What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-02-14 compared with 2021-03-29 · 196 added, 698 removed, 33 unchanged (96% of the section changed)

DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion

and analysis of our financial condition and results of operations together with our financial statements and related notes beginning

on page F-1 of this Annual Report.

Some of the information contained in this discussion and analysis or set forth elsewhere in

this Annual Report, including information with respect to our plans and strategy for our business and related financing, includes

forward-looking statements that involve risks and uncertainties.

As a result of many factors, including those factors set forth

in the section entitled “Item 1A.

Risk Factors” of this Annual Report, our actual results could differ materially from

the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

We are a biopharmaceutical company primarily

focused on the development and commercialization of proprietary biopharmaceutical products.

Our only clinical-stage product currently

under development is ADAIR, a proprietary, abuse-deterrent oral formulation of immediate-release (short-acting) dextroamphetamine

for the treatment of Attention-deficit/hyperactivity disorder (“ ADHD ”), and Narcolepsy.

In the future, we plan

to develop other abuse-deterrent products that have potential for abuse in their current forms, beginning with the development

of ADMIR, an abuse deterrent formulation of Ritalin, for which we are conducting formulation development work.

The ADAIR assets were acquired by us on

June 22, 2018 pursuant to the terms and conditions of the Amended and Restated Asset Purchase Agreement with Arcturus Therapeutics,

(the successor to Arcturus Therapeutics Ltd., referred to herein as “

Arcturus ”), and Amiservice Development

Ltd., dated as of June 22, 2018 (the “ Asset Purchase Agreement ”).

In exchange for the ADAIR assets, we

issued 843,750 shares of our common stock to Arcturus (valued at approximately $1.4 million based upon the price at which

the common stock was issued and sold in the June 2018 private placement transaction described below under the heading “Financing

Activities”) which comprised 30% of our then-outstanding common stock on a fully diluted basis.

On January 6, 2020, we entered into

a license agreement with Medice, who is affiliated with one of our principal stockholders, Salmon Pharma, and represented by one

member of our board of directors, which grants Medice an exclusive license, with the right to grant sublicenses, to develop, use,

manufacture, market and sell ADAIR throughout Europe.

Medice currently markets several ADHD products in Europe and is the ADHD

market leader in Europe based on branded prescription market share.

Medice is responsible for obtaining regulatory approval of

ADAIR in the licensed territory.

Under the license agreement, Medice paid us a minimal upfront payment and will pay milestone payments

of up to $6.3 million in the aggregate upon first obtaining regulatory approval to market and sell ADAIR in any country, territory

or region in the licensed territory and upon achieving certain annual net sales thresholds.

Medice will also pay tiered royalties

on annual net sales of ADAIR at rates in the low double-digits.

The initial term of the license agreement will expire five years

after the date on which Medice first obtains regulatory approval in any country, territory or region in the licensed territory.

Our objective is to develop and commercialize

proprietary biopharmaceutical products.

To this effect, we intend to develop and seek marketing approvals from the FDA and other

worldwide regulatory bodies for ADAIR, and any other products we opt to pursue in the future, such as ADMIR.

To achieve these objectives,

seek the necessary regulatory approvals to complete the clinical development of ADAIR for the

treatment of ADHD and, if successful, file for marketing approval in the United States and other territories;

prepare to commercialize ADAIR by establishing independent distribution capabilities or in

conjunction with other biopharmaceutical companies in the United States and other key markets;

commence development of other abuse-deterrent products such as ADMIR;

continue our business development activities and seek partnering, licensing, merger and

acquisition opportunities or other transactions to further develop our pipeline and drug-development capabilities and take

advantage of our financial resources for the benefit of increasing stockholder value.

Emerging growth companies can delay

adopting new or revised accounting standards until such time as those standards apply to private companies.

Therefore, we may

not be subject to the same new or revised accounting standards as other public companies that are not “emerging growth

companies.” For as long as we continue to be an emerging growth company, we also intend to take advantage of certain

other exemptions from various reporting requirements that are applicable to other public companies including, but not limited

to, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, exemptions

from the requirements of holding a nonbinding advisory stockholder vote on executive compensation, and any golden parachute

payments not previously approved, exemption from the requirement of auditor attestation in the assessment of our internal

control over financial reporting and exemption from any requirement that may be adopted by the Public Company Accounting

Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional

information about the audit and the financial statements (auditor discussion and analysis).

After we become a reporting

company under the Exchange Act, we will remain an emerging growth company until the earliest of (i) the end of the

fiscal year in which the market value of our common stock that is held by non-affiliates exceeds $700 million as of the

end of the second fiscal quarter, (ii) the end of the fiscal year in which we have total annual gross revenues of

$1.07 billion or more during such fiscal year, (iii) the date on which we issue more than $1 billion in

non-convertible debt in a three-year period, or (iv) the end of the fiscal year following the fifth anniversary of the

date of the first sale of our Common Stock pursuant to an effective registration statement filed under the Securities

The global COVID-19 pandemic continues to

rapidly evolve, and we will continue to monitor the COVID-19 situation closely.

The COVID-19 pandemic caused some delays at our

clinical trial sites, CROs, and third-party manufacturers, which in turn resulted in some delays in the FDA approval process;

these delays have been largely remediated.

However, the extent of the impact of the COVID-19 on our business, operations and clinical

development timelines and plans remains uncertain, and will depend on certain developments, including the duration and spread of

the outbreak and its future impact on our clinical trial enrollment, clinical trial sites, CROs, third-party manufacturers, and

other third parties with whom we do business, as well as its impact on regulatory authorities and our key scientific and management

The ultimate impact of the COVID-19 pandemic or a similar health epidemic is highly uncertain and subject to change.

To the extent possible, we are conducting business as usual, with necessary or advisable modifications to employee travel and with

most of our employees and consultants working remotely.

We will continue to actively monitor the rapidly evolving situation related

to COVID-19 and may take further actions that alter our operations, including those that may be required by federal, state or local

authorities, or that we determine are in the best interests of our employees and other third parties with whom we do business.

At this point, the extent to which the COVID-19 pandemic may affect our business, operations and clinical development timelines

and plans, including the resulting impact on our expenditures and capital needs, remains uncertain.

Reverse Split

On February 10, 2021, the Company filed

a certificate of amendment to its amended and restated certificate of incorporation with the Secretary of State of the State of

Delaware, which effected a one-for-40 reverse stock split (the “ reverse split ”) of its issued and outstanding

shares of common stock at 11:59 PM Eastern Time on that date.

As a result of the reverse split, every 40 shares of common stock

issued and outstanding were reclassified into one share of common stock.

No fractional shares were issued in connection with the

reverse split and any fractional shares were rounded up to the nearest whole share.

The reverse split did not change the par

value of the common stock or the authorized number of shares of common stock.

The reverse split affected all stockholders uniformly

and did not alter any stockholder’s percentage interest in equity.

All outstanding options and other securities entitling

their holders to purchase or otherwise receive shares of common stock have been adjusted as a result of the reverse split, as required

by the terms of each security.

The number of shares available to be awarded under the Company’s 2018 Equity Incentive Plan

have also been appropriately adjusted.

All share and per share amounts, excluding

the number of authorized shares and par value, contained in this Annual

Report on Form 10-K give retroactive effect to the reverse split.

