Whitehawk Therapeutics, Inc. 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk. We are a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required by this Item. Interest Rate Risk The Company’s cash and cash equivalents at December 31, 2020 consist of all cash on hand, deposits and funds invested in short-term investments with original maturities of three months or less at the time of purchase and earn interest income. Therefore, there was minimal or no interest rate risk. Item 8. Consolidated Financial Statements and Supplementary Data. Beginning on page 80 are the consolidated financial statements with applicable notes and the related Report of Independent Registered Public Accounting Firm. 79 Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Aerpio Pharmaceuticals, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Aerpio Pharmaceuticals, Inc. (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively, referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2011 Cincinnati, Ohio March 11, 2021 80 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm 80 Consolidated Balance Sheets as of December 31, 2020 and 2019 82 Consolidated Statements of Operations and Comprehensive Loss for the Years ended December 31, 2020 and 2019 83 Consolidated Statements of Stockholders’ Equity for the Years ended December 31, 2020 and 2019 84 Consolidated Statements of Cash Flows for the Years ended December 31, 2020 and 2019 85 Notes to Consolidated Financial Statements 86 81 AERPIO PHARMACEUTICALS, INC. Consolidated Balance Sheets Year Ended December 31, 2020 2019 Assets Current assets: Cash and cash equivalents $ 42,604,935 $ 38,524,536 Prepaid research and development contracts 510,177 311,154 Other current assets 1,603,913 734,785 Total current assets 44,719,025 39,570,475 Furniture and equipment, net 121,730 164,187 Operating lease right-of-use assets, net 63,919 162,124 Deposits 20,000 40,000 Total assets $ 44,924,674 $ 39,936,786 Liabilities and stockholders’ equity Current liabilities: Accounts payable and accrued expenses $ 1,799,371 $ 3,231,450 Current portion of operating lease liability 67,438 102,555 Total current liabilities 1,866,809 3,334,005 Operating lease liability, net of current portion — 67,438 Total liabilities 1,866,809 3,401,443 Commitments and contingencies (Note 10) Stockholders’ equity: Common stock, $0.0001 par value per share; 300,000,000 shares authorized and 47,251,319 and 40,588,004 shares issued and outstanding at December 31, 2020 and 2019. 4,725 4,059 Additional paid-in capital 189,603,985 178,766,806 Accumulated deficit (146,550,845 ) (142,235,522 ) Total stockholders’ equity 43,057,865 36,535,343 Total liabilities and stockholders’ equity $ 44,924,674 $ 39,936,786 The accompanying notes are an integral part of these consolidated financial statements. 82 AERPIO PHARMACEUTICALS, INC. Consolidated Statements of Operations and Comprehensive Loss Year Ended December 31, 2020 2019 License revenue $ 15,000,000 $ — Operating expenses Research and development 12,594,823 12,824,402 General and administrative 8,762,222 9,756,185 Restructuring expense — 1,863,495 Total operating expenses 21,357,045 24,444,082 Loss from operations (6,357,045 ) (24,444,082 ) Other income 1,813,976 — Grant income 79,900 142,729 Interest income 147,846 1,030,839 Total other income 2,041,722 1,173,568 Net and comprehensive loss $ (4,315,323 ) $ (23,270,514 ) Net and comprehensive loss per share Basic and diluted $ (0.10 ) $ (0.57 ) Weighted average number of common shares used in computing net loss per share attributable to common stockholders, basic and diluted 42,624,148 40,588,004 The accompanying notes are an integral part of these consolidated financial statements. 83 AERPIO PHARMACEUTICALS, INC. Consolidated Statements of Stockholders ’ Equity Stockholders’ Equity Common Stock Additional Paid-In Accumulated Shares Par Value Capital Deficit Total Balance at December 31, 2019 40,588,004 $ 4,059 $ 177,621,807 $ (118,959,291 ) $ 58,666,575 Issuance of warrants — — 53,440 — 53,440 Cumulative effect of change in accounting principle — — 5,717 (5,717 ) — Stock-based compensation expense — — 1,085,842 — 1,085,842 Net and comprehensive loss — — — (23,270,514 ) (23,270,514 ) Balance at December 31, 2019 40,588,004 4,059 $ 178,766,806 $ (142,235,522 ) $ 36,535,343 Issuance of warrants — — 71,939 — 71,939 Issuance of common stock upon exercise of stock options 139,660 14 143,520 — 143,534 Issuance of common stock, net of issuance costs of $402,795 6,523,655 652 9,340,190 — 9,340,842 Stock-based compensation expense — — 1,281,530 — 1,281,530 Net and comprehensive loss — — — (4,315,323 ) (4,315,323 ) Balance at December 31, 2020 47,251,319 $ 4,725 $ 189,603,985 $ (146,550,845 ) $ 43,057,865 The accompanying notes are an integral part of these consolidated financial statements. 84 AERPIO PHARMACEUTICALS, INC. Consolidated Statements of Cash Flows Year Ended December 31, 2020 2019 Operating activities: Net and comprehensive loss $ (4,315,323 ) $ (23,270,514 ) Adjustments to reconcile net and comprehensive loss to net cash used in operating activities: Depreciation 61,482 76,501 Loss on disposal of assets — 94,713 Consulting expense related to warrants 71,939 53,440 Stock-based compensation 1,281,530 1,085,842 Changes in operating assets and liabilities: Prepaid research and development contracts (199,023 ) 443,238 Other current assets (869,128 ) (119,104 ) Deposits 20,000 960 Accounts payable and accrued expenses (1,436,429 ) (2,217,598 ) Net cash used in operating activities (5,384,952 ) (23,852,522 ) Investing activities: Purchase of furniture and equipment (19,025 ) (236,952 ) Net cash used in investing activities (19,025 ) (236,952 ) Financing activities: Proceeds from issuance of common stock 9,743,637 — Cash paid in connection with the sale of common stock (402,795 ) — Proceeds from issuance of common stock upon exercise of stock options 143,534 — Net cash provided by financing activities 9,484,376 — Net increase (decrease) in cash and cash equivalents 4,080,399 (24,089,474 ) Cash and cash equivalents at beginning of year 38,524,536 62,614,010 Cash and cash equivalents at end of year $ 42,604,935 $ 38,524,536 The accompanying notes are an integral part of these consolidated financial statements. 85 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Nature of Organization and Operations Aerpio Pharmaceuticals, Inc. (“Aerpio” or the “Company”) is a biopharmaceutical company focused on developing compounds that activate Tie2 in indications in which the Company believes that activation of Tie2 may have therapeutic potential. Our product candidates include razuprotafib (formerly known as AKB-9778), a small molecule VE-PTP inhibitor. The Company was incorporated as Zeta Acquisition Corp. II (“Zeta”) in the State of Delaware on November 16, 2007. Zeta was a “shell company” (as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended). The Company’s pipeline includes the following programs: Glaucoma: Based on the preclinical proof of concept and the results of the Phase 1b trial showing a reduction in intraocular pressure (“IOP”) in patients with ocular hypertension (“OHT”) and open angle glaucoma (“OAG”), the Company initiated a Phase 2 clinical trial in June 2020 designed to evaluate the safety and efficacy of a topical formulation of razuprotafib in approximately 195 patients followed over a 28-day period. Patients enrolled in the trial were administered a baseline of latanoprost ophthalmic solution 0.005%, and then randomized in a 1:1:1 fashion to receive adjunctive therapy consisting of placebo, 40 mg/ml razuprotafib once-daily, or 40 mg/ml razuprotafib twice-daily. The primary endpoint of the study was mean diurnal IOP at 28 days in the razuprotafib treated groups compared to the latanoprost monotherapy group. In December 2020, the Company reported that razuprotafib met the primary efficacy endpoint at the end of the 28-day period (“Day 28”) with the twice-daily (“BID”) dose group in its double-blind, placebo-controlled Phase 2 trial in patients with elevated IOP associated with OAG or OHT. The change from baseline in diurnal mean IOP at Day 28 of study eyes treated with razuprotafib BID plus latanoprost showed a statistically significant improvement, or drop in IOP, (two-sided p-value 0.0130 and LS mean difference of -0.92 mm Hg) compared to those treated with latanoprost monotherapy. The razuprotafib once-daily dose group did not show a statistically significant improvement at Day 28. While