NOTE 2 - LIQUIDITY AND MANAGEMENT’S PLANS
As of June 30, 2021, the Company had cash and
cash equivalents of approximately $52,067,000 and a working capital of approximately $53,923,000. The Company has not generated revenues
from commercial operations since inception and has incurred recurring operating losses. The Company expects to continue incurring losses
for the foreseeable future and may need to raise additional capital to pursue its product development.
The Company expects to further increase its research
and development activities, which will increase the amount of cash utilized subsequent to June 30, 2021. Specifically, the Company expects
increased spending on research and development activities and higher payroll expenses as it increases its professional and scientific
staff and continues to prepare for anticipated manufacturing activities. If we encounter unforeseen delays or expenses, we have the ability
to curtail our presently planned level of operations. The Company currently believes its existing cash and cash equivalents will be sufficient
to fund its operating expenses and capital expenditure requirements for at least the next 12 months from the date of issuance of these
condensed consolidated financial statements.
TFF PHARMACEUTICALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
For The Three and Six Months Ended June 30,
2021 and 2020
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The unaudited condensed consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”)
for interim financial statements and with Form 10-Q and Article 10 of Regulation S-X of the United States Securities and
Exchange Commission (“SEC”). Accordingly, they do not contain all information and footnotes required by GAAP for annual financial
statements. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain
all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of June
30, 2021 and the results of operations, changes in stockholders’ equity and cash flows for the periods presented. The results of
operations for the three and six months ended June 30, 2021 are not necessarily indicative of the operating results for the full fiscal
year or any future period. These unaudited condensed consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto, which are included in the Company’s Annual Report on Form 10-K for the year
ended December 31, 2020.
Principles of Consolidation
The consolidated financial statements include
the accounts of TFF Pharmaceuticals, Inc. and its wholly-owned subsidiary, TFF Australia. All material intercompany accounts and transactions
have been eliminated in consolidation.
Foreign Currency
The currency of TFF Australia, the Company’s
international subsidiary, is in Australian dollars. Foreign currency denominated assets and liabilities are translated into U.S. dollars
using the exchange rates in effect at each balance sheet date. Results of operations and cash flows are translated using the average exchange
rates throughout the period. The effect of exchange rate fluctuations on translation of assets and liabilities is included as a separate
component of stockholders’ equity in accumulated other comprehensive income (loss).
Cash and Cash Equivalents
The Company maintains its operating accounts in
financial institutions in the U.S. and in Australia. The balances are insured up to specified limits. The Company’s cash is maintained
in checking accounts and money market funds with maturities of less than three months when purchased, which are readily convertible to
known amounts of cash, and which in the opinion of management are subject to insignificant risk of loss in value. As of June 30, 2021
and December 31, 2020, the Company had cash in Australia of AUD$234,930 (US$176,188) and AUD$214,240 (US$165,092), respectively.
Property and Equipment, net
Property and equipment are stated at cost less
accumulated depreciation and amortization. The Company calculates depreciation using the straight-line method over the estimated useful
lives of the assets, which range from two to five years for furniture, fixtures, lab and computer equipment and software.
Assets held within construction in progress are not depreciated. Construction in progress is related to the construction or development
of property and equipment that have not yet been placed in service for its intended use. As of June 30, 2021 and December 31, 2020, approximately
$1,613,000 and $1,103,000, respectively, of the Company’s property and equipment consisted of lab equipment that are considered
construction in progress. Expenditures for repairs and maintenance of assets are charged to expense as incurred.
Fair Value of Financial Instruments
Authoritative guidance requires disclosure of
the fair value of financial instruments. The Company’s financial instruments consist of cash and cash equivalents and accounts payable,
the carrying amounts of which approximate their estimated fair values primarily due to the short-term nature of the instruments or based
on information obtained from market sources and management estimates. The Company measures the fair value of certain of its financial
assets and liabilities on a recurring basis. A fair value hierarchy is used to rank the quality and reliability of the information used
to determine fair values. Financial assets and liabilities carried at fair value which is not equivalent to cost will be classified and
disclosed in one of the following three categories:
Level 1 — Quoted prices (unadjusted) in
active markets for identical assets and liabilities.
Level 2 — Inputs other than Level 1 that
are observable, either directly or indirectly, such as unadjusted quoted prices for similar assets and liabilities, unadjusted quoted
prices in the markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially
the full term of the assets or liabilities.
Level 3 — Unobservable inputs that are supported
by little or no market activity and that are significant to the fair value of the assets or liabilities.
TFF PHARMACEUTICALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
For The Three and Six Months Ended June 30,
2021 and 2020
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Revenue Recognition
The Company has entered into feasibility and material
transfer agreements (“Feasibility Agreements”) with third parties that provide the Company with funds in return for certain
research and development activities. Revenue from the Feasibility Agreements is recognized in the period during which the related qualifying
services are rendered and costs are incurred, provided that the applicable conditions under the Feasibility Agreements have been met.
The Feasibility Agreements are on a best-effort
basis and do not require scientific achievement as a performance obligation. All fees received under the Feasibility Agreements are non-refundable.
The costs associated with the Feasibility Agreements are expensed as incurred and are reflected as a component of research and development
expense in the accompanying condensed consolidated statements of operations.
Funds received from the Feasibility Agreements
are recorded as revenue as the Company is the principal participant in the arrangement because the activities under the Feasibility Agreements
are part of the Company’s development programs. In those instances where the Company first receives consideration in advance of
providing underlying services, the Company classifies such consideration as deferred revenue until (or as) the Company provides the underlying
services. In those instances where the Company first provides the underlying services prior to its receipt of consideration, the Company
records a grant receivable. During the three and six months ended June 30, 2021, the Company rendered the related services and recognized
revenue and research and development expenses of $1,850 and $26,165, respectively. As of June 30, 2021 and December 31, 2020, the Company
had receivables due related to Feasibility Agreements of $26,850 and $0, respectively, and deferred grant revenue of $25,000 and $24,315,
respectively.
