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1、 UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended September 30,2024 Or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT
2、OF 1934 For the transition period from to Commission File Number 001-36856 HEPION PHARMACEUTICALS,INC.(Exact name of registrant as specified in its charter)Delaware 46-2783806(State or other jurisdiction of(I.R.S.Employerincorporation or organization)Identification Number)399 Thornall Street,First F
3、loorEdison,New Jersey 08837(Address of Principal Executive Offices)(732)902-4000Registrants telephone number,including area code Securities registered pursuant to Section 12(b)of the Act:Title of each class Trading Symbol(s)Name of each exchange on which registeredCommon Stock,par value$0.0001 per s
4、hare HEPA The Nasdaq Capital Market Indicate by check mark whether the registrant(1)has filed all reports required to be filed by Section 13 or 15(d)of the Securities Exchange Act of 1934 during the preceding 12months(or for such shorter period that the registrant was required to file such reports),
5、and(2)has been subject to such filing requirements for the past 90 days.Yes X No Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T(232.405of this chapter)during the preceding 12 month
6、s(or for such shorter period that the Registrant was required to submit such files).Yes X No Indicate by check mark whether the registrant is a large accelerated filer,an accelerated filer,a non-accelerated filer,or a smaller reporting company.See the definitions of largeaccelerated filer,”accelerat
7、ed filer,”smaller reporting company”and emerging growth company”in Rule 12b-2 of the Exchange Act.:Large accelerated filer Accelerated filer Non-accelerated filer XSmaller reporting company XEmerging growth company If an emerging growth company,indicate by check mark if the registrant has elected no
8、t to use the extended transition period for complying with any new or revised financialaccounting standards provided pursuant to Section 13(a)of the Exchange Act.Indicate by check mark whether the registrant is a shell company(as defined in Rule 12b-2 of the Exchange Act).Yes No X The number of shar
9、es of the registrants Common Stock outstanding as of November 14,2024 was 6,958,371.HEPION PHARMACEUTICALS,INC.FORM 10-QTABLE OF CONTENTS PagePART IFINANCIAL INFORMATION Item 1.Condensed Consolidated Financial Statements(unaudited):2 Condensed Consolidated Balance Sheets2 Condensed Consolidated Stat
10、ements of Operations3 Condensed Consolidated Statements of Comprehensive Loss4 Condensed Consolidated Statements of Changes in Stockholders Equity5 Condensed Consolidated Statements of Cash Flows7 Notes to Condensed Consolidated Financial Statements8Item 2.Managements Discussion and Analysis of Fina
11、ncial Condition and Results of Operations23Item 3.Quantitative and Qualitative Disclosures About Market Risk27Item 4.Controls and Procedures27 PART IIOTHER INFORMATION Item 1A.Risk Factors28Item 6.Exhibits30SIGNATURES31 CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report on Fo
12、rm 10-Q for Hepion Pharmaceuticals,Inc.may contain forward-looking statements within the meaning of Section 27A of the SecuritiesAct of 1933 and Section 21E of the Securities Exchange Act of 1934.Such forward-looking statements are characterized by future or conditional verbs such as may,”will,”expe
13、ct,”intend,”anticipate,”believe,”estimate”and continue”or similar words.You should read statements that contain these words carefully because they discussfuture expectations and plans,which contain projections of future results of operations or financial condition or state other forward-looking info
14、rmation.Such statements areonly predictions and our actual results may differ materially from those anticipated in these forward-looking statements.We believe that it is important to communicate futureexpectations to investors.However,there may be events in the future that we are not able to accurat
15、ely predict or control.Factors that may cause such differences include,butare not limited to,those discussed under Item 1A.Risk Factors and elsewhere in the audited consolidated financial statements as of and for the year ended December 31,2023contained in our Annual Report on Form 10-K filed with t
16、he Securities and Exchange Commission on April 16,2024,as well as under Item 1A.Risk Factors within this Form10-Q.These factors include the uncertainties associated with:our ability to successfully consummate the proposed merger Pharma Two B Ltd.,or any strategic transaction that we may consummate i
17、n the future;our anticipated net cash balance and expectations regarding relative ownership percentages in the combined company following consummation of the Merger;our ability to realize the anticipated benefits of the Merger and our ability to manage the risks of the proposed Merger;the effects th
18、at the pendency of the Merger may have on our business prior to the closing of the Merger,or if the Merger does not close;our ability to raise substantial additional capital to continue as a going concern and fund our planned operations in the near term;estimates regarding our expenses,use of cash,t
19、iming of future cash needs and anticipated capital requirements;success in retaining,or changes required in,our officers,key employees or directors;our public securities potential liquidity and trading;our ability to license additional intellectual property to support our strategic alternatives or o
20、ut-license our intellectual property;our expectation of developments and projections relating to competition from other pharmaceutical and biotechnology companies or our industry;our ability to remain listed on the Nasdaq Capital Market;and our intellectual property position,including the strength a
21、nd enforceability of our intellectual property rights.We do not assume any obligation to update forward-looking statements as circumstances change and thus you should not unduly rely on these statements.1Table of Contents PART IFINANCIAL INFORMATION Item 1.Condensed Consolidated Financial Statements
22、 HEPION PHARMACEUTICALS,INC.AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS(Unaudited)September 30,2024 December 31,2023 Assets Current assets:Cash$1,497,106$14,785,880 Prepaid expenses 1,433,186 2,701,960 Related party receivable 600,000 Total current assets 3,530,292 17,487,840 Property and
23、equipment,net 29,487 Right-of-use assets 118,301 212,878 Other assets 66,505 364,192 Total assets$3,715,098$18,094,397 Liabilities and Stockholders Equity Current liabilities:Accounts payable$186,259$2,348,829 Accrued expenses 306,000 2,439,351 Operating lease liabilities,current 117,952 115,916 Not
24、es payable,current 2,105,753 Short-term portion of contingent consideration 386,000 Total current liabilities 2,715,964 5,290,096 Contingent consideration,non-current 1,634,000 Operating lease liabilities,non-current 93,104 Derivative financial instruments-warrants 1,405,819 3,796,390 Total liabilit
25、ies 4,121,783 10,813,590 Commitments and contingencies(see Note 12)Stockholders equity:Series A convertible preferred stock,stated value$10 per share,85,581 shares issued and outstanding atSeptember 30,2024 and December 31,2023,respectively 855,808 855,808 Series C convertible preferred stock,stated
26、 value$1,000 per share,1,688 shares issued and outstanding atSeptember 30,2024 and December 31,2023,respectively 839,320 839,320 Common stock$0.0001 par value per share;120,000,000 shares authorized,6,958,371 and 4,818,733 shares issuedand outstanding at September 30,2024 and December 31,2023,respec
27、tively 663 482 Additional paid-in capital 234,223,707 230,291,362 Accumulated other comprehensive loss (53,831)(78,779)Accumulated deficit (236,272,352)(224,627,386)Total stockholders equity (406,685)7,280,807 Total liabilities and stockholders equity$3,715,098$18,094,397 The accompanying notes are
28、an integral part of these condensed consolidated financial statements(unaudited).2Table of Contents HEPION PHARMACEUTICALS,INC.AND SUBSIDIARIESCondensed Consolidated Statements of Operations(Unaudited)Three Months EndedSeptember 30,Nine Months EndedSeptember 30,2024 2023 2024 2023 Revenues$Cost and
29、expenses:Research and development 2,762,709 8,518,520 12,438,956 30,196,848 General and administrative 1,695,550 2,146,045 5,705,468 7,842,512 Total operating expenses 4,458,259 10,664,565 18,144,424 38,039,360 Loss from operations (4,458,259)(10,664,565)(18,144,424)(38,039,360)Other income(expense)
30、:Interest income(expense)(474,570)(2,381)(429,383)(7,054)Change in fair value of contingent consideration and derivativefinancial instruments 66,881 140,000 6,526,633 180,000 Inducement expense (2,567,044)Loss before income taxes (4,865,948)(10,526,946)(14,614,218)(37,866,414)Income tax benefit 2,96
31、9,252 Net loss$(4,865,948)$(10,526,946)$(11,644,966)$(37,866,414)Weighted-average common shares outstanding:Basic and diluted 6,718,962 3,838,289 5,870,494 3,825,523 Net loss per common share:(see Note 10)Basic and diluted$(0.72)$(2.74)$(1.98)$(9.90)The accompanying notes are an integral part of the
32、se condensed consolidated financial statements(unaudited).3Table of Contents HEPION PHARMACEUTICALS,INC.AND SUBSIDIARIESCondensed Consolidated Statements of Comprehensive Loss(Unaudited)Three Months EndedSeptember 30,Nine Months EndedSeptember 30,2024 2023 2024 2023 Net loss$(4,865,948)$(10,526,946)
33、$(11,644,966)$(37,866,414)Other comprehensive income(loss):Foreign currency translation (9)(6,277)24,948 (3,760)Total other comprehensive income(loss)(9)(6,277)24,948 (3,760)Comprehensive loss$(4,865,957)$(10,533,223)$(11,620,018)$(37,870,174)The accompanying notes are an integral part of these cond
