ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with and our consolidated financial statements and the related notes appearing elsewhere in this Annual Report. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included elsewhere in this Annual Report. All amounts in this report are in U.S. dollars, unless otherwise noted.

Business Overview

We are a biopharmaceutical company headquartered in Edison, New Jersey, focused primarily on the development of drug therapy for treatment of chronic liver diseases. This therapeutic approach targets fibrosis, inflammation, and shows potential for the treatment of hepatocellular carcinoma (“HCC”) associated with non-alcoholic steatohepatitis (“NASH”), viral hepatitis, and other liver diseases. Our cyclophilin inhibitor, Rencofilstat (formerly CRV431), is being developed to offer benefits to address multiple complex pathologies relate to advanced liver disease. Rencofilstat is a pan cyclophilin inhibitor that targets multiple pathologic pathways involved in the progression of liver disease. Preclinical studies with Rencofilstat in NASH models demonstrated consistent reductions in liver fibrosis and additional reductions in inflammation and cancerous tumors in some studies. Rencofilstat additionally showed in vitro antiviral activity towards hepatitis B, C, and D viruses which also trigger liver disease. Preclinical studies also have shown potentially therapeutic activities of Rencofilstat in experimental models of acute lung injury, platelet activation, and SARS-CoV-2 replication.

NASH is the form of liver disease that is triggered by what has come to be known as the “Western diet”, characterized especially by high-fat, high-sugar, and processed foods. Among the effects of a prolonged Western diet is fat accumulation in liver cells (steatosis) which is described as NAFLD and can predispose cells to injury. NAFLD may evolve into NASH when the fatty liver begins to progress through stages of cell injury, inflammation, fibrosis, and carcinogenesis. People who develop NASH often have additional predisposing conditions such as diabetes and hypertension, but the exact biochemical events that trigger and maintain the progression are not well known. Many people in the early stages of disease do not have significant

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clinical symptoms and therefore do not know that they have it. NASH becomes evident and a major concern when the liver becomes fibrotic and puts the individual at increased risk of developing cirrhosis and other complications. Individuals with advanced liver fibrosis have significantly higher risk of developing liver cancer, although cancer may also arise in some patients before significant hepatitis or fibrosis. NASH is increasing worldwide at an alarming rate due to the spread of the Western diet, obesity, and other related conditions. Approximately 4-5% of the global population is estimated to have NASH, including the USA. NASH is the leading reason for individuals requiring a liver transplant in the USA. Considering the serious outcomes linked to advancing NASH, the economic and social burden of the disease is enormous. There are no simple blood tests to diagnose or track the progression of NASH, and no drugs are approved to specifically treat the disease.

Artificial Intelligence (AI)

We have created a proprietary AI tool called, “AI-POWRTM to optimize the outcomes of our current clinical programs and to potentially identify novel indications for Rencofilstat and possibly identify new targets and new drug molecules to broaden our pipeline.

AI-POWRTM is our acronym for Artificial Intelligence - Precision Medicine; Omics that include genomics, proteomics, metabolomics, transcriptomics, and lipidomics; World database access; and Response and clinical outcomes. AI-POWRTM allows for the selection of novel drug targets, biomarkers, and appropriate patient populations. AI-POWRTM is used to identify responders from big data sources using our multi-omics approach, while modelling inputs and scenarios to increase response rates. The components of AI-POWRTM include access to publicly available databases, and in-house genomic and multi-omic big data, processed via machine learning algorithms. We believe AI outputs will allow for improved response outcomes through enhanced patient selection, biomarker selection and drug target selection. We believe AI outputs will help identify responders a priori and reduce the need for large sample sizes through study design enrichment.

We intend to use AI-POWRTM to help identify which NASH patients will best respond to Rencofilstat. It is anticipated that applying this proprietary platform to our drug development program will ultimately save time, resources, and money. In so doing, we believe that AI-POWRTM is a risk-mitigation strategy that should reap benefits all the way through from clinical trials to commercialization. The AI-POWRTM platform is continually updated with in-house and published data to further refine the accuracy of the neural network.

We believe that NASH is a heterogenous disease and we need to have a better understanding of interactions among proteins, genes, lipids, metabolites, and other disease variables to help predict disease progression, regression, and responses to Rencofilstat. All of this is further complicated by variable drug concentrations, patient traits and temporal factors. AI-POWRTM is designed to address many of the typical challenges in drug development, as we believe we can use our proprietary platform to shorten development timelines and increase the delta between placebo and treatment groups. AI-POWRTM will be used to drive our ongoing Phase 2a NASH program and identify additional potential indications for Rencofilstat to expand our footprint in the cyclophilin inhibition therapeutic space.

Impact of COVID-19

The COVID-19 outbreak in the United States has caused significant business disruption. The extent of the impact of COVID-19 on our future operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, and impact on our clinical trials, employees and vendors, all of which are uncertain and cannot be predicted. At this point, the extent to which COVID-19 may impact our future financial condition or results of operations is uncertain. While there has not been a material impact on our consolidated financial statements for the year ended December 31, 2021, a prolonged outbreak could have a material adverse impact on our financial results and business operations, including the timing and our ability to complete certain clinical trials and other efforts required to advance the development of our product candidate and raise additional capital.

FINANCIAL OPERATIONS OVERVIEW

From inception through December 31, 2021, we have an accumulated deficit of $133.5 million and we have not generated any revenue from operations. We expect to incur additional losses to perform further research and development activities and do not currently have any commercial biopharmaceutical products. We do not expect to have such for several years, if at all.

On February 16, 2021, we entered into an underwriting agreement (the “Underwriting Agreement”) with ThinkEquity, a division of Fordham Financial Management, Inc., as the representative (the “Representative”) of the underwriters listed therein (collectively, the “Underwriters”), with respect to an underwritten public offering (the “Offering”) of 44,200,000 shares of our common stock, par value $0.0001 (the “Shares”), at a public offering price of $2.00 per share, which resulted in net proceeds to us of $82.1 million, after deducting underwriting discounts and commissions and offering expenses payable by us. We intend to use the net proceeds of this Offering to fund our research and development activities and general corporate purposes, including working capital, operating expenses and capital expenditures. The Offering closed on February 18, 2021.

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Our product development efforts are in their early stages and we cannot make estimates of the costs or the time they will take to complete. The risk of completion of any program is high because of the many uncertainties involved in bringing new drugs to market including the long duration of clinical testing, the specific performance of proposed products under stringent clinical trial protocols, the extended regulatory approval and review cycles, our ability to raise additional capital, the nature and timing of research and development expenses and competing technologies being developed by organizations with significantly greater resources.

RECENT ACCOUNTING PRONOUNCEMENTS

For detailed information regarding recently issued accounting pronouncements and the expected impact on our consolidated financial statements, see Note 4, "Recent Accounting Pronouncements" in the accompanying Notes to Consolidated Financial Statements.

RESULTS OF OPERATIONS

Comparison of the Years ended December 31, 2021 and 2020:

Year EndedDecember 31,

Revenues $ — — $ —

Costs and Expenses:

Other income (expense):

We had no revenues during the years ended December 31, 2021 and 2020, respectively, because we do not have any commercial biopharmaceutical products and we do not expect to have such products for several years, if at all.

Research and development expenses for the years ended December 31, 2021 and 2020 were $20.4 million and $12.0 million, respectively. The increase of $8.4 million was primarily due to an increase in stock compensation of $0.8 million related to options granted in 2021, a $0.8 million increase in compensation cost due to an increase in headcount, a $5.0 million increase clinical trial costs related to the start of the phase 2b trial, and a $2.4 million increase in Chemistry, Manufacturing, and Controls, or CMC, costs primarily for an increase in drug costs to support our clinical trials. This was offset by a decrease in consulting services of $0.6 million.

General and administrative expenses for the years ended December 31, 2021 and 2020 amounted to $10.0 million and $8.1 million, respectively. The increase of $1.9 million is primarily due to an increase in stock compensation of $1.5 million related to options granted in 2021, a $0.3 million increase in compensation cost due to an increase in headcount, a $0.4 million increase in insurance, and a $0.3 million increase in miscellaneous expenses. This was offset by a decrease in taxes of $0.3 million and a $0.3 million decrease for consulting and outside services.

During the year ended December 31, 2021 and 2020, we recorded income tax expense of $0 and an income tax benefit of $30,584, respectively, resulting from an adjustment to a deferred tax liability. Refer to Note 10 in the consolidated financial statements included in this Annual Report on Form 10-K.

Liquidity and Capital Resources

Sources of Liquidity

We have funded our operations through December 31, 2021 primarily through the issuance of convertible preferred stock, the issuance and sale of shares of our common stock in our IPO, and subsequent issuances of shares of our common stock through at-the market offerings.

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Future 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, business planning, raising capital, undertaking preclinical studies and clinical trials of our product candidate. As a result, we are not profitable and have incurred losses in each period since our inception in 2013. As of December 31, 2021, we had an accumulated deficit of $133.5 million. We expect to continue to incur significant losses for the foreseeable future. We anticipate that our expenses will increase substantially as we:

•pursue the clinical and preclinical development of our current product candidate;

•leverage our technologies to advance product candidates into preclinical and clinical development;

•seek regulatory approvals for our product candidate that successfully complete clinical trials, if any;

•attract, hire and retain additional clinical, quality control and scientific personnel;

•establish our manufacturing capabilities through third parties and scale-up manufacturing to provide adequate supply for clinical trials and commercialization;

•expand our operational, financial and management systems and increase personnel, including personnel to support our clinical development, manufacturing and commercialization efforts and our operations as a public company;

•expand and protect our intellectual property portfolio;

•establish a sales, marketing, medical affairs and distribution infrastructure to commercialize any products for which we may obtain marketing approval and intend to commercialize on our own or jointly;

•acquire or in-license other product candidates and technologies; and

•incur additional legal, accounting and other expenses in operating our business, including ongoing costs associated with operating as a public company.