Recent Events

Initial Public Offering;

Underwriting Agreement

As previously disclosed, on February 12,

2021, we consummated the initial public offering of our common stock through which we sold 2,250,000 shares of our common stock

for total gross proceeds of $18.0 million, resulting in net proceeds of approximately $15.5 million, which amount is net of $1.6

million in underwriter’s discounts, commissions and expenses, and $895,000 of other expenses incurred in connection with

the offering.

As part of the closing of the initial

public offering, we also issued warrants to purchase an aggregate of 112,500 shares of common stock to certain of the

underwriter’s affiliates.

Such warrants may be exercised beginning on August 11, 2021 (180 days from the commencement

of sales of the initial public offering) until February 12, 2026 (five years after the commencement of sales in the initial

public offering).

The initial exercise price of each warrant is $10.00 per share.

2021 Convertible Note Financing

On January 11, 2021, we entered into a Convertible

Promissory Note Purchase Agreement with certain existing stockholders, including Salmon Pharma, an affiliate of Medice,

and David Baker, our Chief Executive Officer, pursuant to which we issued convertible promissory notes (the “ 2021 Convertible

Notes ”) for cash proceeds of $350,000.

The 2021 Convertible Notes bear an interest rate of 7.0% per annum, non-compounding,

and had a maturity date of September 30, 2021.

The 2021 Convertible Notes were convertible into shares of our capital stock offered

to investors in any subsequent equity financing after the date of their issuance in which we issued any of our equity securities

(a “ Qualified Financing ”), and were convertible at a twenty percent (20%) discount to the price per share offered

in such Qualified Financing.

Such Qualified Financing included the initial public offering of our common stock, consummated on

February 12, 2021;

therefore, the 2021 Convertible Notes converted into an aggregate of 54,906 shares of our common stock immediately

prior to the closing of the initial public offering, as agreed upon among the parties thereto.

Going Concern

Our financial statements have been presented

on the basis that it is a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal

course of business.

We have not generated any revenues from operations since inception, and do not expect to do so in the foreseeable

We have experienced operating losses and negative operating cash flows since inception, and expect to continue to do so

for at least the next few years.

We have financed our working capital requirements to date by raising capital through private

placements of shares of our common stock, issuing of short-term and convertible notes, and from the proceeds from our initial public

offering completed in February 2021.

On December 31, 2020, we had cash and cash equivalents totaling approximately $109,000.

management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern within

one year of the date the financial statements were issued.

Our ability to continue as a going concern

is dependent on our ability to raise additional capital to fund our business activities, including our research and development

To begin to address our funding needs, we completed the 2021 Convertible Notes financing and our IPO generating $15.9

million in net proceeds.

Our ability to raise additional funds may be adversely impacted by potential worsening global economic

conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide

resulting from the ongoing COVID-19 pandemic.

Our objective is to develop and commercialize

biopharmaceutical products that treat CNS disorders, but there can be no assurances that we will be successful in this regard.

Therefore, we intend to raise capital through additional issuances of common stock and or short-term notes.

Furthermore, we may

not be able to obtain additional financing on acceptable terms and in the amounts necessary to fully fund our future operating

requirements.

If we are unable to obtain sufficient cash resources to fund our operations, we may be forced to reduce or discontinue

our operations entirely.

Our financial statements do not include any adjustments that might result from the outcome of these uncertainties.

Because we are currently engaged in research

at a relatively early stage, it will take a significant amount of time and resources to develop any product or intellectual property

capable of generating sustainable revenues.

Accordingly, our business is unlikely to generate any sustainable operating revenues

in the next several years, and may never do so.

In addition, to the extent that we are able to generate operating revenues,

there can be no assurances that we will be able to achieve positive earnings and operating cash flows.

Critical Accounting Policies and Use of Estimates

Our discussion and analysis of our

financial condition and results of operations are based on our financial statements, which have been prepared in accordance

with accounting principles generally accepted in the United States (“ GAAP ”).

The preparation of these

financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities,

revenues, and expenses and the disclosure of contingent assets and liabilities in our financial statements.

On an ongoing

basis, we evaluate our estimates and judgments, including those related to accrued expenses, valuation allowance on deferred

tax assets, borrowing rate on the finance lease, revenue recognition and stock-based compensation.

We base our estimates on

historical experience, known trends and events, and various other factors that are believed to be reasonable under the

circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities

that are not readily apparent from other sources.

Actual results may differ from these estimates under different assumptions

or conditions.

While our significant accounting policies

are described in more detail in the notes to our financial statements appearing at the end of this Annual Report, we believe that

the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes beginning on page F-1 of this Annual Report.

Some of the information contained in this

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discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties.

As a result of many factors, including those factors set forth in the section entitled “Item 1A.

Risk Factors” and “Special Note Regarding Forward-Looking Statements” of this Annual Report, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

We are a clinical-stage biopharmaceutical company primarily focused on the development and commercialization of proprietary biopharmaceutical products.

We are developing novel medications for central nervous system (CNS) disorders with a focus on abuse-deterrent medications.

Our lead investigational product candidate, ADAIR, is a proprietary, abuse-deterrent oral formulation of immediate-release dextroamphetamine (the main active ingredient in Adderall®) for the treatment of attention-deficit/hyperactivity disorder (ADHD) and narcolepsy.

According to the US Department of Health and Human Services’ 2018 National Survey on Drug Use and Health, over 5 million adolescents and adults misuse prescription stimulant medications on an annual basis.

The misuse and abuse of prescription stimulants has substantial medical risk, including risk of irregular heartbeat, heart attack, seizures, hallucinations, hostile behavior and stroke, as well as increased risk of addiction.

ADAIR is designed to deter attempts to crush and snort and to provide barriers to injection while still providing the expected therapeutic benefit when taken orally.

We are developing ADAIR for registration with the U.S.

Food and Drug Administration (the FDA) through the Section 505(b)(2) regulatory pathway, which is expected to obviate the need for large Phase 2 and Phase 3 efficacy and safety studies.

In July 2018, our Investigational New Drug (IND) application for ADAIR was approved by the FDA.

We have completed three Phase 1 trials of ADAIR including a proof-of-concept intranasal human abuse potential study.

In the second quarter of 2021, we completed a 13-week preclinical toxicology study on the final formulation of ADAIR that showed no safety findings of concern.

We are currently conducting the SEAL study, a pivotal intranasal abuse study, and have recently completed its patient enrollment and treatment phases.

The SEAL study enrolled 55 subjects who successfully passed the qualification phase with a total of 53 completing the study.

We expect to report top-line results of the SEAL study in the first quarter of 2022.

Additionally, we continue to conduct preclinical studies and manufacturing work and continue to evaluate the potential for any additional studies to support the submission of a New Drug Application (NDA) for ADAIR to the FDA.

In January 2020, we entered into the Medice License Agreement, which grants Medice an exclusive license to develop, use, manufacture, market and sell ADAIR throughout Europe.

Under the license agreement, Medice paid us a $0.1 million upfront payment and will pay milestone payments of up to $6.3 million in aggregate upon achieving certain regulatory and sales milestones.

We are also entitled to low-double digit tiered royalties on net sales of ADAIR.

In addition to ADAIR, we completed formulation development work and selected the final formulation of our second product candidate, ADMIR, an abuse deterrent formulation of methylphenidate (Ritalin®), for the treatment of ADHD.

We also plan to utilize the Section 505(b)(2) regulatory pathway for registration of ADMIR.

In the future, we plan to use our abuse deterrent platform technology to develop other products that have potential for abuse in their current forms and will continue business development activities and seek partnering, licensing, merger and acquisition opportunities or other transactions to further develop our pipeline and drug-development capabilities.