the Phase 2 clinical trial met its primary efficacy endpoint with the BID group, the IOP decrease was not at a level deemed sufficient to move to Phase 3 development. Acute Respiratory Distress Syndrome: Based on results in preclinical studies and observations in patients in the TIME-2 and TIME-2b trials, the Company believes that a vascular endothelial receptor, Tie2, may play a pivotal role in the defense against microvascular breach in ARDS. The Company hypothesizes that razuprotafib, the Company’s lead Tie2 activator, may have therapeutic potential for the treatment of COVID-19 associated ARDS and initiated two Phase 2 trials during 2020. In May 2020, the Company was selected by Quantum Leap Healthcare Collaborative to participate in the I-SPY COVID-19 Trial (Investigation of Serial studies to Predict Your COVID Therapeutic Response with biomarker Integration and Adaptive Learning ) to evaluate subcutaneous razuprotafib for the treatment of COVID-19 related ARDS in adult patients with critical COVID-19. The trial was initiated during the third quarter of 2020 and trial updates are anticipated in the first half of 2021, subject to potential delays in subject enrollment and study completion, including due to delays arising from the ongoing COVID-19 pandemic, and the potential for project cancellation or discontinuation by Quantum Leap Healthcare Collaborative. In August 2020, the Company initiated a second Phase 2 clinical trial (“RESCUE”) for the treatment of COVID-19 with the U.S. Government operating through Medical Technology Enterprise Consortium (“MTEC”). This RESCUE trial will evaluate subcutaneous razuprotafib for the prevention and treatment of ARDS in adult patients with moderate to severe COVID-19 as part of MTEC-20-09-COVID-19 Treatment Military Infectious Disease Research Program (“MIDRP”) “Development of Treatments for COVID-19”. Per the terms of the agreement with MTEC, MTEC will provide partial reimbursement up to $5.1 million related to qualified internal and external spending of the Company, as it relates to the clinical trial. The Company expects to report top-line data upon study completion in the second quarter of 2021. 86 Diabetic Kidney Disease: In two consecutive trials, TIME-2 and TIME-2b, subcutaneous razuprotafib showed reduction in Urine Albumin-Creatinine Ratio (“UACR”), a measure of progression of diabetic kidney disease. The Company believes that systemic treatment with razuprotafib could have the potential to change the treatment paradigm for diabetics in the future and potentially address a major societal problem by lowering the cost of care associated generally with diabetes. ARP-1536 and Bi-specific Antibody: The humanized monoclonal antibody, ARP-1536, directed at the same target as subcutaneous razuprotafib, is in preclinical development. The Company is evaluating development options for ARP-1536, including subcutaneous injection for the treatment of diabetic vascular complications, e.g., diabetic nephropathy and intravitreal injection as an adjunctive therapy for diabetic macular edema. The Company is also developing a bispecific antibody that binds both v ascular endothelial growth factor (“VEGF”) and v ascular endothelial protein tyrosine phosphatase (“VE-PTP”) which is designed to inhibit VEGF activation and activate Tie2. The Company believes this bispecific antibody has the potential to be an improved treatment for wet aged-related macular degeneration (“AMD”) and diabetic macular edema via intravitreal injection. In June 2018, the Company licensed AKB-4924 (now GB004), a selective stabilizer of hypoxia-inducible factor-1 alpha (“HIF-1 alpha”) to a wholly-owned subsidiary of Gossamer Bio, Inc., GB004, Inc. (collectively “Gossamer”), which is being developed for the treatment of inflammatory bowel disease (“IBD”). HIF-1 alpha is involved in mucosal wound healing and the reduction of inflammation in the gastrointestinal tract. Gossamer completed the Phase 1b clinical trial in ulcerative colitis (“UC”) patients and reported results during the second quarter of 2020. Gossamer has announced that, subject to developments in the ongoing COVID-19 pandemic, it initiated a 12-week Phase 2 study of GB004 in patients with mild-to-moderate UC during the second half of 2020. In May 2020, the Company received a one-time payment of $15.0 million pursuant to an amendment to its license agreement with Gossamer resulting in a reduction in future potential milestone payments and tiered royalty rates over the life of the license agreement. Gossamer is responsible for all remaining development and commercial activities for GB004. In February 2018, the Company filed a shelf registration statement on Form S-3 with the Securities and Exchange Commission (“SEC”) which was declared effective by the SEC on April 11, 2018 (the “Form S-3”). On February 21, 2018, and pursuant to the Form S-3, the Company entered into a Controlled Equity Offering Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co. (“Cantor”), pursuant to which it may issue and sell, from time to time, shares of its common stock having an aggregate offering price of up to $75.0 million through Cantor as the sales agent. Cantor may sell the Company’s common stock by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415(a)(4) of the Securities Act, including sales made directly on or through the Nasdaq Capital Market or any other existing trade market for the Company’s common stock, in negotiated transactions at market prices prevailing at the time of sale or at prices related to prevailing market prices, or any other method permitted by law. During the year ended December 31, 2020, 6,523,655 shares of the Company’s common stock were sold under the Sales Agreement, pursuant to the Form S-3, the related prospectus, and the prospectus supplement. The net proceeds received from this transaction were $9.3 million, after deducting expenses of approximately $403,000 (including sales agent compensation of approximately $292,000) that were direct and incremental to the sale of the Company’s common stock. The Company’s operations to date have been limited to organizing and staffing the Company, business planning, raising capital, acquiring and developing its technology, identifying potential product candidates and undertaking preclinical and clinical studies. The Company’s revenue has been primarily limited to license revenue from Gossamer described in Note 14. The Company’s product candidates are subject to long development cycles and there is no assurance the Company will be able to successfully develop, obtain regulatory approval for, or market its product candidates. The Company is subject to a number of risks similar to other life science companies in the current stage of its life cycle including, but not limited to, the need to obtain adequate additional funding, possible failure of preclinical testing or clinical trials, the need to obtain marketing approval for its product candidates, competitors developing new technological innovations, the need to successfully commercialize and gain market acceptance of any of the Company’s pipeline products that are approved, and protection of proprietary technology. If the Company does not successfully commercialize any of its pipeline products or mitigate any of these other risks, it will be unable to generate revenue or achieve profitability. 