. The Company’s cash
and cash equivalents are deposited in accounts at large financial institutions, and amounts may exceed federally insured limits. The
Company believes it is not exposed to significant credit risk due to the financial strength of the depository institutions in which the
cash and cash equivalents are held. The Company has no financial instruments with off-balance sheet risk of loss. Property
and Equipment Property
and equipment include office and laboratory equipment that is recorded at cost and depreciated using the straight-line method over the
estimated useful lives of five to six years. Depreciation expense of $ 50
and $ 151
was recognized for the three and nine months
ended September 30, 2021, respectively. Depreciation expense of $ 50
and $ 149
was recognized for the three and nine months
ended September 30, 2020, respectively. Depreciation expense is classified in general and administrative expense in the accompanying
consolidated statements of operations. Property
and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets
might not be recoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable
market value of an asset, a significant change in the extent or manner in which an asset is used, or a significant adverse change that
would indicate that the carrying amount of an asset or group of assets is not recoverable. For long-lived assets to be held and used,
the Company will recognize an impairment loss only if the carrying amount is not recoverable through its undiscounted cash flows and
measure any impairment loss based on the difference between the carrying amount and estimated fair value. There were no such losses for
the three and nine months ended September 30, 2021 and 2020. Derivative
Financial Instruments The
Company does not use derivative instruments to hedge exposures to interest rate, market, or foreign currency risks. The Company evaluates
all of its financial instruments, including notes payable, to determine whether such instruments are derivatives or contain features
that qualify as embedded derivatives. Embedded derivatives must be separately measured from the host contract if all the requirements
for bifurcation are met. The assessment of the conditions surrounding the bifurcation of embedded derivatives depends on the nature of
the host contract and the features of the derivatives. Bifurcated embedded derivatives are recognized at fair value, with changes in
fair value recognized in the consolidated statement of operations each period. Bifurcated embedded derivatives are classified with the
related host contract in the Company’s consolidated balance sheet. Between
January 2018 and January 2021, the Company entered into a series of notes that were determined to have embedded derivative instruments
in the form of a contingent put option. The notes are recognized at the value of proceeds received after allocating issuance proceeds
to the bifurcated contingent put option. The notes are subsequently measured at amortized cost using the effective interest method to
accrete interest over their term to bring the notes’ initial carrying value to their principal balance at maturity. The bifurcated
put option is initially measured at fair value and subsequently measured at fair value with changes in fair value recognized as a component
of other expenses in the consolidated statements of operations (see Note 7). The notes and the contingent put option are classified as
either long-term or short-term liabilities based on the maturity date of the related loan. All
outstanding derivative liabilities were settled in connection with the conversion of outstanding notes payable on June 30, 2021. Refer
to Note 7 for details of the conversion. Fair
Value Measurement ASC
820, Fair Value Measurements The
accounting guidance classifies fair value measurements in one of the following three categories for disclosure purposes:
Level
1: Quoted
prices in active markets for identical assets or liabilities.
Level
2: Inputs
other than Level 1 prices for similar assets or liabilities that are directly or indirectly observable in the marketplace.
Level
3: Unobservable
inputs which are supported by little or no market activity and values determined using pricing models, discounted cash flow methodologies,
or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation. The
Company evaluates assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level at
which to classify them for each reporting period. This determination requires significant judgments to be made by the Company. ASC
820 requires all entities to disclose the fair value of financial instruments, both assets and liabilities, for which it is practicable
to estimate fair value, and defines fair value of a financial instrument as the amount at which the instrument could be exchanged in
a current transaction between willing parties. As of September 30, 2021 and December 31, 2020, the recorded values of cash and cash equivalents,
prepaid expenses, accounts payable, and accrued expenses and other liabilities approximate their fair values due to the short-term nature
of these items. Convertible
notes On
September 24, 2021, the Company issued convertible notes with a face value of $ 5.3 The
carrying value of outstanding notes payable at December 31, 2020 approximates the estimated aggregate fair value as the embedded contingent
put option is recognized at fair value and classified with the debt host. The put option allows certain notes payable to be converted
into common stock, contingent upon completion of an equity financing transaction with gross proceeds above certain thresholds. The fair
value estimate of the embedded put option is based on the probability-weighted discounted value of the put feature and represents a Level
3 measurement. Significant assumptions used to determine the fair value of the put feature include the estimated probability of exercise
of the put option and the discount rate used to calculate fair value. The estimated probability of exercise is based on management’s
expectation for future equity financing transactions. The discount rate is based on the weighted average effective yield of notes payable
previously issued by the Company, adjusted for changes in market yields of healthcare sector CCC-rated debt. As of December 31, 2020,
assumptions included a probability of exercise of the put option of 10 %
and a discount rate of 42.9 %.