Even if we succeed in commercializing our product candidate, we will continue to incur substantial research and development and other expenditures to potentially develop and market additional product candidates. We may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. The size of our future net losses 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 continue to have an adverse effect on our stockholders’ equity and working capital.

We will require substantial additional financing and a failure to obtain this necessary capital could force us to delay, limit, reduce or terminate our product development programs, commercialization efforts or other operations.

Since our inception, we have invested a significant portion of our efforts and financial resources in research and development activities for our non-replicating and replicating technologies and our product candidates derived from these technologies. Preclinical studies and clinical trials and additional research and development activities will require substantial funds to complete. We believe that we will continue to expend substantial resources for the foreseeable future in connection with the development of our current product candidates and programs as well as any future product candidates we may choose to pursue, as well as the gradual gaining of control over our required manufacturing capabilities and other corporate uses. These expenditures will include costs associated with conducting preclinical studies and clinical trials, obtaining regulatory approvals, and manufacturing and supply, as well as marketing and selling any products approved for sale. In addition, other unanticipated costs may arise. Because the outcome of any preclinical study or clinical trial is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of our current or future product candidates.

Our future capital requirements depend on many factors, including:

•the scope, progress, results and costs of researching and developing our current and future product candidate and programs, and of conducting preclinical studies and clinical trials;

•the number and development requirements of other product candidates that we may pursue, and other indications for our current product candidate that we may pursue;

•the stability, scale and yields during the manufacturing process as we scale-up production and formulation of our product candidate for later stages of development and commercialization;

•the timing of, and the costs involved in, obtaining regulatory and marketing approvals and developing our ability to establish sales and marketing capabilities, if any, for our current and future product candidates we develop if clinical trials are successful;

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•our ability to establish and maintain collaborations, strategic licensing or other arrangements and the financial terms of such agreements;

•the cost of commercialization activities for our current and future product candidates that we may develop, whether alone or with a collaborator;

•the costs involved in preparing, filing, prosecuting, maintaining, expanding, defending and enforcing patent claims, including litigation costs and the outcome of such litigation;

•the timing, receipt and amount of sales of, or royalties on, our future products, if any; and

A change in the outcome of any of these or other variables with respect to the development of any of our current and future product candidates could significantly change the costs and timing associated with the development of that product candidate. Furthermore, our operating plans may change in the future, and we will need additional funds to meet operational needs and capital requirements associated with such operating plans.

We believe we have enough cash on hand to fund our operations for the next twelve months. We will be required to raise additional capital to continue the development and commercialization of our current product candidate and to continue to fund operations at the current cash expenditure levels. We cannot be certain that additional funding will be available 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 involve restrictive covenants that impact our ability to conduct, delay, scale back or discontinue the development and/or commercialization of one or more product candidates; (ii) seek collaborators for product candidates at an earlier stage than otherwise would be desirable and on terms that are less favorable than might otherwise be available; or (iii) relinquish or 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 the following periods:

Year EndedDecember 31,

Net cash provided by (used in):

As of December 31, 2021, we had working capital of $89.2 million compared to working capital of $38.0 million as of December 31, 2020. The increase of $51.2 million in working capital is primarily related to an increase in cash and cash equivalents from our equity offerings during 2021 offset by an increase of $3.0 million to short-term contingent consideration.

Operating Activities:

As of December 31, 2021, we had $91.3 million in cash. Net cash used in operating activities was $31.2 million for the year ended December 31, 2021 consisting primarily of our net loss of $32.7 million, adjusted for non-cash charges of $4.7 million primarily for stock-based compensation and an increase in the fair value of contingent consideration of $2.3 million. Changes in working capital accounts had a negative impact of $5.6 million on cash primarily due to an increase in prepaid research costs.

Net cash used in operating activities was $16.2 million for the year ended December 31, 2020 consisting primarily of our net loss of $20.4 million, adjusted for non-cash charges of $2.6 million primarily for stock-based compensation. Changes in working capital accounts had a positive impact of $1.6 million on cash.

Investing Activities:

Net cash used in investing activities during the year ended December 31, 2021 was $0.1 million and was related to equipment purchases for research and development.

Net cash used in investing activities during the year ended December 31, 2020 was $0.1 million and was related to equipment purchases for research and development.

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Financing Activities:

Net cash provided by financing activities was $82.0 million for the year ended December 31, 2021 due primarily to the issuance of common stock, net of issuance costs for our equity offering of $82.2 million in February 2021.

Net cash provided by financing activities was $43.1 million for the year ended December 31, 2020 due primarily to the issuance of common stock, net of issuance costs for our equity offerings $42.9 million.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

This discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles ("GAAP") in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reported period. In accordance with GAAP, we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

We believe that the assumptions and estimates associated with fair value of financial instruments, derivative financial instruments, income taxes, contingencies, research and development, goodwill and in-process research and development, and share-based payments have the greatest potential impact on our consolidated financial statements. We evaluate these estimates on an ongoing basis. Actual results could differ from those estimates under different assumptions or conditions, and any differences could be material. For further information on all of our significant accounting policies, see Note 3 of the Notes to the Consolidated Financial Statements under Item 8 of this Annual Report on Form 10-K.

Fair Value of Financial Instruments

Financial instruments consist of cash, accounts payable, contingent consideration and derivative instruments. These financial instruments are stated at their respective historical carrying amounts, which approximate fair value due to their short-term nature, except for contingent consideration and derivative instruments. We record our contingent consideration and derivative instruments at fair value at the end of each reporting period.

Contingent consideration was related to the acquisition of Ciclofilin and recorded on June 10, 2016. The contingent consideration represented the acquisition date fair value of potential future payments, to be paid in cash and our common stock, upon the achievement of certain milestones and in 2016 was estimated based on a probability-weighted discounted cash flow model utilizing a discount rate of 6.5% and a stock price of $19.60. We completed the first segment of our Phase 1 clinical activities for Rencofilstat in October 2018 wherein we reached a major clinical milestone of positive data from a Phase I trial of Rencofilstat in humans. This achievement triggered the first milestone payment, as stated in the Merger Agreement for the acquisition of Ciclofilin Pharmaceuticals, Inc. (Ciclofilin,) and we paid a related milestone payment of $1,000,000 and issued 1,439 shares of our common stock with a fair value of $55,398, representing 2.5% of our issued and outstanding common stock as of June 2016, to the Ciclofilin shareholders. The Merger Agreement for the acquisition of Ciclofilin was amended on January 14, 2022 (see Note 13 to the consolidated financial statements) and a payment of $2.0 million was made in January 2022.

Income Taxes

We account for income taxes under the asset and liability method. We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as for operating loss and tax credit carryforwards. We measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which we expect to recover or settle those temporary 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 enactment date. We reduce the measurement of 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 tax asset. We account for uncertain tax positions by recognizing the financial statement effects of a tax position only when, based upon technical merits, it is “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 U.S and foreign net deferred tax assets. Income tax expense for the years ended December 31, 2021 and 2020 are related to our foreign operations.

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offset future taxable income or tax liabilities. The amount of the annual limitation, if any, will be determined based on our value immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future 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 study of transactions in our stock through December 31, 2021 and concluded that we have experienced ownership changes since inception that we believe under Section 382 and 383 of the Code will result in limitations on our ability to use certain pre-ownership change NOLs and credits (see Note 2 to the consolidated financial statements). In addition, we may experience subsequent ownership changes as a result of future equity offerings or other changes in the ownership of our stock, some of which are beyond our control. As a result, the amount of the NOLs and tax credit carryforwards presented in our consolidated financial statements could be limited. Similar provisions of state tax law may also apply to limit the use of accumulated state tax attributes (see Note 10 to the consolidated financial statements).

Contingencies

In the normal course of business, we are subject to loss contingencies, such as legal proceedings and claims arising out of our business that cover a wide range of matters, including, among others, government investigations, shareholder lawsuits, product and environmental liability, and tax matters. In accordance with ASC Topic 450, Accounting for Contingencies, (“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 be reasonably estimated. We, in accordance with this guidance, does not recognize gain contingencies until realized.

Research and Development

Research and development costs, which include expenditures in connection with an in-house research and development laboratory, salaries and staff costs, application and filing for regulatory approval of proposed products, purchased in-process research and development, license costs, regulatory and scientific consulting fees, as well as contract research, insurance and FDA consultants, are accounted for in accordance with ASC Topic 730, Research and Development (“ASC 730”). Also, as prescribed by this guidance, patent filing and maintenance expenses are considered legal in nature and therefore classified as general and administrative 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 and development costs are expensed as incurred. While certain of our research and development costs may have future benefits, our policy of expensing all research and development expenditures 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 that would be benefited.

Also as prescribed by ASC 730, non-refundable advance payments for goods or services that will be used or rendered for future research and development activities should 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, the deferred amounts would be recognized as an expense. At December 31, 2021 and 2020, we had prepaid research and development costs of $5.9 million and $1.8 million, respectively.

Goodwill and In-Process Research & Development

In accordance with ASC Topic 350, Intangibles — Goodwill and Other (“ASC Topic 350”), goodwill and acquired IPR&D are determined to have indefinite lives and, therefore, are not amortized. Instead, they are tested for impairment annually, in our fourth quarter, and between annual tests if we become aware of an event or a change in circumstances that would indicate the carrying value may be impaired.