87 T he Company incurred losses from operations and had negative cash flows from operating activities for the year ended Dec ember 3 1 , 2020 and 2019 (and since inception). As of December 31, 2020, the Company’s cash and cash equivalents were approximately $ 42.6 million . The company is currently evaluating its development options for its product candidates. Any efforts for continued program development will be time-consuming and expensive. Based on its current operating plan, and absent any future financings or strategic partnerships, the Company believes its existing cash and cash equivalents will be sufficient to fund its current operating plan through the fourth quarter of 2022 , and as a result, through at least twelve months from the filing of the Company’s 2020 Annual Report on Form 10-K . There can be no assurance, however, that the current operating plan will be achieved in the time frame anticipated by the Company, or that its cash resources will fund the Company’s operating plan for the period anticipated by the Company or that additional funding will be available on terms acceptable to the Company, or at all. Market volatility resulting from the COVID-19 pandemic or other factors could also adversely impact the Company’s ability to access capital as and when needed. If the Company is unable to raise the necessary funds when needed on a timely basis, it may be required to suspend its operations. The Company is currently evaluating a range of strategic alternatives focused on maximizing stockholder value from its clinical assets and cash resources. As part of this process, it is exploring strategic options for partnering its programs, as well as the potential for an acquisition, company sale, merger, business combination, asset sale, in-license, out-license or other strategic transaction. There can be no assurance that this exploration of strategic alternatives will result in the Company entering or completing any transaction. COVID-19 has resulted, and will likely continue to result, in significant governmental measures being implemented to control the spread of the virus through quarantines, travel restrictions, heightened border security and other measures. While the Company cannot predict the scope and severity, these developments and measures could materially and adversely affect its business, including its clinical trials for ARDS programs, results of operations and financial condition. In addition, in response to the continuing spread of COVID-19, the Company has kept its executive offices closed with its employees continuing their work outside of the office. The Company is closely monitoring the impact of COVID-19 on all aspects of its business and is taking steps to minimize the impact on its business. However, the extent to which COVID-19 ultimately impacts the Company’s business, results of operations or financial condition will depend on future developments, which remain highly uncertain and cannot be predicted with confidence, such as the duration of the COVID-19 pandemic, new information that may emerge concerning the severity of COVID-19 and the effectiveness of actions taken to contain the COVID-19 pandemic or treat its impact, among others. While some states and jurisdictions have started to rollback stay-at-home and quarantine orders and reopened in phases, it is difficult to predict what the lasting impact of the COVID-19 pandemic will be, and if the Company or any of the third parties with whom it engages were to experience additional shutdowns or other prolonged business disruptions, the Company’s ability to conduct its business in the manner and on the timelines presently planned could have a material adverse impact on the Company’s business, results of operation and financial condition. In addition, a recurrence of COVID-19 cases could cause other widespread or more severe impacts depending on where infection rates are highest. The Company will continue to monitor developments as it deals with the disruptions and uncertainties relating to the COVID-19 pandemic. 2. Summary of Significant Accounting Policies Basis of Presentation The consolidated financial statements have been prepared in accordance with SEC regulations and include all of the information and disclosures required by U.S. generally accepted accounting principles (“U.S. GAAP” or “GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”). The Company’s consolidated financial statements are stated in U.S. Dollars. Segment Information Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business in one 88 operating segment, which is the business of developing and commercializing proprietary therapeutics. All the assets and operations of the Company ’s sole operating segment are located in the U nited S tates . Use of Estimates The preparation of consolidated financial statements in conformity with U.S. GAAP requires 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 consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results may differ from those estimates. Management considers many factors in selecting appropriate financial accounting policies and controls, and in developing the estimates and assumptions that are used in the preparation of these consolidated financial statements. Management must apply significant judgment in this process. In addition, other factors may affect estimates, including expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes, and management must select an amount that falls within that range of reasonable estimates. Estimates are used in the following areas, among others: prepaid and accrued research and development expense, stock-based compensation expense, revenue recognition and income taxes. The Company’s results can also be affected by economic conditions, global health concerns, such as COVID-19, and political, legislative, regulatory and legal actions. Economic conditions, such as recessionary trends, inflation, interest and monetary exchange rates, government fiscal policies, and changes in the prices of research studies, can have a significant effect on operations. While the Company maintains reserves for anticipated liabilities and carries various levels of insurance, the Company could be affected by civil, criminal, regulatory or administrative actions, claims or proceedings. Cash and Cash Equivalents Cash and cash equivalents consist of all cash on hand and $100,000 invested in short-term certificates of deposits with original maturities of three months or less at the time of purchase. At December 31, 2020 and 2019, the Company’s cash equivalents are primarily held in money market funds. The Company maintains balances with its banks in excess of federally insured limits. Revenue Recognition At the inception of an arrangement, the Company evaluates if a counterparty to a contract is a customer, if the arrangement is within the scope of revenue from contracts with customers guidance and the term of the contract. The Company recognizes revenue when its customer obtains control of promised goods or services in a contract for an amount that reflects the consideration the Company expects to receive in exchange for those goods or services. For contracts with customers, the Company applies the following five-step model in order to determine this amount: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. As part of the accounting for contracts with customers, the Company must develop assumptions that require judgment to determine the standalone selling price of each performance obligation identified in the contract. The Company then allocates the total transaction price to each performance obligation based on the estimated standalone selling prices of each performance obligation. The Company recognizes the amount of the transaction price as revenue that is allocated to the respective performance obligation when the performance obligation is satisfied or as it is satisfied. The Company enters into collaboration arrangements, under which it licenses certain rights to its intellectual property to third parties. The terms of these agreements may include payment to the Company of one or more of the following: nonrefundable upfront license fees; development, sale and commercial milestone payments and royalties on net sales of licensed products. Each of these types of payments are classified as license revenue except for revenue from royalties on net sales of licensed products, which are classified as royalty revenue, if received. 