The global COVID-19 pandemic continues to present uncertainty and unforeseeable new risks to our operations and business plan.

We have closely monitored recent COVID-19 developments, including states’ lifting COVID-19 safety measures, drops in vaccination rates, and the spread of various coronavirus strains such as the Delta and Omicron variants.

In light of these developments, the full impact of the COVID-19 pandemic on our business, operations and clinical development plans remains uncertain and will vary depending on the pandemic’s future impact on our clinical trial enrollment, clinical trial sites, clinical research organizations (CROs), third-party manufacturers, and other third parties with whom we do business, as well as any legal or regulatory consequences resulting therefrom.

To the extent possible, we are conducting business as usual, with necessary or advisable modifications to employee travel and with most of our employees and consultants working remotely.

We will continue to actively monitor the COVID-19 situation and may take further actions that alter our operations, including those that may be required by federal, state or local authorities, or that we determine are in the best interests of our employees and other third parties with whom we do business.

Critical Accounting Policies

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (GAAP).

The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses and the disclosure of contingent assets and liabilities in our financial statements.

We base our estimates on historical experience, known trends and events, and various other factors that are believed to be

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reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in the notes to our financial statements, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements.

Marketable Securities

Marketable securities consist of debt securities that are designated as available-for-sale.

Marketable debt securities are recorded at fair value and unrealized holding gains or losses are reported as a component of accumulated other comprehensive income (loss).

The amortization of discounts and premiums on marketable securities is included in interest expense, net on the statements of operations and comprehensive loss.

Realized gains or losses resulting from the sale of these securities are determined based on the specific identification of the securities sold.

An impairment charge is recognized when the decline in the fair value of a debt security below the amortized cost basis is determined to be other-than-temporary.

We consider various factors in determining whether to recognize an impairment charge, including the duration and severity of any decline in fair value below the amortized cost basis, any adverse changes in the financial condition of the issuers and our intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value.

Revenue Recognition

We have accounted for the Medice license

agreement described in Note G to our financial statements for the three-month and one year periods ended December 31, 2020 in accordance

with Accounting Standards Codification (“ ASC ”) Topic 606, Revenue from Contracts with Customers (adopted by

us in 2019) as we determined that a contract does exist and Medice, who is affiliated with one of our principal stockholders, Salmon

Pharma, and represented by one member of our board of directors, is a customer in the context of our business.

We determined there

is a single performance obligation with respect to our involvement in the joint development committee and thus the entire $100,000

allocable consideration was assigned to that accounting unit and recognized in the first quarter of 2020.

We estimated the costs

of our participation on the joint development committee (which is estimated to occur from the first quarter of 2020 through the

first quarter of 2025), at $100,000 and accrued for this at the date of agreement.

The accrual will be released on a straight-line

basis of an initially estimated period of 5.25 years through the first quarter of 2025.

We account for revenue in accordance with Financial Accounting Standards Board Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers .

This standard applies to all contracts with customers with the exception of contracts that are within the scope of other standards, such as leases, insurance and financial instruments.

Under ASC Topic 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to be entitled in exchange for those goods or services.

We perform the following five steps to recognize revenue under ASC Topic 606:

(i) identify the contract(s) with a customer;

(ii) identify the performance obligations in the contract;

(iii) determine the transaction price;

(iv) allocate the transaction price to the performance obligations in the contract;

and (v) recognize revenue when (or as) the entity satisfies a performance obligation.

We only recognize revenue when it is probable that we will collect the consideration to which we are entitled in exchange for the goods or services that will be transferred to the customer.

To date, our revenues have been generated by a single license agreement (the Medice License Agreement) with Medice (Note 13).

The Medice License Agreement included an exclusive license to develop, use, manufacture, market and sell ADAIR throughout Europe, a non-refundable up-front payment, regulatory and sales milestones and royalty payments.

Stock-based Compensation

We recognize expense for employee and non-employee

stock-based compensation in accordance with ASC Topic 718, Stock-Based Compensation.

ASC 718 requires that such transactions be

accounted for using a fair value-based method.

The estimated fair value of the options is amortized over the vesting period, based

on the fair value of the options on the date granted, and is calculated using the Black-Scholes option-pricing model.

for forfeitures as incurred.

In considering the fair value of the underlying stock when we granted options, we considered several

factors including the fair values established by market transactions.

Stock option-based compensation includes estimates and judgments

of when stock options might be exercised and stock price volatility.

The timing of option exercises is out of our control and depends

upon a number of factors including our market value and the financial objectives of the option holders.

These estimates can have

a material impact on the stock compensation expense but will have no impact on the cash flows.

The estimation of share-based awards

that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from original estimates,

such amounts are recorded as a cumulative adjustment in the period the estimates are revised.

The Company elected to use the expected

term, rather than the contractual term, for both employee and consultant options issued.

We account for leases in accordance with

ASU 2016-02, Leases (Topic 842) and ASU 2018-10, Codification Improvements to Topic 842, Leases , and

ASU 2018-11, Leases (Topic 842):

Targeted Improvements , both of which clarify and enhance the certain amendments made

in ASU 2016-02.

The ASUs increase transparency and comparability among entities by recognizing for all leases lease assets and

lease liabilities on the balance sheet and disclosing key information about lease arrangements.

We entered into one lease for manufacturing

equipment for ADAIR which we determined was a finance lease.

We recognize expense for employee and non-employee stock-based compensation in accordance with ASC Topic 718, Compensation - Stock Compensation .

ASC Topic 718 requires that such transactions be accounted for using a fair value-based method.

The estimated fair value of the options is amortized over the vesting period, based on the fair value of the options on the date granted, and is calculated using the Black-Scholes option-pricing model.

We account for forfeitures as incurred.

Estimating the fair value of option shares issued under the employee stock purchase plan requires the input of subjective assumptions, including the estimated fair value of our common stock, the expected life of the option, stock price volatility, the risk-free interest rate and expected dividends.

The assumptions used in our Black-Scholes option-pricing model represent management's best estimates and involve a number of variables, uncertainties and assumptions and the application of management's judgment, as they are inherently subjective.

If any assumptions change, our stock-based compensation expense could be materially different in the future.

These assumptions used in our Black-Scholes option-pricing model are estimated as follows:

• Expected Term .

Due to the lack of sufficient company-specific historical data, the expected term of employee options is determined using the "simplified" method, as prescribed in SEC’s Staff Accounting Bulletin (SAB) No.

107, whereby the expected life equals the arithmetic average of the vesting term and the original contractual term of the option.

The expected term of nonemployee options is equal to the contractual term.

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• Expected Volatility .

The expected volatility is based on historical volatilities of similar entities within our industry which were commensurate with the expected term assumption as described in SAB No.

• Risk-Free Interest Rat e.

The risk-free interest rate is based on the interest rate payable on U.S.

Treasury securities in effect at the time of grant for a period that is commensurate with the assumed expected term.

• Expected Dividends .

The expected dividend yield is 0% because we have not historically paid, and do not expect for the foreseeable future to pay, a dividend on our common stock.

We account for leases in accordance with Accounting Standards Update (ASU) 2016-02, Leases (Topic 842) and ASU 2018-10, Codification Improvements to Topic 842, Leases , and ASU 2018-11, Leases (Topic 842):

Targeted Improvements , both of which clarify and enhance the certain amendments made in ASU 2016-02.