As noted above, all outstanding derivative liabilities were settled upon the conversion of outstanding notes payable upon the consummation
of the Business Combination. Refer to Note 7 for details of the conversion. Warrants On
September 24, 2021, the Company issued liability classified warrants in connection with the issuance of convertible notes. The Company
uses a Black Scholes model to estimate the fair value of the warrants, which relies on unobservable Level 3 inputs. Changes in the fair
value of the warrants are recognized through earnings for each reporting period. Refer to Note 8. The
following tables present assets and liabilities measured and recorded at fair value on the Company’s consolidated balance sheet
as of September 30, 2021 and December 31, 2020. As of September 30, 2021, all contingent put options were settled upon conversion of
the notes at the closing of the Business Combination. SCHEDULE
OF ASSETS AND LIABILITIES MEASURED AT FAIR VALUE
September
30, 2021
Total Level
1 Level
2 Level
3
Convertible note $ 4,233,318 $ - $ - $ 4,233,318
Liability classified warrants 620,718 - - 620,718
Total $ 4,854,036 $ $ $ 4,854,036
December
31, 2020
Total Level
1 Level
2 Level
3
Contingent
put option $ 670,262 $ - $ - $ 670,262
Total $ 670,262 $ $ $ 670,262 The
following table summarizes the change in fair value of the Company’s Level 3 assets and liabilities: SCHEDULE
OF CHANGE IN FAIR VALUE OF COMPANY’S LEVEL 3
For the nine months ended September 30, 2021
Total Contingent put option Convertible notes Liability classified warrants
Fair value, December 31, 2020 $ 670,262 $ 670,262 $ - $ -
Additions 6,333,273 3,052 5,304,417 1,025,804
Change in fair value (2,149,499 ) (673,314 ) (1,071,099 ) (405,086 )
Fair value, September 30, 2021 $ 4,854,036 $ - $ 4,233,318 $ 620,718 Federal
Grants In
September 2018, the National Institutes of Health (“NIH”) through the National Institute on Drug Abuse awarded the Company
a research and development grant related to the development of its MPAR TM 5.4
million ($ 3.2
million and $ 2.2
million in years 1 and 2 respectively) of which
the Company must contribute $ 1.1
million in the first year of the grant. In August
2019, the grant was amended such that the approved budget for the two-year period decreased to approximately $ 5.1
million ($ 2.1
million and $ 3.0
million in years 1 and 2, respectively). In June
2021, the Company received a Notice of Award for an additional $ 2.8
million of funding in year 3 under the MPAR Grant
beginning July 1, 2021. In
September 2019, the NIH/National Institute on Drug Abuse awarded the Company a second research and development grant related to the development
of its TAAP/MPAR TM 5.4
million. The
Company concluded the government grants are not within the scope of Accounting Standards Codification Topic 606, Revenue from Contracts
with Customers Not-for-Profit-Entities-Revenue Recognition The
revenue recognized under the MPAR Grant and OUD Grant was as follows: SCHEDULE
OF REVENUE RECOGNIZATION UNDER GRANTS
Three
Months Ended September 30, Nine
Months Ended September 30,
2021 2020 2021 2020
MPAR $ 1,119,312 $ 458,883 $ 1,246,424 $ 2,853,899
OUD 81,504 368,756 649,483 660,821
Total $ 1,200,816 $ 827,639 $ 1,895,907 $ 3,514,720 Amounts
requested or eligible to be requested through the NIH payment management system, but for which cash has not been received, are presented
as an unbilled receivable on the Company’s consolidated balance sheet. As all amounts are expected to be remitted timely, no valuation
allowances are recorded. Research
and Development Costs The
Company’s research and development expenses consist primarily of third-party research and development expenses, consulting expenses,
animal and clinical studies, and any allocable direct overhead, including facilities and depreciation costs, as well as salaries, payroll
taxes, and employee benefits for those individuals directly involved in ongoing research and development efforts. Research and development
expenses are charged to expense as incurred. Payments made prior to the receipt of goods or services to be used in research and development
are capitalized until the goods or services are received. General
and Administrative Expenses General
and administrative expenses consist primarily of personnel costs associated with the Company’s executive, finance, human resources,
compliance, and other administrative personnel, as well as accounting and legal professional services fees. Stock-based
Compensation The
Company expenses stock-based compensation over the requisite service period based on the estimated grant-date fair value of the awards
using a graded amortization approach. The Company accounts for forfeitures as they occur. The
Company estimates the fair value of stock option grants using the Black-Scholes option pricing model. The assumptions used in calculating
the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application
of management’s judgment. For the three and nine months ended September 30, 2021 and 2020, stock-based compensation costs are recorded
in general and administrative expenses in the consolidated statements of operations. From
time-to-time equity classified awards may be modified. On the modification date, the Company estimates the fair value of the awards
immediately before and immediately after modification. The incremental increase in fair value is recognized as expense immediately