The annual, or interim (if events or changes in circumstances indicate that it is more likely than not that the asset is impaired), goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit's fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. As part of the impairment test, we may elect to perform an assessment of qualitative factors. If this qualitative assessment indicates that it is more likely than not that the fair value of a reporting unit, including goodwill, is less than its carrying amount, or if we elect to bypass the qualitative assessment, we would then proceed with the quantitative impairment test. The impairment test involves comparing the fair values of the reporting units to their carrying amounts. If the carrying amount of a reporting unit exceeds its fair value, we recognize a goodwill loss in an amount equal to any excess.

Goodwill relates to amounts that arose in connection with the acquisition of Ciclofilin. Goodwill represents the excess of the purchase price over the fair value of the net assets acquired when accounted for using the acquisition method of accounting for business combinations. We performed a quantitative assessment of goodwill for fiscal year 2021 and determined that the fair value of our reporting unit was in excess of its carrying value. We performed a qualitative assessment of goodwill

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for fiscal year 2020 and determined that it was not more likely than not that goodwill was impaired. There was no impairment of goodwill for the years ended December 31, 2021 and 2020.

In-Process Research and Development ("IPR&D") acquired in a business combination is capitalized as indefinite-lived assets on our consolidated balance sheets at the acquisition-date fair value. Once the project is completed, the carrying value of the IPR&D is reclassified to other intangible assets, net and is amortized over the estimated useful life of the asset. Post-acquisition research and development expenses related to the IPR&D projects are expensed as incurred. The projected discounted cash flow models used to estimate the fair values of our IPR&D assets, acquired in connection with the Ciclofilin acquisition, reflect significant assumptions regarding the estimates a market participant would make in order to evaluate a drug development asset, including: (i) probability of successfully completing clinical trials and obtaining regulatory approval; (ii) market size, market growth projections, and market share; (iii) estimates regarding the timing of and the expected costs to advance clinical programs to commercialization; (iv) estimates of future cash flows from potential product sales; and (v) a discount rate. These assumptions are based on significant inputs not observable in the market and thus represent Level 3 measurements within the fair value hierarchy. The use of different inputs and assumptions could increase or decrease our estimated discounted future cash flows, the resulting estimated fair values and the amounts of related impairments, if any.

The annual, or interim if events or changes in circumstances indicate that it is more likely than not that the asset is impaired), IPR&D impairment test is performed by comparing the fair value of the asset to the asset’s carrying amount. When testing indefinite-lived intangibles for impairment, we may assess qualitative factors for its indefinite-lived intangibles to determine whether it is more likely than not that the asset is impaired. Alternatively, we may bypass this qualitative assessment for our indefinite-lived intangible asset and perform the quantitative impairment test that compares the fair value of the indefinite-lived intangible asset with the asset’s carrying amount. If IPR&D becomes impaired or is abandoned, the carrying value of the IPR&D is written down to the revised fair value with the related impairment charge recognized in the period in which the impairment occurs. If the carrying value of the asset becomes impaired as the result of unfavorable data from any ongoing or future clinical trial, changes in assumptions that negatively impact projected cash flows, or because of any other information regarding the prospects of successfully developing or commercializing our programs, we could incur significant charges in the period in which the impairment occurs.

We performed a quantitative assessment of IPR&D for fiscal year 2021 and determined that the asset was not impaired. We performed a qualitative assessment of IPR&D for fiscal year 2020 and determined that it was not more likely than not that IPR&D was impaired. There was no impairment of IPR&D for the year ended December 31, 2021 and 2020.

Share-based payments

ASC Topic 718, Compensation—Stock Compensation (“ASC 718”), requires companies to measure the cost of employee and non-employee services received in exchange 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 during which an employee 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 for awards using the straight-line method (see Note 9 to the consolidated financial statements). We account for awards granted to employees that are in excess of what is available to grant as a liability and is recorded at fair value each reporting period in the consolidated financial statements.

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 based on the historical volatility of our common stock. 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 option award. The risk-free interest rate is determined by reference 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 yield is based on the fact that we have never paid cash dividends and do not expect to pay any cash dividends in the foreseeable future.

OFF-BALANCE SHEET ARRANGEMENTS

We had no off-balance sheet arrangements as of December 31, 2021.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

HEPION PHARMACEUTICALS, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page

Consolidated Balance Sheets 54

Consolidated Statements of Operations and Comprehensive Loss 55

Consolidated Statements of Changes in Stockholders’ Equity 56

Consolidated Statements of Cash Flows 57

Notes to the Consolidated Financial Statements 58

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Shareholders and Board of Directors

Hepion Pharmaceuticals, Inc.

Edison, New Jersey

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Hepion Pharmaceuticals, Inc. and its subsidiaries (“the Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Valuation of Contingent Consideration Liability

As described in Notes 1 and 6 to the consolidated financial statements, the Company has a contingent consideration liability of $4.9 million recorded as of December 31, 2021. The contingent consideration was recorded by the Company in connection with the acquisition of Ciclofilin Pharmaceuticals, Inc. (Ciclofilin) on June 10, 2016. The contingent consideration represented the acquisition date fair value of potential future payments, to be paid in cash and the Company’s stock, to the Ciclofilin shareholders and Aurinia Pharmaceuticals Inc. upon the achievement of certain milestones and was estimated based on a probability-weighted discounted cash flow model utilizing, significant unobservable inputs.

We identified the contingent consideration liability as critical audit matter. The principal considerations for our determination included the subjectivity and judgment by management in determining the fair value estimate of the contingent consideration liability including a high degree of estimation uncertainty in evaluating the probability of success of milestone achievement and the projected milestone achievement dates. Auditing these elements involved significant and subjective auditor judgment in performing procedures to evaluate the fair value of the contingent consideration liability.

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The primary procedures we performed to address this critical audit matter included:

•Testing management’s process for estimating the fair value of contingent consideration liabilities, including corroborating with research and development personnel with regard to the current status of the clinical development of the Company’s product candidate used to support the projected milestone achievement dates.

•Testing management’s probability-weighted discounted cash flow model through evaluation of the appropriateness of the valuation method used, verifying the inputs to the discounted cash flow model to underlying source data and recalculating the results.

•Comparing inputs and assumptions used by management to determine the probability of success of milestone achievement to external market and industry data regarding clinical trial success rates.

Valuation of In Process Research & Development Intangible Assets

As described in Notes 3 and 7 to the consolidated financial statements, the Company has in-process research and development (“IPR&D”) intangible assets of $3.2 million recorded as of December 31, 2021. The IPR&D intangible assets are indefinite lived and are not subject to amortization.Such assets are initially measured at their acquisition-date fair values and are subject to impairment testing at least annually until completion or abandonment of research and development efforts associated with the projects. The Company tests IPR&D assets for impairment in the fourth quarter of each year or more frequently if indicators of impairment are present.

We identified the valuation of IPR&D intangible assets in the impairment assessment as a critical audit matter.The principal consideration for our determination included the subjectivity and judgment used by management in determining the selection of a discount rate and the probability of success of research and development programs. Auditing these elements involved especially challenging and subjective auditor judgment due to the nature and extent of audit effort required to address these matters, including the extent of specialized skill or knowledge needed.

The primary procedures we performed to address this critical audit matter included:

•Utilizing personnel with specialized knowledge and skill with valuations to assist in: (i) assessing the reasonableness of the discount rate incorporated into the valuation models used by management, and (ii) testing the mathematical accuracy of the Company’s calculations.

•Comparing inputs and assumptions used by management to determine the probability of success of research and development programs to external market and industry data regarding clinical trial success rates.

/s/ BDO USA, LLP

We have served as the Company’s auditor since 2013

Woodbridge, New Jersey

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Consolidated Balance Sheets

December 31,

Assets

Current assets:

Liabilities and Stockholders’ Equity

Current liabilities:

Short-term portion of contingent consideration 2,988,284 —

Derivative financial instruments, at estimated fair value—warrants — 11,673

Commitments and contingencies

Stockholders’ equity:

The accompanying notes are an integral part of these consolidated financial statements.

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Consolidated Statements of Operations and Comprehensive Loss

Year EndedDecember 31,

Revenues $ — $ —

Costs and expenses:

Other income (expense):

Income tax benefit (expense) — (30,584)

Deemed dividend (see Note 5) — (5,287)

Weighted average common shares outstanding:

Net loss per common share: (see Note 11)

Basic and diluted $ (0.47) $ (2.10)

The accompanying notes are an integral part of these consolidated financial statements.

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Consolidated Statements of Changes in Stockholders’ Equity

Shares Amount Shares Amount Shares Amount

Conversion of preferred stock to common — — (10) (10,000) 92 — 10,000 — —

Accretion of discount — — — 5,287 — — (5,287) — —

The accompanying notes are an integral part of these consolidated financial statements.

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Consolidated Statements of Cash Flows

Year EndedDecember 31,

Cash flows from operating activities:

Adjustments to reconcile net loss to net cash used in operating activities:

Change in fair value of derivative instrument-warrants — 6,050

Change in fair value of contingent consideration 2,310,000 140,000

Changes in operating assets and liabilities:

Cash flows from investing activities:

Proceeds from disposal of property and equipment — 2,194

Net cash used in investing activities (130,405) (85,789)

Cash flows from financing activities:

Proceeds from debt financing — 176,585

Repayment of debt financing (176,585) —

Proceeds from the exercise of warrants — 12,000

Supplementary disclosure of cash flow information:

Cash paid for interest $ 2,024 $ —

Supplementary disclosure of non-cash financing activities:

Adoption of new accounting standard 11,672 —

The accompanying notes are an integral part of these consolidated financial statements.

