| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The unaudited condensed consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”)
for interim financial statements and with Form 10-Q and Article 10 of Regulation S-X of the United States Securities and Exchange Commission
(“SEC”). Accordingly, they do not contain all information and footnotes required by GAAP for annual financial statements.
In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all the
adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of June 30, 2023
and the results of operations, changes in stockholders’ equity and cash flows for the periods presented. The results of operations
for the three and six months ended June 30, 2023 are not necessarily indicative of the operating results for the full fiscal year or any
future period. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated
financial statements and notes thereto, which are included in the Company’s Annual Report on Form 10-K for the year ended December
31, 2022. Reclassification Certain prior period amounts have been reclassified
to conform to the current period classification. Amounts received from the United States Internal Revenue Service (“IRS”)
for payroll tax credits have been reclassified from other income to operating expenses in the condensed consolidated statements of operations
to net the amounts with the related expense that was incurred with no changes in the previously reported net losses. Principles of Consolidation The consolidated financial statements include
the accounts of TFF Pharmaceuticals, Inc. and its wholly owned subsidiary, TFF Australia. All material intercompany accounts and transactions
have been eliminated in consolidation. Fair Value Option - Convertible Note Receivable The guidance in Accounting Standards Codification
(“ASC”) 825, Financial Instruments The decision to elect the fair value option is
determined on an instrument-by-instrument basis and must be applied to an entire instrument and is irrevocable once elected. Pursuant
to this guidance, assets and liabilities are measured at fair value based, in part, on general economic and stock market conditions and
those characteristics specific to the underlying investments. The carrying value is adjusted to estimated fair value at the end of each
quarter, required to be reported separately in our condensed consolidated balance sheets from those instruments using another accounting
method. Fair Value of Financial Instruments Authoritative guidance requires disclosure of
the fair value of financial instruments. The Company measures the fair value of certain of its financial assets and liabilities on a recurring
basis. A fair value hierarchy is used to rank the quality and reliability of the information used to determine fair values. Financial
assets and liabilities carried at fair value which is not equivalent to cost will be classified and disclosed in one of the following
three categories: Level 1 - Quoted prices (unadjusted)
in active markets for identical assets and liabilities. Level 2 - Inputs other than Level 1
that are observable, either directly or indirectly, such as unadjusted quoted prices for similar assets and liabilities, unadjusted quoted
prices in the markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially
the full term of the assets or liabilities. Level 3 - Unobservable inputs that are
supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Revenue Recognition Feasibility Agreements The Company has entered into feasibility and material
transfer agreements (“Feasibility Agreements”) with third parties that provide the Company with funds in return for certain
research and development activities. Revenue from the Feasibility Agreements is recognized in the period during which the related qualifying
services are rendered and costs are incurred, provided that the applicable conditions under the Feasibility Agreements have been met. The Feasibility Agreements are on a best-effort
basis and do not require scientific achievement as a performance obligation. All fees received under the Feasibility Agreements are non-refundable.
The costs associated with the Feasibility Agreements are expensed as incurred and are reflected as a component of research and development
expense in the accompanying consolidated statements of operations. Funds received from the Feasibility Agreements
are recorded as revenue as the Company is the principal participant in the arrangement because the activities under the Feasibility Agreements
are part of the Company’s development programs. In those instances where the Company first receives consideration in advance of
providing underlying services, the Company classifies such consideration as deferred revenue until (or as) the Company provides the underlying
services. In those instances where the Company first provides the underlying services prior to its receipt of consideration, the Company
records a grant receivable. Grants The Company accounts for grants awarded from a
government-sponsored entity for research and development related activities that provide for payments for reimbursed costs, which includes
overhead and general and administrative costs, as well as an administrative fee. The Company recognizes revenue from grants as it performs
services under the arrangements. Associated expenses are recognized when incurred as research and development expense. Revenue and related
expenses are presented gross in the consolidated statements of operations. Research and Development Tax Incentive The Company is eligible to obtain a cash refund
from the Australian Taxation Office for eligible research and development expenditures under the Australian R&D Tax Incentive Program
(the “Australian Tax Incentive”). The Company recognizes the Australian Tax Incentive when there is reasonable assurance that
the cash refund will be received, the relevant expenditure has been incurred, and the consideration can be reliably measured. As the Company has determined that it has reasonable
assurance that it will receive the cash refund for eligible research and development expenditures, the Company records the Australian
Tax Incentive as a reduction to research and development expenses as the Australian Tax Incentive is not dependent on the Company generating
future taxable income, the Company’s ongoing tax status, or tax position. At each period end, management estimates the refundable
tax offset available to the Company based on available information at the time. This percentage of eligible research and development expenses
reimbursable under the Australian Tax Incentive is 43.5% for the periods ended June 30, 2023 and 2022. In addition, the Company is also
eligible to receive amounts from the United States Internal Revenue Service (“IRS”) related to research and development tax
credits for expenditures. The research and development incentive receivable
represents amounts due in connection with the Australian Tax Incentive and from the IRS. The Company has recorded a research and development