Collaborative Arrangements
The Company considers the nature and contractual
terms of arrangements and assesses whether an arrangement involves a joint operating activity pursuant to which the Company is an active
participant and is exposed to significant risks and rewards dependent on the commercial success of the activity. If the Company is an
active participant and is exposed to significant risks and rewards dependent on the commercial success of the activity, the Company accounts
for such arrangement as a collaborative arrangement under Accounting Standards Codification (“ASC”) 808, Collaborative
Arrangements. ASC 808 describes arrangements within its scope and considerations surrounding presentation and disclosure, with recognition
matters subjected to other authoritative guidance, in certain cases by analogy.
For arrangements determined to be within the scope
of ASC 808 where a collaborative partner is not a customer for certain research and development activities, the Company accounts for payments
received for the reimbursement of research and development costs as a contra-expense in the period such expenses are incurred. This reflects
the joint risk sharing nature of these activities within a collaborative arrangement. The Company classifies payments owed or receivables
recorded as other current liabilities or prepaid expenses and other current assets, respectively, in the Company’s consolidated
balance sheets. Please refer to Note 5, “Joint Development Agreement” for additional details regarding the Company’s
joint development agreement (“JDA”) with Augmenta Bioworks, Inc. (“Augmenta”).
If payments from the collaborative partner to
the Company represent consideration from a customer in exchange for distinct goods and services provided, then the Company accounts for
those payments within the scope of ASC 606, Revenue from Contracts with Customers. The Company does not currently have any
collaborative arrangements that are accounted for under ASC 606.
Research and Development Tax Incentive
The Company is eligible to obtain a cash refund
from the Australian Taxation Office for eligible research and development expenditures under the Australian R&D Tax Incentive Program
(the “Australian Tax Incentive”). The Company recognizes the Australian Tax Incentive when there is reasonable assurance that
the cash refund will be received, the relevant expenditure has been incurred, and the consideration can be reliably measured. During the
period ended June 30, 2021, the Company received its first cash refund under the Australian Tax Incentive, which was for expenditures
incurred during 2020. Therefore, the Company recorded amounts received, or that it expects to receive, for expenditures incurred during
2020 as other income in the condensed consolidated statements of operations.
TFF PHARMACEUTICALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
For The Three and Six Months Ended June 30,
2021 and 2020
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
As the Company has determined that it has reasonable
assurance that it will receive the cash refund for eligible research and development expenditures, beginning with expenditures incurred
during the three and six months ended June 30, 2021, the Company records the Australian Tax Incentive as a reduction to research and development
expenses as the Australian Tax Incentive is not dependent on the Company generating future taxable income, the Company’s ongoing
tax status, or tax position. At each period end, management estimates the refundable tax offset available to the Company based on available
information at the time. This percentage of eligible research and development expenses reimbursable under the Australian Tax Incentive
is 43.5% for the three and six months ended June 30, 2021 and for the year ended December 31, 2020.
The research and development incentive receivable
represents an amount due in connection with the Australian Tax Incentive. The Company has recorded a research and development tax incentive
receivable of $932,057 and $0 as of June 30, 2021 and December 31, 2020, respectively, in the condensed consolidated balance sheets.
The Company has recorded other income of $441,546 and $672,824, in the condensed consolidated statements of operations for the three
and six months ended June 30, 2021, respectively, related to refundable research and development incentive program payments for expenditures
incurred during 2020. The Company recorded a reduction to research and development expenses of $516,407 during the three and six months
ended June 30, 2021 for expenditures incurred during 2021.
Basic and Diluted Earnings per Common Share
Basic net loss per common share is calculated
by dividing the net loss by the weighted-average number of common shares outstanding for the period. Diluted net loss per share is computed
by dividing the net loss by the weighted-average number of common shares and dilutive share equivalents outstanding for the period, determined
using the treasury-stock and if-converted methods. Since the Company has had net losses for all periods presented, all potentially dilutive
securities are anti-dilutive. Basic weighted average shares outstanding for the three and six months ended June 30, 2020 include 400,000
shares underlying a warrant to purchase common shares. As the shares underlying this warrant can be issued for little consideration (an
aggregate exercise price of $0.01 per share), these shares are deemed to be issued for purposes of basic earnings per share. The warrant
was exercised during the six months ended June 30, 2021.
For the six months ended June 30, 2021 and 2020,
the Company had the following potential common stock equivalents outstanding which were not included in the calculation of diluted net
loss per common share because inclusion thereof would be anti-dilutive:
|
|
|
Six Months Ended
|
|
|
Six Months Ended
|
|
|
|
|
June 30,
2021
|
|
|
June 30,
2020
|
|
|
Stock Options
|
|
|
2,373,339
|
|
|
|
2,301,333
|
|
|
Warrants
|
|
|
389,233
|
|
|
|
1,076,463
|
|
|
|
|
|
2,762,572
|
|
|
|
3,377,796
|
|
Use of Estimates
The preparation of condensed consolidated financial
statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of expenses during the reporting period. Significant estimates include the fair value of stock-based compensation and
warrants and the valuation allowance against deferred tax assets and related disclosures. Actual results could differ from those estimates.
Recent Accounting Standards
In December 2019, the Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740), Simplifying
the Accounting for Income Taxes, which clarifies and simplifies certain aspects of the accounting for income taxes. The
standard is effective for years beginning after December 15, 2020, and interim periods within annual periods beginning after
December 15, 2020. The adoption of this standard on January 1, 2021 did not have a material impact on the Company’s consolidated
financial statements.
In January 2020, the FASB issued ASU 2020-01,
Investments – Equity Securities, Investments – Equity Method and Joint Ventures, and Derivatives and Hedging – Clarifying
the Interactions Between Topic 321, Topic 323, and Topic 815, intended to clarify the interactions between ASC 321, ASC 323 and ASC
815. The new standard addresses accounting for the transition into and out of the equity method and measurement of certain purchased options
and forward contracts to acquire investments. The standard is effective for annual and interim periods beginning after December 15, 2020,
with early adoption permitted. Adoption of the standard requires changes to be made prospectively. The adoption of this standard on January
1, 2021 did not have a material impact on the Company’s consolidated financial statements.