The ASUs increase transparency and comparability among entities by recognizing for all leases lease assets and lease liabilities on the balance sheet and disclosing key information about lease arrangements.

We entered into one lease for manufacturing equipment for ADAIR which we determined was a finance lease.

Financial Operations Overview

We have not generated any significant revenue,

and we do not expect to generate any revenue from the sale of any products unless or until we obtain regulatory approval of and

commercialize ADAIR.

As of December 31, 2020, the only revenue we have generated was the license fee from the Medice license agreement.

To date, we have not generated any revenues from product sales.

All of our revenue to date has been derived from the Medice License Agreement.

We do not expect to generate significant product revenue until we obtain approval and commercialize ADAIR.

Under the terms of the Medice License Agreement, we received $0.1 million in licensing revenues in connection with the initial signing of the license agreement in the first quarter of 2020.

Research and Development Expenses

Since our incorporation, our operations

have primarily been limited to building our management and corporate team, acquiring the ADAIR assets from Arcturus and

conducting our clinical program for ADAIR.

Research and development expenses include personnel costs associated with research and development activities, including third party contractors to perform research, conduct clinical trials and manufacture drug supplies and materials.

We accrue for costs incurred by external service providers, including contract research organizations and clinical investigators, based on its estimates of service performed and costs incurred.

Our research and development expenses have consisted primarily of in-process research and development expenses, costs incurred in preparing for and conducting the development program for ADAIR, working on commercial manufacturing of ADAIR and developing formulations for ADMIR.

Research and development costs are expensed as incurred.

Research and development

expenses include personnel costs associated with research and development activities, including third party contractors to

perform research, conduct clinical trials and manufacture drug supplies and materials.

The Company accrues for costs incurred

by external service providers, including contract research organizations and clinical investigators, based on its estimates

of service performed and costs incurred.

Our research and development expenses from

inception (January 11, 2018) through December 31, 2020 were $9.1 million and consisted primarily of in-process research

and development expenses which consisted of non-cash costs acquiring the ADAIR assets of $1.7 million, costs incurred in preparing

for and conducting the development program for ADAIR, working on commercial manufacturing of ADAIR and developing formulations

We expect to significantly increase our research and development efforts by conducting the remaining studies necessary

for the development and approval of ADAIR and for preparing for commercial supplies of the product.

Future research and development

expenses may include:

employee-related expenses, such as salaries, bonuses

and benefits, consultant-related expenses such as consultant fees and bonuses, share-based compensation, overhead related expenses

and travel related expenses for our research and development personnel;

expenses incurred under agreements with contract research organizations (“CROs”),

as well as consultants that support the implementation of the clinical studies described above;

manufacturing and packaging costs in connection with conducting clinical trials and for

stability and other studies required to support the NDA filing as well as manufacturing drug product for commercial

These expenses include:

• employee -related expenses, such as salaries, bonuses and benefits, consultant-related expenses such as consultant fees and bonuses, stock-based compensation, overhead related expenses and travel related expenses for our research and development personnel;

• expenses incurred under agreements with contract research organizations (CROs), as well as consultants that support the implementation of our clinical and non-clinical studies;

• manufacturing and packaging costs in connection with conducting clinical trials and for stability and other studies required to support the NDA filing as well as manufacturing drug product for commercial launch;

• formulation, research and development expenses related to ADMIR;

and other products we may

choose to develop;

and other products we may choose to develop;

• costs for sponsored research.

Research and development activities will

continue to be central to our business model.

Products in later stages of clinical development generally have higher development

costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical

We expect our research and development expenses to be significant over the next several years as we increase personnel

and compensation costs and conduct the studies described above, and prepare to seek regulatory approval for ADAIR and any other

future product, such as ADMIR.

The duration, costs and timing of clinical

trials of ADAIR and any other future product, such as ADMIR, will depend on a variety of factors that include, but are not limited

the number of trials required for approval;

the per patient trial costs;

the number of patients that participate in the trials;

the number of sites included in the trials;

the countries in which the trial is conducted;

the length of time required to enroll eligible patients;

the number of doses that patients receive;

the drop-out or discontinuation rates of patients;

the potential additional safety monitoring or other studies requested by regulatory

the duration of patient follow-up;

the timing and receipt of regulatory approvals;

the efficacy and safety profile of our product candidates.

In addition, the probability of success for

ADAIR and any other future products, such as ADMIR, will depend on numerous factors, including competition, manufacturing capability

and commercial viability.

We typically use our employee, consultant and infrastructure resources across our research and development programs.

Although we track certain outsourced development costs by product candidate, we do not allocate personnel costs or other internal costs to specific product candidates.

We plan to incur research and development expenses for the foreseeable future as we expect to continue the development of ADAIR and our other product candidates.

At this time, due to the inherently unpredictable nature of preclinical and clinical development and the early stage of our other product candidates, we are unable to estimate with any certainty the costs we will incur and the timelines we will require in our continued development efforts.

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General and Administrative Expenses

General and administrative expenses consist

primarily of compensation and consulting related expenses for executives and other administrative personnel, professional fees

and other corporate expenses, including legal and accounting fees, travel expenses, facilities-related expenses, and consulting

services relating to our formation and corporate matters.

We anticipate that our general and administrative

expenses will increase in the future to support our continued research and development activities and increased costs of operating

as a public company.

These increases will likely include increased costs related to the hiring of personnel, including compensation

and employee-related expenses, including stock-based compensation, and fees to outside consultants, lawyers and accountants, among

other expenses.

Additionally, we anticipate increased costs associated with being a public company, including expenses related

to services associated with maintaining compliance with The Nasdaq Capital Market and SEC requirements, insurance and investor

relations costs.

In addition, if ADAIR obtains regulatory approval for marketing, we expect that we would incur expenses associated

with building a commercialization team if we have not sold or licensed the rights to commercialize ADAIR to a third party in territories

not under the license agreement with Medice.

Interest Expense and Revaluation of Derivative Instruments

In April 2019, we entered into a Convertible

Promissory Note Purchase Agreement pursuant to which we issued $1.15 million in convertible promissory notes (the “ 2019

Convertible Notes ”) to certain existing stockholders and Salmon Pharma.

The 2019 Convertible Notes automatically converted

into 383,849 shares of our common stock concurrently with the closing of the common stock financing transaction that we completed

in July 2019 (the “ July 2019 Financing ”).

We identified the mandatory conversion into shares our common

stock as a redemption feature, which requires bifurcation from the 2019 Convertible Notes and treated it as a derivative liability

under ASC 815 as the redemption feature was not clearly and closely related to the debt.

We evaluated the fair value of the derivative

liability as of April 2019 and determined the value was $180,000.

Such amounts were reflected at its fair value at the end

of June 30, 2019.

The 2019 Convertible Notes were subject to a conversion discount of 10% or 20%, respectively.

The discounts

were accounted for as a debt discount and were amortized using the effective interest method over the term of the notes and such

amortization was added to the contractual interest expense.

Upon the conversion of the 2019 Convertible Notes to common stock at

the closing of the July 2019 Financing, the embedded derivative liability was remeasured and removed from the balance sheet.

Equity-Based Compensation Expense

We have issued stock options to purchase

our common stock to employees and consultants under the 2018 Equity Incentive Plan, under which we may issue stock options, restricted

stock and other equity-based awards as well as certain options outside of the 2018 Equity Incentive Plan.

As of December 31, 2020,

all equity awards granted from the 2018 Equity Incentive Plan were in the form of stock options.