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Notes to Consolidated Financial Statements

1. Business Overview

Hepion Pharmaceuticals, Inc. (we, our, or us) is a biopharmaceutical company headquartered in Edison, New Jersey, focused on the development of drug therapy for treatment of chronic liver diseases. This therapeutic approach targets fibrosis, inflammation, and shows potential for the treatment of hepatocellular carcinoma (“HCC”) associated with non-alcoholic steatohepatitis (“NASH”), viral hepatitis, and other liver diseases. Our cyclophilin inhibitor, Rencofilstat (formerly CRV431), is being developed to offer benefits to address multiple complex pathologies related to advanced liver disease. Rencofilstat is a cyclophilin inhibitor that targets multiple pathologic pathways involved in the progression of liver disease.

We are developing Rencofilstat as our lead molecule. Rencofilstat is a compound that binds and inhibits the function of a specific class of isomerase enzymes called cyclophilins that regulate protein folding. Many closely related isoforms of cyclophilins exist in humans. Cyclophilins A, B, and D are the best characterized cyclophilin isoforms. Inhibition of cyclophilins has been shown in the scientific literature to have therapeutic effects in a variety of experimental models, including liver disease models.

On May 10, 2018, we submitted an Investigational New Drug Application (“IND”) to the U.S. Food and Drug Administration (“FDA”) to support initiation of our Rencofilstat HBV clinical development program in the United States and received approval in June 2018. We completed the first segment of our Phase 1 clinical activities for Rencofilstat in October 2018 wherein we reached a major clinical milestone of positive data from a Phase I trial of Rencofilstat in humans. This achievement triggered the first milestone payment, as stated in the May 26, 2016 acquisition agreement between the Company and Ciclofilin Pharmaceuticals, Inc. (“Ciclofilin”) (the “Merger Agreement") for the acquisition of Ciclofilin and we paid a related milestone payment of approximately $0.3 million to Aurinia Pharmaceuticals, Inc. ("Aurinia") and $0.7 million to the former Ciclofilin shareholders along with the issuance of 1,439 shares of our common stock with a fair value of $0.1 million, representing 2.5% of our issued and outstanding common stock as of June, 2016, to the former Ciclofilin shareholders. Our CEO is a former Ciclofilin shareholder and received approximately $0.3 million and 603 shares of common stock and Petrus Wijngaard, a director of our company, received $2,805 and 6 shares of common stock. The Merger Agreement for the acquisition of Ciclofilin was amended on January 14, 2022 (see Note 13).

Additional milestone payments could potentially be payable to the former Ciclofilin shareholders pursuant to the Ciclofilin Merger Agreement as follows: (i) upon receipt of Phase II positive data from a proof of concept clinical trial of Rencofilstat in humans - 4,317 shares of common stock and $3.0 million, (ii) upon initiation of a Phase III trial of Rencofilstat - $5.0 million, and (iii) upon acceptance by the FDA of a new drug application for Rencofilstat - $8.0 million. In addition, on February 14, 2014, Ciclofilin had entered into a Purchase and Sale Agreement to acquire Aurinia’s entire interest in Rencofilstat. This agreement contains future milestone payments payable by us based on clinical and marketing milestones of up to CAD $2.5 million. The milestone payments payable to the former Ciclofilin shareholders will be subject to offset by certain of the clinical and marketing milestone payments payable to Aurinia as follows: (a) the payments to the former Ciclofilin shareholders pursuant to (ii) above would be offset by payment to Aurinia of CAD $0.5 million, and (b) the payments to the former Ciclofilin shareholders pursuant to (iii) above would be subject to offset by payment to Aurinia of up to CAD $2.0 million. In addition to the above clinical and milestone payments, the Aurinia Agreement provides for the following additional contingent payment obligations: (x) a royalty of 2.5% on net sales of Rencofilstat which is uncapped, (y) a royalty of 5.0% on license revenue from Rencofilstat and (z) a payment equal to 30.0% of the proceeds from a Liquidity Event (as defined in the Purchase and Sale Agreement) with respect to Ciclofilin, of which approximately $0.2 million plus interest will be paid to Aurinia. The maximum obligation under both (y) and (z) is CAD $5.0 million. The Merger Agreement was amended on January 14, 2022 (see Note 13).

On June 17, 2019, we submitted an IND to the FDA to support initiation of our Rencofilstat NASH clinical development program in the United States and received approval in July 2019. We completed dosing of Rencofilstat in our multiple ascending dose (“MAD’) clinical trial in September 2020.

On July 13, 2021, we announced positive topline results from our Phase 2a "Ambition" NASH clinical trial. All primary endpoints of the trial were met. This Phase 2a study confirmed Rencofilstat tolerability and successfully elucidated drug dose range for the upcoming Phase 2b trial.

On September 13, 2021, we announced additional positive data from the Phase 2a Ambition trial and the initiation of the Phase 2b "Ascend" NASH clinical trial.

On November 20, 2020, we submitted an IND to the FDA to support initiation of a Rencofilstat clinical development program in the United States for COVID-19. We received approval December 17, 2020, to conduct a COVID-19 clinical trial and are investigating potential sources of collaboration and/or funding for the trial. To date, we have not sourced funding yet.

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Notes to Consolidated Financial Statements

On November 19, 2021 we submitted an IND to the FDA to support initiation of a Rencofilstat clinical development program in the United States for the treatment of HCC and received approval on December 17, 2021.

On November 30, 2021, the FDA granted Fast Track designation for our lead drug candidate, Rencofilstat, for the treatment of NASH. The FDA Fast Track designation allows sponsors to gain access to expedited drug approval reviews for medical conditions that are serious and potentially life-threatening, and where there is an unmet medical need. The program is also designed to facilitate drug development by making provisions for more frequent meetings with the FDA to discuss drug development plans, and Fast Track designation can lead to Accelerated Approval and/or Priority Review eligibility if certain criteria are met.

2.Basis of Presentation

Basis of presentation

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Any reference in these notes to applicable guidance is meant to refer to U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”).

Principles of Consolidation

The accompanying consolidated financial statements include our accounts and the accounts of our subsidiaries, Contravir Research Inc. and Hepion Research Corp, which conduct their operations in Canada. All intercompany balances and transactions have been eliminated in consolidation.

Immaterial Revisions

Adoption of New Accounting Standard

On January 1, 2021, we adopted ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). The amendments in ASU No. 2020-06 removed the requirement that an instrument or embedded feature must permit settlement in unregistered shares in order to qualify for equity classification. The removal of this criterion allowed us to reclassify the common stock liability to equity upon adoption.In connection with the preparation of our consolidated financial statements for the year ended December 31, 2021, we determined that revisions were required to be made to previously reported balances associated with adoption of ASU 2020-06, including the cumulative effect upon adoption.

We revised the consolidated financial statements as follows: (a) reclassification of $11,673 from non-current liabilities included in Derivative financial instruments to Additional paid-in capital related to warrants previously issued in connection with our Series C convertible preferred stock in 2018 that were recorded as liabilities and are reclassified to equity upon adoption of ASU 2020-06; (b) reversal of $10,911 of corresponding changes in fair value for liability classified warrants in (a) above recorded through September 30, 2021; (c) reclassification of $4,529,980 representing an increase to additional paid-in capital and offset to accumulated deficit related to historical changes in fair value of liability classified warrants, offset by the initial allocation of offering costs recorded as an expense at the time of issuance in 2018; (d) above from issuance through September 30, 2021 net of original issuance costs that were allocated to the previously classified liability warrants; (d) reversal of $5,816 for the 2021 accretion of a discount for our previously issued Series C convertible preferred stock is no longer required with the adoption of ASU 2020-06; and (e) reclassification of $7,844,643 representing a beneficial conversion feature related to our previously issued Series A and B convertible preferred stock previously recorded as a deemed dividend in accumulated deficit that is being reclassified from accumulated deficit to additional paid-in capital.

The above revisions did not have a material impact on the consolidated statement of operations or statement of cash flows. We assessed the materiality of the misstatements both quantitatively and qualitatively and determined the revisions of these errors to be immaterial to all prior consolidated financial statements taken as a whole and, therefore, amending previously filed reports to correct for the immaterial errors was not required. We have included a line item titled “adoption of new accounting standard” in the consolidated statement of changes in stockholders’ equity for the year ended December 31, 2021 that includes the cumulative effect on adoption of the above revisions.

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Notes to Consolidated Financial Statements

The following tables present the amounts as reported, net revisions, and as revised amounts for the immaterial revisions to previously reported amounts which are which is shown in the following tables:

For the Three Months Ended March 31, 2021

As Reported Revisions As Revised

For the Three Months Ended June 30, 2021

As Reported Revisions As Revised

For the Three Months Ended September 30, 2021

As Reported Revisions As Revised

Income Taxes

During the year ended December 31 2021, we performed an Internal Revenue Code Section 382 analysis of our historical net operating loss ("NOL") carry-forward amounts. As more fully disclosed in Note 10, our NOLs may become subject to an annual limitation under Section 382. In connection with our September 30, 2021 Form 10-Q, we previously disclosed that we performed a study through September 30, 2021 and concluded that we have experienced ownership changes since inception through September 30, 2021 that we believe will result in limitations on our ability to use certain pre-ownership change NOLs and credits. We updated our study through the fourth quarter of 2021 and concluded that there were no additional limitations identified.

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Notes to Consolidated Financial Statements

The following tables present the amounts as reported, revisions, and as revised amounts for note disclosures affected by the immaterial revisions for the years ended December 31, 2020 and 2019:

AsReported Revisions AsRevised AsReported Revisions AsRevised

In addition, certain disclosures of gross NOLs that are included in the Income Tax Note disclosure in our 2020 Annual Report on Form 10-K are updated as follows to reflect the changes to the gross NOLs as a result of the above revisions.

As of December 31, 2020 and 2019, we had U.S. federal and state net operating loss carryforwards of $49.6 million and $56.8 million, respectively, which may be available to offset future income tax liabilities and will begin to expire at various dates starting in December 2037.

Liquidity

As of December 31, 2021, we had $91.3 million in cash, an accumulated deficit of $133.5 million, and working capital of $89.2 million. For the year ended December 31, 2021, cash used in operating activities was $31.2 million and we had a net loss of $32.7 million. We have not generated revenue to date and have incurred substantial losses and negative cash flows from operations since our inception. We have historically funded our operations through issuances of convertible debt, common stock and preferred stock. We expect to continue to incur losses for the next several years as we expand our research, development and clinical trials of Rencofilstat. We are unable to predict the extent of any future losses or when we will become profitable, if at all. We believe that our cash and cash equivalents balances are sufficient to fund our anticipated operating cash requirements for more than one year from the date of issuance of these consolidated financial statements. These consolidated financial statements have been prepared under the assumption that we will continue as a going concern.

We will be required to raise additional capital in a future year to continue the development and commercialization of current product candidates and to continue to fund operations at the current cash expenditure levels. We cannot be certain that additional funding will be available 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 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 may have to (i) significantly delay, scale back or discontinue the development and/or commercialization of one or more product candidates; (ii) seek collaborators for product candidates at an earlier stage than otherwise would be desirable and on terms that are less favorable than might otherwise be available; or (iii) relinquish or otherwise dispose of rights to technologies, product candidates or products that we would otherwise seek to develop or commercialize on unfavorable terms.

COVID-19 Pandemic

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Notes to Consolidated Financial Statements

In March, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was signed into law, as amended on June 5, 2020 by the Paycheck Protection Program (“PPP”). The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. On April 13, 2020, we were granted a loan (the “Loan”) from JPMorgan Chase Bank, N.A. in the aggregate amount of $0.2 million, pursuant to the PPP under Division A, Title I of the CARES Act and bears interest at a rate of 0.98% per annum. In June 2021, the Loan plus interest was repaid in full.

3. Summary of Significant Accounting Policies

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period. Changes in estimates and assumptions are reflected in reported results in the period in which they become known. Actual results could differ from those estimates.

Cash

As of December 31, 2021 and 2020, the amount of cash was $91.3 million and $40.7 million, respectively, consisting of checking accounts held at U.S. and Canadian commercial banks. At certain times, our cash balances with any one financial institution may exceed Federal Deposit Insurance Corporation insurance limits. We believe it mitigates our risk by depositing our cash balances with high credit, quality financial institutions. We have never experienced losses related to these balances.

Fair Value of Financial Instruments

Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurement (“ASC 820”), establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and our own assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of us. Unobservable inputs are inputs that reflect our assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances.

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 orderly transaction between market participants. As a basis for considering market participant assumptions in fair value measurements, ASC Topic 820 establishes a three-tier fair value hierarchy that distinguishes among the following:

•Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that we can access.

•Level 2—Valuations based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and models for which all significant inputs are observable, either directly or indirectly.

•Level 3—Valuations based on inputs that are unobservable and significant to the 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 more judgment. Accordingly, the degree of judgment exercised by us in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

Financial instruments consist of cash, accounts payable, contingent consideration and derivative instruments. These financial instruments are stated at their respective historical carrying amounts, which approximate fair value due to their short-term nature, except for contingent consideration and derivative instruments, which are recorded at fair value at the end of each reporting period. We recorded contingent consideration from the 2016 acquisition of Ciclofilin, which is required to be carried at fair value. See Note 6 for additional information on the fair value of the contingent consideration.

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Notes to Consolidated Financial Statements

Property, equipment and depreciation

As of December 31, 2021 and 2020, we had $0.2 million and $0.1 million, respectively, of property and equipment, consisting primarily of computer equipment, research equipment and furniture and fixtures. Expenditures for additions, renewals and improvements will be capitalized at cost. Depreciation will generally be computed on a straight-line method based on the estimated useful lives of the related assets. The estimated useful lives of the depreciable assets are 3 to 7 years. Leasehold improvements are amortized using the straight-line method over their estimated useful lives, or the remaining term of the lease, whichever is shorter. Depreciation expense for the years ended December 31, 2021 and 2020 was $0.1 million and $34,515, respectively. Expenditures for repairs and maintenance are charged to operations as incurred. We will periodically evaluate whether current events or circumstances indicate that the carrying value of depreciable assets may not be recoverable. There were no adjustments to the carrying value of property and equipment at December 31, 2021 or December 31, 2020.

Goodwill and In-Process Research & Development

In-Process Research and Development ("IPR&D") acquired in a business combination is capitalized as indefinite-lived assets on our consolidated balance sheets at the acquisition-date fair value. IPR&D relates to amounts that arose in connection with the acquisition of Ciclofilin. Once the project is completed, the carrying value of the IPR&D is reclassified to other intangible assets, net and is amortized over the estimated useful life of the asset. Post-acquisition research and development expenses related to the IPR&D projects are expensed as incurred. The projected discounted cash flow models used to estimate the fair values of our IPR&D assets, acquired in connection with the Ciclofilin acquisition, reflect significant assumptions regarding the estimates a market participant would make in order to evaluate a drug development asset, including: (i) probability of successfully completing clinical trials and obtaining regulatory approval; (ii) market size, market growth projections, and market share; (iii) estimates regarding the timing of and the expected costs to advance clinical programs to commercialization; (iv) estimates of future cash flows from potential product sales; and (v) a discount rate. These assumptions are based on significant inputs not observable in the market and thus represent Level 3 measurements within the fair value hierarchy. The use of different inputs and assumptions could increase or decrease our estimated discounted future cash flows, the resulting estimated fair values and the amounts of related impairments, if any.

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Notes to Consolidated Financial Statements

which the impairment occurs. If the carrying value of the asset becomes impaired as the result of unfavorable data from any ongoing or future clinical trial, changes in assumptions that negatively impact projected cash flows, or because of any other information regarding the prospects of successfully developing or commercializing our programs, we could incur significant charges in the period in which the impairment occurs.

Income Taxes

We continue to maintain a full valuation allowance for our U.S and foreign net deferred tax assets. Income tax expense for the years ended December 31, 2021 and 2020 is related to our foreign operations.

Under the provisions of the Internal Revenue Code, the NOL and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. NOL and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership 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, respectively, 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 the annual limitation, if any, will be determined based on our value immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future 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 study of transactions in our stock through December 31, 2021 and concluded that we have experienced ownership changes since inception that we believe under Section 382 and 383 of the Code will result in limitations on our ability to use certain pre-ownership change NOLs and credits (see Note 2). In addition, we may experience subsequent ownership changes as a result of future equity offerings or other changes in the ownership of our stock, some of which are beyond our control. As a result, the amount of the NOLs and tax credit carryforwards presented in our consolidated financial statements could be limited. Similar provisions of state tax law may also apply to limit the use of accumulated state tax attributes.

Contingencies

In the normal course of business, we are subject to loss contingencies, such as legal proceedings and claims arising out of our business that cover a wide range of matters, including, among others, government investigations, shareholder lawsuits, product and environmental liability, and tax matters. In accordance with ASC Topic 450, Accounting for Contingencies, (“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 be reasonably estimated. In accordance with this guidance, we do not recognize gain contingencies until realized.

Researchand Development

Research and development costs, which include expenditures in connection with an in-house research and development laboratory, salaries and staff costs, application and filing for regulatory approval of proposed products, purchased in-process research and development, license costs, regulatory and scientific consulting fees, as well as contract research, insurance and FDA consultants, are accounted for in accordance with ASC Topic 730, Research and Development, (“ASC 730”). Also, as prescribed by this guidance, patent filing and maintenance expenses are considered legal in nature and therefore classified as general and administrative expense, if any.

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Notes to Consolidated Financial Statements

on the fact that we have no history of successful commercialization of product candidates to base any estimate of the number of future periods that would be benefited.

Share-based payments

ASC Topic 718, Compensation—Stock Compensation (“ASC 718”), requires companies to measure the cost of employee and non-employee services received in exchange 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 during which an employee 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 for awards using the straight-line method (see Note 9). We account for awards granted to employees that are in excess of what is available to grant as a liability recorded at fair value each reporting period in the consolidated financial statements.

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 based on 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 option award. The risk-free interest rate is determined by reference 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 yield is based on the fact that we have never paid cash dividends and do not expect to pay any cash dividends in the foreseeable future.

Foreign Exchange

The functional and reporting currency of Hepion Pharmaceuticals, Inc., Hepion Research Corp. and ContraVir Research Inc. is the U.S. dollar. Transactions in foreign currencies 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 and liabilities arising from these transactions are translated into the functional currency at exchange rates in effect at the balance sheet date or on settlement. Resulting gains and losses are recorded in general and administrative expense within the consolidated statements of operations. The impact of foreign exchange gains (losses) was $0.1 million and $0.1 million for the years ended December 31, 2021 and 2020, 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 decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. Our chief operating decision maker views our operations and manages the business 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 presented. In accordance with this guidance, basic and diluted net loss per common share was determined by dividing net loss applicable to common stockholders by the weighted-average common shares outstanding during the period.

4. Recent Accounting Pronouncements

In May 2021, the FASB issued ASU No. 2021-04 ("ASU 2021-04), Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force). The amendments in this update are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. We are currently evaluating the impact of this new standard on our consolidated financial statements and related disclosures.

In August 2020, the FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. The standard eliminates the

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Notes to Consolidated Financial Statements

liability and equity separation model for convertible instruments with a cash conversion feature. As a result, after adoption, entities will no longer separately present in equity an embedded conversion feature for such debt. Additionally, the embedded conversion feature will no longer be amortized into income as interest expense over the instrument’s life. Instead, entities will account for a convertible debt instrument wholly as debt unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC Topic 815, Derivatives and Hedging, or (2) a convertible debt instrument was issued at a substantial premium. Additionally, the standard requires applying the if-converted method to calculate convertible instruments’ impact on diluted earnings per share (“EPS”). The standard is effective for fiscal years beginning after December 15, 2021, with early adoption permitted for fiscal years beginning after December 15, 2020. It can be adopted on either a full retrospective or modified retrospective basis. We adopted this standard on January 1, 2021 on a modified retrospective basis and recorded a cumulative effect adjustment in the amount of $3.3 million (see Note 2).

5. Stockholders’ Equity and Derivative Liability — Warrants

Series A Convertible 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 shares of the Series A were issued between October 2014 and February 2015. Each share of the Series A is convertible at the option of the holder into the number of shares of common stock determined by dividing the stated value of such share by the conversion price that is subject to adjustment. As of December 31, 2021, there were 85,581 shares outstanding. During the years ended December 31, 2021 and 2020, no shares of the Series A were converted. If we sell common stock or equivalents at an effective price per share that is lower 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 event of a fundamental transaction 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 unit sold in connection with the rights offering consisted of 1 share of our Series C Convertible Preferred Stock, or Series C, and common stock warrants (the “Rights Offering”). Upon completion 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 and 88,928 common stock warrants. As of December 31, 2021, there were 1,806 shares outstanding. During the year ended December 31, 2021, 11 shares of the Series C were converted into 101 shares of our common stock and during the year ended December 31, 2020, 10 shares of the Series C were converted into 92 shares 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. The conversion price for the Series C is determined by dividing the stated value of $1,000 per share by $1.55 per share (subject to adjustments upon the occurrence of certain dilutive events).

Common Stock and Warrant Offering

In April 2016, April 2017, and July 2018, we issued common stock and warrants in connection with public offerings. Based on the terms of the April 2016 and 2017 offering and warrant agreements, we could be required to pay, at the option of the warrant holder, an amount of cash determined in accordance with a Black-Scholes option pricing model, at the time of exercise of the warrant under certain terms and conditions. Based on the terms of the July 2018 offering and warrant agreements, if we do not maintain an effective registration statement, which is outside of our control, we are obligated to deliver registered shares upon the exercise and settlement of the warrant. As a result of the aforementioned terms and in accordance with the guidance contained in ASC Topic 815-40, we determined that the April 2016, April 2017 and July 2018 warrants issued in connection with these offerings must be recorded as derivative liabilities upon issuance and marked to market on a quarterly basis in our consolidated statement of operations and comprehensive loss. (see Note 6). During 2021, the remaining unexercised April 2016 warrants expired. In connection with the adoption of ASU 2020-06, we reclassified the July 2018 warrants to equity (See Note 2).

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Notes to Consolidated Financial Statements

The following table sets forth the components of changes in our derivative financial instruments liability balance for the years ended December 31, 2021 and 2020:

Date Description Number of Warrants Outstanding Derivative Instrument Liability

Expiration of warrants (5,356) —

Change in fair value of warrants for the year ended December 31, 2020 — 6,050

Expiration of warrants (4,314) —

Common Stock Offerings

On February 16, 2021, we entered into an underwriting agreement ("Underwriting Agreement") with ThinkEquity, a division of Fordham Financial Management, Inc., as the representative (the Representative") of the underwriters ("collectively, the Underwriters") listed therein, with respect to an underwritten public offering ("Offering") of 44,200,000 shares of our common stock, par value $0.0001, at a public offering price of $2.00 per share, which resulted in net proceeds to us of $82.1 million, after deducting underwriting discounts and commissions and offering expenses payable by us. We intend to use the net proceeds to fund our research and development activities and general corporate purposes, including working capital, operating expenses and capital expenditures. Upon closing of the Offering, we issued to the Representative as compensation warrants to purchase 1,105,000 shares of common stock, or the Representative’s Warrants. The Representative’s Warrants will be exercisable at $2.50 per share. The Representative’s Warrants are exercisable at any time and from time to time, in whole or in part, during the four and one-half year period commencing 180 days from February 19, 2021. We determined that the Representative Warrants should be recorded in the consolidated financial statements as equity.

On November 24, 2020, we entered into an underwriting agreement (the “Underwriting Agreement”) with ThinkEquity, a division of Fordham Financial Management, Inc., as the representative (the “Representative”) of the underwriters listed therein (collectively, the “Underwriters”), with respect to an underwritten public offering (the “Offering”) of 20,000,000 shares of our common stock, par value $0.0001 (the “Shares”) at a public offering price of $1.50 per share and a 45-day option to purchase up to 3,000,000 additional shares of common stock to cover over-allotments. On November 25, 2020, the Representative exercised the over-allotment in full. Upon closing of the offering, we issued to the Representative as compensation warrants to purchase 690,000 shares of common stock, or the Representative’s Warrants. The Representative’s Warrants will be exercisable at $1.875 per share. The Representative’s Warrants are exercisable at any time and from time to time, in whole or in part, during the four and one-half year period commencing 180 days from November 30, 2020. We determined that the Representative Warrants should be recorded in the consolidated financial statements as equity classified. The Shares were offered by us pursuant to a registration statement on Form S-1 (No. 333- 249724) previously filed with the SEC and subsequently declared effective on November 24, 2020. The Offering closed on November 30, 2020 and we received net proceeds of $31.6 million.

On February 12, 2020, we entered into an At Market Issuance Sales Agreement (the “Sales Agreement”) with B. Riley FBR, Inc., as agent (“B. Riley FBR”), pursuant to which we sold through B. Riley FBR 2,311,867 shares (the “Shares”) of our common stock, par value $0.0001 per share (the “Common Stock”), for $6.8 million. The offer and sale of the Shares were made pursuant to a shelf registration statement on Form S-3 and the related prospectus (File No. 333-229534) filed by us with the Securities and Exchange Commission (the “SEC”). Also, on March 27, 2020, we filed a prospectus supplement to the Form S-3 (File No. 333-229534) pursuant to which we sold an additional 2,950,939 shares of our common stock for $4.6 million. In total, we sold 5,262,806 shares of our common stock resulting in net proceeds of $11.2 million from the “at the market offerings”.

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Notes to Consolidated Financial Statements

6. Fair Value Measurements

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 value hierarchy as of December 31, 2021 and 2020.

Fair Value Measurements at Reporting Date Using

Description Total (Level 1) (Level 2) (Level 3)

Derivative liabilities related to warrants $ — $ — $ — $ —

Derivative liabilities related to warrants $ 11,673 $ — $ — $ 11,673

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 of operations. See Note 5 for a rollforward of the derivative liability for the year ended December 31, 2021. The financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. At each reporting period, we review the assets and liabilities that are subject to ASC 815-40. At each reporting period, all assets and liabilities for which the fair value measurement is based on significant unobservable inputs or instruments which trade infrequently and therefore have little or no price transparency are classified as Level 3.

Contingent consideration was recorded for the acquisition of Ciclofilin Pharmaceuticals, Inc. (Ciclofilin) on June 10, 2016. The contingent consideration represented the acquisition date fair value of potential future payments, to be paid in cash and our stock, upon the achievement of certain milestones and in 2016 was estimated based on a probability-weighted discounted cash flow model utilizing a discount rate of 6.5% and a stock price of $19.60.

At December 31, 2021 and 2020, the assumptions we used to calculate the fair value were as follows:

Assumptions

December 31,

Discount rate 7.0% 8.0%

Probability of success of milestone achievements 18 % — 100% 13 % — 40%

We completed the first segment of our Phase I clinical activities for Rencofilstat in October 2018 wherein we reached a major clinical milestone of positive data from a Phase I trial of Rencofilstat in humans. This achievement triggered the first milestone payment, as stated in the Merger Agreement for the acquisition of Ciclofilin and in the fourth quarter of 2018, we paid a related milestone payment of $1,000,000 and issued 1,439 shares of our common stock with a fair value of $55,398, representing 2.5% of our issued and outstanding common stock as of June 2016, to the Ciclofilin shareholders. As of December 31, 2021, $2,988,284 was classified as a current liability and $1,891,716 as a non-current liability based upon management's best estimate using the latest available information. Management reviewed the assumptions at December 31, 2021 and reduced the discount rate based on comparable companies, increased the probability of success for milestone 2 and extended the projected achievement dates for milestones 3 and 4 based on new information. The Merger Agreement for the acquisition of Ciclofilin was amended on January 14, 2022 (see Note 13).

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Notes to Consolidated Financial Statements

The following table presents the change in fair value of the contingent consideration for the years ended December 31, 2021.

Acquisition-related Contingent Consideration

Liabilities:

Change in fair value recorded in earnings 140,000

Change in fair value recorded in earnings 2,310,000

7. Indefinite-lived Intangible Assets, Goodwill, and Property and Equipment

IPR&D

Our IPR&D asset consisted of the following at:

Indefinite-livedIntangible Asset

Changes during the year ended December 31, 2020 —

Changes during the year ended December 31, 2021 —

No impairment losses were recorded on IPR&D during the years ended December 31, 2021 and 2020.

Goodwill

The table below provides a roll-forward of our goodwill balance:

Amount

Changes during the year ended December 31, 2020 —

Changes during the year ended December 31, 2021 —

No impairment losses were recorded to goodwill during years ended December 31, 2021 and 2020.

Property 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 (in years) December 31,2021 December 31,2020

Depreciation expense for the years ended December 31, 2021 and 2020 was $0.1 million and $34,515, respectively.

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Notes to Consolidated Financial Statements

8. Accrued Liabilities

Accrued expenses consist of the following:

December 31,

Payroll and related costs $ — $ 150,702

Stock-based compensation - see Note 9 1,637,308 —

9. Accounting for Share-Based Payments

On June 3, 2013, we adopted the 2013 Equity Incentive Plan (the “Plan”). Stock options granted under the Plan typically will 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 three months ended June 30, 2021 and at the time that these grants were made, we had 35,229 options available for grant under the Plan. We accounted for the option grant 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. As of December 31, 2021, the liability related to the awards was $1.6 million and has been included in accrued expenses in our consolidated balance sheet with the corresponding expense included in our consolidated statements of operations and comprehensive loss. At our annual meeting of stockholders on October 7, 2021, shareholders voted against our 2021 Omnibus Equity Incentive Plan. Therefore, we will continue to account for this option grant as liability-classified until we receive stockholder approval to increase the available options to grant.

We classify stock-based compensation expense in our consolidated statement of operations in the same way the award recipient's payroll costs are classified or in which the award recipients' service payments are classified. We recorded stock-based compensation expense as follows:

Year EndedDecember 31,

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Notes to Consolidated Financial Statements

A summary of stock option activity under the Plan is presented below:

Exercised — $ — - $ — $ — $ —

Forfeited — $ — - $ — $ — $ —

There were 2,423,500 options granted to employees during the year ended December 31, 2020. The total fair value of awards vested during the year ended December 31, 2021 was $4.4 million. The total fair value of awards vested during the year ended December 31, 2020 was de minimis.

The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of our common stock for those stock options that had exercise prices lower than the fair value of our common stock.

As of December 31, 2021, the unrecognized compensation cost related to non-vested stock options outstanding, net of expected forfeitures, was $7.4 million to be recognized over a weighted-average remaining vesting period of approximately 1.84 years.

The following weighted-average assumptions are used in the Black-Scholes valuation model to estimate fair value of stock option awards when granted to employees.

Year EndedDecember 31,

Risk-free interest rate 1.35 % 0.34 %

Dividend yield — —

Expected term (in years) 5.9 6.0

Risk-free interest rate—Based on the daily yield curve rates for U.S. Treasury obligations with maturities which correspond to the expected term of our stock options.

Dividend yield— We have not paid any dividends on our common stock since inception and do not anticipate paying dividends on our common stock in the foreseeable future.

Expected volatility—We base expected volatility on the trading price of our common stock.

Expected term—The expected option term represents the period that stock-based awards are expected to be outstanding based on the simplified method provided in SAB No. 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 is conditioned upon service through the vesting date; (iii) termination of service prior to vesting results in forfeiture; (iv) limited exercise period following termination of service; and (v) options are non-transferable and non-hedgeable.

In December 2007, the SEC issued SAB No. 110, Share-Based Payment, (“SAB No. 110”). SAB No. 110 was effective January 1, 2008 and expresses the views of the Staff of the SEC with respect to extending the use of the simplified method, as discussed in SAB No. 107, in developing an estimate of the expected term of “plain vanilla” share options in accordance with ASC 718. We will use the simplified method until we have the historical data necessary to provide a reasonable estimate of expected life in accordance with SAB No. 107, as amended by SAB No. 110. For the expected term, we

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Notes to Consolidated Financial Statements

have “plain-vanilla” stock options, and therefore used a simple average of the vesting period and the contractual term for options granted as permitted by SAB No. 107.

Forfeitures—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 those estimates.

10. Income Taxes

We provide for income taxes under ASC 740. Under ASC 740, the liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

Our loss before income taxes was $32.7 million and $20.3 million for the years ended December 31, 2021 and 2020, respectively, and was generated entirely in the United States and Canada.

The income tax benefit for the year ended December 31, 2021 was $0 and income tax expense for the year ended December 31, 2020 was $30,584. For 2021 and 2020, taxes paid are related to our Canadian entity.

Deferred taxes are recognized for temporary differences between the basis of assets and liabilities for financial statement and income tax purposes.

The significant components of our deferred tax assets are comprised of the following:

As of December 31,

We have evaluated the positive and negative evidence bearing upon the realizability of our deferred tax assets. Based on our history of operating losses since inception, we have concluded that it is more likely than not that the benefit of our deferred tax assets will not be realized. Accordingly, we have provided a full valuation allowance for deferred tax assets as of December 31, 2021 and 2020, including those related to Canada. We have recorded a net deferred tax liability of $409,022 related to in-process research and development as a result of the acquisition of Ciclofilin. It is our position that the acquired in-process research and development is an indefinite-lived intangible asset and is not available as a source of income to support the realization of deferred tax assets.

The valuation allowance increased by $8.8 million and $2.5 million for the years ended December 31, 2021 and 2020, respectively, due primarily to the generation of net operating losses during these periods.

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Notes to Consolidated Financial Statements

A reconciliation of income tax benefit computed at the statutory federal income tax rate to income taxes as reflected in the consolidated financial statements is as follows:

Year EndedDecember 31,

U.S. statutory income tax rate 21.0 % 21.0 %

State income taxes, net of federal benefit 8.0 % 8.6 %

Research and development credits 1.7 % 2.1 %

Warrant liability and contingent consideration (1.5) (0.2) %

Other (1.1) % (1.7) %

Valuation allowance (28.1) % (29.9) %

Effective tax rate — % (0.1) %

As of December 31, 2021 and 2020, we had U.S. federal and state net operating loss carryforwards of $101.1 million and $49.6 million, respectively, which may be available to offset future income tax liabilities and will begin to expire at various dates starting in December 2022. We also had federal and state research and development tax credit carryforwards of approximately $1.2 million as of December 31, 2021, which will begin to expire in December 2023.

We file income tax returns in the United States, Canada and various state jurisdictions. Our federal income tax returns for the years 2016 and forward and state income returns for the years 2015 and forward remain subject to examination by the Internal Revenue Service (“IRS”) and state authorities. Our tax returns in Canada are also subject to examination.

We had an unrecognized tax position of $0, a corresponding accrual for penalties and interest in the amount of $0, as a component of income tax expense, accrued through December 31, 2021. There are no amounts included in the unrecognized tax benefit at December 31, 2021 that will impact the effective rate if recognized. During the year ended December 31, 2021, the unrecognized tax position along with the corresponding interest and penalties were paid and the accrual has been reduced to $0 at December 31, 2021 and we no longer have an unrecognized tax position.

We have approximately $0.9 million of undistributed earnings in Canada, which we continue to reinvest indefinitely, and therefore no withholding taxes related to its repatriation has been recorded.

11. Loss per Share

Basic and diluted net loss per common share was determined by dividing net loss by the weighted-average common shares outstanding during the period. Prior to the adoption of ASU 2020-06 in 2021, basic and diluted net loss per common share was determined by dividing net loss applicable to common stockholders by the weighted-average common shares outstanding during the period with net loss attributable to common stockholders’ being adjusted for the preferred stock deemed dividends related accretion of the beneficial conversion feature and other discount on this instrument for the periods in which the preferred stock is outstanding.

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Notes to Consolidated Financial Statements

The following table sets forth the computation of basic and diluted net loss per share for the periods indicated:

Year EndedDecember 31,

Basic and diluted net loss per common share 2021 2020

Numerator:

Preferred stock deemed dividend — (5,287)

Denominator:

Net loss per share of common stock—basic and diluted $ (0.47) $ (2.10)

The following outstanding securities at December 31, 2021 and 2020 have been excluded from the computation of basic and diluted weighted shares outstanding, as they would have been anti-dilutive:

Year EndedDecember 31,

Common shares issuable upon conversion of Series A preferred stock 3,184 3,184

Common shares issuable upon conversion of Series C preferred stock 16,645 16,747

The liability and equity classified warrants disclosed above have been excluded from the computation of diluted earnings per share because the exercise price of the warrants exceeds the average market price of our common stock for the period they were outstanding.

12. Commitments and Contingencies

Contractual Obligations

In August 2014, we entered into a lease for corporate office space in Edison, New Jersey. In December 2017, we entered an amendment to the lease for corporate office space in Edison, New Jersey expanding the office footprint and extending the lease for an approximate 5-year period. In October 2019, we entered into a 3-year lease for office and research laboratory space in Edmonton, Canada. Prior to signing this lease, the space was previously on a month-to-month basis.

Legal Proceedings

We are involved in legal proceedings of various types. Significant 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 adverse effect on our consolidated financial condition or results of operations.

Leases

We account for leases in accordance with ASC Topic 842, Leases, (“ASC 842”). We determine if an arrangement is a lease at contract inception. A lease exists when a contract 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 two conditions: (1) there is an identified asset in the contract that is land or a depreciable asset (i.e., property and equipment), and (2) the customer has the right to control the use of the identified asset.

Operating leases where we are the lessee are included under the caption “Right of Use Assets” on our consolidated balance sheets. The lease liabilities are initially and subsequently measured 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.