89 For each collaboration agreement that results in revenues, the Company identifies all material promised goods and services, which may include a license to intellectual property, research and development activities and/or transition activities. Promised goods or services are considered to be separate performance obligations if they are distinct. In order to determine the transaction price to be allocated to each performance obligation, in addition to any upfront payment, the Company estimates the amount of variable consideration at the outset of the contract either utilizing the expected value or most likely amount method, depending on the facts and circumstances relative to the contract. The Company constrains (reduces) the estimates of variable consideration such that it is probable that a significant reversal of previously recognized revenue will not occur throughout the life of the contract. When determining if variable consideration should be constrained, management considers whether there are factors outside the Company’s control that could result in a significant reversal of revenue. In making these assessments, the Company considers the likelihood and magnitude of a potential reversal of revenue. These estimates are re-assessed each reporting period as required. Once the estimated transaction price is established, amounts are allocated to the performance obligations that have been identified. The transaction price is generally allocated to each separate performance obligation on a relative standalone selling price basis. The Company must develop assumptions that require judgment to determine the standalone selling price (“SSP”) in order to account for these agreements. To determine the standalone selling price the Company’s assumptions may include (i) assumptions regarding the probability of obtaining marketing approval for the drug candidate; (ii) estimates regarding the timing of and the expected costs to develop and commercialize the drug candidate; (iii) estimates of future cash flows from potential product sales with respect to the drug candidate; and (iv) appropriate discount and tax rates. Standalone selling prices used to perform the initial allocation are not updated after contract inception. The Company does not include a financing component to its estimated transaction price at contract inception unless it estimates that certain performance obligations will not be satisfied within one year. Upfront License and Amendment License Fees: If a license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues from nonrefundable, upfront (or one-time) license and amendment license fees based on the relative value prescribed to the license compared to the total value of the arrangement. The revenue is recognized when the cash is received or when the license is transferred to the collaborator and the collaborator is able to use and benefit from the license. For licenses that are not distinct from other obligations identified in the arrangement, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time. If the combined performance obligation is satisfied over time, the Company applies an appropriate method of measuring progress for purposes of recognizing revenue from nonrefundable, license fees. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition. Development Milestone Payments: Depending on facts and circumstances, the Company may conclude it is appropriate to include the milestone in the estimated transaction price using the most likely amount method or it is appropriate to fully constrain the milestone. A milestone payment is included in the transaction price in the reporting period the Company concludes that it is probable that recording revenue in the period will not result in a significant reversal in amounts recognized in future periods. The Company may record revenues from certain milestones in a reporting period before the milestone is achieved if the Company concludes that achievement of the milestone is probable and that recognition of revenue related to the milestone will not result in a significant reversal in amounts recognized in future periods. The Company records a corresponding contract asset when this conclusion is reached. Milestone payments that have not been included in the transaction price to date are fully constrained. These milestones remain fully constrained until the Company concludes that achievement of the milestone is probable and recognition of revenue related to the milestone will not result in a significant reversal in amounts recognized in future periods. The Company re-evaluates the probability of achievement of such development milestones and any related constraint each reporting period. The Company adjusts its estimate of the overall transaction price, including the amount of collaborative revenue that it has recorded, if necessary. 90 Sales-based Milestone and Royalty Payments : The Company’s collaborators may be required to pay the Company sales-based milestone payments or royalties on future sales of commercial products. The Company recognizes revenues related to sales-based milestone and royalty payments upon the later to occur of ( i ) achievement of the collaborator’s underlying sales or (ii) satisfaction of any performance obligation(s) related to these sales, in each case assuming the license to the Company’s intellectual property is deemed to be the predominant item to which the sales-based milestones and/or royalties relate. Other Income Other income represents reimbursed internal and external qualified expenses, per the terms of the MTEC arrangement, related to the ARDS clinical trial. Other income is recorded, and generally received, in the period the internal or external qualified clinical trial expenses are incurred, and paid, by the Company. Grant Income Grant income is recognized as earned based on contract work performed. Research and Development Research and development costs are expensed as incurred. Research and development expense consists of (i) employee-related expenses, including salaries, benefits, travel and stock-based compensation expense; (ii) external research and development expenses incurred under arrangements with third parties, such as contract research organizations and consultants; (iii) the cost of acquiring, developing and manufacturing clinical study materials; and (iv) costs associated with clinical, preclinical and regulatory activities. The Company enters into consulting, research, and other agreements with commercial firms, researchers, universities and others for the provision of goods and services. Under such agreements, the Company may pay for services on a monthly, quarterly, project or other basis. Such arrangements are generally cancellable upon reasonable notice and payment of costs incurred. Costs are considered incurred based on an evaluation of the progress to completion of specific tasks under each contract using information and data provided to the Company by its clinical sites and vendors. These costs consist of direct and indirect costs associated with specific projects, as well as fees paid to various entities that perform certain research on behalf of the Company. Patents Costs incurred in connection with the application for and issuances of patents are expensed as incurred. Income Taxes Income taxes are recorded in accordance with ASC Topic 740, Income Taxes (“ASC 740”) which provides for deferred taxes using an asset and liability approach. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the consolidated financial statement and tax bases of assets and liabilities and for loss and credit carryforwards using enacted tax rates anticipated to be in effect for the year in which the differences are expected to reverse. Valuation allowances are provided, if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740. When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit will more likely than not be realized. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position, as well as consideration of the available facts and circumstances. As of December 31, 2020 and 2019, the Company does not have any uncertain tax positions. The Company recognizes interest and penalties related to uncertain tax positions, if any exist, in income tax expense. Net and Comprehensive Loss per Share Attributable to Common Stockholders The Company’s basic net and comprehensive loss per share attributable to common stockholders is calculated by dividing the net and comprehensive loss by the weighted average number of shares of common stock outstanding for the period. The diluted net and comprehensive loss per share attributable to common stockholders is computed by adjusting the weighted average shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, determined using the treasury stock method. 