We measure equity-based awards granted

to employees, and nonemployees based on their fair value on the date of the grant and recognize compensation expense for

those awards over the requisite service period or performance-based period, which is generally the vesting period of the

respective award.

The measurement date for equity awards is the date of grant, and equity-based compensation costs are

recognized as expense over the requisite service period, which is the vesting period or for certain performance-based awards

we record the expense for these awards if we conclude that it is probable that the performance condition will be achieved.

The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model,

which requires inputs based on certain subjective assumptions, including the expected stock price volatility, the expected

term of the option, the risk-free interest rate for a period that approximates the expected term of the option, and our

expected dividend yield.

Expected volatility is calculated based on reported volatility data for a representative group of

publicly traded companies for which historical information is available.

We select companies with comparable characteristics

to us with historical share price information that approximates the expected term of the equity-based awards.

We compute the

historical volatility data using the daily closing prices for the selected companies’ shares during the equivalent

period that approximates the calculated expected term of our stock options.

We will continue to apply this method until a

sufficient amount of historical information regarding the volatility of our stock price becomes available.

The risk-free

interest rate is based on the U.S.

Treasury yield curve in effect at the time of grant commensurate with the expected term

We use the simplified method, under which the expected term is presumed to be the midpoint between the vesting

date and the end of the contractual term.

We utilize this method due to lack of historical exercise data.

dividend yield is assumed to be zero as we have no current plans to pay any dividends on common stock.

The fair value of each

restricted common stock award is estimated on the date of grant based on the fair value of our common stock on that same

Determination of the Fair Value of Common Stock

Prior to our initial public offering, the

estimated fair value of our common stock was determined by our board of directors as of the date of each option grant with input

from management, considering our most recently available third-party valuations of common stock, and our board of directors’

assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date

of the most recent valuation through the date of the grant.

These third-party valuations were performed in accordance with the

guidance outlined in the American Institute of Certified Public Accountants’ Accounting and Valuation Guide, Valuation of

Privately-Held-Company Equity Securities Issued as Compensation.

The assumptions underlying these valuations

were highly complex and subjective and represented management’s best estimates, which involved inherent uncertainties and

the application of management’s judgment.

As a result, if we had used significantly different assumptions or estimates, the

fair value of our common stock and our stock-based compensation expense could be materially different.

Subsequent to the completion of our initial

public offering in February 2021, our board determines the fair value of our common stock based on the quoted market price of our

common stock as reported by The Nasdaq Capital Market.

Awards Granted

The following table summarize each equity

award grant between January 11, 2018 (inception) through December 31, 2020:

shares subject to

awards granted

exercise price of

Fair value per

on grant date

Per share estimated

fair value of awards(1)

October 1, 2018

Stock Options

February 5, 2019

Stock Options

October 11, 2019

Stock Options

January 2, 2020

Stock Options

(1) The per share estimated fair value of options reflects the weighted-average fair value of options granted on each grant date

determined using the Black-Scholes option-pricing model.

General and administrative expenses consist primarily of compensation and consulting related expenses for executives and other administrative personnel, professional fees and other corporate expenses, including legal and accounting fees, travel expenses, facilities-related expenses, and consulting services relating to our formation and corporate matters.

We anticipate that our general and administrative expenses will increase in the future as we support our continued research and development activities and operate as a public company.

These increases will likely include increased costs related to the hiring of personnel, including compensation and employee-related expenses, including stock-based compensation, and fees to outside consultants, lawyers and accountants, among other expenses.

Additionally, we anticipate increased costs associated with being a public company, including expenses related to services associated with maintaining compliance with The Nasdaq Capital Market and SEC requirements, directors and officers insurance, increased legal and accounting costs and investor relations costs.

In addition, if ADAIR obtains regulatory approval for marketing, we expect that we would incur expenses associated with building a commercialization team if we have not sold or licensed the rights to commercialize ADAIR to a third party in territories not under the license agreement with Medice.

Other income consists of income recognized as a result of the extinguishment of the promissory note issued to us under the Paycheck Protection Program (PPP) as a result of the forgiveness of the note.

Revaluation of Derivative Instruments

In January 2021, we entered into a Convertible Promissory Note Purchase Agreement pursuant to which we issued $350,000 in convertible promissory notes (the 2021 Convertible Notes).

The 2021 Convertible Notes automatically converted into 54,906 shares of our common stock concurrently with the closing of the IPO.

We identified the mandatory conversion into shares our common stock as a redemption feature, which requires bifurcation from the 2021 Convertible Notes and treated it as a derivative liability under ASC 815 as the redemption feature was not clearly and closely related to the debt.

We evaluated the fair value of the derivative liability at issuance.

Upon the conversion of the 2021 Convertible Notes to common stock at the closing of the IPO, the embedded derivative liability was remeasured and removed from the balance sheet.

Interest Expense, net

Interest expense, net, consists of interest earned on our cash, cash equivalents and marketable securities held with institutional banks, the amortization of discounts and premiums on marketable securities and interest expense on our finance lease of equipment utilized in the commercial scale manufacturing of ADAIR.

Recently Issued Accounting Pronouncements

We consider the applicability and impact of all ASUs.

ASUs not discussed below were assessed and determined to be either not applicable or are expected to have minimal impact on the financial statements.

On January 1, 2021, we adopted ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes .

ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principals in Topic 740.

The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending the existing guidance.

The adoption of this standard did not have a material impact on our financial statements.

We are an “emerging growth company,” as defined in Section 2(a) the Securities Act, as modified by the JOBS Act.

Emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies.

Therefore, we may not be subject to the same new or revised accounting standards as other public companies that are not “emerging growth companies.” For as long as we continue to be an emerging growth company, we also intend to take advantage of certain other exemptions from various reporting requirements that are applicable to other public companies including, but not limited to, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, exemptions from the requirements of holding a nonbinding advisory stockholder vote on executive compensation and any golden parachute payments not previously approved, exemption from the requirement of auditor attestation in the assessment of our internal control over financial reporting and exemption from any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis).

After we become a reporting company under the Exchange Act, we will remain an emerging growth company until the earliest of (i) the end of the fiscal year in which the market value of our common stock that is held by non-affiliates exceeds $700 million as of

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the end of the second fiscal quarter, (ii) the end of the fiscal year in which we have total annual gross revenues of $1.07 billion or more during such fiscal year, (iii) the date on which we issue more than $1 billion in non-convertible debt in a three-year period or (iv) the end of the fiscal year following the fifth anniversary of the date of the first sale of our common stock pursuant to an effective registration statement filed under the Securities Act.

Results of Operations

Comparison of the Years Ended December 31, 2021 and 2020

The following table sets forth our results

of operations for the year ended December 31, 2020 compared to the year ended December 31, 2019 (in thousands):

The following table sets forth our results of operations for the year ended December 31, 2021 compared to the year ended December 31, 2020 (in thousands):

Year Ended December 31,

License revenue –

from related party

License revenue – from related party $ — $ 100

Operating expenses:

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Loss from operations (9,259) (4,788)

Other income 61 —

Change in fair value of derivative liability (89) —

Interest expense, net (16) (34)

We recorded $4.8 million in net loss for

the year ended December 31, 2020, as compared to $3.5 million in net loss during the year ended December 31, 2019.

in net loss was primarily due to:

increases of $1.8 million in research and development expenses offset by a decrease of $91,000

in general and administrative expenses and further offset by decreases of $276,000 in primarily non-cash changes in fair value

of a derivative liability and interest expense and an increase in licensing revenue of $100,000.