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Notes to Consolidated Financial Statements

The Right-Of-Use (“ROU”) asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred less any lease incentives received. For operating leases, the ROU asset is subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

As of December 31, 2021, the ROU assets were $0.3 million, the current lease liabilities were $0.3 million, and the non-current lease liabilities were $0.1 million. The discount rate used to account for our operating leases under ASC 842 is our estimated incremental borrowing rate of 6.5%.

Rent expense for the years ended December 31, 2021 and 2020 was $0.3 million and $0.3 million, respectively.

The weighted average remaining term of our noncancelable operating leases is 1.16 years. Future minimum rental payments under our noncancelable operating leases at December 31, 2021 is as follows:

2024 and thereafter —

Present value adjustment (10,851)

Employment Agreements

We have employment agreements with certain employees which require the funding of a specific level of payments, if certain events, such as a change in control, termination without cause or retirement, occur.

Related Party Transaction

In May 2021, we entered into an agreement with the Baruch S. Blumberg Institute (BSBI) to conduct a laboratory study and evaluation (Study) with a total cost of $60,000. During the year ended December 31, 2021, we paid $30,000 to BSBI. The Study is supervised by Timothy Block, a Principal Investigator at BSBI. Mr. Block is also one of our board members. Except as set forth above, we have not entered into any material transactions with any director, executive officer, and promoter, beneficial owner of five percent or more of our common stock, or family members of such persons.

13. Subsequent Events

The Merger Agreement dated May 26, 2016 for the acquisition of Ciclofilin (see Note 1) was amended on January 14, 2022 for the following: (i) upon receipt of Phase II positive data from the first Phase II clinical trial of Rencofilstat in NASH patients which has been achieved: (1) such number of validly issued, fully paid and non-assessable shares of our common stock equal to 7.5% of the issued and outstanding of our common stock on the Closing Date as defined in the original agreement, which was issued in March 2022, and (2) a payment of $2.0 million, made in January 2022 to Ciclofilin shareholders, including a payment to our CEO of $0.8 million and other Hepion employees of $0.2 million, (ii) a payment of $1.0 million upon the positive read out of the first planned interim futility analysis of a Phase IIb clinical trial of Rencofilstat in NASH patients, supporting the continuation of the Phase IIb trial. The original agreement required a $3.0 million payment upon receipt of Phase II positive data from a proof-of-concept clinical trial of CRV431., (iii) a payment of $5.0 million upon initiation of the first Phase III trial of Rencofilstat in patients, where initiation occurs with first patient in the study dosed with study medication, which remains unchanged from the original agreement, (iv) a payment of $5.0 million upon the filing and acceptance by the U.S. Food and Drug Administration of the first new drug application for Rencofilstat, which was $8.0 million in the original agreement; and (v) a payment of $8.0 million upon the regulatory approval by the U.S. Food and Drug Administration of the first new drug application for Rencofilstat.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING FINANCIAL DISCLOSURE

Not applicable.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our principal executive officer and principal financial officer evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2021. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Annual Report on Form 10-K.

Management's Report on Internal Controls Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Exchange Act Rule 13a-15(f). Internal control over financial reporting is a process designed under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

As of December 31, 2021, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, our management concluded that, as of December 31, 2021, our internal control over financial reporting was effective based on those criteria.

Remediation of Material Weaknesses

Control environment – We did not maintain an effective control environment. Our control environment was ineffective because we did not maintain a sufficient complement of personnel with an appropriate level of accounting knowledge, experience, and training in the application of Generally Accepted Accounting Principles (GAAP) commensurate with our financial reporting requirements and business environment.

Remediation of material weakness in control environment – Management has remediated this material weakness. The steps management took to remediate the material weakness included, i) hiring additional personal with appropriate level of accounting knowledge, experience, and training in GAAP, and ii) we engaged a third-party consultant to test our internal controls.

Period end financial close and reporting - We did not maintain effective controls over the preparation and review of the interim and annual consolidated financial statements to ensure that we identified and accumulated all required supporting information to ensure the completeness and accuracy of the consolidated financial statements and that balances and disclosures reported in the consolidated financial statements, inclusive of tax and tax related balances, reconciled to the underlying supporting schedules and accounting records.

Remediation of material weakness in period end financial close and reporting – Management has remediated this material weakness. The steps management took to remediate the material weakness included, i) implementation of enhanced internal controls over financial reporting, ii) hiring additional personal with adequate knowledge, which also enhanced our segregation of duties, iii) implementing several software solutions including software for the reporting of stock-based compensation and software related to public company reporting in order to improve our financial reporting process, and iv) utilizing the services of several external tax consultants to improve our income taxes reporting process

for deferred tax assets, deferred tax liabilities and income taxes payable and the related income tax expense, v) Additional review by management of all tax matters including review of reconciliation files vi) engaging third-party consultants for any unusual or non-routine transactions, and vii) engaged a third-party consultant to assist us in reviewing our business process internal controls, improve our internal control documentation and perform walkthroughs of our procedures.

Management believes that the added controls described above serve to remediate the material weaknesses as of December 31, 2021. Management will continue to review and monitor these enhanced controls to ensure they are operating effectively and provide for the intended strengthening of internal controls over financial reporting.

Changes in Internal Control over Financial Reporting

As required by Rule 13a-15(d) of the Exchange Act, our management, including our principal executive officer and our principal financial officer, conducted an evaluation of the internal control over financial reporting to determine whether any changes occurred during the quarter ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, our principal executive officer and principal financial officer concluded other than changes that have resulted from the remediation activities of past material weaknesses noted above, there were no changes during the quarter ended December 31, 2021.

ITEM 9B. OTHER INFORMATION

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

The information required by this item regarding our directors, executive officers and corporate governance will be included in our 2022 Proxy Statement and is incorporated herein by reference.

Item 11. Executive Compensation.

The information required by this item regarding executive compensation will be included in our 2022 Proxy Statement and is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required by this item regarding security ownership of certain beneficial owners and management will be included in our 2022 Proxy Statement and is incorporated herein by reference.

Item 13. Certain Relationships, Related Person Transactions and Director Independence.

The information required by this item regarding certain relationships and related transactions and director independence will be included in our 2022 Proxy Statement and is incorporated herein by reference.

Item 14. Principal Accountant Fees and Services.

The information required by this item regarding principal accounting fees and services will be included in our 2022 Proxy Statement and is incorporated herein by reference.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1)Financial Statements

Reference is made to the Index to Consolidated Financial Statements of Hepion Pharmaceuticals, Inc. appearing on page 51 of this report.

(b)(2)Financial Statement Schedules

The schedules required to be filed by this item have been omitted because of the absence of conditions under which they are required, or because the required information is included in the consolidated financial statements or the notes thereto.

(b)EXHIBITS

ExhibitNumber Exhibit Description

21.1 List of Subsidiaries

23.1 Consent of BDO USA, LLP, Independent Registered Public Accounting Firm

24 Power of Attorney (included on signature page hereto)

101.INS XBRL Instance Document

101.SCH XBRL Taxonomy Extension Schema

101.CAL XBRL Taxonomy Extension Calculation Linkbase

101.DEF XBRL Taxonomy Extension Definition Linkbase

101.LAB XBRL Taxonomy Label Linkbase

101.PRE XBRL Taxonomy Extension Presentation Linkbase

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* Indicates a management contract or compensatory plan or arrangement.

ITEM 16. FORM 10-K SUMMARY

None

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Date: April 8, 2022

HEPION PHARMACEUTICALS, INC.

By: /s/ ROBERT FOSTER

Robert Foster

Chief Executive Officer(Principal Executive Officer)

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints, jointly and severally, Dr. Robert Foster, and John Cavan, and each of them acting individually, as his attorney-in-fact, each with full power of substitution and resubstitution, for him in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act, this registration statement has been signed by the following persons in the capacities and on the dates indicated.

Signature Title Date

/s/ ROBERT FOSTER Chief Executive Officer April 8, 2022

Robert Foster (Principal Executive Officer)

/s/ JOHN CAVAN Chief Financial Officer April 8, 2022

John Cavan (Principal Financial and Accounting Officer)

/s/ GARY S. JACOB, PHD. Chairman, Board of Directors April 8, 2022

Gary S. Jacob, PhD.

/s/ JOHN BRANCACCIO Director April 8, 2022

John Brancaccio

/s/ ARNOLD LIPPA Director April 8, 2022

Arnold Lippa

/s/ TIMOTHY BLOCK Director April 8, 2022

Timothy Block

/s/ PETRUS WIJNGAARD Director April 8, 2022

Petrus Wijngaard

HEPA US Equity

HEPA · 10-K · period ended 2021-12-31

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING FINANCIAL DISCLOSURE

ITEM 9A. CONTROLS AND PROCEDURES

ITEM 9B. OTHER INFORMATION

Item 10. Directors, Executive Officers and Corporate Governance.

Item 11. Executive Compensation.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Item 13. Certain Relationships, Related Person Transactions and Director Independence.

Item 14. Principal Accountant Fees and Services.

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

ITEM 16. FORM 10-K SUMMARY

HEPA US Equity☆

HEPA · 10-K · period ended 2021-12-31

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING FINANCIAL DISCLOSURE

ITEM 9A. CONTROLS AND PROCEDURES

ITEM 9B. OTHER INFORMATION

Item 10. Directors, Executive Officers and Corporate Governance.

Item 11. Executive Compensation.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Item 13. Certain Relationships, Related Person Transactions and Director Independence.

Item 14. Principal Accountant Fees and Services.

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

ITEM 16. FORM 10-K SUMMARY

HEPA US Equity