91 Stock-Based Compensation The Company accounts for its stock-based compensation awards in accordance with ASC Topic 718, Compensation – Stock Compensation (“ASC 718”). ASC 718 requires all stock-based payments to employees, including grants of employee stock options, to be recognized in the consolidated statements of operations and comprehensive loss based on their fair values. All the Company’s stock-based awards are subject only to service-based vesting conditions. The Company estimates the fair value of its stock-based awards using the Black-Scholes option pricing model, which requires the input of assumptions, including (a) the expected stock price volatility, (b) the calculation of expected term of the award, (c) the risk-free interest rate and (d) expected dividends. Due to the historical lack of a public market for the trading of the Company’s common stock and a lack of company-specific historical and implied volatility data, the Company has based its estimate of expected volatility on the historical volatility of a group of similar companies that are publicly traded. The computation of expected volatility is based on the historical volatility of a representative group of companies with similar characteristics to the Company, including stage of product development and life science industry focus. The Company believes the group selected has sufficient similar economic and industry characteristics and includes companies that are most representative of the Company. The Company uses the simplified method as prescribed by the SEC Staff Accounting Bulletin No. 107, Share-Based Payment , to calculate the expected term, as it does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term for options granted to employees, and utilizes the contractual term for options granted to non-employees. The expected term is applied to the stock option grant group as a whole, as the Company does not expect substantially different exercise or post-vesting termination behavior among its employee population. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected life of the stock options. Compensation expense related to awards to employees is calculated on a straight-line basis by recognizing the grant date fair value over the associated service period of the award, which is generally the vesting term. Fair Value of Financial Instruments The Company’s financial instruments consist of cash and cash equivalents, accounts payable and accrued expenses. The Company values cash equivalents using quoted market prices. The fair value of accounts payable and accrued expenses approximates its carrying value because of its short-term nature. The Company is required to disclose information on all assets and liabilities reported at fair value that enables an assessment of the inputs used in determining the reported fair values. ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”) establishes a hierarchy of inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances. The fair value hierarchy applies only to the valuation inputs used in determining the reported fair value of the investments and is not a measure of the investment credit quality. The three levels of the fair value hierarchy are described below: • Level 1 – Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date • Level 2 – Valuations based on quoted prices for similar assets or liabilities in markets that are not active or for which all significant inputs are observable, either directly or indirectly • Level 3 – Valuations that require inputs that reflect the Company’s own assumptions that are both significant to the fair value measurement and unobservable 92 To the extent that a valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. There were no transfers within the fair value hierarchy in the years ended December 31, 2020 and 2019 . The assets of the Company measured at fair value on a recurring basis as of December 31, 2020 and 2019 are summarized below: Fair Value Measurements Using Level 1 Level 2 Level 3 Total December 31, 2020 Assets: Cash and cash equivalents $ 42,604,935 $ — $ — $ 42,604,935 Total assets $ 42,604,935 $ — $ — $ 42,604,935 December 31, 2019 Assets: Cash and cash equivalents $ 38,524,536 $ — $ — $ 38,524,536 Total assets $ 38,524,536 $ — $ — $ 38,524,536 Concentrations of Credit Risk and Off-Balance Sheet Risk Cash and cash equivalents are the only financial instruments that potentially subject the Company to concentrations of credit risk. At December 31, 2020 and 2019, the Company maintains its cash and cash equivalents with high-quality, accredited financial institutions and, accordingly, such funds are subject to minimal credit risk. The Company has no off-balance sheet concentrations of credit risk, such as foreign currency exchange contracts, option contracts or other hedging arrangements. Comprehensive Loss Comprehensive loss is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources, if any. Comprehensive loss equaled net loss for all periods presented. Furniture and Equipment Furniture and equipment is stated at cost, less accumulated depreciation. Furniture and equipment is depreciated using the straight-line method over the estimated useful lives of the assets, generally three to seven years. Such costs are periodically reviewed for recoverability when impairment indicators are present. Such indicators include, among other factors: operating losses, unused capacity, market value declines, and technological obsolescence. Recorded values of asset groups of furniture and equipment that are not expected to be recovered through undiscounted future net cash flows are written down to current fair value, which generally is determined from estimated discounted future net cash flows (assets held for use) or net realizable value (assets held for sale). Leases At the inception of an arrangement the Company determines whether the arrangement is or contains a lease based on the circumstances present. All leases with a term greater than one year are recognized on the consolidated balance sheet as right-of-use assets, net, lease liabilities and, if applicable, long-term lease liabilities. The Company has elected not to recognize on the consolidated balance sheet leases with terms of one-year or less if entered into. Lease liabilities and their corresponding right-of-use assets, net are recorded based on the present value of lease payments over the expected lease term. The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company utilizes the appropriate incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Certain adjustments to the right-of-use assets, net may be required for items such as initial direct costs paid or incentives received. 93 Recent Accounting Pronouncements From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption. In June 2018, the FASB issued ASU 2018-07, Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”) . ASU 2018-07 improves financial reporting for share-based payments issued to nonemployees under ASC 718 by expanding the scope of the employee share-based payments guidance to include share-based payments issued to nonemployees. The amendments in ASU 2018-07 were effective for public companies for fiscal years beginning after December 31, 2018, including interim periods within that fiscal year. The Company adopted ASU 2018-07 as of January 1, 2019 and recorded a one-time cumulative adjustment of $5,717 upon adoption. No other new accounting pronouncement recently issued or newly effective had or is expected to have a material impact on the Company’s consolidated financial statements. 3. Accounts Payable and Accrued Expenses Accounts payable and accrued expenses consist of the following as of: December 31, 2020 2019 Accounts payable $ 523,037 $ 439,785 Accrued bonus 428,683 689,830 Professional fees 444,534 346,999 Accrued project costs 328,463 382,131 Accrued vacation 48,107 43,470 Restructuring accrual (see Note 15) — 793,913 Accrued retention bonus — 521,859 Other 26,547 13,463 Total accounts payable and accrued expenses $ 1,799,371 $ 3,231,450 4. Furniture and Equipment Furniture and equipment consist of the following as of: December 31, 2020 2019 Furniture $ 154,669 $ 154,669 Computers 68,642 56,443 Equipment 252,882 246,056 Leasehold improvements 35,869 35,869 Total furniture and equipment 512,062 493,037 Accumulated depreciation (390,332 ) (328,850 ) Furniture and equipment, net $ 121,730 $ 164,187 5. Common Stock As of December 31, 2020 and 2019, the Company had 300,000,000 shares of authorized common stock with par value of $0.0001 per share. The common stock has the following characteristics: Voting The holders of common stock are entitled to one vote for each share of common stock held at all meetings of stockholders and written actions in lieu of meetings. 