Net loss $ (9,303) $ (4,822)

License Revenue – From Related Party

We determined there is a single performance

obligation with respect to our involvement in the joint development committee in regards to the Medice license agreement and thus

the entire $100,000 allocable consideration was assigned to that accounting unit and recognized in the first quarter of 2020.

such revenue was recognized in previous periods.

Licensing revenues were $0.1 million for the year ended December 31, 2020 as a result of the upfront payment received under the terms of the Medice License Agreement.

No licensing revenues were recognized during the year ended December 31, 2021.

Research and Development Expenses

Research and development expenses increased

by approximately $1.8 million to $3.7 million from the year ended December 31, 2019 to the year ended December 31, 2020.

in research and development expenses was primarily due to increases of:

$1.2 million primarily related to the registration development

program of ADAIR;

$177,000 related to the formulation work for ADMIR;

$39,000 related to salaries, bonuses and benefits for our

employees and costs for our consultants involved with managing our development programs;

$78,000 related to non-cash stock compensation;

$255,000 related to manufacturing of ADAIR;

and $49,000 in estimated expenses required to complete the services related to the

Medice license agreement.

Research and development expenses were $5.2 million and $3.7 million for the years ended December 31, 2021 and 2020, respectively.

The $1.5 million increase in research and development expenses was primarily due to increases of $1.5 million in expenses related to the registration development program of ADAIR and $0.1 million in consulting fees, offset by a decrease of $0.1 million in expenses related to the formulation work for ADMIR.

General and Administrative Expenses

General and administrative expenses decreased

by approximately $91,000 to $1.2 million from the year ended December 31, 2019 to the year ended December 31, 2020.

was primarily related to decreased legal fees of $204,000 and decreased travel, meal and conference expenses of $44,000 offset

by increases of $78,000 in accounting and audit related services, $32,000 in estimated expenses required to complete the services

related to the Medice license agreement, $24,000 in director fees and $18,000 in insurance expenses.

Change in Fair Value of Derivative Liability

For the year ended December 31, 2019, pursuant

to ASC-815, we revalued the embedded derivative liability associated with the Convertible Notes from the initial value of $180,000

as of April 11, 2019 to $293,000 as of the July 2019 Financing, resulting in an increase of $113,000 in the fair value of

the derivative liability associated with the Convertible Notes.

We did not record any change in fair value of derivative liability

during the Year Ended December 31, 2020 as the derivative was removed from the balance sheet upon the conversion of the Convertible

Notes to common stock at the closing of the July 2019 Financing.

General and administrative expenses were $4.1 million and $1.2 million for the years ended December 31, 2021 and 2020, respectively.

The $2.9 million increase was primarily related to increased costs for directors and officers insurance of $1.3 million, personnel expense, including non-cash stock compensation, of $1.0 million, and public company expenses of $0.5 million.

In May 2020, we issued a promissory note under the PPP totaling $61,000.

As of December 31, 2020, we had utilized the entire proceeds from such note for payroll costs (greater than 75%), costs related to health care benefits and rent payments.

In January 2021, we were notified that the note along with accumulated interest had been forgiven.

As a result, we recorded income from the extinguishment of the obligation in accordance with ASC 405-20-40-1.

Revaluation of Derivative Liability

During the year ended December 31, 2021, pursuant to ASC 815, we revalued the embedded derivative liability associated with the 2021 Convertible Notes, resulting in an $89,000 decrease in the fair value of the derivative liability associated with the 2021 Convertible Notes.

Interest Expense, net

For the year ended December 31, 2019, interest

expense was primarily related to the Convertible Notes which had an interest rate of 7.0% per annum, non-compounding, and had a

maturity date of January 1, 2020.

Accrued interest on these Convertible Notes as of the July 2019 Financing was $22,000.

original debt discount of $180,000 was amortized using the effective interest method over the term of the notes and as such was

added to the contractual interest expense.

We did not record any interest expense during the year ended December 31, 2020 as the

Convertible Notes were converted into our common stock at the closing of the July 2019 Financing.

For the year ended December 31, 2020 and

2019, respectively, no income tax expense or benefit was recognized.

Our deferred tax assets are comprised primarily of net operating

loss carryforwards.

We maintain a full valuation allowance on our deferred tax assets since we have not yet achieved sustained

profitable operations.

As a result, we have not recorded any income tax benefit since our inception.

Interest expense, net, was $16,000 and $34,000 for the years ended December 31, 2021 and 2020, respectively.

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Liquidity and Capital Resources

For the period from January 11,

2018 (inception) through December 31, 2020, we had net losses of $12.6 million.

As of December 31, 2020, we had cash and

cash equivalents of $109,000.

We do not expect to have positive cash flow for the foreseeable future.

In February 2021, we

closed on the initial public offering of our common stock on The Nasdaq Capital Market, in which we received net proceeds of

approximately $15.5 million, which amount is net of $1.6 million in underwriter’s

discounts, commissions and expenses, and $895,000 of other expenses incurred in connection with the offering.

estimates that the net $15.9 million raised pursuant to the IPO and the 2021 Convertible Notes provides funding for our

ongoing business activities into the third quarter of 2022;

however, we have based this estimate on assumptions that may

prove to be wrong, and we could use our capital resources sooner than we expect, therefore, there is substantial doubt about

our ability to continue as a going concern.

We expect to continue to incur significant and increasing operating losses at

least for the foreseeable future.

We do not expect to generate product revenue unless and until we successfully complete

development, obtain regulatory approval for, and successfully commercialize ADAIR, or any other future products, including

Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of

planned clinical trials and our expenditures on other research and development activities.

We anticipate that our expenses

will increase substantially as we:

Since inception, we have incurred losses and expect to continue to incur losses for the foreseeable future.

We incurred net losses of $9.3 million and $4.8 million for the years ended December 31, 2021 and 2020, respectively.

As of December 31, 2021, we had an accumulated deficit of $21.9 million.

We have financed our working capital requirements to date through the issuance of common stock, convertible notes, short-term promissory notes, and a PPP promissory note.

As of December 31, 2021, we had $3.7 million in cash and cash equivalents.

The following table summarizes our cash flows for the periods indicated (in thousands):

Net cash provided by (used in):

Operating activities (8,312) $ (3,706)

Investing activities (3,842) (2)

Financing activities 15,747 (4)

Net increase (decrease) in cash and cash equivalents $ 3,593 $ (3,712)

Cash Flows from Operating Activities

For the years ended December 31, 2021 and 2020, $8.3 million and $3.7 million were used in operating activities, respectively.

The $4.6 million increase was primarily due to a $4.5 million increase in our net loss, a $0.5 million increase in non-cash stock compensation expense, as well as increases in accrued and prepaid expenses of $0.1 million, offset by a $0.3 million decrease in accounts payable.

Cash Flows from Investing Activities

Net cash used in investing activities was $3.8 million for the year ended December 31, 2021, which was related to the purchase of marketable securities.

Net cash used in investing activities was $2,000 for the year ended December 31, 2020, which was related to the purchase of computer equipment.

Cash Flows from Financing Activities

Net cash provided by financing activities was $4,000 during the year ended December 31, 2020, which was related to proceeds received from a PPP note of $61,000, offset by payments related to our finance lease of $65,000.

Net cash provided by financing activities was $15.8 million for the year ended December 31, 2021 and was primarily related to the net proceeds from our IPO and 2021 Convertible Notes financings.