tax incentive receivable of $284,169 and $186,507 as of June 30, 2023 and December 31, 2022, respectively, in the condensed consolidated
balance sheets. The Company recorded a reduction to research and development expenses of $96,560 and $122,269 during the three and six
months ended June 30, 2023, respectively. The Company recorded an increase to research and development expenses as a result of exchange
rate changes and adjustments to the estimated amount to be received of $28,834 during the three months ended June 30, 2022 and a reduction
to research and development expenses of $144,667 during the six months ended June 30, 2022. Basic and Diluted Earnings per Common Share Basic net loss per common share is calculated
by dividing the net loss by the weighted-average number of common shares outstanding for the period. Diluted net loss per share is computed
by dividing the net loss by the weighted-average number of common shares and dilutive share equivalents outstanding for the period, determined
using the treasury-stock and if-converted methods. Since the Company has had net losses for all periods presented, all potentially dilutive
securities are anti-dilutive. For the six months ended June 30, 2023 and 2022,
the Company had the following potential common stock equivalents outstanding which were not included in the calculation of diluted net
loss per common share because inclusion thereof would be anti-dilutive:
For The Six Months Ended
2023 2022
Stock Options 5,283,289 2,996,553
Warrants 5,747,792 414,233
11,031,081 3,410,786
* On an as-converted basis Use of Estimates The preparation of condensed consolidated financial
statements in conformity with GAAP requires the Company’s 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 financial statements and the
reported amounts of expenses during the reporting period. Significant estimates include the fair value of the convertible note receivable,
stock-based compensation and warrants and the valuation allowance against deferred tax assets and related disclosures. Actual results
could differ from those estimates. Risks and Uncertainties The Company’s business may be adversely
affected by the continuing fallout from the COVID-19 pandemic. While the COVID-19 pandemic has abated in the last several months, many
of the consequences of the COVID-19 pandemic continue to cause disruption and increased costs for businesses. In the case of clinical
stage biopharmaceutical companies, the Company believes there continue to be, among other things, supply chain disruptions that are causing
delays in the delivery of drug candidates and comparator products and healthcare staffing shortages that are causing delays in the establishment
of test sites and the conduct of clinical trials. Potential impacts to the Company’s business
include, but are not limited to, temporary closures of facilities of its vendors, disruptions or restrictions on its employees’
ability to travel, disruptions to or delays in ongoing laboratory experiments, preclinical studies, clinical trials, third-party manufacturing
supply and other operations, the supply of comparator products, the potential diversion of healthcare resources and staff away from the
conduct of clinical trials to focus on pandemic concerns, interruptions or delays in the operations of the U.S. Food and Drug Administration
or other regulatory authorities, and the Company’s ability to raise capital and conduct business development activities. During 2020, the Company experienced a temporary
suspension of dosing in the Phase I clinical trial for TFF TAC due to the COVID-19 pandemic and the pandemic has otherwise caused minor
slowing in the timing of certain non-clinical and clinical activities by the Company and its collaborators and service providers during
2020 to date. However, the COVID-19 pandemic has not caused the Company to forego, abandon or materially delay any proposed activities.
While the Company believes it has been able to effectively manage the disruption caused by the COVID-19 pandemic to date, there can be
no assurance that its operations, including the development of its drug candidates, will not be disrupted or materially adversely affected
in the future by the COVID-19 pandemic or an epidemic or outbreak of an infectious disease like the outbreak of COVID-19. In February 2022, Russia commenced a military invasion of Ukraine causing
ongoing geopolitical turmoil, including continuing military action in the region and sanctions imposed on Russia. These and other events have caused and may continue
to cause significant disruption, instability and volatility in the global economy and financial markets, resulting in inflation, rising
interest rates, tightening of credit markets and bank failures, the actual or anticipated occurrence of which may have an adverse impact
on the Company’s business or ability to access capital markets in the future. On March 2, 2023, the Company received a notice
of delisting from the Nasdaq Stock Market, LLC. The notice stated that the Company had fallen below compliance with respect to the continued
listing standard set forth in Rule 5450(a)(1) of the Nasdaq Listing Rules because the closing bid price of our common stock over the previous
30 consecutive trading-day period had fallen below $1.00 per share. Pursuant to the notice and Rule 5810(c)(3)(A)
of the Nasdaq Listing Rules, the Company has 180 days from the date of the notice, or until August 29, 2023, to regain compliance with
the minimum bid price requirement in Rule 5450(a)(1) by achieving a closing bid price for its common stock of at least $1.00 per share
over a minimum of 10 consecutive business days. If the Company does not regain compliance with Rule 5450(a)(1) during the initial 180-day
period, it may be eligible for additional time to regain compliance, subject to its transfer to the Nasdaq Capital Market and compliance
with the Nasdaq’s continued listing requirement for market value of publicly held shares and all other initial listing standards
for The Nasdaq Capital Market, with the exception of the bid price requirement, and our provision of certain undertakings to the Nasdaq.
However, there can be no assurance that the Company will be afforded additional time to regain compliance with the minimum bid price requirement
following the initial 180-day period. If the Company is unable to regain compliance with Nasdaq Listing Rule 5450(a)(2) in a timely manner,
the Nasdaq will commence suspension and delisting procedures. Recent Accounting Standards In August 2020, the Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-06, Debt - Debt with Conversion and Other
Options (Subtopic 470-20) and Derivatives and Hedging -Contracts in Entity’ Own Equity (Subtopic 815-40): Accounting for Convertible
Instruments and Contracts in an Entity’ Own Equity In June 2016, the FASB issued ASU 2016-13, Fin ancial
Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments The Company’s management does not believe
that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the consolidated
financial statements. |