to the extent the underlying equity awards are vested and on a straight-line basis over the same remaining amortization schedule as
the unvested underlying equity awards. Income
Taxes Income
taxes are recorded in accordance with ASC 740, Income Taxes The
Company accounts for uncertain tax positions in accordance with the provisions of ASC 740. When uncertain tax positions exist, the Company
recognizes the tax benefit of tax positions to the extent that the benefit would more likely than not be realized assuming examination
by the taxing authority. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical
merits of the tax position as well as consideration of the available facts and circumstances. The Company recognizes any interest and
penalties accrued related to unrecognized tax benefits as income tax expense. Earnings
per Share The
basic earnings per share is calculated by dividing the Company’s net income or loss attributable to common stockholders by the
weighted average number of common shares outstanding during the period. The diluted earnings per share is calculated by dividing the
Company’s net earnings attributable to common stockholders by the diluted weighted average number of common shares outstanding
during the period, determined using the treasury stock method and the average stock price during the period. A reconciliation of the
numerators and denominators of the basic and diluted earnings per share calculations follows: SCHEDULE OF EARNINGS PER SHARE RECONCILIATION
2021 2020
Three
Months Ended September
30, Nine
Months Ended September
30,
2021 2020 2021 2020
Numerator:
Net income
(loss) attributable to common stockholders $ (17,163,525 ) $ 1,570,520 $ (19,046,800 ) $ (157,225 )
Denominator:
Weighted average shares outstanding, basic 24,255,786 15,768,725 18,755,252 15,768,725
Weighted average
dilutive stock options - 1,080,697 - -
Weighted average
shares outstanding, diluted 24,255,786 16,849,422 18,755,252 15,768,725
Net income (loss) per share attributable
to common stockholders, basic $ (0.71 ) $ 0.10 $ (1.02 ) $ (0.01 )
Net income (loss) per share attributable
to common stockholders, diluted (0.71 ) 0.09 (1.02 ) (0.01 ) The
following weighted average shares have been excluded from the calculations of diluted weighted average common shares outstanding because
they would have been anti-dilutive: SCHEDULE
OF WEIGHTED AVERAGE SHARES OF ANTI-DILUTIVE SECURITIES
Three
Months Ended September 30, Nine
Months Ended September 30,
2021 2020 2021 2020
Stock options 4,444,068 2,647,342 4,516,652 5,851,008
Warrants 20,019,056 19,755 6,710,625 19,755
Total 24,463,124 2,667,097 11,227,277 5,870,763 Recently
Issued Accounting Pronouncements In
December 2019, the FASB issued ASU No. 2019-12, Income Taxes (“ASU 2019-12”), which simplifies the accounting for income
taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intra-period tax allocation, the methodology
for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The
new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the
accounting for transactions that result in a step-up in the tax basis of goodwill. The guidance is effective for fiscal years beginning
after December 31, 2021 and interim periods within that year. Early adoption is permitted. The Company is evaluating the impact of ASU
2019-12 on the consolidated financial statements. In
August 2020, the FASB issued ASU No. 2020-06, Debt – Debt with Conversion and Other Options (Topic 470) to address issues identified
as a result of the complexity with applying GAAP for certain financial instruments with characteristics of liabilities and equity. The
FASB decided to reduce the number of accounting models for convertible debt instruments and convertible preferred stock, resulting in
fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Certain types of
convertible instruments will continue to be subject to separation models: (a) those with embedded conversion features that are not clearly
and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from
derivative accounting and (b) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in
capital. For convertible instruments, the contracts primarily affected are those with beneficial conversions or cash conversion features
as the accounting models for those specific features have been removed. For contracts in an entity’s own equity, the contracts
primarily affected are freestanding instruments and embedded features that are accounted for as derivatives due to a failure to meet
the settlement conditions of the derivatives scope exceptions. The FASB simplified the settlement assessment by removing the requirements
to (a) consider whether the contract would be settled in registered shares, (b) to consider whether collateral is required to be posted,
and (c) assess shareholder rights. The FASB also decided to enhance information transparency by making targeted improvements to the disclosures
for convertible instruments and earnings-per-share guidance. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023
and early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. Entities must adopt the guidance
as of the beginning of its annual fiscal year and a modified retrospective or fully retrospective transition approach is permitted. The
Company is evaluating the impact of ASU 2020-06 on the consolidated financial statements. |
