| 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 September
30, 2024 and the results of operations, changes in stockholders’ equity and cash flows for the periods presented. The results of
operations for the three and nine months ended September 30, 2024 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, 2023. Reclassification Certain
prior period amounts have been reclassified to conform to the current period classification. Grant revenues have been reflected separately
from feasibility revenues in the condensed consolidated statements of operations 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. Investment in Equity Security The Company’s investment in Vaxanix is a
non-marketable equity security. This investment does not have a readily determinable fair value, therefore the Company has elected to
measure the investment at cost less any impairment, adjusted to fair value if there are observable price changes in orderly transactions
for an identical or similar investment of the same issuer, in accordance with ASC 321 , Investments Equity Securities At each reporting period, the Company makes a
qualitative assessment considering impairment indicators to evaluate whether the investment is impaired. If a qualitative assessment indicates
the investment is impaired, the Company estimates the investment’s fair value. If the fair value is less than the investment’s
carrying value, an impairment charge is recorded in the condensed consolidated statements of operations equal to the difference between
the carrying value and fair value and a new basis in the investment is established. 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 Expenses and Related Prepaid and Accrued
Expenses Research and development (“R&D”)
expenses consist of costs incurred for R&D of its product candidate and are recorded to operating expenses when incurred. The Company’s
R&D expenses consist primarily of costs incurred in performing R&D activities, including personnel-related expenses such as salaries,
stock-based compensation and benefits, as well as facilities costs, dues and subscriptions and external costs of outside vendors engaged
as contract research organization, contract manufacturers, consultants and other third parties to conduct and support our clinical trials.
The Company accrues expenses related to development activities performed by third parties based on an evaluation of services received
and efforts expended pursuant to the terms of the contractual arrangements. Payments under some of these contracts depend on clinical
trial milestones. There may be instances in which payments made to the Company’s vendors will exceed the level of services provided
and result in a prepayment of expenses. In accruing service fees, the Company estimates the time period over which services will be performed
and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies
from the estimate, the Company will adjust the accrual or prepaid expense accordingly. 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 three and nine months ended September 30, 2024 and 2023. 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 $309,825 and $433,852 as of September 30, 2024 and December 31, 2023, respectively, in the condensed consolidated
balance sheets. The Company recorded a reduction to research and development expenses of $121,709 and $347,972 during the three and nine
months ended September 30, 2024, and $88,947 and $211,785 during the three and nine months ended September 30, 2023, respectively. 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. Basic weighted average shares outstanding for the three and nine months ended September 30, 2024 include
896,000 shares underlying warrants to purchase common shares. As the shares underlying these warrants can be issued for little consideration
(exercise price of $0.0001 per share), these shares are deemed to be issued for purposes of basic earnings per share. For the nine months ended September 30, 2024 and
2023, 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 Nine Months Ended
2024 2023
Stock Options 298,919 213,113
Warrants 2,187,825 248,216
2,486,744 461,329 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
prior to its conversion, stock-based compensation and warrants, the valuation of the investment in a non-marketable equity security and
the valuation allowance against deferred tax assets. Actual results could differ from those estimates. Stock-Based Compensation The Company computes stock-based compensation
in accordance with authoritative guidance. The Company uses the Black-Scholes-Merton option-pricing model to determine the fair value
of its stock options. The Black-Scholes-Merton option-pricing model includes various assumptions, including the fair market value of the
common stock of the Company, expected life of stock options, the expected volatility and the expected risk-free interest rate, among others.
These assumptions reflect the Company’s best estimates, but they involve inherent uncertainties based on market conditions generally
outside the control of the Company. As a result, if other assumptions had been used,
stock-based compensation cost, as determined in accordance with authoritative guidance, could have been materially impacted. Furthermore,
if the Company uses different assumptions on future grants, stock-based compensation cost could be materially affected in future periods. The grant-date fair value of restricted stock
units (“RSUs”) equals the mean of the high and low sales prices of the Company’s common stock on the grant date. Recent Accounting Standards In November 2023, the FASB issued ASU No. 2023-07,
Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures In December 2023, the FASB issued ASU No. 2023-09,
Income Taxes (Topic 740): Improvements to Income Tax Disclosures 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. |