94 Dividends The holders of common stock are entitled to receive dividends, if and when declared by the board of directors of the Company (the “Board of Directors”). Since the Company’s inception, no dividends have been declared or paid to the holders of common stock. Liquidation In the event of any voluntary or involuntary liquidation, dissolution, or winding-up of the Company, the holders of common stock are entitled to share ratably in the Company’s assets. Warrants to Purchase Common Stock At December 31, 2020 and 2019, the Company had warrants outstanding for the purchase of 600,000 and 917,562 shares, respectively, of the Company’s common stock. In October 2019, the Company issued warrants for the purchase of 600,000 shares of the Company’s common stock at an exercise price of $0.486 per share in connection with the hiring of a strategic advisor consultant for a six-month period. These warrants vested in equal monthly installments over a six-month period beginning October 14, 2019 and expire on October 24, 2024. At the date of grant the fair value of these awards was determined using a Black-Scholes Merton pricing model. Included at December 31, 2019, are warrants for the purchase of 317,562 shares of the Company’s common stock at an exercise price of $5.00 per share that were issued in 2017 and have a three-year term. The 317,562 warrants expired on March 15, 2020, and none were exercised or settled as the fair value of the Company’s common stock was below the exercise price. The number of shares and the exercise price shall be adjusted for standard anti-dilution events such as stock splits, combinations, reorganizations, or issue shares as part of a stock dividend. Upon a change of control, the warrant holder will have the right to receive securities, cash or other properties it would have been entitled to receive had the warrant been exercised. The warrants are equity classified instruments and do not contain contingent exercise provisions, or other features, that would preclude the Company from concluding that the warrants are indexed solely to the Company’s common stock. 6. Preferred Stock As of December 31, 2020 and 2019, the Company had 10,000,000 shares of preferred stock, par value $0.0001 per share, in authorized capital. No preferred stock was issued and outstanding at December 31, 2020 and 2019. 7. Stock-Based Compensation In March 2017, the Company’s Board of Directors adopted, and the stockholders approved, the 2017 Stock Option and Incentive Plan (the “2017 Plan”), that became effective in April 2017. The 2017 Plan provides for the issuance of incentive awards up to 4,600,000 shares of common stock to officers, employees, consultants and directors, less the number of shares subject to issued and outstanding awards under the Company’s 2011 Equity Incentive Plan that were assumed in the Merger. The 2017 Plan also provides that the number of shares reserved for issuance thereunder will be increased annually on the first day of each year beginning in 2018 by four percent (4%) of the shares of our common stock outstanding on the last day of the immediately preceding year or such smaller increase as determined by our Board of Directors. As a result of the evergreen increase, a total of 1,623,520 shares were added to the 2017 Plan on January 1, 2020 and a total of 1,890,052 were added to the 2017 Plan on January 1, 2021. Stock Options The options granted generally vest over 48 months. Under the 2017 Plan, options vest in installments of 25% at the one-year anniversary and thereafter in 36 equal monthly installments beginning on the 1 st of the month after the one-year anniversary date, subject to the employee’s continuous service with the Company. In May 2019, the Company issued a special retention grant of options to purchase an aggregate of 2,419,050 shares of common stock which vest in installments of 50% at June 30, 2020 and 50% at June 30, 2021, subject to the employee’s continuous service with the Company. The options generally expire ten years after the date of grant. The fair value of the options at the date of grant is recognized as an expense over the requisite service period. Option awards to purchase an aggregate of 962,720 and 4,666,728 shares of common stock were granted during the year ended December 31, 2020 and 2019, respectively. All option awards granted during 2020 and 2019 were under the 2017 Equity Plan. As of December 31, 2020 and 2019, 3,634,905 and 1,983,093 shares were reserved for issuance under the 2017 Plan, respectively. 95 The following table summarizes the stock option activity during the years ended December 31, 2020 and 2019 : Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (in Years) Aggregate Intrinsic Value Outstanding, January 1, 2019 3,351,132 $ 3.73 8.24 $ 142,788 Granted 4,666,728 1.85 Exercised — Expired/cancelled (2,682,010 ) 2.70 Outstanding, December 31, 2019 5,335,850 $ 2.60 6.23 $ 2,866 Expected to vest, December 31, 2019 2,395,265 $ 1.93 9.00 $ 2,866 Options exercisable, December 31, 2019 2,940,585 $ 3.15 3.98 $ — Outstanding, January 1, 2020 5,335,850 $ 2.60 6.23 $ 2,866 Granted 962,720 0.71 Exercised (139,660 ) 1.03 Expired/cancelled (1,516,670 ) 3.97 Outstanding, December 31, 2020 4,642,240 $ 1.81 7.00 $ 358,209 Expected to vest, December 31, 2020 2,142,687 $ 1.45 8.55 $ 333,028 Options exercisable, December 31, 2020 2,499,553 $ 2.12 5.67 $ 25,181 Aggregate intrinsic value represents the estimated fair value of the Company’s common stock in excess of the weighted average exercise price multiplied by the number of options outstanding or exercisable. The aggregate intrinsic value of the options at December 31, 2020 and 2019, was $358,209 and $2,866, respectively. Stock options exercised during 2020 had an intrinsic value of $149,172. No stock options were exercised during 2019. For the years ended December 31, 2020 and 2019, the Company recognized compensation expense for stock options of $1,281,530 and $1,085,842, respectively. During the fourth quarter of 2019 , the Company recorded a one-time stock-based compensation cumulative reversal of $1,051,735 for the forfeitures of outstanding equity awards related to the Chief Executive Officer and Chief Financial and Business Officer who departed the Company on October 15, 2019. As of December 31, 2020, there was $1,463,227 of unrecognized compensation cost related to stock options, which is expected to be recognized over a weighted average period of 1.66 years. 96 The Company uses the Black-Scholes option pricing model to determine the estimated fair value for stock-based awards. For the years ended December 31, 2020 and 2019, there were 962,720 and 4,666,728 options granted out of the 2017 Plan, respectively. Option pricing models require the input of various assumptions, including the option’s expected life, expected dividend yield, price volatility and risk-free interest rate of the underlying stock. As there has not been significant public market activity of the Company’s Common Stock, the Company has determined the volatility assumption for options granted based on data from a peer group of companies that issued options with substantially similar terms. The expected volatility of options granted has been determined using the average of the historical volatility measures of this peer group of companies for a period equal to the expected life of the option. The risk-free interest rate is based on the rate applicable to U.S. Treasury zero-coupon issues, with remaining maturities commensurate with the expected term of the options granted in effect on the date of grant. The Company has not paid, and does not anticipate paying, cash dividends on shares of Common Stock; therefore, the expected dividend yield is assumed to be zero in the option valuation model. Accordingly, the weighted-average fair value of the options granted during the years ended December 31, 2020 and 2019, was $0.43 and $1.11, respectively. The calculation was based on the following assumptions. Year Ended December 31, 2020 2019 Expected term (years) 5.92 5.36 Risk-free interest rate 0.53 % 2.24 % Expected volatility 69.36 % 64.88 % Expected dividend yield — — Compensation Expense Summary The Company recognized the following compensation cost related to employee and non-employee stock-based compensation activity for the periods presented below. Year Ended December 31, 2020 2019 Research and development $ 537,515 $ 510,923 General and administrative 744,015 574,919 Total $ 1,281,530 $ 1,085,842 The increase in compensation expense during the year ended December 31, 2020, is primarily due to expense related to the May 2019 special retention grant. 8. Income Taxes The Company did not record a current or deferred income tax expense or benefit for the years ended December 31, 2020 and 2019, due to the Company’s net and comprehensive losses and increases in its deferred tax asset valuation allowance. A reconciliation of the statutory federal income tax with the provision for income taxes are as follows: Year Ended December 31, 2020 2019 Federal tax at statutory rate (21.00%) (21.00%) State and local tax at statutory rates, net of federal income tax (6.52 ) (0.82 ) Research and development credits (15.90 ) (3.39 ) Stock-based compensation 13.31 0.49 Other 0.04 0.07 Change in valuation allowance 30.07 24.65 Effective tax rate 0.00% 0.00% The Company’s income tax provision was computed based on the federal statutory rate and the average state statutory rates, net of the related federal benefit. 97 Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of the assets and liabilities for financial reporting purposes and the amounts used for income and for tax carryforwards, recorded at the enacted federal statutory income tax rate. Significant components of the Company’s deferred tax assets and liabilities are as follows: December 31, 2020 2019 Deferred tax assets: Net operating loss carryforwards $ 26,184,326 $ 24,966,019 Accrued expenses 107,525 413,048 Stock-based compensation 428,125 738,768 Research and development credits 5,326,964 4,640,960 Operating lease right-of-use assets, net 15,152 37,793 Other 5,232 2,423 Total deferred tax assets 32,067,324 30,799,011 Deferred tax liabilities: Furniture and equipment 17,425 24,967 Operating lease liability 14,361 36,044 Total deferred tax liabilities 31,786 61,011 Net deferred tax assets before valuation allowance 32,035,538 30,738,000 Less valuation allowance (32,035,538 ) (30,738,000 ) Net deferred tax asset — $ — When realization of the deferred tax asset is more likely than not to occur, the benefit related to the deductible temporary differences attributable to operation is recognized as a reduction of income tax expense. Valuation allowances are provided against deferred tax assets when, based on all available evidence, it is considered more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods. The Company cannot be certain that future taxable income will be sufficient to realize its deferred tax assets, and accordingly, a full valuation allowance has been provided on its net deferred tax assets. The valuation allowance increased $1,297,538 and $5,735,658 in 2020 and 2019, respectively, as a result of an increase in the net operating loss (“NOL”) and an increase of research and development credits carryforwards. The Company continues to monitor the need for a valuation allowance based on the profitability of its future operations. At December 31, 2020, the Company has $84,173,001 of federal NOL carryforwards with expirations between 2032 and 2038. The Company has $33,263,905 of federal NOL carryforwards with no expiration as a result of the 2017 Tax Act. Additionally, the Company has $64,932,119 of state and local NOL carryforwards with expiration between 2021 and 2041. Finally, at December 31, 2020, the Company has $5,326,964 of federal research and development credit carryforwards that expire at various dates through 2041. Under the provisions of the Internal Revenue Code, NOL and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities until fully utilized. NOL and tax credit carryforwards may be subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant stockholders by more than 50% over a three-year period, as defined in Sections 382 and 383 of the Internal Revenue Code and similar state provisions. The amount of the annual limitation is determined based on the value of the Company immediately before the ownership change. Subsequent ownership changes may further affect the limitation in future years. The Company has not completed a study to assess whether a change of control has occurred or whether there have been multiple changes of control since the date of the Company’s formation due to the significant complexity and cost associated with such study and that there could be additional changes in control in the future. As a result, the Company is unable to estimate the effect of these limitations, if any, on the Company’s ability to utilize NOL and tax credit carryforwards in the future. A full valuation allowance has been provided against the Company’s NOL and tax credit carryforwards and, if an adjustment is required, this adjustment would be offset by an adjustment to the deferred tax asset established for the NOL and tax credit carryforwards and the valuation allowance. 98 The Company has not yet conducted a study to document whether its research activities may qualify for the research and development tax credit. Such a study may result in an adjustment to the Company’s research and development credit carryforwards; however, until a study is completed, and any adjustment is known, no amounts are being presented as an uncertain tax position. A full valuation allowance has been provided against the Company’s research and development credit and, if an adjustment is required, this adjustment would be offset by an adjustment to the deferred tax asset established for the research and development credit carryforwards and the valuation allowance. As of December 31, 2020 and 2019, the Company had no accrued uncertain tax positions or associated interest or penalties and no amounts have been recognized in the Company’s consolidated statements of operations and comprehensive loss. The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. All years remain open and are subject to examination by federal and state taxing authorities. 9. Net and Comprehensive Loss per Share Attributable to Common Stockholders The following table sets forth the computation of the Company’s basic and diluted net and comprehensive loss per share attributable to common stockholders for the periods presented: Year Ended December 31, 2020 2019 Net and comprehensive loss attributable to common stockholders $ (4,315,323 ) $ (23,270,514 ) Weighted average common shares used in computing net and comprehensive loss per share attributable to common stockholders, basic and diluted 42,624,148 40,588,004 Net and comprehensive loss per share attributable to common stockholders, basic and diluted $ (0.10 ) $ (0.57 ) The following weighted average common stock equivalents were excluded from the calculation of diluted net and comprehensive loss per share for the year ended December 31, 2020 and 2019, because including them would have had an anti-dilutive effect: Year Ended December 31, 2020 2019 Options to purchase common stock 4,642,240 5,335,850 Warrants to purchase common stock 600,000 917,562 10. Leases At December 31, 2020, the Company is a party to one property lease in Cincinnati, Ohio under an arrangement which provides the right to use the underlying asset and require lease payments for the lease term. During the fourth quarter of 2019, the Company terminated its leases in Lexington, Massachusetts and Dexter, Michigan; no penalties were incurred related to these terminations. The Cincinnati, Ohio lease agreement obligates the Company to pay real estate taxes, insurance and certain maintenance costs (hereinafter referred to as non-lease components). The Company’s lease arrangement contains a renewal provision of 5 years, exercisable at the Company's option. The Company’s lease agreement does not contain any material residual value guarantees or material restrictive covenants. The Company determines if an arrangement is an operating lease at inception. Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheet. All other leases are recorded on the consolidated balance sheet with a corresponding operating lease asset, net, representing the right to use the underlying asset for the lease term and the operating lease liabilities representing the obligation to make lease payments arising from the lease. 99 Operating lease assets and operating lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term and include options to extend or terminate the lease when they are reasonably certain to be exercised. The present value of lease payments is determined primarily using the incremental borrowing rate based on the information available at lease commencement date. Lease agreements with lease and non-lease components are generally accounted for as a single lease component. The Company’s operating lease expense is recognized on a straight-line basis over the lease term and are recorded in general and administrative expenses on the consolidated statements of operations and comprehensive loss. The following table presents the lease cost and information related to the right-of-use assets, net and operating lease liabilities: Year Ended December 31, 2020 2019 Lease cost Average rent expense $ 113,429 $ 242,690 Other information Cash paid for amounts included in the measurement of operating lease liabilities $ 117,780 $ 242,581 The weighted average remaining lease term and discount rate at December 31, 2020 Weighted-average remaining lease term - operating leases 0.58 Weighted-average discount rate - operating leases 13.28 % As of December 31, 2020, future payments related to operating leases activities are presented in the table below: 2021 2022 2023 and Thereafter Total Operating leases $ 69,685 $ — $ — $ 69,685 Less interest (2,247 ) Present value of lease liabilities $ 67,438 11. Employee Retirement Plan The Company maintains a 401(k) plan (the “401k Plan”) created in 2015 for the benefit of its employees. All employees who have attained the age of 21 are eligible to participate in the 401k Plan as of the first Entry Date, as defined by the 401k Plan document, following the employment date. Each employee can contribute a percentage of compensation up to a maximum of the statutory limits per year. Company contributions are discretionary. No contributions were made during 2020 or 2019. 12. Employee Bonus Plan The Company maintains a bonus plan for certain employees based on the achievement of certain goals and milestones. At December 31, 2020 and 2019, the Company accrued $428,683 and $689,830, respectively, for bonuses. 100 1 3 . Employee Stock Purchase Plan In March 2017, the Board of Directors adopted and the stockholders approved the Employee Stock Purchase Plan that became effective in April 2017. On June 20, 2018, the Company’s shareholders approved the Amended and Restated 2017 Employee Stock Purchase Plan (“ESPP”) at the Annual Meeting of Shareholders. Pursuant to the terms of the ESPP, the Company will reserve for issuance 300,000 shares of the Company’s common stock in the aggregate, plus, on January 1, 2019 and each January 1 thereafter through January 1, 2028, the number of shares of the Company’s common stock reserved and available for issuance under the ESPP will be cumulatively increased by the least of (i) one percent of the number of shares of the Company’s common stock issued and outstanding on the immediately preceding December 31; (ii) 350,000 shares; or (iii) such lesser number of shares of the Company’s common stock as determined by the Board of Directors, in each case subject to adjustment in accordance with the terms of the ESPP. In March 2020, the Company’s Board of Directors approved an increase of 350,000 shares to the SEPP, which increase was effective as of January 1, 2020. No shares under the ESPP are outstanding at December 31, 2020 and 2019. 14. License Agreement On June 24, 2018, the Company entered into a License Agreement (the “Gossamer License Agreement”) with Gossamer, under which the Company granted Gossamer an exclusive, sublicensable license to develop and commercialize AKB-4924 and other structurally related products worldwide, with initial development expected in the indications of induction and maintenance in ulcerative colitis and Crohn’s Disease (collectively “initial indications”). Prior to the execution of the Gossamer License Agreement, AKB-4924 was a pipeline program for the Company that completed a Phase 1a clinical trial in healthy volunteers. On May 12, 2020, the Company entered into Amendment No. 1 to the Gossamer License Agreement (“Amendment No. 1”). Pursuant to Amendment No. 1, Gossamer made a payment to the Company of $15.0 million on May 12, 2020. For the year ended December 31, 2020, the Company recognized revenue of $15.0 million based on the terms of Amendment No. 1, and no such revenue was recognized during the year ended December 31, 2019. Gossamer is responsible for the development and commercialization of the licensed products, and a joint development committee has been formed to oversee the development and manufacturing activities related to the licensed products. Under the terms of the Gossamer License Agreement and as amended by Amendment No. 1 (collectively, the “Amended Gossamer License Agreement”), Gossamer is obligated to use its commercially reasonable efforts to develop and commercialize licensed products in the United States, two major European countries and Japan for at least one of the initial indications. The Amended Gossamer License Agreement includes an exclusivity provision that prohibits the Company from developing, manufacturing or commercializing, and prohibits Gossamer from clinically developing or commercializing certain HIF stabilizing compounds other than as permitted in the Amended Gossamer License Agreement. Under the terms of the Amended Gossamer License Agreement, the Company is eligible to receive up to $40.0 million in approval milestone payments related to indications in ulcerative colitis and Crohn’s disease, and up to $50.0 million in sales milestone payments. The Company is also eligible to receive the tiered royalties on sales of licensed products from percentages ranging from a low-single-digit to mid-single-digit, subject to certain customary reductions. In addition, under certain circumstances, in lieu of receiving the foregoing milestone payments and royalties, the Company may elect to receive 20% of payments received by Gossamer and its stockholders (with some exclusions) in connection with Gossamer’s grant of a sublicense or other rights to the licensed products or if Gossamer undergoes a changes of control and the value of the transaction exceeds a certain value (provided that Gossamer can prevent the Company from exercising this option if the parent company of Gossamer is the entity undergoing the change of control, in which case each of the royalty rate percentages described above would automatically be increased by low single digits). Conversely, the Company could be required to accept such 20% of those payments if Gossamer agrees to pay the Company a certain minimum upon Gossamer and its stockholders being paid. Such amount may be reduced if the transaction includes pharmaceutical candidates or products or other named asset categories in addition to the licensed products. 101 The Amended Gossamer License Agreement expires on a licensed-product-by-licensed-product and country-by-country basis on the later of fifteen years from the date of first commercial sale or when there is no longer a valid patent claim covering such licensed product in such country. Either party may terminate the Amended Gossamer License Agreement for an uncured material breach by the other party or upon the bankruptcy or insolvency of the other party. Gossamer may terminate the Amended Gossamer License Agreement in the event Gossamer determines there is a potential safety or efficacy issue with the licensed products. The Company may terminate the amended Gossamer License Agreement if Gossamer institutes certain actions related to the licensed patents. Under certain termination circumstances, the Company would have worldwide rights to the terminated program. As of December 31, 2020, all development milestones, sales-based milestones and royalty payments within the Amended Gossamer License Agreement are constrained to the point where no transaction price has been allocated to the future milestones or royalty payments. 15. Restructuring In April 2019, the Company executed a realignment plan to reduce operating costs and better align its workforce with the needs of its ongoing business. The realignment plan reduced the Company’s workforce by 11 employees, representing approximately 41% of its workforce. Additionally, in October 2019, the Company’s Chief Executive Officer and Chief Financial Officer departed from their positions. As a result of these reductions, the Company recorded employee severance expense of $1.9 million during the year ended December 31, 2019. These amounts are included within restructuring expense in the consolidated statements of operations and comprehensive loss. Total cash payments against the severance liability was approximately $0.8 million in the year ended December 31, 2020. There is no remaining liability as of December 31, 2020. 16. Subsequent Events On January 29, 2021, the Company executed a realignment plan to reduce operating costs and better align its workforce with the needs of its ongoing business. The realignment plan reduces its current workforce by 7 employees, representing approximately 58% of the Company’s workforce. The Company estimates it will incur one-time employee related severance expenses of approximately $1.2 million in the first quarter of 2021. 102 Item 9. Changes in and Disagreements W ith Accou ntants on Accounting and Financial Disclosure. None.