2021 Convertible Note Financing

In January 2021, we entered into a Convertible Promissory Note Purchase Agreement with certain existing stockholders, including Salmon Pharma, an affiliate of Medice, and David Baker, our Chief Executive Officer, pursuant to which we issued convertible promissory notes (the 2021 Convertible Notes) for cash proceeds of $350,000.

The 2021 Convertible Notes bear an interest rate of 7.0% per annum, non-compounding, and had a maturity date of September 30, 2021.

The 2021 Convertible Notes were convertible into shares of our capital stock offered to investors in any subsequent equity financing after the date of their issuance in which we issued any of our equity securities (a Qualified Financing) and were convertible at a twenty percent discount to the price per share offered in such Qualified Financing.

Such Qualified Financing included the IPO of our common stock, consummated on February 12, 2021;

therefore, the 2021 Convertible Notes converted into an aggregate of 54,906 shares of our common stock immediately prior to the closing of the IPO, as agreed upon among the parties thereto.

Future Funding Requirements

Although it is difficult to predict future liquidity requirements, we expect that our existing cash and cash equivalents will provide funding for our ongoing business activities into the third quarter of 2022.

We will require substantial additional financing to fund our research and development activities.

No assurance can be given that any such financing will be available when needed or that our research and development efforts will be successful.

If the we are not able to obtain additional financing on acceptable terms and in the amounts necessary to fully fund our future operating requirements, we may be forced

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to reduce or discontinue our operations entirely.

Therefore, there is substantial doubt about our ability to continue as a going concern.

We expect to continue to incur significant and increasing operating losses at least for the foreseeable future.

We do not expect to generate product revenue unless and until we successfully complete development, obtain regulatory approval for, and successfully commercialize ADAIR, or any other future products, including ADMIR.

Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of planned clinical trials and our expenditures on other research and development activities.

We anticipate that our expenses will increase substantially as we:

• conduct clinical trials and non-clinical studies;

2 unchanged sentences

• seek to identify, acquire, develop and commercialize additional products, such as ADMIR;

integrate acquired technologies into a comprehensive regulatory and product development

maintain,expand and protect our intellectual property

• integrate acquired technologies into a comprehensive regulatory and product development strategy;

• maintain, expand and protect our intellectual property portfolio;

• hire scientific, clinical, quality control and administrative personnel;

add operational, financial and management information systems and personnel, including

personnel to support our drug development efforts;

• add operational, financial and management information systems and personnel, including personnel to support our drug development efforts;

• seek regulatory approvals for any products that successfully complete clinical trials;

ultimately establish a sales, marketing and distribution infrastructure and scale up external

manufacturing capabilities to commercialize any drug candidates for which we may obtain regulatory approval, including

through the license agreement with Medice;

as a public company.

Financing Activities

2019 Convertible Note Financing

On April 11, 2019, we entered into a

Convertible Promissory Note Purchase Agreement with certain existing stockholders and Salmon Pharma, an affiliate of Medice, pursuant

to which we issued the 2019 Convertible Notes for cash proceeds of $1,150,000.

The 2019 Convertible Notes bore an interest rate

of 7.0% per annum, non-compounding, and had a maturity date of January 1, 2020.

The terms of the 2019 Convertible Notes included

a mandatory conversion upon a qualified financing, such as the July 2019 Financing discussed below, and were convertible into

shares of our capital stock that are offered to investors in a subsequent equity financing at a discount to the price per share

offered in such subsequent financing.

On July 25, 2019, upon the closing of

the July 2019 Financing, the 2019 Convertible Notes converted into an aggregate of 383,849 shares of our common stock at a

conversion price of $3.04 per share.

The foregoing is only a summary of the terms

of the 2019 Convertible Notes and it is qualified in its entirety by the terms of the Convertible Promissory Note Purchase Agreement

and the form of the 2019 Convertible Note, both of which are filed as exhibits to this Annual Report.

2019 Private Placement

On July 25, 2019, we consummated the

July 2019 Financing, in which we entered into a Stock Purchase Agreement with Salmon Pharma, pursuant to which we sold and

issued 1,309,861 shares of our common stock for aggregate cash proceeds of $5.0 million.

Future Funding Requirements

Based on our current financial condition,

our research and development plans and our timing expectations related to the conduct of clinical trials described above, management

estimates that the net $15.9 million raised pursuant to the IPO and the 2021 Convertible Notes provides funding for our ongoing

business activities into the third quarter of 2022.

However, we have based this estimate on assumptions that may prove to be wrong,

and we could use our capital resources sooner than we expect.

The funds received to date pursuant to the

financings referenced above will not be sufficient to enable us to complete all necessary development and commercialization of

ADAIR, or any other future product candidate, including ADMIR.

Accordingly, we will be required to obtain further funding through

other public or private offerings of our capital stock, debt financing, collaboration and licensing arrangements or other sources,

the requirements for which will depend on many factors, including:

the scope, timing, rate of progress and costs of our drug development

efforts, preclinical development activities, laboratory testing and clinical trials for our product candidates;

the number and scope of clinical programs we decide to pursue;

the cost, timing and outcome of preparing for and undergoing regulatory

review of our product candidates;

the scope and costs of development and commercial manufacturing activities;

the cost and timing associated with commercializing our product candidates,

if they receive marketing approval;

the extent to which we acquire or in-license other product candidates

and technologies;

the costs of preparing, filing and prosecuting patent applications,

maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;

our ability to establish and maintain collaborations on favorable

terms, if at all;

our efforts to enhance operational systems and our ability to attract,

hire and retain qualified personnel, including personnel to support the development of our product candidates and, ultimately,

the sale of our products, following FDA approval;

our implementation of operational, financial and management systems;

the costs associated with being a public company.

A change in the outcome of any of these or

other variables with respect to the development of any of our 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

continue to require additional capital to meet operational needs and capital requirements associated with such operating plans.

Adequate additional funding may not be available

to us on acceptable terms, or at all.

If we are unable to raise capital in sufficient amounts or on terms acceptable to us, we

may have to significantly delay, scale back or discontinue the development or commercialization of ADAIR, any future product, including

ADMIR, or potentially discontinue operations.

Until such time, if ever, as we can generate

substantial product revenue from sales of ADAIR or any future proposed product, including ADMIR, we expect to finance our cash

needs through a combination of equity offerings, debt financings and potential collaboration, license or development agreements.

We do not currently have any committed external source of funds.

To the extent that we raise additional capital through the sale

of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include

liquidation or other preferences that adversely affect your rights as a common stockholder.

Debt financing and preferred equity

financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions,

such as incurring additional debt, making capital expenditures or declaring dividends.

If we raise additional funds through collaborations,

strategic alliances or marketing, distribution or licensing arrangements with third parties, we may be required to relinquish valuable

rights to our technologies, future revenue streams, research programs or proposed products, or to grant licenses on terms that

may not be favorable to us.

If we are unable to raise additional funds through equity or debt financings when needed, we may be

required to delay, limit, reduce or terminate our drug development or future commercialization efforts or grant rights to develop

and market ADAIR or any other future product, such as ADMIR, that we would otherwise prefer to develop and market ourselves.

Summary Statement of Cash Flows

The following table sets forth a summary

of our cash flows for the years ended December 31, 2020 and 2019 (in thousands).

Net cash used in operating activities

Net cash used in investing activities

Net cash (used in) provided by financing activities

Net increase (decrease) in cash and cash equivalents

Cash Flows from Operating Activities

For the years ended December 31, 2020

and 2019, $3.7 million and $2.9 million were used in operating activities, respectively.