TFF PHARMACEUTICALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
For The Three and Six Months Ended June 30,
2021 and 2020
NOTE 4 - COMMITMENTS AND CONTINGENCIES
Operating Leases
In October 2018, the Company entered into a lease
agreement for office space in Doylestown, Pennsylvania. The lease commenced on October 15, 2018, the Company exercised a one-year lease
renewal in October 2019, and another one-year lease renewal in October 2020 that will expire on October 31, 2021. The lease has an additional
one-year option for renewal, and the base rent is $36,000 per year. The Company has determined that the lease agreement is considered
a short-term lease under ASC 842 and has not recorded a right-of-use asset or liability. The Company rents another office space on a month-to-month
basis with no long-term commitment, which is considered a short-term lease as well. Short-term lease expense for the three and six months
ended June 30, 2021 was approximately $19,000 and $34,000, respectively. Short-term lease expense for the three and six months ended June
30, 2020 was approximately $9,000 and $18,000, respectively.
Approximate future minimum lease payments required
under the operating leases are as follows:
|
Year ending December 31,
|
|
Amount
|
|
|
2021 – Remaining
|
|
$
|
12,000
|
|
Legal
The Company may be involved, from time to time,
in legal proceedings and claims arising in the ordinary course of its business. Such matters are subject to many uncertainties and outcomes
and are not predictable with assurance. While management believes that such matters are currently insignificant, matters arising in the
ordinary course of business for which the Company is or could become involved in litigation may have a material adverse effect on its
business and financial condition. To the Company’s knowledge, neither the Company nor any of its properties are subject to any pending
legal proceedings.
NOTE 5 - LICENSE AND AGREEMENTS
In July 2015, the University of Texas at Austin
(“UT”) granted to the Company’s former parent, LTI, an exclusive worldwide, royalty bearing license to the patent rights
for the TFF platform in all fields of use, other than vaccines for which LTI received a non-exclusive worldwide, royalty bearing license
to the patent rights for the TFF platform. In March 2018, LTI completed an assignment to the Company all of its interest to the TFF platform,
including the patent license agreement with UT, at which time the Company paid UT an assignment fee of $100,000 in accordance with the
patent license agreement. In November 2018, the Company and UT entered into an amendment to the patent license agreement pursuant to which,
among other things, the Company’s exclusive patent rights to the TFF platform were expanded to all fields of use. The patent license
agreement requires the Company to pay royalties and milestone payments and conform to a variety of covenants and agreements, and in the
event of the Company’s breach of agreement, UT may elect to terminate the agreement. For the period ended December 31, 2018, the
Company did not achieve any of the milestones and, as such, was not required to make any milestone payments. During the ended December
31, 2019, the Company achieved one milestone by gaining IND approval on first indication of a licensed product on November 24, 2019. The
milestone fee associated with this achievement to be paid is $50,000 and the Company must issue UT common shares equal to 1% of the Company’s
outstanding shares of common stock, on a fully diluted basis, as of 30 days after IND approval, which was December 24, 2019. The Company
paid the $50,000 and issued the shares in January 2020. As of the date of these condensed consolidated financial statements, the Company
is in compliance with the patent license agreement as all required amounts have been paid in accordance with the agreement.
In May 2018, the Company entered into a master
services agreement and associated individual study contracts with ITR Canada, Inc. (“ITR”) to provide initial contract pre-clinical
research and development services for the Company’s drug product candidates. In January 2019, the Company cancelled all of the individual
study contracts with ITR and entered into contracts with 11036114 Canada Inc. (initially dba VJO Non-Clinical Development and now dba
Strategy Point Innovations (“SPI”)) and 11035835 Canada Inc., (dba Periscope Research) to complete additional pre-clinical
research and development services in order to take advantage of eligible Canadian Tax Credits. The services related to the contract with
SPI were sub-contracted to ITR and others under substantially the same terms as the initial contract with ITR. Desire Ventures, LLC facilitates
the invoicing for the various affiliates. There was no accounts payable due in connection with this agreement as of June 30, 2021 and
the accounts payable was approximately $56,000 as of December 31, 2020. During the three and six months ended June 30, 2021, the Company
recorded research and development costs of approximately $512,000 and $2,380,000, respectively, pertaining to this agreement. During the
three and six months ended June 30, 2020, the Company recorded research and development costs of approximately $70,000 and $1,004,000,
respectively, pertaining to this agreement.
TFF PHARMACEUTICALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
For The Three and Six Months Ended June 30,
2021 and 2020
NOTE 5 - LICENSE AND AGREEMENTS, continued
In April 2019, the Company entered into a master
services agreement with Irisys, LLC to provide contract manufacturing services for one of the Company’s drug product candidates,
Voriconazole. The accounts payable due in connection with this agreement was approximately $28,000 and $59,000 as of June 30, 2021 and
December 31, 2020, respectively. During the three and six months ended June 30, 2021, the Company recorded research and development costs
of approximately $303,000 and $797,000, respectively, pertaining to this agreement. During the three and six months ended June 30, 2020,
the Company recorded research and development costs of approximately $682,000 and $1,017,000, respectively, pertaining to this agreement.
In January 2020, TFF Australia entered into a
master consultancy agreement with Novotech (Australia) Pty Ltd. (formally known as Clinical Network Services Pty Ltd.) to provide initial
contract clinical research and development services for the Company’s drug product candidates. The accounts payable due in connection
with this agreement was approximately AUD$92,000 (US$69,000) and AUD$170,000 (US$131,000) as of June 30, 2021 and December 31, 2020, respectively.
During the three and six months ended June 30, 2021, the Company recorded research and development costs of approximately AUD$216,000
(US$166,000) and AUD$921,000 (US$710,000), respectively, pertaining to this agreement. During the three and six months ended June 30,
2020, the Company recorded research and development costs of approximately AUD$99,000 (US$65,000) and AUD$184,000 (US$121,000), respectively,
pertaining to this agreement.
In May 2020, TFF Australia entered into an amended
clinical trial research agreement with Nucleus Network Pty Ltd. to provide a Phase I study of one of the Company’s drug candidates,
Tacrolimus. The accounts payable due in connection with this agreement was approximately AUD$3,000 (US$2,000) and AUD$51,000 (US$40,000)
as of June 30, 2021 and December 31, 2020, respectively. During the three and six months ended June 30, 2021, the Company recorded research
and development costs of approximately AUD$202,000 (US$156,000) and AUD$446,000 (US$344,000), respectively, pertaining to this agreement.
During the three and six months ended June 30, 2020, the Company recorded research and development costs of approximately AUD$335,000
(US$221,000) and AUD$368,000 (US$242,000), respectively, pertaining to this agreement.
On August 12, 2020, the Company entered into a
licensing and collaboration agreement with UNION therapeutics A/S in which UNION acquired an option to obtain a worldwide exclusive license
for the TFF technology in combination with niclosamide. Pursuant to the terms of the license agreement, UNION can exercise its option
to obtain the license within 45 days after the complete data has been received by UNION from investigator-initiated trials. Upon exercise
of the option, UNION shall be responsible to pay all expenses incurred in the development of any licensed product. The Company will be
eligible to receive milestone payments upon the achievement of certain milestones in the development the licensed products, based on completion
of clinical trials, pre-marketing approvals and/or the receipt of at least $25,000,000 of grant funding. The Company will receive a single-digit
tiered royalty on net sales. The Company will also be entitled to receive sales-related milestone payments based on the commercial success
of the licensed products.
In January 2021, the Company entered into a master
services agreement with Experic to provide contract manufacturing services for one of the Company’s drug product candidates, Voriconazole.
The accounts payable due in connection with this agreement was approximately $5,000 as of June 30, 2021. During the three and six months
ended June 30, 2021, the Company recorded research and development costs of approximately $105,000 and $301,000, respectively, pertaining
to this agreement.
Joint Development Agreement
On November 2, 2020, the Company and Augmenta
entered into the JDA pursuant to which the Company and Augmenta (collectively the “Parties”) agreed to work jointly to develop
one or more novel commercial products incorporating Augmenta’s human derived monoclonal antibody for the treatment of patients with
COVID-19 and the Company’s patented Thin Film Freezing technology platform. Each party retains full ownership over its existing
assets.
The Parties will share development costs with
each party funding its fifty-percent-share at specified times. In the event that one of the Parties fails to make its pro rata share payment,
the other party may terminate the JDA. In lieu of terminating the JDA, the non-defaulting party may elect to continue the JDA by paying
the delinquent amount and each party’s pro rata share of the JDA will automatically adjust by the amount paid. In addition, in the
event Augmenta experiences a default on its required payment, Augmenta will have the one-time right to elect to require the Company to
purchase Augmenta’s interest in the JDA (“Put Right”) for a one-time fee of $500,000. Upon exercise of the Put Right
and payment by the Company, Augmenta will grant the Company an exclusive, worldwide, royalty-free, transferable, sublicensable license
to the Augmenta antibody and Augmenta’s rights to the property developed under the JDA. The Company has determined that the likelihood
of the Put Right being exercised to be remote.
TFF PHARMACEUTICALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
For The Three and Six Months Ended June 30,
2021 and 2020
NOTE 5 - LICENSE AND AGREEMENTS, continued
The JDA is within the scope of ASC 808 as the
Company and Augmenta are both active participants in the research and development activities and are exposed to significant risks and
rewards that are dependent on commercial success of the activities of the arrangement. The research and development activities are a
unit of account under the scope of ASC 808 and are not promises to a customer under the scope of ASC 606.
The Company records its portion of the research
and development expenses as the related expenses are incurred. All payments received or amounts due from Augmenta for reimbursement of
shared costs are accounted for as an offset to research and development expense. During the three and six months ended June
30, 2021, the Company recorded research and development expenses of $449,846 and $487,946, respectively, and has recorded a receivable
of $489,221 for reimbursement due from Augmenta as of June 30, 2021.
NOTE 6 – STOCKHOLDERS’ EQUITY
Common Stock
March 2021 Offering
On March 30, 2021, the Company completed the March
2021 Offering, selling 2,140,000 shares of common stock at an offering price of $14.00 per share. The Company received gross proceeds
of approximately $30,000,000. The Company received net proceeds of approximately $28,015,000, after deducting underwriting discounts and
commissions and offering-related expenses.
Stock Option Exercises
During the six months ended June 30, 2021, 252,156
shares of common stock were issued in connection with the exercise of stock options for total proceeds of $689,753.
Warrant Exercises
During the six months ended June 30, 2021, 415,917
shares of common stock were issued in connection with the cashless exercise of 424,288 common stock warrants.
During the six months ended June 30, 2021, 28,834
shares of common stock were issued in connection with the exercise of common stock warrants for total proceeds of $180,212.
TFF PHARMACEUTICALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
For The Three and Six Months Ended June 30,
2021 and 2020
NOTE 7 – STOCK BASED COMPENSATION
In January 2018, the Company’s board of
directors approved its 2018 Stock Incentive Plan (“2018 Plan”). The 2018 Plan provides for the grant of non-qualified stock
options and incentive stock options to purchase shares of the Company’s common stock, the grant of restricted and unrestricted share
awards and grant of restricted stock units. The Company has 3,284,480 shares of its common stock reserved under the 2018 Plan. All of
the Company’s employees and any subsidiary employees (including officers and directors who are also employees), as well as all of
the Company’s nonemployee directors and other consultants, advisors and other persons who provide services to the Company will be
eligible to receive incentive awards under the 2018 Plan.
The following table summarizes the stock-based
compensation expense recorded in the Company’s results of operations during the three and six months ended June 30, 2021 and 2020
for stock options and warrants:
|
|
|
Three Months
Ended
June 30,
2021
|
|
|
Six Months
Ended
June 30,
2021
|
|
|
Three Months
Ended
June 30,
2020
|
|
|
Six Months
Ended
June 30,
2020
|
|
|
Research and development
|
|
$
|
69,457
|
|
|
$
|
136,736
|
|
|
$
|
43,605
|
|
|
$
|
43,605
|
|
|
General and administrative
|
|
|
671,078
|
|
|
|
1,634,214
|
|
|
|
251,751
|
|
|
|
677,595
|
|
|
|
|
$
|
740,535
|
|
|
$
|
1,770,950
|
|
|
$
|
295,356
|
|
|
$
|
721,200
|
|
As of June 30, 2021, there was approximately
$7,792,000 of total unrecognized compensation expense related to non-vested share-based compensation arrangements that are expected to
vest. This cost is expected to be recognized over a weighted-average period of 2.6 years.
The Company records compensation expense for awards
with graded vesting using the straight-line method. The Company recognizes compensation expense over the requisite service period applicable
to each individual award, which generally equals the vesting term. The Company estimates the fair value of each option award using the
Black-Scholes-Merton option pricing model. Forfeitures are recognized when realized.
The Company estimated the fair value stock options
using the Black-Scholes option pricing model. The fair value of stock options is being amortized on a straight-line basis over the requisite
service periods of the respective awards. The fair value of stock options issued was estimated using the following assumptions:
|
|
|
Six Months
June 30,
2021
|
|
|
Weighted average exercise price
|
|
$
|
14.17
|
|
|
Weighted average grant date fair value
|
|
$
|
11.97
|
|
|
Assumptions
|
|
|
|
|
|
Expected volatility
|
|
|
89%-97
|
%
|
|
Weighted average expected term (in years)
|
|
|
6.0-10.0
|
|
|
Risk-free interest rate
|
|
|
1.03%-1.09
|
%
|
|
Expected dividend yield
|
|
|
0.00
|
%
|
The risk-free interest rate was obtained from
U.S. Treasury rates for the applicable periods. The Company’s expected volatility was based upon the historical volatility for industry
peers and used an average of those volatilities. The expected life of the Company’s options was determined using the simplified
method as a result of limited historical data regarding the Company’s activity for employee awards and the contractual term for
nonemployee awards. The dividend yield considers that the Company has not historically paid dividends, and does not expect to pay dividends
in the foreseeable future. The Company uses the closing stock price on the date of grant as the fair value of the common stock.
TFF PHARMACEUTICALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
For The Three and Six Months Ended June 30,
2021 and 2020
NOTE 7 – STOCK BASED COMPENSATION,
continued
The following table summarizes stock option activity
during the six months ended June 30, 2021:
|
|
|
Number of
Shares
|
|
|
Weighted-
Average
Exercise
Prices
|
|
|
Weighted-
Average
Remaining
Contractual
Term (In Years)
|
|
|
Intrinsic
Value
|
|
|
Outstanding at January 1, 2021
|
|
|
2,610,495
|
|
|
$
|
5.63
|
|
|
|
8.60
|
|
|
$
|
22,789,233
|
|
|
Granted
|
|
|
15,000
|
|
|
|
14.17
|
|
|
|
—
|
|
|
|
—
|
|
|
Exercised
|
|
|
(252,156
|
)
|
|
|
2.74
|
|
|
|
—
|
|
|
|
—
|
|
|
Outstanding at June 30, 2021
|
|
|
2,373,339
|
|
|
$
|
5.99
|
|
|
|
8.20
|
|
|
$
|
10,693,880
|
|
|
Exercisable at June 30, 2021
|
|
|
801,762
|
|
|
$
|
3.66
|
|
|
|
7.77
|
|
|
$
|
4,768,540
|
|
The aggregate intrinsic value of stock options
is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock
for those stock options that had strike prices lower than the fair value of the Company’s common stock. The intrinsic value of the
options exercised during 2021 was approximately $3,751,000.
Warrants
On February 1, 2021, the Company issued a five-year
warrant to purchase 25,000 shares of common stock at $15.90 per share to a consultant. The fair value of the warrant on the grant date
was estimated using the Black-Scholes-Merton option pricing model with a common stock value of $16.13 per share, a contractual life of
5.0 years, a dividend yield of 0%, volatility of 97.09% and an assumed risk-free interest rate of 0.42%. The warrant is immediately exercisable.
The fair value of the warrant was determined to be approximately $293,000 and was recorded in general and administrative expenses in the
condensed consolidated statement of operations during the six months ended June 30, 2021.
In determining the fair value for warrants, the
expected life of the Company’s warrants was determined using the contractual life. The methodology in determining all other inputs
to calculate the fair value utilizing the Black-Scholes-Merton option pricing model is the same as the stock option methodology described
in above for stock options.
NOTE 8 – SUBSEQUENT EVENTS
The Company has performed an evaluation of events
occurring subsequent to June 30, 2021 through the filing date of this Quarterly Report. Based on its evaluation, nothing other than the
events below need to be disclosed.
Item 2. Management’s Discussion and Analysis
of Financial Condition and Results of Operations
Cautionary Statement
The following discussion
and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes thereto
contained elsewhere in this report. The information contained in this quarterly report on Form 10-Q is not a complete description of our
business or the risks associated with an investment in our common stock. We urge you to carefully review and consider the various disclosures
made by us in this report and in our other filings with the Securities and Exchange Commission, or SEC, including our 2020 Annual Report
on Form 10-K filed with the SEC on March 10, 2021 and Amendment No. 1 to the 2020 Annual Report on Form 10-K filed with the SEC on
April 29, 2021.
In this report we make, and
from time to time we otherwise make written and oral statements regarding our business and prospects, such as projections of future performance,
statements of management’s plans and objectives, forecasts of market trends, and other matters that are forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Statements containing
the words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,”
“estimates,” “projects,” “believes,” “expects,” “anticipates,” “intends,”
“target,” “goal,” “plans,” “objective,” “should” or similar expressions identify
forward-looking statements, which may appear in our documents, reports, filings with the SEC, and news releases, and in written or oral
presentations made by officers or other representatives to analysts, stockholders, investors, news organizations and others, and in discussions
with management and other of our representatives.
Our future results, including
results related to forward-looking statements, involve a number of risks and uncertainties, including those risks included in Part I,
Item 1 “Risk Factors” in our 2020 Annual Report on Form 10-K filed with the SEC on March 10, 2021. No assurance can be
given that the results reflected in any forward-looking statements will be achieved. Any forward-looking statement speaks only as of the
date on which such statement is made. Our forward-looking statements are based upon assumptions that are sometimes based upon estimates,
data, communications and other information from suppliers, government agencies and other sources that may be subject to revision. Except
as required by law, we do not undertake any obligation to update or keep current either (i) any forward-looking statement to reflect events
or circumstances arising after the date of such statement or (ii) the important factors that could cause our future results to differ
materially from historical results or trends, results anticipated or planned by us, or which are reflected from time to time in any forward-looking
statement.
General
TFF Pharmaceuticals, Inc.
(NASDAQ: TFFP) is an early-stage biopharmaceutical company focused on developing and commercializing innovative drug products based on
our patented Thin Film Freezing, or TFF, technology platform. We believe, and early testing confirms, that our TFF platform can significantly
improve the solubility of poorly water-soluble drugs, a class of drugs that makes up approximately two-thirds of the major pharmaceuticals
worldwide, thereby improving the pharmacokinetic effect of those drugs. We believe that in the case of some new drugs that cannot be developed
due to poor water-solubility, our TFF platform has the potential to increase the pharmacokinetic effect of the drug to a level allowing
for its development and commercialization. In November 2019, we initiated Phase I human clinical trials of our lead product, TFF Voriconazole
Inhalation Powder, or VIP, completed the clinical portion of the Phase 1 trial in July 2020 and progressed to a Phase 1b clinical trial
in asthma patients in November 2020. Due to travel restrictions as a result of COVID-19 disease, recruitment of patients has been progressing
slower than originally anticipated and the study was ongoing in August 2021. In June 2020, we commenced Phase I human clinical trials
of our TFF Tacrolimus Inhalation Powder, or TIP, product in Australia. Dosing of subjects in the Phase 1 trial of TIP was completed in
July 2021. As of the date of this report, we have not progressed the development of any other of our drug candidates to human clinical
trials and our efforts have focused on the formulation, early stage animal testing and formal toxicology studies of our initial drug candidates
in preparation for our first clinical trials.
We intend to initially focus
on the development of inhaled dry powder drugs for the treatment of a broad array and expanding number of diseases and conditions. While
the TFF platform was designed to improve solubility of poorly water-soluble drugs generally, the researchers at University of Texas at
Austin, or UT, found that the technology was particularly useful in generating dry powder particles with properties which allow for superior
inhalation delivery, especially to the deep lung, which is an area of extreme interest in respiratory medicine. We believe that our TFF
platform can significantly increase the number of drug products that can be delivered by way of breath-actuated inhalers, which are generally
considered to be the most effective and patient-friendly means of delivering medication directly to the lungs. Our dry powder drug products
will be designed for use with dry powder inhalers, which are generally considered to be the most effective of all breath-actuated inhalers.
We plan to focus on developing inhaled dry powder formulations of existing off-patent drugs, selected new chemical entities, and compounds
that are proprietary assets of pharma companies, academic institutions and government agencies with whom we collaborate, that are intended
to treat a variety of therapeutic indications and conditions. We believe that there are dozens of potential drug candidates for lung and
other diseases and conditions, many of which have a potential market ranging from $100 million to over $500 million.
We intend to initially focus on the
development of the following product candidates:
|
|
●
|
TFF Vori is an inhaled dry powder version of Voriconazole, generally considered to be the best antifungal drug used to treat and prevent invasive pulmonary aspergillosis, or IPA, a severe fungal pulmonary disease with a mortality rate that can reach 90% in some patient populations. In October 2019, we submitted to the U.S. Food and Drug Administration, or FDA, an Investigational New Drug Application, or IND, for our TFF Vori product and initiated our Phase I human clinical trials in November 2019. In July 2020, we completed the clinical portion of the Phase I trial with both single ascending and multiple ascending dose phases with 32 healthy subjects enrolled in each part to evaluate the safety, tolerability and pharmacokinetic profile of TFF Vori. We believe, and our clinical testing to date confirms, that our TFF platform can be used to formulate a dry powder version of Voriconazole, which is no longer subject to patent protection. Voriconazole is currently marketed in Australia, Europe and the U.S. as Vfend®. As of the date of this report, the Clinical Practice Guidelines released by the Infectious Diseases Society of America recommend Voriconazole as first-line monotherapy for IPA. However, since the registration of Vfend in Europe and the U.S. in 2002, several studies have examined the exposure-response relationship with Voriconazole, identifying a relationship between low Voriconazole exposure and higher rates of treatment failure, as well as a higher propensity for neurotoxicity at higher exposures. We believe a TFF prepared dry powder formulation of Voriconazole administered directly to the lungs can maximize both the prophylactic value for immunocompromised patients susceptible to IPA and the treatment value of patients suffering from acute and chronic IPA. We also believe our dry powder drug formulation would benefit patients by providing the drug at the “port of entry” of invasive fungal infections, while also reducing or eliminating the unpleasant and potentially fatal side effects associated with Voriconazole and other last line antifungals.
|
|
|
●
|
TFF Tac-Lac is an inhaled dry powder version of tacrolimus, an immunosuppressive drug used in transplant medicine. Prograf tacrolimus is currently the second most commonly administered immunosuppressive drug used in solid organ transplants, despite what we believe to be the many challenges for patients and physicians when used for extended periods. Prograf tacrolimus can cause toxicity in the kidneys, particularly when used in high doses that are required for effective immunosuppression in the lung. Tacrolimus is no longer under patent protection, and we intend to develop a dry powder version suitable for use with a dry powder inhaler. Because our dry powder version would provide for a high local lung concentration without the typical systemic toxicity frequently experienced with oral dosage form immunosuppressants, we believe our drug candidate should have a high likelihood of success in competing in the immunosuppressant market for lung and heart/lung transplants. As of the date of this report, we intend to submit to the FDA an IND for TFF Tac-Lac upon completion of the Phase I clinical trials.
|
|
|
●
|
TFF Niclosamide is an oral and inhaled dry powder formulation of Niclosamide. Niclosamide has been used to treat tapeworm infections in humans since the 1960s and was recently reported to be one of the most potent approved drugs in screens for antiviral activity against the SARS-CoV2 virus that causes the COVID-19 disease, including the UK B.1.1.7 and South African B.1.351 variants. Early testing confirmed that our TFF platform can be used to formulate a dry powder version of Niclosamide, which is no longer subject to patent protection. We believe a TFF prepared dry powder formulation of Niclosamide administered directly to the lungs can maximize both the prophylactic value for persons exposed to COVID-19 and for the treatment of patients with COVID-19 infections at risk for serious disease complications. TFF has also obtained the rights to a novel formulation that may enhance the bioavailability of Niclosamide through oral delivery under our license from the University of Texas. Systemically delivered Niclosamide has shown promise for the treatment of COVID -19 and various forms of cancer. On August 12, 2020, we entered into a licensing and collaboration agreement with UNION therapeutics A/S in which UNION acquired an option to obtain a worldwide exclusive license for the TFF technology in combination with niclosamide.
|
|
|
●
|
TFF mAb therapies is intended to be a dry powder formulation of a COVID-19 monoclonal antibody therapy. On November 1, 2020, the Company entered into a joint development and collaboration agreement (the “Agreement”) with Augmenta Bioworks, Inc. (“Augmenta”) pursuant to which the parties have agreed to collaborate on the joint development of novel commercial products incorporating Augmenta’s human-derived monoclonal antibodies (“mAbs”) for potential COVID-19 therapeutics. Under the terms of the Agreement, both companies will collaborate to develop one or more commercial therapeutics utilizing the Company’s Thin-Film Freezing technology to manufacture dry powder formulations of Augmenta’s mAbs for inhalation delivery directly to the lungs of patients.
|
We have identified a number
of additional drug candidates that show promise upon initial evaluation, including dry powder formulations of:
|
|
●
|
Cannabidiol, or CBD, a controlled substance as defined in the federal Controlled Substances Act of 1970 that is reported to be used by some for the treatment of various epilepsy syndromes as well as anxiety, insomnia, and different types of pain. We are in the early stages of developing an inhaled dry powder form of CBD that could be used to support or to treat a variety of health issues that may benefit from CBD administration.
|
|
|
●
|
Vaccines containing aluminum salts, which make up approximately 35% of all vaccines. Aluminum salts are incorporated into many vaccine formulations as an adjuvant, which is a substance added to vaccines to enhance the immune response of vaccinated individuals. A major limitation with these vaccines is that they are fragile and to maintain their efficacy they must be formulated as liquid suspensions and kept in a cold chain (2 – 8°C) during transport and storage, which is burdensome and expensive. We have conducted drug and performance characterization activities of certain TFF formulated salt containing vaccines, which suggest that the salt containing vaccines can be successfully converted from liquid suspension into dry powder, and then later be reconstituted at the time of use without causing a decrease in efficacy. Furthermore, TFF has evaluated formulation and delivery of vaccines that do not contain aluminum salts and reported positive animal data for a universal influenza candidate vaccine formulation in collaboration with the University of Georgia. In addition, TFF and USAMRIID have a CRADA agreement to develop monoclonal antibody vaccines to prevent a number of fungal infections. We are also collaborating with Albert Einstein College of Medicine on certain VSV vaccine candidates.
|
As of the date of this report,
we intend to focus on the development of dry powder formulations of CBD and salt containing vaccines in partnership with pharmaceutical
companies. Our intent is for TFF to be involved only through performance characterization of the formulations and early animal
efficacy trials. Beyond that work, if successful, we will transfer further development and commercialization responsibility to the
partner as part of a negotiated licensing transaction.
We are also focused on the
joint development of dry powder formulations of proprietary drugs owned or licensed by other pharmaceutical companies. As of the date
of this report, we are at various stages of different feasibility studies of new chemical entities owned by international pharmaceutical
companies. In addition, we recently commenced preliminary analysis and testing of dry powder formulations of certain drugs and vaccines
through topical, ocular and nasal applications in connection with our participation in submissions made to certain government agencies
for government contracts. Also, in May 2020, we authorized a third-party to conduct feasibility studies and market testing of dry powder
formulations of cannabis and cannabis-derived products.
Our business model is to
develop proprietary innovative drug product candidates that offer commercial or functional advantages, or both, to currently available
alternatives. In our initial evaluation of the market, we have identified a number of potential drug candidates that show promise upon
initial assessment. In most cases, these are off-patent drugs for which we would directly pursue the development of a dry powder formulation,
however, we do not expect any dry powder formulation of a CBD drug product to be off-patent and our dry powder formulation of aluminum
salt vaccines may not be off-patent. In those cases where our initial dry powder drug candidate will be established drugs that are off-patent,
such as TFF Vori and TFF Tac-Lac, we believe that our drug product candidates may qualify for approval by the FDA through the FDA’s
505(b)(2) regulatory pathway and in corresponding regulatory paths in other foreign jurisdictions. The 505(b)(2) pathway sometimes does
not require clinical trials other than a bioequivalence trial. Our dry powder formulation of a CBD drug candidate will likely require
a full NDA through the FDA’s 505(b)(1) regulatory pathway, however, a non-pharmaceutical CBD dry formulation, such as a dietary
supplement, may not require FDA approval. We expect that our dry powder formulation of aluminum salt vaccines will require a biological
license application, or BLA, which is very similar to a full NDA through the FDA’s 505(b)(1) regulatory pathway. In addition, to
the extent we claim that any of our off-patent drug product candidates target a new indication or offer improved safety compared to the
existing approved products, and it is our present expectation that we will in many cases, it is likely that we will be required to conduct
additional clinical trials in order to obtain marketing approval. For example, based on separate pre-IND meetings with the FDA concerning
TFF Vori and TFF Tac-Lac, we believe we will need to conduct Phase I and Phase II studies prior to filing for marketing approval for TFF
Vori and Phase I and Phase IIb/IIIa studies prior to filing for marketing approval for TFF Tac-Lac. However, there can be no assurance
that the FDA will not ask for additional clinical data for either TFF Vori or TFF Tac-Lac.
We also believe that in
some cases our dry powder drug products may qualify for the FDA’s orphan drug status. Upon and subject to receipt of the requisite
approvals, we intend to commercialize our drug products through a combination of our internal direct sales and third-party marketing and
distribution partnerships. In some cases, such as the development of combination drugs or the development of dry powder formulations of
patented drugs, we intend to pursue the licensing of our TFF platform or a joint development arrangement.
On March 30, 2021, we closed
a public offering of 2,140,000 shares of common stock at a public offering price of $14.00 per share. After the payment of underwriter
discounts and offering expenses, we received net proceeds of approximately $28.0 million.
We were incorporated under
the laws of the state of Delaware on January 24, 2018. Our principal executive offices are located at 2600 Via Fortuna, Suite 360, Austin,
Texas 78746, and our telephone number is (737) 802-1973. Our website address is www.tffpharma.com. The information contained in, or accessible
through, our website is not incorporated by reference into this report, and you should not consider any information contained in, or that
can be accessed through, our website as part of this report or in deciding whether to purchase our common stock.
Results of Operations
We were formed in January
2018 and have not commenced revenue-producing operations. To date, our operations have consisted of the development and early-stage testing
of our initial product candidates. In connection with our organization on January 24, 2018, we entered into a Contribution and Subscription
Agreement with Lung Therapeutics, Inc., or LTI, our former parent, pursuant to which we agreed to acquire from LTI certain of LTI’s
non-core intellectual property rights and other assets, or the Acquired Assets, all of which relate to our Thin Film Freezing technology.
We closed on the acquisition of the Acquired Assets concurrent with the close of the initial Series A preferred stock financing in March
2018.
In December 2019, the Company
established a wholly-owned Australian subsidiary, TFF Pharmaceuticals Australia Pty Ltd. in order to conduct clinical research.
As of the date of this report,
the COVID-19 pandemic has had a relatively insignificant impact on our operations. During 2020, we experienced a temporary suspension
of dosing in the Phase I clinical trial for our TFF Tac-Lac due to the COVID-19 pandemic and the pandemic has otherwise caused minor slowing
in the timing of certain non-clinical and clinical activities by us and our collaborators and service providers during 2020 and the first
quarter of 2021. However, the COVID-19 pandemic has not caused us to forego, abandon or materially delay any proposed activities. While
we believe we have been able to effectively manage the disruption caused by the COVID-19 pandemic to date, there can be no assurance that
our operations, including the development of our drug candidates, will not be disrupted or materially adversely affected in the future
by the COVID-19 pandemic or an epidemic or outbreak of an infectious disease like the outbreak of COVID-19.
The Company has entered into
feasibility and material transfer agreements with third parties that provide us with funds in return for certain research and development
activities. During the three months ended June 30, 2021 and 2020, we recognized $1,850 and $0, respectively, of grant revenue. During
the six months ended June 30, 2021 and 2020, we recognized $26,165 and $0, respectively, of grant revenue.
During the three months ended
June 30, 2021 and 2020, we incurred $2,762,170 and $2,567,771 of research and development expenses and $2,351,007 and $1,274,803 of general
and administrative expenses, respectively. The increase in research and development expenses during 2021 was due to increased preclinical
activity related to Niclosamide and increased clinical activity related to TFF Vori and TFF Tac-Lac. The ramp up also includes our preliminary
analysis and testing of dry powder formulations of several drugs and vaccines we believe have the potential to become product candidates.
We expect our spending on research and development activities to continue to increase in upcoming quarters. The increase in general and
administrative expenses in 2021 from the prior year was mainly a result of increases in insurance and investor relation expenses of approximately
$176,000, increased expenses related to consulting and business development activities of approximately $295,000, payroll and related
expense increases of approximately $59,000 and an increase in stock-based compensation of approximately $419,000. While we expect our
general and administrative expenses to continue to increase over the next few years, we anticipate the rate of increase will begin to
decrease. We incurred a net loss of $4,655,712 and $3,816,579 for three months ended June 30, 2021 and 2020, respectively.
During the six months ended
June 30, 2021 and 2020, we incurred $8,040,422 and $4,803,313 of research and development expenses and $4,998,422 and $2,892,727 of general
and administrative expenses, respectively. The increase in research and development expenses during 2021 was due to increased preclinical
activity related to Niclosamide and increased clinical activity related to TFF Vori and TFF Tac-Lac. The ramp up also includes our preliminary
analysis and testing of dry powder formulations of several drugs and vaccines we believe have the potential to become product candidates.
We expect our spending on research and development activities to continue to increase in upcoming quarters. The increase in general and
administrative expenses in 2021 from the prior year was mainly a result of increases in insurance and investor relation expenses of approximately
$287,000, increased expenses related to consulting and business development activities of approximately $573,000, payroll and related
expense increases of approximately $107,000 and an increase in stock-based compensation of approximately $957,000. While we expect our
general and administrative expenses to continue to increase over the next few years, we anticipate the rate of increase will begin to
decrease. We incurred a net loss of $12,310,287 and $7,613,777 for six months ended June 30, 2021 and 2020, respectively.
During the three months ended
June 30, 2021 and 2020, we recognized $455,615 and $25,995, respectively, of other income. The other income recognized during the three
months ended June 30, 2021 consists of $441,546 of research and development tax credits reimbursable from the Australian government for
expenses incurred in a prior year and $14,069 of interest earned on our cash and cash equivalents. The other income recognized during
the three months ended June 30, 2020 relates to interest earned on our cash and cash equivalents.
During the six months ended
June 30, 2021 and 2020, we recognized $702,392 and $82,263, respectively, of other income. The other income recognized during the six
months ended June 30, 2021 consists of $672,824 of research and development tax credits reimbursable from the Australian government for
expenses incurred in a prior year and $29,568 of interest earned on our cash and cash equivalents. The other income recognized during
the six months ended June 30, 2020 relates to interest earned on our cash and cash equivalents.
Financial Condition
As of June 30, 2021, we had
total assets of approximately $57.2 million and working capital of approximately $53.9 million. As of June 30, 2021, our liquidity included
approximately $52.1 million of cash and cash equivalents. We believe that our cash on-hand as of the date of this report is sufficient
to fund our proposed operating plan for, at least, the 12 months following the date of this report. However, as of the date of this report,
we believe that we will need additional capital to fund our operations through to the marketing approval for TFF Vori and TFF Tac-Lac,
assuming such approval can be obtained at all, and to engage in the substantial development of any other of our drug candidates, such
as formulation, early stage animal testing and formal toxicology studies. We intend to seek additional funds through various financing
sources, including the sale of our equity and debt securities, licensing fees for our technology and co-development and joint ventures
with industry partners, with a preference towards licensing fees for our technology and co-development and joint ventures with industry
partners. In addition, we will consider alternatives to our current business plan that may enable to us to achieve revenue producing operations
and meaningful commercial success with a smaller amount of capital. However, there can be no guarantees that such funds will be available
on commercially reasonable terms, if at all. If such financing is not available on satisfactory terms, we may be unable to further pursue
our business plan and we may be unable to continue operations, in which case you may lose your entire investment.
Off Balance Sheet Transactions
We do not have any off-balance
sheet transactions.