34、ensed consolidated financial statements(unaudited).4Table of Contents HEPION PHARMACEUTICALS,INC.AND SUBSIDIARIESCondensed Consolidated Statements of Changes in Stockholders Equity(Unaudited)Preferred Stock Preferred Stock Additional Accumulatedother Total Series A Series C Common Stock Paid in Comp
35、rehensive Accumulated Stockholders Shares Amount Shares Amount Shares Amount Capital Income(Loss)Deficit Equity Balance at December 31,2023 85,581$855,808 1,688$839,320 4,818,733$482$230,291,362$(78,779)$(224,627,386)$7,280,807 Net loss (2,853,806)(2,853,806)Other comprehensive income(loss)87,979 87
36、,979 Stock-based compensation expense 705,770 705,770 Warrant exercises,net 654,393 65 2,300,624 2,300,689 Balance at March 31,2024 85,581 855,808 1,688 839,320 5,473,126 547 233,297,756 9,200 (227,481,192)7,521,439 Net loss (3,925,212)(3,925,212)Other comprehensive income(loss)(63,022)(63,022)Stock
37、-based compensation expense 28,625 28,625 Issuance of shares in abeyance 326,000 Balance at June 30,2024 85,581$855,808 1,688$839,320 5,799,126$547$233,326,381$(53,822)$(231,406,404)$3,561,830 Net loss (4,865,948)(4,865,948)Other comprehensive income(loss)(9)(9)Stock-based compensation expense 28,62
38、5 28,625 Issuance of common stock 1,159,245 116 868,701 868,817 Balance at September 30,2024 85,581$855,808 1,688$839,320 6,958,371$663$234,223,707$(53,831)$(236,272,352)$(406,685)The accompanying notes are an integral part of these condensed consolidated financial statements(unaudited).5Table of Co
39、ntents HEPION PHARMACEUTICALS,INC.AND SUBSIDIARIESCondensed Consolidated Statements of Changes in Stockholders Equity(Unaudited)Preferred Stock Preferred Stock Additional Accumulatedother Total Series A Series C Common Stock Paid in Comprehensive Accumulated Stockholders Shares Amount Shares Amount
40、Shares Amount Capital Income(Loss)Deficit Equity Balance at December 31,2022 85,581$855,808 1,801$840,320 3,811,481$381$223,950,940$(90,168)$(175,701,344)$49,855,937 Net loss (13,259,921)(13,259,921)Other comprehensive income(loss)19,353 19,353 Stock-based compensation expense 537,123 537,123 Conver
41、sion of Series C to common (1)(1,000)1 1,000 Balance at March 31,2023 85,581 855,808 1,800 839,320 3,811,482 381 224,489,063 (70,815)(188,961,265)37,152,492 Net loss (14,079,547)(14,079,547)Other comprehensive income(loss)(16,836)(16,836)Stock-based compensation expense 333,954 333,954 Stock-based l
42、iability awards converted toequity 2,983,006 2,983,006 Issuance of common stock in connectionwith stock split 26,807 3 (3)Balance at June 30,2023 85,581$855,808 1,800$839,320 3,838,289$384$227,806,020$(87,651)$(203,040,812)$26,373,069 Net loss (10,526,946)(10,526,946)Other comprehensive income(loss)
43、(6,277)(6,277)Stock-based compensation expense 318,911 318,911 Balance at September 30,2023 85,581$855,808 1,800$839,320 3,838,289$384$228,124,931$(93,928)$(213,567,758)$16,158,757 The accompanying notes are an integral part of these condensed consolidated financial statements(unaudited).6Table of C
44、ontents HEPION PHARMACEUTICALS,INC.AND SUBSIDIARIESCondensed Consolidated Statements of Cash Flows(Unaudited)Nine Months EndedSeptember 30,2024 2023 Cash flows from operating activities:Net loss$(11,644,966)$(37,866,414)Adjustments to reconcile net loss to net cash used in operating activities:Stock
45、-based compensation 763,020 1,189,988 Depreciation 30,758 54,866 Amortization of debt discount 474,570 Inducement expense 2,567,044 Change in fair value of derivative instrument-warrants (4,506,633)Change in fair value of contingent consideration (2,020,000)(180,000)Changes in operating assets and l
46、iabilities:Accounts payable and accrued expenses (4,297,192)1,430,993 Right of use asset 94,577 50,585 Operating lease liability (91,068)(54,578)Prepaid expenses and other assets 1,566,461 3,487,456 Net cash used in operating activities (17,063,429)(31,887,104)Cash flows from investing activities:Pu
47、rchase of property and equipment (13,956)Investment in related party receivable (600,000)Net cash used in investing activities (600,000)(13,956)Cash flows from financing activities:Proceeds from exercise of the warrants,net 1,849,707 Proceeds from equity and debt issuance under SPA,net of discount 2
48、,500,000 Net cash provided by financing activities 4,349,707 Effect of exchange rates on cash 24,948 (3,948)Net decrease in cash (13,288,774)(31,905,008)Cash at beginning of period 14,785,880 51,189,088 Cash at end of period$1,497,106$19,284,080 Supplementary disclosure of cash flow information:Supp
49、lementary disclosure of non-cash financing activities:Conversion of Series C convertible preferred stock$1,000 Inducement expense for issuance of Series B-1 and B-2 warrants$2,821,399$Stock-based liability awards reversed to additional paid-in capital 2,983,006 Operating lease asset additions 242,50
50、7 The accompanying notes are an integral part of these condensed consolidated financial statements(unaudited).7Table of Contents HEPION PHARMACEUTICALS,INC.AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements(Unaudited)1.Business Overview Hepion Pharmaceuticals,Inc.(we,our,or us)is a
51、 biopharmaceutical company headquartered in Edison,New Jersey,that was previously focused on the development ofdrug therapy for treatment of chronic liver diseases.This therapeutic approach targets fibrosis,inflammation,and shows potential for the treatment of hepatocellular carcinoma(HCC”)associate
52、d with non-alcoholic steatohepatitis(NASH”),viral hepatitis,and other liver diseases.Our cyclophilin inhibitor,rencofilstat(formerly CRV431),was beingdeveloped to offer benefits to address multiple complex pathologies related to the progression of liver disease.We were developing rencofilstat as our
53、 lead molecule.Rencofilstat is a compound that binds and inhibits the function of a specific class of isomerase enzymes calledcyclophilins that regulate protein folding,in addition to other activities.Many closely related isoforms of cyclophilins exist in humans.Cyclophilins A,B,and D are the bestch
54、aracterized cyclophilin isoforms.Inhibition of cyclophilins has been shown in scientific literature to have therapeutic effects in a variety of experimental models,including liverdisease models.We have completed a number of Phase 1 and Phase 2 clinical trials.In May 2023,we announced that our Phase
55、2a study(ALTITUDE-NASH”)met its primary endpointby demonstrating improved liver function and was well tolerated after four months of treatment with once daily oral rencofilstat administered to NASH subjects with stage 3 orgreater fibrosis.All additional secondary efficacy and safety endpoints were a
56、lso met.These observations provide further evidence that builds on previous findings from a shorter28-day Phase 2a(AMBITION”)trial.Taken together,the AMBITION and ALTITUDE-NASH trials reinforced rencofilstats direct antifibrotic mode of action and increase ourconfidence level that we anticipated obs
57、erving fibrosis reductions in our 12-month Phase 2b(ASCEND-NASH”)clinical trial.In June 2023,we announced that the Data and Safety Monitoring Board(DSMB”)met to review the current data for the ASCEND-NASH 2b study and issued a studymay proceed without modification”clearance.This,the first planned DS
58、MB meeting,occurred on schedule,and all labs,electrocardiograms,adverse events,and protocoldeviations were reviewed,focusing on any potential safety signals from the placebo-controlled trial.In December 2023,our board of directors approved a strategic restructuring plan to preserve capital by reduci
59、ng operating costs.We incurred a one-time restructuringcharge of approximately$0.7 million in the fourth quarter of 2023.Additionally,we have a process to explore a range of strategic and financing alternatives focused on maximizingstockholder value within the current financial environment and NASH
60、drug development landscape.On April 19,2024,we announced that we have begun wind-down activities inour ASCEND-NASH clinical trial which wind-down activities have since been completed and the trial has been closed.2.Basis of Presentation Basis of Presentation These unaudited condensed consolidated fi
61、nancial statements have been prepared following the requirements of the Securities and Exchange Commission(SEC”)andaccounting principles generally accepted in the United States of America(U.S.GAAP”)for interim reporting.In the opinion of management,the accompanying unauditedcondensed consolidated fi
62、nancial statements include all adjustments,which include only normal recurring adjustments,necessary to present fairly our interim financial information.The consolidated balance sheet as of December 31,2023,was derived from the audited annual consolidated financial statements but does not include al
63、l disclosures required byU.S.GAAP.The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements andnotes thereto as of and for the year ended December 31,2023,contained in our Annual Report on Form 10-K filed w
64、ith the SEC on April 16,2024.8Table of Contents HEPION PHARMACEUTICALS,INC.AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements(Unaudited)Principles of Consolidation The accompanying condensed consolidated financial statements include our accounts and the accounts of our subsidiaries
65、,Contravir Research Inc.and Hepion ResearchCorp,which conduct their operations in Canada.All intercompany balances and transactions have been eliminated in consolidation.Going Concern As of September 30,2024,we had$1.5 million in cash,an accumulated deficit of$236.3 million,and working capital of$0.
66、8 million.For the nine months ended September30,2024,cash used in operating activities was$17.1 million and we had a net loss of$11.6 million.We have not generated revenue to date and have incurred substantial losses andnegative cash flows from operations since our inception.We have historically fun
67、ded our operations through issuances of convertible debt,common stock and preferred stock.Our ability to continue operations after our current cash resources are exhausted depends on future events outside of our control,including our ability to obtain additionalfinancing or to achieve profitable ope
68、rations,as to which no assurances can be given.If adequate additional funds are not available when required,or if our announced mergeragreement(see Note 4)is unsuccessful,management may need to curtail planned operations to conserve cash until sufficient additional capital can be raised.There can be
69、 noassurances that such a plan would be successful.These condensed consolidated financial statements have been prepared under the assumption that we will continue as a going concern.Due to our recurring andexpected continuing losses from operations,we have concluded there is substantial doubt in our
70、 ability to continue as a going concern within one year of the issuance of thesecondensed consolidated financial statements without additional capital becoming available to us.The condensed consolidated financial statements do not include anyadjustments that might result from the outcome of this unc
71、ertainty.We will be required to raise additional capital within the few months to continue to fund operations.We cannot be certain that additional funding will be available onacceptable terms,or at all.To the extent that we raise additional funds by issuing equity securities,our stockholders may exp
72、erience significant dilution.Any debt financing,ifavailable,may involve restrictive covenants that impact our ability to conduct business.If we are unable to raise additional capital when required or on acceptable terms,we mayhave to(i)seek collaborators for our product candidates on terms that are
73、less favorable than might otherwise be available;or(ii)relinquish or otherwise dispose of rights totechnologies,product candidates or products that we would otherwise seek to develop or commercialize on unfavorable terms.3.Summary of Significant Accounting Policies Use of Estimates The preparation o
74、f condensed consolidated financial statements in conformity with U.S.GAAP requires management to make estimates and assumptions that affect thereported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements
75、 and the reportedamounts of expenses during the reporting period.Changes in estimates and assumptions are reflected in reported results in the period in which they become known.Actual resultscould differ from those estimates.Our significant accounting policies are disclosed in the audited consolidat
76、ed financial statements for the year ended December 31,2023,included in our Annual Report onForm 10-K.Since the date of such consolidated financial statements,there have been no changes to our significant accounting policies.Cash As of September 30,2024 and December 31,2023,cash was$1.5 million and$
77、14.8 million,respectively,consisting of checking accounts held at U.S.and Canadiancommercial banks.At certain times,our cash balances with any one financial institution may exceed Federal Deposit Insurance Corporation insurance limits.We believe it mitigatesour risk by depositing our cash balances w
78、ith high credit,quality financial institutions.We have never experienced losses related to these balances.9Table of Contents HEPION PHARMACEUTICALS,INC.AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements(Unaudited)Fair Value of Financial Instruments Accounting Standards Codification
79、(ASC”)Topic 820,Fair Value Measurement(ASC 820”),establishes a fair value hierarchy for instruments measured at fair valuethat distinguishes between assumptions based on market data(observable inputs)and our own assumptions(unobservable inputs).Observable inputs are inputs that marketparticipants wo
80、uld use in pricing the asset or liability based on market data obtained from sources independent of us.Unobservable inputs are inputs that reflect our assumptionsabout the inputs that market participants would use in pricing the asset or liability and are developed based on the best information avai
81、lable in the circumstances.ASC 820 identifies fair value as the exchange price,or exit price,representing the amount that would be received to sell an asset or paid to transfer a liability in an orderlytransaction between market participants.As a basis for considering market participant assumptions
82、in fair value measurements,ASC Topic 820 establishes a three-tier fair valuehierarchy that distinguishes among the following:Level 1Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that we can access.Level 2Valuations based on quoted prices for simil
83、ar assets or liabilities in active markets,quoted prices for identical or similar assets or liabilities in markets that arenot active and models for which all significant inputs are observable,either directly or indirectly.Level 3Valuations based on inputs that are unobservable and significant to th
84、e overall fair value measurement.To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market,the determination of fair value requires morejudgment.Accordingly,the degree of judgment exercised by us in determining fair value is greatest for ins
85、truments categorized in Level 3.A financial instruments level within thefair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.Financial instruments consist of cash,accounts payable,contingent consideration and derivative financial instrument
86、s.Cash and accounts payable are stated at theirrespective historical carrying amounts,which approximate fair value due to their short-term nature.Contingent consideration,and derivative financial instruments are recorded atfair value at the end of each reporting period.We recorded contingent conside
87、ration from the 2016 acquisition of Ciclofilin,which is required to be carried at fair value.See Note 5for additional information on the fair value of the contingent consideration and derivative financial instruments.Property,equipment and depreciation As of September 30,2024 and December 31,2023,we
88、 had$0 and$29,487,respectively,of property and equipment,consisting primarily of lab equipment,computerequipment,and furniture and fixtures.Expenditures for additions,renewals and improvements will be capitalized at cost.Depreciation will generally be computed on a straight-linemethod based on the e
89、stimated useful lives of the related assets.The estimated useful lives of the depreciable assets are 3 years to 7 years.Expenditures for repairs andmaintenance are charged to operations as incurred.We will periodically evaluate whether current events or circumstances indicate that the carrying value
90、 of our depreciable assetsmay not be recoverable.There were no adjustments to the carrying value of property and equipment at September 30,2024 or December 31,2023.Income Taxes We account for income taxes under the asset and liability method.We recognize deferred tax assets and liabilities for the f
91、uture tax consequences attributable todifferences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases,as well as for operating loss and tax creditcarryforwards.We measure deferred tax assets and liabilities using enacted tax rates expect
92、ed to apply to taxable income in the years in which we expect to recover or settle thosetemporary differences.We recognize the effect of a change in tax rates on deferred tax assets and liabilities in the results of operations in the period that includes the enactmentdate.We reduce the measurement o
93、f a deferred tax asset,if necessary,by a valuation allowance if it is more likely than not that we will not realize some or all of the deferred taxasset.We account for uncertain tax positions by recognizing the financial statement effects of a tax position only when,based upon technical merits,it is
94、 more-likely-than-not”that the position will be sustained upon examination.Potential interest and penalties associated with unrecognized tax positions are recognized in income tax expense.We continue to maintain a full valuation allowance for our net deferred tax assets.10Table of Contents HEPION PH
95、ARMACEUTICALS,INC.AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements(Unaudited)Under the provisions of the Internal Revenue Code,the net operating loss(NOL)and tax credit carryforwards are subject to review and possible adjustment by theInternal Revenue Service and state tax author
96、ities.NOL and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in theownership interest of significant shareholders over a three-year period in excess of 50%,as defined under Sections 382 and 383 of the Internal Revenue Code of 1986,respe
97、ctively,as well as similar state tax provisions.This could limit the amount of tax attributes that we can utilize annually to offset future taxable income or tax liabilities.The amount of theannual limitation,if any,will be determined based on our value immediately prior to the ownership change.Subs
98、equent ownership changes may further affect the limitation infuture years.The utilization of these NOLs is subject to limitations based on past and future changes in our ownership pursuant to Section 382.We completed a Section 382 studyof transactions in our stock through December 31,2021 and conclu
99、ded that we have experienced ownership changes since inception that we believe under Section 382 and 383 ofthe Internal Revenue Code will result in limitations on our ability to use certain pre-ownership change NOLs and credits.We are not aware of any ownership changes in 2024 or2023.In addition,we
100、may experience subsequent ownership changes as a result of future equity offerings or other changes in the ownership of our stock,some of which arebeyond our control.As a result,the amount of the NOLs and tax credit carryforwards presented in our consolidated financial statements could be further li
101、mited.Similar provisionsof state tax law may also apply to limit the use of accumulated state tax attributes.The income tax benefit for the three and nine months ended September 30,2024 was$0 and$3.0 million,respectively.The$3 million tax benefit from the nine months endedSeptember 30,2024 was relat
102、ed to the sale of our state NOLs related to prior years under the State of New Jerseys Technology Business Tax Certificate Transfer Program.Therewas no income tax expense or benefit for the three and nine months ended September 30,2023.Contingencies In the normal course of business,we are subject to
103、 loss contingencies,such as legal proceedings and claims arising out of our business that cover a wide range ofmatters,including,among others,government investigations,shareholder lawsuits,product and environmental liability,and tax matters.In accordance with ASC Topic 450,Accounting for Contingenci
104、es,(ASC 450”),we record accruals for such loss contingencies when it is probable that a liability will be incurred,and the amount of loss can bereasonably estimated.In accordance with this guidance,we do not recognize gain contingencies until realized.Research and Development Research and developmen
105、t costs,which include expenditures in connection with an in-house research and development laboratory,salaries and staff costs,applicationand filing for regulatory approval of proposed products,purchased in-process research and development,license costs,regulatory and scientific consulting fees,as w
106、ell ascontract research,insurance and FDA consultants,are accounted for in accordance with ASC Topic 730,Research and Development,(ASC 730”).Also,as prescribed by thisguidance,patent filing and maintenance expenses are considered legal in nature and therefore classified as general and administrative
107、 expense,if any.We do not currently have any commercial biopharmaceutical products and do not expect to have such for several years,if at all.Accordingly,our research anddevelopment costs are expensed as incurred.While certain of our research and development costs may have future benefits,our policy
108、 of expensing all research and developmentexpenditures is predicated on the fact that we have no history of successful commercialization of product candidates to base any estimate of the number of future periods thatwould be benefited.Also as prescribed by ASC 730,non-refundable advance payments for
109、 goods or services that will be used or rendered for future research and development activitiesshould be deferred and capitalized.As the related goods are delivered or the services are performed,or when the goods or services are no longer expected to be provided,thedeferred amounts would be recogniz
110、ed as an expense.At September 30,2024 and December 31,2023,we had prepaid research and development costs of$0 million and$2.5 million,respectively.11Table of Contents HEPION PHARMACEUTICALS,INC.AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements(Unaudited)Share-based payments ASC To
111、pic 718,CompensationStock Compensation(ASC 718”),requires companies to measure the cost of employee and non-employee services received inexchange for the award of equity instruments based on the estimated fair value of the award at the date of grant.The expense is to be recognized over the period du
112、ring which anemployee is required to provide services in exchange for the award.Generally,we issue stock options with only service-based vesting conditions and record the expense forawards using the straight-line method(see Note 10).We account for awards granted to employees that are in excess of wh
113、at is available to grant as a liability recorded at fair valueeach reporting period in the consolidated financial statements(see Note 7).The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model.The estimated expected stock volatility is
114、 basedon the historical volatility of our own traded stock price.The expected term of stock options has been determined utilizing the simplified”method for awards that qualify as plain-vanilla”options.The expected term of stock options granted to non-employees is equal to the contractual term of the
115、 option award.The risk-free interest rate is determined byreference to the U.S.Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award.Expected dividend yieldis based on the fact that we have never paid cash dividends an
116、d do not expect to pay any cash dividends in the foreseeable future.ASC 718 allows for the election of forfeitures to be estimated at the time of grant and revised if necessary,in subsequent periods if actual forfeitures differ from thoseestimates.Our actual historical forfeiture rate of 3%was used
117、for the three months ended September 30,2024 and 2023.We will continue to analyze the forfeiture rate on at least anannual basis or when there are any identified triggers that would justify immediate review.Foreign Exchange The functional currency of Hepion Pharmaceuticals,Inc.and ContraVir Research
118、 Inc.is the U.S.dollar.The functional currency of Hepion Research Corp.is the Canadiandollar.Assets and liabilities of Hepion Research Corp.are translated into U.S.dollars using period-end exchange rates;income and expenses are translated using the averageexchange rates for the reporting period.Unre
119、alized foreign currency translation adjustments are deferred in accumulated other comprehensive loss,a separate component ofshareholders equity.The amount of currency translation adjustment was$(53,831)and$(78,779)at September 30,2024 and December 31,2023,respectively.Transactions inforeign currenci
120、es are remeasured into the functional currency of the relevant subsidiaries at the exchange rate in effect at the date of the transaction.Any monetary assets andliabilities arising from these transactions are translated into the functional currency at exchange rates in effect at the balance sheet da
121、te or on settlement.Resulting gains andlosses are recorded in general and administrative expense within the consolidated statements of operations.The impact of foreign exchange losses(gains)was$20,402 and$59,432for the three months ended September 30,2024 and 2023,respectively,and was$72,806 and$115
122、,527 for the nine months ended September 30,2024 and 2023,respectively.Segment Information Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decisionmaker,or decision-making group,in deciding how
123、 to allocate resources and in assessing performance.Our chief operating decision maker views our operations and manages thebusiness in one segment.Net loss per share Basic and diluted net loss per share is presented in conformity with ASC Topic 260,Earnings per Share,(ASC 260”)for all periods presen
124、ted.In accordance with thisguidance,basic and diluted net loss per common share was determined by dividing net loss applicable to common stockholders by the weighted-average common sharesoutstanding during the period.Recent Accounting Pronouncements There are no recent accounting pronouncements that
125、 will have a material effect on our condensed consolidated financial statements for the three months endedSeptember 30,2024.12Table of Contents HEPION PHARMACEUTICALS,INC.AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements(Unaudited)4.Stockholders Equity On July 19,2024,Hepion Pharm
126、aceuticals,Inc.,a Delaware corporation(the Company”),Pharma Two B Ltd.,a company organized under the laws of the State of Israel(Parent”),and Pearl Merger Sub,Inc.,a Delaware corporation and an indirect wholly owned subsidiary of Parent(Merger Sub”),entered into an Agreement and Plan of Merger towhi
127、ch,among other things,on the terms and subject to the conditions set forth therein,Merger Sub will merge with and into the Company(the Merger”),with the Companysurviving the Merger as an indirect wholly owned subsidiary of Parent.Merger Sub is a newly incorporated Delaware corporation and a wholly o
128、wned,direct subsidiary of P2BHoldCo,Inc.,a Delaware corporation(Holdco”).Holdco is a wholly owned,direct subsidiary of P2B Topco,Inc.,a Delaware corporation(Topco”).Topco is a wholly owned,direct subsidiary of Parent.Each of Merger Sub,Holdco and Topco were formed for purposes of consummating the tr
129、ansactions contemplated by the Merger Agreement and theother Transaction Agreements(as defined in the Merger Agreement).On July 19,2024,Pharma Two B entered into the PIPE Agreements with certain investors,including existing investors of Pharma Two B,pursuant to which the investorsagreed to purchase,
130、in the aggregate,$11.5 million in shares of the combined company ordinary shares.The closing of the PIPE Investment is conditioned upon the closing of theMerger,as well as certain other conditions such that the ordinary shares of the combined company issued in the PIPE Investment will result in dilu
131、tion to all securityholders of thecombined company(i.e.,both former Company securityholders and Pharma Two B securityholders).On the Closing Date(as defined in the Merger Agreement),subject toobtaining Parents shareholder approval and the Companys stockholder approval,immediately prior to the Effect
132、ive Time(as defined below)and prior to the consummation of anyof the transactions contemplated by the PIPE Agreements(as defined in the Merger Agreement),the following actions shall take place or be effected:(A)the Company shall causeall of its issued capital stock which is not in the form of the Co
133、mpanys common stock,par value$0.0001 per share(Common Stock”)to be converted into shares of CommonStock in accordance with the Companys organizational documents,and shall further cause any convertible instruments,including but not limited to warrants,to be converted intoshares of Common Stock;and(B)
134、(i)each Ordinary A Share of Parent,nominal value NIS 1(Parent Ordinary A Share”),Ordinary B Share of Parent,nominal value NIS 1(ParentOrdinary B Share”),and each of the outstanding classes of Parents preferred shares(collectively,the Parent Preferred Share”)that is issued and outstanding immediately
135、 prior tothe Effective Time shall be automatically converted into such number of Parents ordinary shares per the terms of the Merger Agreement;(ii)the amended and restated articles ofassociation of Parent shall be adopted and become effective;(iii)each of Parents ordinary shares,issued and outstandi
136、ng immediately prior to the Effective Time(including eachof Parents ordinary shares that are issued upon the conversion of Parent Ordinary A Shares,Parent Ordinary B Shares and Parent Preferred Shares pursuant to clause(i)above),shall be split into such number of Parents ordinary shares as shall be
137、necessary for purposes of the closing of the Merger(the Closing”)and the initial listing of Parents ordinaryshares on Nasdaq(the Share Split”);provided that no fraction of a Parents ordinary share will be issued by virtue of the Share Split,and each of Parents shareholders that wouldotherwise be so
138、entitled to a fraction of Parents ordinary shares(after aggregating all fractional Parents ordinary shares that otherwise would be received by such Parentsshareholder)shall instead be entitled to receive such number of Parents ordinary shares to which such Parents shareholder would otherwise be enti
139、tled,rounded to the nearestwhole number;and(iv)any outstanding options and warrants of Parent issued and outstanding immediately prior to the Effective Time shall be adjusted immediately upon theShare Split to give effect to the foregoing transactions,provided that to the extent such adjustment woul
140、d result in(x)a fraction of share being subject to any outstanding stockoption or warrant,such share shall be rounded down to the nearest whole share or(y)the exercise price of an option being a fraction of a cent,the exercise price will be rounded upto the nearest whole cent.The Merger is expected
141、to be consummated in the fourth quarter of 2024.The obligation of the parties to consummate the Merger is subject to various conditions,including,but not limited to:(i)adoption of the Merger Agreement and the approval of the Merger and the other Transactions by the required portion of the Companysst
142、ockholders as determined in accordance with applicable law and the Companys organizational documents;(ii)adoption of the Merger Agreement and the approval of the Mergerand the other Transactions by Parents shareholders,as determined in accordance with applicable law and Parents organizational docume
143、nts(iii)the absence of any judgment,order or law prohibiting the consummation of the Merger;(iv)upon the Closing,the approval for listing on Nasdaq of Parents ordinary shares to be issued in connection with theClosing of the Merger;(v)the effectiveness of the Registration Statement(as defined below)
144、to be filed by Parent with the SEC with respect to Parents ordinary shares thatconstitute the Merger Consideration,(vi)the SPA(as defined below)shall be in full force and effect and concurrently with the Closing cash proceeds of not less than$8,600,000(eight million six hundred thousand)shall have b
145、een received by Parent in connection with the consummation of the transactions contemplated by such SPA,(vii)the parties shalltake all necessary action so that immediately after the Effective Time,the post-Closing board of directors of Parent(the Post-Closing Parent Board”)shall be comprised of seve
146、ndirectors;whereby(a)Parent shall have the right to designate(i)three members to the Post-Closing Parent Board and(ii)two industry experts that shall qualify as independentdirectors(as defined under the Nasdaq listing rules);and(b)the Company shall have the right to designate two members to the Post
147、-Closing Parent Board,(viii)Parent shall file anotice with the Israel Innovation Authority(the IIA”)in accordance with applicable law and obtain the unconditional approval of the IIA to consummate the Transactions,(ix)theaccuracy of the representations and warranties of the parties in the Merger Agr
148、eement(subject to customary materiality qualifiers except to the extent provided in the MergerAgreement);(x)each partys performance in all material respects of its covenants and obligations contained in the Merger Agreement and(xi)the absence of a Material AdverseEffect.Following the execution of th
149、e Merger Agreement,Holdco,in its capacity as the sole stockholder of Merger Sub,executed and delivered to the Company a written consentapproving the Merger Agreement and the Merger,thereby providing all required stockholder approvals for the Merger.No further action by holders of the Common Stock is
150、required to complete the Merger.Concurrently with the Merger,on July 19,2024,the Company entered into a Securities Purchase Agreement(the SPA”)with certain purchasers pursuant to which theCompany sold an aggregate of$2.9 million in principal amount of the Companys Original Issue Discount Senior Unse
151、cured Nonconvertible Notes(the Notes”).In addition,pursuant to the SPA,the Company issued to the purchasers an aggregate 1,159,245 shares of Common Stock.13Table of Contents HEPION PHARMACEUTICALS,INC.AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements(Unaudited)Series A Convertible
152、 Preferred Stock On October 14,2014,our Board of Directors authorized the sale and issuance of up to 1,250,000 shares of Series A Convertible Preferred Stock(the Series A”).All sharesof the Series A were issued between October 2014 and February 2015.Each share of the Series A is convertible at the o
153、ption of the holder into the number of shares of commonstock determined by dividing the stated value of such share by the conversion price that is subject to adjustment.As of September 30,2024,there were 85,581 shares outstanding.During the nine months ended September 30,2024 and 2023,no shares of t
154、he Series A were converted.If we sell common stock or equivalents at an effective price per share that islower than the conversion price,the conversion price may be reduced to the lower conversion price.The Series A will be automatically convertible into common stock in the eventof a fundamental tra
155、nsaction as defined in the offering.Series C Convertible Preferred Stock Issuance On July 3,2018,we completed a rights offering pursuant to our effective registration statement on Form S-1.We offered for sale units in the rights offering and each unitsold in connection with the rights offering consi
156、sted of 1 share of our Series C Convertible Preferred Stock,or Series C,and common stock warrants(the Rights Offering”).Uponcompletion of the offering,pursuant to the rights offering,we sold an aggregate of 10,826 units at an offering price of$1,000 per unit comprised of 10,826 shares of Series C an
157、d4,446 common stock warrants that expired in July 2023.As of September 30,2024,there were 1,688 shares of Series C outstanding.During the nine months ended September 30,2024,no shares of the Series C were converted into shares of our common stock and during the nine months ended September 30,2023,1
158、share of the Series C was converted into 1share of our common stock.Each share of Series C is convertible into common stock at any time at the option of the holder thereof at the conversion price then in effect.Theconversion price for the Series C is determined by dividing the stated value of$1,000
159、per share by$0.08 per share(subject to adjustments upon the occurrence of certain dilutiveevents).Common Stock and Warrant Offering On September 28,2023,we entered into a securities purchase agreement with an institutional investor for the purchase and sale of 400,000 shares of our common stock(orco
160、mmon stock equivalents in lieu thereof)at a purchase price of$5.10 per share and pre-funded warrants to purchase up to 580,393 shares at a offering price of$5.09 in a registereddirect offering priced at-the-market under Nasdaq rules.In addition,in a concurrent private placement,we issued to the inve
161、stor unregistered Series A Warrants to purchase up toan aggregate of 980,393 shares of common stock and Series B Warrants to purchase up to an aggregate of 980,393 shares of common stock.The Series A and Series B Warrantswill have an exercise price of$4.85 per share,will be exercisable immediately f
162、ollowing the date of issuance and will expire in 5 years and 1.5 years,respectively.The closing of theregistered direct offering and the concurrent private placement was on October 3,2023.We received gross proceeds of$5.0 million,before deducting the underwriting discount andother offering expenses
163、of approximately$0.5 million that was recorded as general and administrative costs in our consolidated statement of operations.All of the pre-fundedwarrants were exercised in the fourth quarter of 2023.We used the guidance in ASC 480,Distinguishing Liabilities from Equity,(ASC 480”),ASC 815-40,Deriv
164、atives and Hedging(ASC 815-40”)and ASC 260,Earnings PerShares(ASC 260”)to determine the accounting classification for the warrants.Based on this evaluation,we determined that the Warrants are not indexed to our own stock and are precluded from being classified within equity.Therefore,theWarrants wer
165、e classified as a liability on the balance sheet,initially recorded at fair value,and then subsequently will be carried at fair value with changes in fair value recognized inthe income statement.Upon the issuance of the warrants,the fair value of the warrants was determined to be approximately$8.9 m
166、illion resulting in no residual to allocate to equity and,further,with the excess of the fair value over the proceeds received was recorded as a day one loss of$3.9 million that was recorded to Change in fair value of contingent considerationand derivative financial instruments”in the consolidated s
167、tatement of operations.On February 16,2024,the Company entered into an agreement with a current warrant holder to exercise the outstanding Series B Warrants(the Series B WarrantAgreement”).Pursuant to the terms of the Series B Warrant Agreement,the holder agreed to exercise the Series B Warrant in f
168、ull and purchase a total of 980,393 shares of commonstock at a reduced price of$2.10 per share,generating total gross cash proceeds of$2,058,825.14Table of Contents HEPION PHARMACEUTICALS,INC.AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements(Unaudited)The Company accounted for thi
169、s transaction as a modification and settlement of the Series B Warrant liability.As such,the Company first recognized a gain of$286,007as a result of the change in fair value of the Series B Warrant immediately prior to the modification.As the modified Series B Warrant was immediately exercisable,th
170、e post-modification fair value was determined to be the intrinsic value of the Series B Warrant at the date of the modification.Therefore,the change in fair value on the date of themodification prior to the modification compared to the fair value on the date of the modification after the modificatio
171、n,but prior to exercise was determined to be$601,224,whichwas recorded as an inducement charge,within other expenses in the Companys consolidated statement of operations.The Company then subsequently reclassified the liabilityinto equity upon settlement.As part of the transaction,the Company incurre
172、d equity issuance costs of$209,118 related to advisory and legal fees directly attributable to the issuance of the commonstock from the Series B Warrant Agreement,which were recorded against additional paid-in-capital.In connection with the offering,the Company agreed to amend,effective upon the clo
173、sing of this offering,the terms of the October 2023 Series A common stock purchasewarrant held by a purchaser in the offering to reduce the exercise price thereof to$1.91 per share and to extend the expiration date to February 2029.All of the other terms of theOctober 2023 Series A common stock purc
174、hase warrant will remain unchanged.The Company accounted for this transaction as a modification of the Series A Warrant liability.As such the Company first recognized a gain of$669,466 as a result of thechange in fair value of the Series A Warrant immediately prior to the modification.As a result of
175、 the modification,the change in fair value on the date of the modification prior tothe modification compared to the fair value on the date of the modification after the modification,but prior to exercise was an fair value of$346,869,which was recorded as aninducement expense,due to the modification
176、being a result of the Series B Warrant Agreement,and is recorded within the Companys consolidated statement of operations.Additionally,as part of the Series B Warrant Agreement,we issued to the investor unregistered Series B-1 Warrants to purchase up to an aggregate of 735,295 shares ofcommon stock
177、and Series B-2 Warrants to purchase up to an aggregate of 735,295 shares of common stock,collectively the New Warrant Shares”.The Series B-1 and Series B-2Warrants will have an exercise price of$1.91 per share,will be exercisable immediately following the date of issuance and will expire in 5 years
178、and 1.5 years,respectively.The grantdate value of the New Warrant Shares issued of$2,821,000 was recorded as inducement expense within other expenses in the Companys consolidated statement of operations.The fair value of these liability classified warrants was estimated using the Black-Scholes optio
179、n pricing model.This method of valuation involves using inputs such asthe fair value of our common stock,historical volatility,the contractual term of the warrants,risk-free interest rates and dividend yields.Due to the nature of these inputs,thevaluation of the warrants is considered a Level 2 meas
180、urement(see Note 7).The following assumptions were used to measure the Series A and Series B Warrants at modificationand to remeasure the liability as of September 30,2024 and December 31,2023 and to measure Series B-1 and B-2 at issuance and to remeasure the liability as of September 30,2024.Per th
181、e warrant agreement,the holders of the warrant have an option to elect to have the unexercised portion of their warrant repurchased based upon a predetermined formula inas defined in the agreement,which was a$1,587,720 at the time of election.The repurchase option is only in the case of a Fundamenta
182、l Transaction as defined in the agreement(forwhich the Pharma Two B merger would qualify if it were to close)We used an 80%and 20%weighted probability between repurchase value and Black-Scholes,respectively,to remeasure the liability as of September 30,2024.Theprobability percentages are based on th
183、e completion of the merger.Series A Warrants September 30 December 31,2024 2023 Stock price$0.67$3.24 Expected warrant term(years)4.4 years 4.5 years Risk-free interest rate 3.58%3.9%Expected volatility 96.81%116.6%Dividend yield 15Table of Contents HEPION PHARMACEUTICALS,INC.AND SUBSIDIARIESNotes t
184、o Condensed Consolidated Financial Statements(Unaudited)Series B Warrants Pre-Modification Post-Modification February 16,February 16,December 31,2024 2024 2023 Stock price$2.56$2.56$3.24 Expected warrant term(years)1.1 years n/a 1.5 years Risk-free interest rate 4.9%n/a 4.6%Expected volatility 143.0
185、%n/a 122.1%Dividend yield Series B-1 Warrants Series B-2 Warrants February 16,September 30 February 16,September 30 2024 2024 2024 2024 Stock price$2.56$0.67$2.56$0.67 Expected warrant term(years)5.0 years 4.4 years 1.5 years 0.9 year Risk-free interest rate 4.3%3.58%4.8%4.18%Expected volatility 116
186、.0%96.81%130.0%104.07%Dividend yield The following table sets forth the components of changes in our derivative financial instruments liability balance for the nine months ended September 30,2024.Date Number of WarrantsOutstanding Derivative InstrumentLiability Balance of derivative liability at Dec
187、ember 31,2023 1,960,786 3,796,390 Issuance of Series B-1 and Series B-2 warrants*1,470,590 2,821,399 Modification of Series A warrants*346,869 Modification of Series B warrants*(601,224)Exercise of Series B warrants (980,393)(450,982)Change in fair value of warrants (1,160,652)Balance of derivative
188、liability at March 31,2024 2,450,983$4,751,800 Change in fair value of warrants (3,279,100)Balance of derivative liability at June 30,2024 2,450,983 1,472,700 Change in fair value of warrants (98,635)Balance of derivative liability at September 30,2024 2,450,983 1,374,064 *In connection with issuanc
189、e of Series B-1 and B-2 warrants and modification of Series A and Series B warrants,the Company recognized total inducement expense of$2,567,044 during the three months period ended March 31,2024.5.Notes Payable Concurrently with the Merger,on July 19,2024,the Company entered into a Securities Purch
190、ase Agreement(the SPA”)with certain purchasers pursuant towhich the Company sold an aggregate of$2.9 million in principal amount of the Companys Original Issue Discount Senior Unsecured Nonconvertible Notes(the Notes”).The Notes are due on the earlier of:(i)December 31,2024,(ii)the date of the closi
191、ng of the Merger,(iii)the date that the Merger is terminated pursuant to the termsof the Merger Agreement,or(iv)such earlier date as the Notes are required or permitted to be repaid as provided in the Note,as may be extended at the option of the holder of theNote as described in the Note.The princip
192、al amount of the note was discounted by$400,000(discount rate of 13.8%),fees and expenses.The Company allocated the proceeds ofthe$2,500,000 received in exchange for the Notes and common shares in accordance with their relative fair values,which was 65%and 35%,respectively.The difference betweenthe
193、allocated proceeds and the face value was treated as debt discount.September 30,2024 Principal$2,900,000 Discount (1,268,817)Amortization of debt discount 474,570 Net carrying amount$2,105,753 6.Related Party Transaction As part of the July 19,2024 Securities Purchase Agreement discussed in Note 5,t
194、he Company provided a$600,000 loan to Pharma Two B from the net proceeds from thetransaction.The outstanding principal under this promissory note will be paid to,together with accrued interest,on the earlier of:(i)December 31,2024 and(ii)the date that theBusiness Combination is terminated pursuant t
195、o the terms of the Merger Agreement.In the event the Business Combination is consummated,the outstanding principal amountunder this promissory note,together with all accrued interest,shall be deemed to be paid in full and this note shall automatically be terminated and Pharma Two B shall have nofurt
196、her obligations hereunder.All payments shall be applied,first,to interest and then to principal,and the principal amount of this note may be prepaid in whole or in part at anytime without penalty,in which event interest shall cease to accrue on the portion of the principal so prepaid.7.Fair Value Me
197、asurements The following table presents our liabilities that are measured and recognized at fair value on a recurring basis classified under the appropriate level of the fair valuehierarchy at September 30,2024 and December 31,2023.Fair Value Measurement at Reporting Date Using Description Fair valu
198、e (Level 1)(Level 2)(Level 3)As of September 30,2024:Contingent consideration$Derivative liabilities related to warrants$1,405,819$1,405,819 As of December 31,2023:Contingent consideration$2,020,000$2,020,000 Derivative liabilities related to warrants$3,796,390$3,796,390$16Table of Contents HEPION P
199、HARMACEUTICALS,INC.AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements(Unaudited)The unrealized gains or losses on the derivative liabilities are recorded as a change in fair value of derivative liabilities-warrants in our consolidated statement ofoperations.See Note 4 for a rollfor
200、ward of the derivative liability for nine months ended September 30,2024.The financial instruments level within the fair value hierarchy is basedon the lowest level of any input that is significant to the fair value measurement.At each reporting period,we review the assets and liabilities that are s
201、ubject to ASC 815-40.Ateach reporting period,all assets and liabilities for which the fair value measurement is based on significant unobservable inputs or instruments which trade infrequently andtherefore have little or no price transparency are classified as Level 3.We classified the derivative li
202、ability related to warrants as Level 3,due to the unobservable input related tothe probability weightings of the completion of the merger,used in determining the fair value of the derivative.Contingent consideration was recorded for the acquisition of Ciclofilin Pharmaceuticals,Inc.(Ciclofilin)on Ju
203、ne 10,2016.The contingent consideration represented theacquisition date fair value of potential future payments,to be paid in cash and our stock,upon the achievement of certain milestones and was estimated based on a probability-weighted discounted cash flow model.At September 30,2024 and December 3
204、1,2023,the assumptions we used to calculate the fair value were as follows:Assumptions September 30,2024 December 31,2023 Discount rate n/a 11.5%Stock price n/a n/a Projected milestone achievement dates n/a Mar 2023 Sep 2030 Probability of success of milestone achievements 0%13%40%As of June 30,2024
205、,$0 was recorded as a current liability and as non-current liability based upon managements best estimate using the latest available information.Management reviewed and updated the assumptions at June 30,2024 and reduced the contingent consideration to$0 because the projected milestones upon which t
206、he liabilitywas based will not be achieved.There was no change in the assumptions at September 30,2024,and therefore the liability was$0.The following table presents the change in fair value of the contingent consideration for the nine months ended September 30,2024.Acquisition-relatedContingent Con
207、sideration Liabilities:Balance at December 31,2023$2,020,000 Change in fair value recorded in earnings (770,000)Balance at March 31,2024 1,250,000 Change in fair value recorded in earnings (1,250,000)Balance at June 30,2024$Change in fair value recorded in earnings Balance at September 30,2024 8.Pro
208、perty and Equipment,net Property and equipment are stated at cost and depreciated using the straight-line method,based on useful lives as follows:Estimated Useful Life(inyears)September 30,2024 December 31,2023 Equipment 3 years$358,548$346,770 Furniture and fixtures 7 years 62,183 62,183 Less:Accum
209、ulated depreciation (420,732)(379,466)$29,487 Depreciation expense for the three months ended September 30,2024 and 2023 was$0 and$18,500,respectively,and was$30,758 and$54,985 for the nine months endedSeptember 30,2024 and 2023,respectively 17Table of Contents HEPION PHARMACEUTICALS,INC.AND SUBSIDI
210、ARIESNotes to Condensed Consolidated Financial Statements(Unaudited)9.Accrued Liabilities Accrued liabilities consist of the following:September 30,2024 December 31,2023 Research and development 1,268,560 Professional fees 319,157 Other 306,000 851,634 Total accrued expenses$306,000$2,439,351 At Dec
211、ember 31,2023,other accrued expenses includes approximately$0.7 million for restructuring costs.In December 2023,the board of directors approved a strategicrestructuring plan to preserve capital by reducing operating costs.The restructuring costs of approximately$0.7 million are related to severance
212、 amounts due to members of ourclinical team and were recorded to research and development costs in the consolidated statement of operations at December 31,2023.As part of this process,we formallycommunicated the termination of employment to 6 employees and terminated none of the employees during 202
213、3.In addition,during the three months ended March 31,2024,weformally communicated the termination of employment to 6 additional employees and terminated 12 employees.We incurred further restructuring costs of less than$0.1 millionduring the nine months ended September 30,2024.As of September 30,2024
214、,the restructuring plan was completed and there were no additional accruals.10.Accounting for Share-Based Payments On June 3,2013,we adopted the 2013 Equity Incentive Plan(the 2013 Plan),which expired in June 2023 and we are no longer making grants under it.Stock options grantedunder the 2013 Plan t
215、ypically vest after three years of continuous service from the grant date and will have a contractual term of ten years.We granted options during the threemonths ended June 30,2022 and 2021,and at the time that these grants were made,we did not have any options available for grant under the Plan.We
216、accounted for these optiongrants as liability-classified awards requiring us to measure the fair value of the awards each reporting period since there were not enough shares available at the time of the grant.In April 2023,with the approval of the 2023 Plan,these awards are no longer accounted for a
217、s liability-classified and the cumulative liability of$3.0 million was recorded toadditional paid-in capital.In April 2023,our board of directors approved the 2023 Omnibus Equity Incentive Plan(the 2023 Plan),which became effective in June 2023 upon stockholder approval.The 2023 Plan allows for the
218、grant of up to 500,000 awards for the purpose of attracting,motivating and retaining employees(including officers),non-employee directors and non-employee consultants.On March 6,2024 pursuant to the 2023 Plan,we granted 50,000 RSUs with a fair value of$2.29 per share,which vest upon the earlier of(i
219、)one year after dateof grant or(ii)change of control of the Company.In addition,during the three months ended March 31,2024,the Company granted 340,000 options with a term of 2 to 10 years thatwere vested upon issuance.Subsequent to the grant of these options,we had 110,000 awards available for gran
220、t from the 2023 Plan.There were no grants for the three monthsended June 30,2024,and three months ended September 30,2024.18Table of Contents HEPION PHARMACEUTICALS,INC.AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements(Unaudited)We classify stock-based compensation expense in our
221、condensed consolidated statement of operations in the same way the award recipients payroll costs are classifiedor in which the award recipients service payments are classified.We recorded stock-based compensation expense as follows:Three Months EndedSeptember 30,Nine Months EndedSeptember 30,2024 2
222、023 2024 2023 General and administrative$28,625$189,380$763,020$1,360,097 Research and development 129,531 906,495 Total stock-based compensation expense$28,625$318,911$763,020$2,266,592 A summary of stock option activity under the 2013 Plan and 2023 Plan is presented as follows:Number of Options We
223、ightedAverage ExercisePrice Per Share IntrinsicValue WeightedAverage RemainingContractual Term Balance outstanding,December 31,2023 391,737$48.58$5.17 years Granted 340,000$2.56$Forfeited (262,969)$47.14$Balance outstanding,September 30,2024 468,768$14.70$8.56 years Awards outstanding,vested awards
224、and those expected to vestat September 30,2024 468,768$14.70$8.56 years Vested and exercisable at September 30,2024 468,768$14.70$8.56 years The total fair value of awards vested during the nine months ended September 30,2024 and 2023 was$0.7 million and$2.6 million,respectively.As of September 30,2
225、024,the unrecognized compensation cost related to non-vested stock options outstanding,net of expected forfeitures,was$0.0 million.The following assumptions are used in the Black-Scholes valuation model to estimate the fair value of stock option awards when granted to employees.Nine Months EndedSept
226、ember 30,2024 Stock price$2.56 Risk-free interest rate 4.29-4.64%Dividend yield Expected volatility 116.7%Expected term(in years)2.0 years-6.0 years Stock priceThe stock price used is the closing price of our common stock on the day prior to the grant date.19Table of Contents HEPION PHARMACEUTICALS,
227、INC.AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements(Unaudited)Risk-free interest rateBased on the daily yield curve rates for U.S.Treasury obligations with maturities which correspond to the expected term of our stock options.Dividend yieldWe have not paid any dividends on our c
228、ommon stock since inception and do not anticipate paying dividends on our common stock in the foreseeablefuture.Expected volatilityWe base expected volatility on the trading price of our common stock.Expected termThe expected option term represents the period that stock-based awards are expected to
229、be outstanding based on the simplified method provided in SABNo.107,which SAB No.107,options are considered to be plain vanilla”if they have the following basic characteristics:(i)granted at-the-money”;(ii)exercisability isconditioned upon service through the vesting date;(iii)termination of service
230、 prior to vesting results in forfeiture;(iv)limited exercise period following termination of service;and(v)options are non-transferable and non-hedgeable.SAB No.110,Share-Based Payment,(SAB No.110”)expresses the views of the Staff of the SEC with respect to extending the use of the simplified method
231、,as discussedin SAB No.107,in developing an estimate of the expected term of plain vanilla”share options in accordance with ASC 718.For the expected term,we have plain-vanilla”stockoptions,and therefore used a simple average of the vesting period and the contractual term for options granted as permi
232、tted by SAB No.107.ForfeituresASC 718 allows for the election of forfeitures to be estimated at the time of grant and revised if necessary,in subsequent periods if actual forfeitures differfrom those estimates.For the years ended December 31,2023 and 2022,we determined that 3%is our forfeiture rate
233、based on historical experience.We will continue to analyze theforfeiture rate on at least an annual basis or when there are any identified triggers that would justify immediate review.11.Loss per Share Basic and diluted net loss per common share was determined by dividing net loss attributable to co
234、mmon stockholders by the weighted-average common sharesoutstanding during the period.The following table sets forth the computation of basic and diluted net loss per share for the periods indicated:Three Months EndedSeptember 30,Nine Months EndedSeptember 30,Basic and diluted net loss per common sha
235、re:2024 2023 2024 2023 Numerator:Net loss$(4,865,948)$(10,526,946)$(11,644,966)$(37,866,414)Denominator:Weighted average common shares outstanding 6,718,962 3,838,289 5,870,494 3,825,523 Net loss per share of common stockbasic and diluted$(0.72)$(2.74)$(1.98)$(9.90)20Table of Contents HEPION PHARMAC
236、EUTICALS,INC.AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements(Unaudited)In connection with series B warrants exercise(see Note 4),326,000 warrants that were exercised during the quarter ended March 31,2024 were not yet issued as commonstock and are held by the Company in abeyance
237、,were included in the Companys calculation of basic and diluted loss per share.The shares of common stock held by theCompany in abeyance are considered outstanding for the purposes of computing earnings per share,as these shares may be issued for little or no consideration,are fully vested,and are e
238、xercisable after the original issuance date.The 326,000 warrants that were exercised during the quarter ended March 31,2024 were issued as common stock in June 2024.The following outstanding securities at September 30,2024 and 2023 have been excluded from the computation of basic and diluted weighte
239、d shares outstanding,as theywould have been anti-dilutive due to net loss:Nine Months EndedSeptember 30,2024 2023 Common shares issuable for:Series A preferred stock 159 159 Series C preferred stock 788 829 Restricted Stock Units 50,000 Stock options 468,768 425,032 Warrants liability classified 2,4
240、50,983 Warrants equity classified 89,750 210,979 Total 3,060,448 636,999 The strike prices for the equity classified warrant ranges from$37.50-$50.00 each and the expiration dates are in 2025 and 2026.12.Commitments and Contingencies Legal Proceedings We are involved in various legal proceedings.Sig
241、nificant judgment is required to determine both the likelihood and the estimated amount of a loss related to such matters.Additionally,while any litigation contains an element of uncertainty,we have at this time no reason to believe that the outcome of such proceedings or claims will have a material
242、adverse effect on our consolidated financial condition or results of operations.Leases In July 2014,we entered into a lease for corporate office space in Edison,New Jersey(Edison Lease”).In July 2017,we entered into the first amendment to the EdisonLease expanding the office footprint and extending
243、the Edison Lease for an approximate 5-year period that ended on March 31,2023.In August 2023,we signed a secondamendment to the Edison Lease in which we reduced our corporate office space and extended the lease for a period of 2.3 years ending July 31,2025.In October 2019,we entered into a 3-year le
244、ase for office and research laboratory space in Edmonton,Canada,which expired on September 30,2022 and we leased thisspace on a month-to-month basis until December 31,2023.We account for leases in accordance with ASC Topic 842,Leases,(ASC 842”).We determine if an arrangement is a lease at contract i
245、nception.A lease exists when acontract conveys to the customer the right to control the use of identified property or equipment for a period in exchange for consideration.The definition of a lease embodies twoconditions:(1)there is an identified asset in the contract that is land or a depreciable as
246、set(i.e.,property and equipment),and(2)the customer has the right to control the use ofthe identified asset.Operating leases where we are the lessee are included under the caption Right of Use Assets”(ROU”)on our consolidated balance sheets.The lease liabilities areinitially and subsequently measure
247、d at the present value of the unpaid lease payments at the lease commencement date.Key estimates and judgments include how we determine(1)the discount rate used to discount the unpaid lease payments to present value,(2)lease term and(3)lease payments.The ROU asset is initially measured at cost,which
248、 comprises the initial amount of the lease liability adjusted for lease payments made at or before the leasecommencement date,plus any initial direct costs incurred less any lease incentives received.For operating leases,the ROU asset is subsequently measured throughout the leaseterm at the carrying
249、 amount of the lease liability,plus initial direct costs,plus(minus)any prepaid(accrued)lease payments,less the unamortized balance of lease incentivesreceived.Lease expense for lease payments is recognized on a straight-line basis over the lease term.21Table of Contents HEPION PHARMACEUTICALS,INC.A
250、ND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements(Unaudited)As of September 30,2024,our ROU asset was$0.1 million,the current lease liability was$0.1 million,and the long-term lease liability was$0.0 million.An estimatedincremental borrowing rate of 14.9%was used to account for the
251、 second amendment of the Edison Lease.For the first amendment of the Edison Lease,an incremental borrowingrate 6.50%was used.Rent expense for the three months ended September 30,2024 and 2023 was$0.1 million and$0.1 million,respectively,and was$0.1 million and$0.2 million for the ninemonths ended Se
252、ptember 30,2024 and 2023,respectively.At September 30,2024,the weighted average remaining term of our noncancelable operating leases is 0.8 year.Future minimum rental payments under our noncancelable operating lease at September 30,2024 is as follows:Remainder of 2024$41,444 2025 97,815 Total 139,25
253、9 Present value adjustment (21,307)Lease liability at September 30,2024$117,952 Employment Agreements We have an employment agreement with one former employee which requires the funding of a specific level of payment,if certain events,such as a change in control,termination without cause or retireme
254、nt,occur.On August 5,2024,John Cavan,the interim Chief Executive Officer and Chief Financial Officer left the Company for personal reasons.In connection therewith,Mr.Cavanwill be paid,according to his employment contract,a severance payment of$300,000.On August 6,2024,John Brancaccio,the Companys Ex
255、ecutive Chairman was appointed theInterim Chief Executive Officer and Interim Chief Financial Officer of the Company.13.Subsequent Events On November 11,2024,Hepion Pharmaceuticals,Inc.and Pharma Two B Ltd.(Pharma Two B”)jointly announced that the U.S.Securities and Exchange Commission(SEC”)has decl
256、ared effective the registration statement on Form F-4(as amended,the Registration Statement”)filed with the SEC related to Pharma Two Bs merger transactionwith Hepion as previously announced on July 22,2024(the Proposed Transaction”).The proposed transaction,which has been approved by the respective
257、 boards of directors of Pharma Two B and Hepion,is expected to close in the fourth quarter of 2024and remains subject to approval by both Pharma Two B and Hepions respective stockholders,regulatory approval,listing of Pharma Two Bs ordinary shares on Nasdaq underthe ticker symbol PHTB”and other cust
258、omary closing conditions.Upon the anticipated closing of the Proposed Transaction,the combined company will operate under thePharma Two B”name.22Table of Contents ITEM 2.MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in co
259、njunction with our condensed consolidated financial statements and other financial information appearing elsewhere inthis quarterly report.In addition to historical information,the following discussion and other parts of this quarterly report contain forward-looking statements.You canidentify these
260、statements by forward-looking words such as plan,”may,”will,”expect,”intend,”anticipate,”believe,”estimate”and continue”or similar words.Forward-looking statements include information concerning possible or assumed future business success or financial results.You should read statements that contain
261、thesewords carefully because they discuss future expectations and plans,which contain projections of future results of operations or financial condition or state other forward-looking information.We believe that it is important to communicate future expectations to investors.However,there may be eve
262、nts in the future that we are not able toaccurately predict or control.Accordingly,we do not undertake any obligation to update any forward-looking statements for any reason,even if new information becomesavailable or other events occur in the future.The forward-looking statements included herein ar
263、e based on current expectations that involve a number of risks and uncertainties set forth under Risk Factors”inour Annual Report on Form 10-K as of and for the year ended December 31,2023 filed with the United States Securities and Exchange Commission(SEC”)on April 16,2024,as well as under Risk Fac
264、tors”within this this Form 10-Q.Accordingly,to the extent that this Report contains forward-looking statements regarding the financial condition,operating results,business prospects or any other aspect of us,please be advised that our actual financial condition,operating results and business perform
265、ance may differmaterially from that projected or estimated by us in forward-looking statements,and you should not unduly rely on such statements.Overview We are a biopharmaceutical company headquartered in Edison,New Jersey,previously focused on the development of drug therapy for treatment of chron
266、ic liverdiseases.This therapeutic approach targets fibrosis,inflammation,and shows potential for the treatment of hepatocellular carcinoma(HCC”)associated with non-alcoholicsteatohepatitis(NASH”),viral hepatitis,and other liver diseases.Our cyclophilin inhibitor,rencofilstat(formerly CRV431),was bei
267、ng developed to offer benefits to addressmultiple complex pathologies related to the progression of liver disease.We have completed a number of Phase 1 and Phase 2 clinical trials.In May 2023,we announced that our Phase 2a study(ALTITUDE-NASH”)met its primary endpointby demonstrating improved liver
268、function and was well tolerated after four months of treatment with once daily oral rencofilstat administered to NASH subjects with stage 3 orgreater fibrosis.All additional secondary efficacy and safety endpoints were also met.These observations provide further evidence that builds on previous find
269、ings from a shorter28-day Phase 2a(AMBITION”)trial.Taken together,the AMBITION and ALTITUDE-NASH trials reinforced rencofilstats direct antifibrotic mode of action and increase ourconfidence level that we anticipated observing fibrosis reductions in our 12-month Phase 2b(ASCEND-NASH”)clinical trial.
270、In June 2023,we announced that the Data and Safety Monitoring Board(DSMB”)met to review the current data for the ASCEND-NASH 2b study and has issued astudy may proceed without modification”clearance.This,the first planned DSMB meeting,occurred on schedule,and all labs,electrocardiograms,adverse even
271、ts,and protocoldeviations were reviewed,focusing on any potential safety signals from the placebo-controlled trial.In December 2023,the board of directors approved a strategic restructuring plan to preserve capital by reducing operating costs.We incurred a one-time restructuringcharge of approximate
272、ly$0.7 million in the fourth quarter of 2023.Additionally,we have initiated a process to explore a range of strategic and financing alternatives focused onmaximizing stockholder value within the current financial environment and NASH drug development landscape.On April 19,2024,we announced that we h
273、ad begun wind-downactivities in our ASCEND-NASH clinical trial.All clinical trial activities were completed and the trial was closed in August 2024.We are continuing efforts,to the extent that cash is available,to provide any value derived from rencofilstat to our shareholders.FINANCIAL OPERATIONS O
274、VERVIEW From inception through September 30,2024,we have an accumulated deficit of$236.3 million and we have not generated any revenue from operations.23Table of Contents CRITICAL ACCOUNTING ESTIMATES Our condensed consolidated financial statements are prepared in accordance with accounting principl
275、es generally accepted in the United States(U.S.GAAP).Thepreparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets,liabilities,costs andexpenses,income taxes and related disclosures.On an ongoing basis,we
276、evaluate our estimates and assumptions.Our actual results may differ from these estimates under differentassumptions or conditions.During the nine months ended September 30,2024,there were no significant changes to our critical accounting estimates from those described in the ManagementsDiscussion a
277、nd Analysis of Financial Condition and Results of Operations”contained in the Annual Report on Form 10-K for the year ended December 31,2023.RECENT ACCOUNTING PRONOUNCEMENTS Please refer to Note 3 of Notes to Condensed Consolidated Financial Statements,Recent Accounting Pronouncements,in this Quarte
278、rly Report on Form 10-Q.RESULTS OF OPERATIONS Comparison of the three months ended September 30,2024 and 2023:Three Months EndedSeptember 30,2024 2023 Change Revenues$Costs and Expenses:Research and development 2,762,709 8,518,520 (5,755,811)General and administrative 1,695,550 2,146,045 (450,495)To
279、tal operating expenses 4,458,259 10,664,565 (6,206,306)Loss from operations (4,458,259)(10,664,565)6,206,306 Other income(expense):Interest income(expense)(474,570)(2,381)(472,189)Change in fair value of contingent consideration and derivative financialinstruments 66,881 140,000 (73,119)Loss before
280、income taxes (4,865,948)(10,526,946)5,660,998 Net loss$(4,865,948)$(10,526,946)$5,660,998 We had no revenues during the three months ended September 30,2024 and 2023,because we do not have any commercial biopharmaceutical products and we do notexpect to have such products for several years,if at all
281、.Research and development expenses for the three months ended September 30,2024 and 2023 was$2.8 million and$8.5 million,respectively.The decrease of$5.8 millionwas primarily due to a$4.3 million decrease in clinical trial costs primarily for our phase 2b study,a$1.1 million decrease of Chemistry,Ma
282、nufacturing and Controls costs,adecrease of$0.3 million in employee compensation costs due to reduced headcounts and other miscellaneous expenses,primarily due to the discontinuation of clinical trials.For the three months ended September 30,2024,all of the research and development expenses were for
283、 clinical trial costs.For the three months ended September 30,2023,$7.9 million of the$0.6 million was for clinical trial costs and$0.6 million was for pre-clinical costs.Hepion does not expect these expenses to continue after the Merger iscompleted.General and administrative expenses for the three
284、months ended September 30,2024 and 2023 was$1.7 million and$2.1 million,respectively.The decrease of$0.5 millionwas primarily due to a decrease in salaries due to reduced headcount as a result of the discontinuation of clinical trials.24Table of Contents Comparison of the nine months ended September
285、 30,2024 and 2023:Nine Months EndedSeptember 30,2024 2023 Change Revenues$Costs and Expenses:Research and development 12,438,956 30,196,848 (17,757,892)General and administrative 5,705,468 7,842,512 (2,137,044)Total operating expenses 18,144,424 38,039,360 (19,894,936)Loss from operations (18,144,42
286、4)(38,039,360)19,894,936 Other income(expense):Interest income(expense)(429,383)(7,054)(422,329)Change in fair value of contingent consideration and derivative financialinstrument 6,526,633 180,000 6,346,633 Inducement expense (2,567,044)(2,567,044)Loss before income taxes (14,614,218)(37,866,414)23
287、,252,196 Income tax benefit:(See Note 3)2,969,252 2,969,252 Net loss$(11,644,966)$(37,866,414)$26,221,448 We had no revenues during the nine months ended September 30,2024 and 2023,respectively,because we do not have any commercial biopharmaceutical products andwe do not expect to have such products
288、 for several years,if at all.Research and development expenses for the nine months ended September 30,2024 and 2023 was$12.4 million and$30.2 million,respectively.The decrease of$17.8million was primarily due to a$15.6 million decrease in clinical trial costs primarily for our phase 2b study,a$1.8 m
289、illion decrease of Chemistry,Manufacturing and Controls costs,adecrease of$0.4 million in employee compensation costs due to reduced headcounts,and decrease in consulting and outside services.For the nine months ended September 30,2024,$11.6 million of the$12.4 million was for clinical trial costs a
290、nd$0.8 million was for pre-clinical costs.For the nine monthsended September 30,2023,$28.4 million of the$30.2 million was for clinical trial costs and$1.8 million was for pre-clinical costs.General and administrative expenses for the nine months ended September 30,2024 and 2023 was$5.7 million and$
291、7.8 million,respectively.The decrease of$2.1 millionwas primarily due to a$0.9 million decrease in bonus,salaries and employee benefits,$0.6 million decrease in stock compensation,$0.2 million decrease in legal fees,$0.3 million intravel expenses,and$0.1 million decrease in insurance.Liquidity and C
292、apital Resources Sources of Liquidity We have funded our operations through September 30,2024 primarily through the issuance of convertible preferred stock,the issuance and sale of shares of our commonstock and subsequent issuances of shares of our common stock through at-the market offerings.Future
293、 Funding Requirements We have no products approved for commercial sale.To date,we have devoted substantially all of our resources to organizing and staffing our company,businessplanning,raising capital,undertaking preclinical studies and clinical trials of our product candidate.As a result,we are no
294、t profitable and have incurred losses in each period sinceour inception in 2013.As of September 30,2024,we had an accumulated deficit of$236.2 million.We expect to continue to incur significant losses for the foreseeable future.We may encounter unforeseen expenses,difficulties,complications,delays a
295、nd other unknown factors that may adversely affect our business.The size of our future netlosses will depend,in part,on the rate of future growth of our expenses and our ability to generate revenue.Our prior losses and expected future losses have had and will continueto have an adverse effect on our
296、 stockholders equity and working capital.25Table of Contents We will require additional financing and a failure to obtain this necessary capital could force us to delay,limit,reduce or terminate our operations.Since our inception,we have invested a significant portion of our efforts and financial re
297、sources in research and development activities for our non-replicating andreplicating technologies and our product candidates derived from these technologies.We believe that we will continue to expend substantial resources for the foreseeable future inconnection with our wind-down of the ASCEND-NASH
298、 Trial as well as our strategic alternatives strategy.In addition,other unanticipated costs may arise.The condensed consolidated financial statements as of and for the nine months ended September 30,2024 have been prepared under the assumption that we will continueas a going concern within one year
299、after the financial statements are issued.Due to our accumulated deficit and our recurring and expected continuing losses from operations,wehave concluded there is substantial doubt in our ability to continue as a going concern without additional capital becoming available to attain further operatin
300、g efficiencies and,ultimately,to generate revenue.Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.We will be required to raise additional capital to continue to fund operations.We cannot be certain that additional funding will be availab
301、le on acceptable terms,or at all.To the extent that we raise additional funds by issuing equity securities,our stockholders may experience significant dilution.Any debt financing,if available,may involverestrictive covenants that impact our ability to(i)seek collaborators for our product candidates
302、on terms that are less favorable than might otherwise be available;or(ii)relinquishor otherwise dispose of rights to technologies,product candidates or products that we would otherwise seek to develop or commercialize on unfavorable terms.Cash Flows The following table summarizes our cash flows for
303、the following periods:Nine Months EndedSeptember 30,2024 2023 Net cash provided by(used in):Operating activities$(17,063,429)$(31,887,104)Investing activities (600,000)13,956 Financing activities 4,349,707 As of September 30,2024,we had working capital of$0.8 million compared to working capital of$1
304、2.2 million as of December 31,2023.The decrease of$11.4 million inworking capital is primarily due to$3.0 million in proceeds received from sales of our state NOLs offset by the Companys operating costs for the nine months ended September 30,2024.Operating Activities:As of September 30,2024,we had$0
305、.8 million in cash.Net cash used in operating activities was$17.1 million for the nine months ended September 30,2024 consistingprimarily of our net loss of$11.6 million,adjusted for an increase in non-cash charges of$3.8 million,primarily for stock-based compensation,amortization of debt discount,a
306、ndwarrant related inducement expense,partially offset by$6.5 million in change in fair value of contingent consideration and the change in fair value of derivative warrants.Changesin working capital accounts had a negative impact of$2.7 million on cash primarily due to an increase in accounts payabl
307、e,accrued expenses and prepaid expenses.As of September 30,2023,we had$19.3 million in cash.Net cash used in operating activities was$31.9 million for the nine months ended September 30,2023 consistingprimarily of our net loss of$37.9 million.Changes in non-cash operating activities was$1.1 million,
308、primarily for stock-based compensation.Changes in working capital accountshad a positive impact of$4.9 million on cash primarily for a decrease in prepaid expenses and other assets of$3.5 million and an increase in accounts payable and accrued expensesof$1.4 million.Investing Activities:Net cash use
309、d in investing activities was$600,000 for the nine months ended September 30,2024 and nominal for 2023.The$600,000 in 2024 is primarily due to the notereceivable from Pharma Two B.26Table of Contents Financing Activities:Net cash provided by financing activities was$4.3 million for the nine months e
310、nded September 30,2024,due primarily to proceeds received from the exercise of thewarrants and equity issuance.There was no cash provided by or used in financing activities for the nine months ended September 30,2023.ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable.IT
311、EM 4.CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures Based on an evaluation of our disclosure controls and procedures(as defined in Rules 13a-15(e)and 15d-15(e)of the Securities Exchange Act of 1934,as amended)required by paragraph(b)of Rule 13a-15 or Rule 15d-15,as of Septe
312、mber 30,2024,our Interim Principal Executive Officer/Principal Financial Officer has concluded that due to thematerial weaknesses in our internal control over financial reporting noted below,our disclosure controls and procedures were not effective.Our control environment was ineffective because we
313、did not maintain a sufficient complement of personnel to execute controls as designed including the absence ofproper segregation of duties.Such impacted controls include indirect controls affecting the risk assessment and monitoring components of COSO along with certaincontrol activities.We identifi
314、ed a material weakness in our internal controls related to the proper design and implementation of controls over formal review,approval,and evaluation ofnon-core,complex accounting transactions.We identified a material weakness in internal control related to the proper design and implementation of c
315、ertain controls over our income tax provision andmanagements review of the income tax provision.We utilize a third-party to assist in the preparation of our tax provision.Specifically,we did not sufficiently designand implement controls related to the completeness and accuracy of certain aspects of
316、the tax provision and the completeness and accuracy income tax disclosures.Remediation of Material Weaknesses We are committed to the remediation of the material weaknesses described above,as well as the continued improvement of our internal control over financial reporting.We need to raise addition
317、al capital in order to add additional personnel and implement additional internal control procedures.If we are able to raise additional capital,we plan onimplementing several remedial actions to improve our internal controls,including:We will need to increase personnel in the future in order to have
318、 proper segregation of duties.We are utilizing the services of external consultants for non-routine andor technical accounting issues as they arise.Expanding and improving our review process for complex accounting transactions.We plan to further improve this process by enhancing access to accounting
319、literature,identification of third-party professionals with whom to consult regarding complex accounting applications and consideration of additional staff with therequisite experience and training to supplement existing accounting professionals.Management,with the assistance of a third party,will p
320、erform an evaluation of the processes and procedures around our tax provision processes,internal controldesign gaps,and recommend process enhancements.Implementing enhancements and process improvements,including the design and implementation of well-defined controls and related control attributes re
321、gardingincome tax provision and income tax disclosures.Developing a detailed timeline of the tax provision calculation,to ensure that sufficient time is allocated to complete the process as designed.As we continue our evaluation and improve our internal control over financial reporting,management ma
322、y identify and take additional measures to address controldeficiencies.We cannot assure you that we will be successful in remediating the material weaknesses in a timely manner.Changes in Internal Control over Financial Reporting Except as noted above,there have been no changes in our internal contr
323、ols over financial reporting during the nine months ended September 30,2024 that have materiallyaffected,or are reasonably likely to materially affect,our internal control over financial reporting.27Table of Contents PART II.OTHER INFORMATION ITEM 1A.RISK FACTORS There have been no material changes
324、from the risk factors disclosed in our Form 10-K for the year ended December 31,2023 except for the following:The exchange ratio will not change or otherwise be adjusted based on the market price of our common stock as the exchange ratio depends on our net cash at theclosing and not the market price
325、 of our common stock,so the merger consideration at the closing may have a greater or lesser value than at the time the Merger Agreementwas signed.On July 19,2024,we entered into an Agreement and Plan of Merger,or the Merger Agreement,with Pharma Two B Ltd.,or Pharma Two B,pursuant to which an indir
326、ectwholly-owned subsidiary of Pharma Two B will merge with and into the Company,with the Company surviving as our indirect wholly-owned subsidiary,referred to hereinafter asthe Merger.”At the effective time described in the Merger Agreement,outstanding shares of the Companys common stock will be con
327、verted into Pharma Two B ordinary shares.Based on Pharma Two Bs and the Companys capitalization as of July 19,2024,the exchange ratio is estimated to be equal to 85%to Pharma Two B and 15%to Hepionshareholders.After applying this estimated exchange ratio and giving effect to the consummation of the
328、transactions set forth in the PIPE Agreements(the PIPE Investment”),theCompany stockholders as of immediately prior to the Merger are expected to own approximately 7.8%of the outstanding ordinary shares of the combined company on a fully-diluted basis,former Pharma Two B shareholders are expected to
329、 own approximately 44.5%of the outstanding ordinary shares of the combined company on a fully-diluted basisand the investors issued shares of Company Common Stock in the PIPE Investment are expected to own approximately 47.7%of the outstanding ordinary shares of the combinedcompany on a fully-dilute
330、d basis,in each case,subject to certain assumptions,including but not limited to,that the sum of the Hepion Net Cash(as defined in the MergerAgreement)at Closing and the net proceeds from the PIPE Investment are at least$10.0 million.In the event such sum is below$10.0 million,the exchange ratio wil
331、l be adjustedsuch that the Companys stockholders will own a smaller percentage of the combined company following the Merger.Failure to complete the merger with Pharma Two B Ltd.could harm our common stock price and future business and operations.If the merger is not completed,we are subject to the f
332、ollowing risks:the price of our common stock may decline and could fluctuate significantly;and costs related to the merger,such as financial advisor,legal and accounting fees,a majority of which must be paid even if the merger is not completed.If the Merger Agreement is terminated and the board of d
333、irectors of Pharma Two B determines to seek another business combination,there can be no assurance that wewill be able to find another third party to transact a business combination with,yielding comparable or greater benefits.If the conditions to the Merger are not satisfied or waived,the merger may not occur.Even if the merger is approved by the stockholders of Pharma Two B,specified conditions
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