The $822,000 increase was primarily

due to the $1.4 million increase in our net loss and an $464,000 increase in prepaid expenses during the period offset by an increase

in our accounts payable and accrued expenses of $1.4 million.

The net loss for the year ended December 31, 2020 included $154,000

in non-cash stock compensation and $74,000 amortization of finance lease right-of-use asset.

Cash Flows used in Investing Activities

Net cash used in investing activities was

$2,000 for the year ended December 31, 2020 and zero for the year ended December 31, 2019.

Cash Flows from Financing Activities

Net cash used in financing activities was

$4,000 during the year ended December 31, 2020, which was related to proceeds received from a PPP note of $61,000 offset by payments

related to our finance lease of $65,000.

The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act,

provides for loans to qualifying businesses for amounts up to 2.5 times the average monthly payroll expenses of the qualifying

business, calculated as provided under the PPP.

The PPP provides a mechanism for forgiveness of up to the full amount borrowed

after 24 weeks as long as the borrower uses the loan proceeds during the 24-week period after the loan origination for eligible

purposes, including payroll costs, certain benefits costs, rent and utilities costs or other permitted purposes, and maintains

its payroll levels, subject to certain other requirements and limitations.

The amount of loan forgiveness is subject to reduction,

among other reasons, if the borrower terminates employees or reduces salaries during the measurement period.

The Company submitted

its application for loan forgiveness in the third quarter of 2020 and was notified that the PPP note was forgiven in January 2021.

The PPP note was unsecured, evidenced by a promissory note given by the Company as borrower through its bank, serving as the lender.

The interest rate on the promissory note was 1.0% per annum.

Payments of principal and interest were deferred for seven months

from the date of the promissory note (the “ deferral period ”).

Net cash provided by financing activities

was $6.1 million during the year ended December 31, 2019, due to net proceeds from the sale of the 2019 Convertible Notes

of $1.1 million and net proceeds from the private placement of common stock of $5.0 million.

• ultimately establish a sales, marketing and distribution infrastructure and scale up external manufacturing capabilities to commercialize any drug candidates for which we may obtain regulatory approval, including through the license agreement with Medice;

• operate as a public company.

Contractual Obligations and Other Commitments

We enter into contracts in the normal course

of business with third-party contract organizations for clinical trials, preclinical studies, manufacturing and other services

and products for operating purposes.

These contracts generally provide for termination following a certain period after notice

and therefore we believe that our non-cancelable obligations under these agreements are not material.

Embedded Derivative of the 2019 Convertible Notes

We evaluate the 2019 Convertible Notes to

determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for in

accordance with ASC Topic 815.

The result of this accounting treatment is that the fair value of the embedded derivative is marked-to-market

each balance sheet date and recorded as a liability.

In the event that the fair value is recorded as a liability, the change in

fair value is recorded in the statements of operations as other income or expense.

Upon conversion or exercise of a derivative

instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity.

In circumstances where the embedded conversion

option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments in the

convertible instrument that are required to be bifurcated the bifurcated derivative instruments are accounted for as a single,

compound derivative instrument.

Recently Issued Accounting Pronouncements

We consider the applicability and impact

of all Accounting Standards Updates (“ ASUs ”).

ASUs not discussed below were assessed and determined to be either

not applicable or are expected to have minimal impact on the financial statements.

On January 1, 2020, we adopted ASU 2018-13 — Fair

Value Measurement (Topic 820) — Disclosure Framework — Changes to the Disclosure Requirements

for Fair Value Measurement, which modifies the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement.

Certain amendments apply prospectively with all other amendments applied retrospectively to all periods presented upon their effective

The guidance has not had a material effect on the financial statements.

On January 1, 2020, we adopted ASU 2018-18 — Collaborative

Arrangements — Clarifying the Interaction between Topic 808 and Topic 606, which clarifies that certain transactions

between collaborative arrangement participants should be accounted for as revenue under Topic 606 when the collaborative arrangement

participant is a customer in the context of a unit of account.

In those situations, all the guidance in Topic 606 should be applied,

including recognition, measurement, presentation, and disclosure requirements.

The guidance has been applied retrospectively to

all contracts that were not completed at the date of initial application of Topic 606.

The guidance has not had a material effect

on the financial statements because it did not change the Company’s accounting for existing collaborative arrangements.

Accounting Pronouncements Yet to be Adopted

In December 2019, the FASB issued ASU

2019-12, “Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes”.

ASU 2019-12 simplifies the accounting

for income taxes by removing certain exceptions to the general principals in Topic 740.

The amendments also improve consistent

application of and simplify GAAP for other areas of Topic 740 by clarifying and amending the existing guidance.

For public business

entities, the guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15,

Early adoption is permitted, including adoption in any interim period.

Management is currently assessing the impact of ASU

2019-12 on the Company’s financial statements.

We enter into contracts in the normal course of business with third-party contract organizations for clinical trials, preclinical studies, manufacturing and other services and products for operating purposes.

These contracts generally provide for termination following a certain period after notice and therefore we believe that our non-cancelable obligations under these agreements are not material.

Off-Balance Sheet Arrangements

We have not entered into any off-balance sheet arrangements.

We are an “emerging growth company,”

as defined in Section 2(a) the Securities Act, as modified by the JOBS Act.

Emerging growth companies can delay adopting new

or revised accounting standards until such time as those standards apply to private companies.

Therefore, we may not be subject

to the same new or revised accounting standards as other public companies that are not “emerging growth companies.”

For as long as we continue to be an emerging growth company, we also intend to take advantage of certain other exemptions from

various reporting requirements that are applicable to other public companies including, but not limited to, reduced disclosure

obligations regarding executive compensation in our periodic reports and proxy statements, exemptions from the requirements of

holding a nonbinding advisory stockholder vote on executive compensation and any golden parachute payments not previously approved,

exemption from the requirement of auditor attestation in the assessment of our internal control over financial reporting and exemption

from any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation

or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor

discussion and analysis).

After we become a reporting company under the Exchange Act, we will remain an emerging growth company

until the earliest of (i) the end of the fiscal year in which the market value of our common stock that is held by non-affiliates

exceeds $700 million as of the end of the second fiscal quarter, (ii) the end of the fiscal year in which we have total

annual gross revenues of $1.07 billion or more during such fiscal year, (iii) the date on which we issue more than $1 billion

in non-convertible debt in a three-year period or (iv) the end of the fiscal year following the fifth anniversary of the date

of the first sale of our Common Stock pursuant to an effective registration statement filed under the Securities Act.

Market Risk Considerations

As of December 31, 2020, we had cash and

cash equivalents of $109,000.

Historically, our cash and cash equivalents consist primarily of money market funds that are invested

Treasury obligations.

Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in

the general level of U.S.

interest rates.

Due to the short-term nature of our cash equivalents and investments, a sudden change

in interest rates would not be expected to have material effect on our business, financial condition or results of operations.

We are not currently exposed to significant

market risk related to changes in foreign currency exchange rates.

Our operations may be subject to fluctuations in foreign currency

exchange rates in the future.

Inflation generally affects us by increasing

our cost of labor.

We do not believe that inflation had a material effect on our business, financial condition or results of operations

during the years ended December 31, 2020 and 2019.

AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable to a smaller reporting company.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements required pursuant to this item are incorporated by reference herein from the applicable information included in Item 15 of this annual report and are presented beginning on page F-1.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis