Amylyx Pharmaceuticals, Inc. 10-K

Item 9A. Controls and Procedures. Evaluation of Disclosure Controls and Procedures Our disclosure controls and procedures are designed to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934, as amended (the Exchange Act) is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Our management, with the participation of our principal executive officers and our principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2021. Based on the evaluation of our disclosure controls and procedures as of December 31, 2021, our Chief Executive Officers and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level. Management’s Annual Report on Internal Control Over Financial Reporting This Annual Report on Form 10-K does not include a report of management's assessment regarding internal control over financial reporting or an attestation report of our independent registered public accounting firm as permitted in this transition period under the rules of the SEC for newly public companies. Remediation of Prior Material Weakness A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the consolidated financial statements will not be prevented or detected on a timely basis. We previously identified and disclosed in our Registration Statement on Form S-1 filed with the SEC on December 16, 2021, a material weakness related to deficiencies in the design of controls over the expenditures process. Specifically, our information technology controls related to the expenditures cycle were not designed to post invoices approved in the correct period, and our controls over the review of the completeness of operating expenses during our close cycle were not appropriately designed, as we lacked sufficient personnel in our Finance and IT organizations to review and provide reasonable assurance that transactions were being recorded timely and completely. During 2021, we implemented the following changes to our processes to improve our internal controls over financial reporting with respect to the expenditures cycle as follows: a) Corrected the system issue to post invoices in the proper period; b) Added IT and Finance personnel to our organization; and c) Augmented our controls addressing the completeness of operating expenses. 128 These actions resulted in an improved internal control environment that was in place for a period of time to allow for our management to conclude, based on evidence obtained in validating the design and implementation of these controls, that we have fully remediated this material weakness as of December 31, 2021. Changes in Internal Control over Financial Reporting Other than the changes noted above related to the remediation of our material weakness, there was no change in our internal control over financial reporting that occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Inherent Limitations on the Effectiveness of Controls The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, in designing and evaluating the disclosure controls and procedures, management recognizes that any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business but cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting. Item 9B. Other Information. None. Item 9C . Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. Not applicable. 129 PART III Item 10 . Directors, Executive Officers and Corporate Governance. The information required by this Item 10 will be included in the Proposal No. 1, Corporate Governance and Executive Officers section of our definitive proxy statement to be filed with the SEC with respect to our 2022 Annual Meeting of Stockholders and is incorporated herein by reference. Item 11 . Executive Compensation. The information required by this Item 11 will be included in the Executive Compensation and Director Compensation sections of our definitive proxy statement to be filed with the SEC with respect to our 2022 Annual Meeting of Stockholders 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 12 will be included in the Security Ownership of Certain Beneficial Owners and Management sections of our definitive proxy statement to be filed with the SEC with respect to our 2022 Annual Meeting of Stockholders and is incorporated herein by reference. Item 13 . Certain Relationships and Related Transactions, and Director Independence. The information required by this Item 13 will be included in the Certain Relationships and Related Party Transactions and Corporate Governance sections of our definitive proxy statement to be filed with the SEC with respect to our 2022 Annual Meeting of Stockholders and is incorporated herein by reference. Item 14 . Principal Accountant Fees and Services. Our independent public accounting firm is Deloitte & Touche, LLC, Boston, Massachusetts, PCAOB Auditor ID: 34. The information required by this Item 14 will be included in the Proposal No. 2 section of our definitive proxy statement to be filed with the SEC with respect to our 2022 Annual Meeting of Stockholders and is incorporated herein by reference. PART IV Item 15 . Exhibits, Financial Statement Schedules. a) Financial Statements For a list of the consolidated financial statements included herein, see Index to the Consolidated Financial Statements on page F-1 of this Annual Report, which is incorporated into this Item by reference. b) Exhibits Exhibit Number Description 3.1 Fourth Amended and Restated Certificate of Incorporation of Amylyx Pharmaceuticals, Inc. (Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 11, 2022). 3.2 Second Amended and Restated Bylaws of Amylyx Pharmaceuticals, Inc. (Incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 11, 2022). 4.1 Specimen Common Stock Certificate (Incorporated by reference to Exhibit 4.1 to the Registrant’s Registration Statement on Form S-1/A (File No. 333-261703) filed with the Securities and Exchange Commission on January 3, 2022). 130 4.2 Second Amended and Restated Investors’ Rights Agreement, dated as of July 1, 2021, among the Registrant and the parties thereto (Incorporated by reference to Exhibit 4.2 to the Registrant’s Registration Statement on Form S-1 (File No. 333-261703) filed with the Securities and Exchange Commission on December 16, 2021). 4.3 Description of Securities. 10.1# 2015 Stock Option and Incentive Plan, and form of award agreements thereunder (Incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form S-1/A (File No. 333-261703) filed with the Securities and Exchange Commission on January 3, 2022). 10.2# 2022 Stock Option and Incentive Plan, and form of award agreements thereunder (Incorporated by reference to Exhibit 10.2 to the Registrant’s Registration Statement on Form S-1/A (File No. 333-261703) filed with the Securities and Exchange Commission on January 3, 2022). 10.3# Non-Employee Director Compensation Policy (Incorporated by reference to Exhibit 10.3 to the Registrant’s Registration Statement on Form S-1/A (File No. 333-261703) filed with the Securities and Exchange Commission on January 3, 2022). 10.4# Executive Cash Incentive Bonus Plan (Incorporated by reference to Exhibit 10.4 to the Registrant’s Registration Statement on Form S-1/A (File No. 333-261703) filed with the Securities and Exchange Commission on January 3, 2022). 10.5# 2022 Employee Stock Purchase Plan (Incorporated by reference to Exhibit 10.5 to the Registrant’s Registration Statement on Form S-1/A (File No. 333-261703) filed with the Securities and Exchange Commission on January 3, 2022). 10.6# Lease Agreement, dated as of October 23, 2018, as amended, by and between the Registrant and Bullfinch Square Limited Partnership (Incorporated by reference to Exhibit 10.6 to the Registrant’s Registration Statement on Form S-1 (File No. 333-261703) filed with the Securities and Exchange Commission on December 16, 2021). 10.7# Form of Employment Agreement, between the Registrant and Josh Cohen (Incorporated by reference to Exhibit 10.7 to the Registrant’s Registration Statement on Form S-1/A (File No. 333-261703) filed with the Securities and Exchange Commission on January 3, 2022). 10.8# Form of Employment Agreement, between the Registrant and Justin Klee (Incorporated by reference to Exhibit 10.8 to the Registrant’s Registration Statement on Form S-1/A (File No. 333-261703) filed with the Securities and Exchange Commission on January 3, 2022). 10.9# Form of Employment Agreement, between the Registrant and James Frates (Incorporated by reference to Exhibit 10.9 to the Registrant’s Registration Statement on Form S-1/A (File No. 333-261703) filed with the Securities and Exchange Commission on January 3, 2022). 10.10# Form of Employment Agreement, between the Registrant and Margaret Olinger (Incorporated by reference to Exhibit 10.10 to the Registrant’s Registration Statement on Form S-1/A (File No. 333-261703) filed with the Securities and Exchange Commission on January 3, 2022). 10.11# Form of Employment Agreement, between the Registrant and Patrick D. Yeramian, M.D. (Incorporated by reference to Exhibit 10.11 to the Registrant’s Registration Statement on Form S-1/A (File No. 333-261703) filed with the Securities and Exchange Commission on January 3, 2022). 10.12# Form of Director Indemnification Agreement (Incorporated by reference to Exhibit 10.12 to the Registrant’s Registration Statement on Form S-1 (File No. 333-261703) filed with the Securities and Exchange Commission on December 16, 2021). 10.13# Form of Officer Indemnification Agreement (Incorporated by reference to Exhibit 10.13 to the Registrant’s Registration Statement on Form S-1 (File No. 333-261703) filed with the Securities and Exchange Commission on December 16, 2021). 10.14 † Master Manufacturing Services Agreement, dated as of November 12, 2019, by and between the Registrant and Patheon Inc. (Incorporated by reference to Exhibit 10.14 to the Registrant’s Registration Statement on Form S-1 (File No. 333-261703) filed with the Securities and Exchange Commission on December 16, 2021). 10.15 † Supply Agreement, dated as of October 29, 2019, by and between the Registrant and CU Chemie Uetikon GmbH (Incorporated by reference to Exhibit 10.15 to the Registrant’s Registration Statement on Form S-1 (File No. 333-261703) filed with the Securities and Exchange Commission on December 16, 2021). 131 10.16 † Research, Development and Supply Agreement, dated as of December 9, 2019, and Deed of Amendment, dated as of July 26, 2021, by and between the Registrant and ICE S.p.A. (formerly Prodotti Chimici e Alimentari S.p.A.), as amended (Incorporated by reference to Exhibit 10.16 to the Registrant’s Registration Statement on Form S-1 (File No. 333-261703) filed with the Securities and Exchange Commission on December 16, 2021). 21.1 List of Subsidiaries of Registrant. 23.1 Consent of Deloitte & Touche LLP, independent registered public accounting firm. 31.1 Certification of Co-Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Co-Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.3 Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 + Certification of Co-Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 + Certification of Co-Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.3 + Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. + This certification will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, except to the extent specifically incorporated by reference into such filing. # Indicates a management contract or any compensatory plan, contract or arrangement. † Portions of this exhibit (indicated by asterisks) have been omitted in accordance with Item 601(b)(10) of Regulation S-K. c) Financial Statement Schedules No financial statements have been submitted because they are not required or are not applicable or because the information required is included in the consolidated financial statements or the notes thereto. Item 16 . Form 10-K Summary None. 132 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized . AMYLYX PHARMCEUTICALS, INC. Date: March 31, 2022 By: /s/ Joshua B. Cohen Joshua B. Cohen Co-Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated. Name Title Date /s/ Joshua B. Cohen Co-Chief Executive Officer and Director (Principal Executive Officer) March 31, 2022 Joshua B. Cohen /s/ Justin B. Klee Co-Chief Executive Officer and Director (Principal Executive Officer) March 31, 2022 Justin B. Klee /s/ James M. Frates Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) March 31, 2022 James M. Frates /s/ George Mclean Milne Jr. Director March 31, 2022 George Mclean Milne Jr. Ph.D. /s/ Paul Fonteyne Director March 31, 2022 Paul Fonteyne, M.S., M.B.A. /s/ Isaac Cheng Director March 31, 2022 Isaac Cheng, M.D. /s/ Daphne Quimi Director March 31, 2022 Daphne Quimi, M.B.A. 133 Amylyx Pharmaceuticals, Inc. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm F- 2 Consolidated Balance Sheets F- 3 Consolidated Statements of Operations F- 4 Consolidated Statements of Comprehensive Loss F- 5 Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Deficit F- 6 Consolidated Statements of Cash Flows F- 7 Notes to Consolidated Financial Statements F- 8 F- 1 REPORT of independent registered public accounting firm To the stockholders and the Board of Directors of Amylyx Pharmaceuticals, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Amylyx Pharmaceuticals, Inc. and subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss, redeemable convertible preferred stock and stockholders’ deficit, 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 “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of 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 financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Deloitte & Touche LLP Boston, Massachusetts March 31, 2022 We have served as the Company’s auditor since 2020. F- 2 AMYLYX PHARMACEUTICALS, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data) December 31, 2021 2020 Assets Current assets: Cash and cash equivalents $ 50,191 $ 12,877 Short-term investments 45,927 — Prepaid expenses and other current assets 5,392 762 Deferred offering costs 3,441 — Total current assets 104,951 13,639 Property and equipment, net 474 151 Restricted cash 189 189 Other assets — 125 Total assets $ 105,614 $ 14,104 Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Deficit Current liabilities: Accounts payable $ 4,372 $ 3,613 Accrued expenses 13,024 3,713 Total current liabilities 17,396 7,326 Deferred rent 35 14 Accrued interest — 2 PPP Loan — 263 Proceeds received in advance of issuance of 2021 Notes — 1,162 Total liabilities 17,431 8,767 Commitments and contingencies (Note 16) Series A redeemable convertible preferred stock, $0.0001 par value; 6,289,609 shares authorized as of December 31, 2021 and 2020; 6,289,609 shares issued and outstanding as of December 31, 2021 and 2020; aggregate liquidation preference of $7,730 7,675 7,675 Series B redeemable convertible preferred stock, $0.0001 par value; 15,100,000 shares authorized as of December 31, 2021 and 2020; 14,496,835 shares issued and outstanding as of December 31, 2021 and 2020; aggregate liquidation preference of $246,070 64,387 64,387 Series C-1 redeemable convertible preferred stock, $0.0001 par value; 13,150,430 and 0 shares authorized as of December 31, 2021 and 2020, respectively; 13,150,430 and 0 shares issued and outstanding as of December 31, 2021 and 2020, respectively; aggregate liquidation preference of $135,000 and $0 as of December 31, 2021 and 2020, respectively 134,791 — Series C-2 redeemable convertible preferred stock, $0.0001 par value; 3,170,585 and 0 shares authorized as of December 31, 2021 and 2020, respectively; 3,170,585 and 0 shares issued and outstanding as of December 31, 2021 and 2020, respectively; aggregate liquidation preference of $27,666 and $0 as of December 31, 2021 and 2020, respectively 32,498 — Stockholders’ deficit: Common stock, $0.0001 par value; 56,500,000 and 35,000,000 shares authorized as of December 31, 2021 and December 31, 2020, respectively; 7,020,487 and 6,137,206 shares issued and outstanding as of December 31, 2021 and 2020, respectively 1 1 Additional paid-in capital 4,667 1,188 Accumulated deficit (155,845 ) (67,914 ) Accumulated other comprehensive loss 9 — Total stockholders’ deficit (151,168 ) (66,725 ) Total liabilities, redeemable convertible preferred stock and stockholders’ deficit $ 105,614 $ 14,104 The accompanying notes are an integral part of these consolidated financial statements. F- 3 AMYLYX PHARMACEUTICALS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share data) Year Ended December 31, 2021 2020 Grant revenue $ 285 $ 650 Operating expenses: Research and development 44,040 24,594 General and administrative 38,933 15,061 Total operating expenses 82,973 39,655 Loss from operations (82,688 ) (39,005 ) Other income (expense), net: Interest income 36 14 Interest expense — (2,288 ) Change in fair value of derivative liability — (1,270 ) Change in fair value of convertible notes (5,228 ) — Other (expense) income, net (51 ) 269 Total other expense, net (5,243 ) (3,275 ) Net loss (87,931 ) (42,280 ) Net loss per share attributable to common stockholders —basic and diluted $ (13.35 ) $ (6.96 ) Weighted-average shares used in computing net loss per share attributable to common stockholders—basic and diluted 6,586,349 6,077,758 The accompanying notes are an integral part of these consolidated financial statements. F- 4 AMYLYX PHARMACEUTICALS, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (in thousands) Year Ended December 31, 2021 2020 Net loss $ (87,931 ) $ (42,280 ) Other comprehensive income (loss): Foreign currency translation adjustment, net of tax of $0 for the years ended December 31, 2021 and 2020 14 — Unrealized loss on short-term investments, net of tax of $0 for the years ended December 31, 2021 and 2020 (5 ) — Other comprehensive loss 9 — Comprehensive loss $ (87,922 ) $ (42,280 ) The accompanying notes are an integral part of these consolidated financial statements. F- 5 AMYLYX PHARMACEUTICALS, INC. CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT (in thousands, except share data) Series A Redeemable Convertible Preferred Stock Series B Redeemable Convertible Preferred Stock Series C-1 Redeemable Convertible Preferred Stock Series C-2 Redeemable Convertible Preferred Stock Common Stock Additional Paid-In Accumulated Other Comprehensive Accumulated Total Stockholders’ Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Capital Loss Deficit Deficit Balance as of December 31, 2019 6,289,609 $ 7,675 — $ — — $ — — $ — 5,994,246 $ 1 $ 276 $ — $ (25,634 ) $ (25,357 ) Issuance of Series B redeemable convertible preferred stock, net of issuance costs of $35 — — 1,767,401 29,958 — — — — — — — — — — Conversion of convertible notes and accrued interest into Series B redeemable convertible preferred stock — — 12,729,434 34,429 — — — — — — — — — — Recognition of contingent beneficial conversion feature — — — — — — — — — — 621 — — 621 Issuance of common stock upon exercise of stock options — — — — — — — — 142,960 — 48 — — 48 Stock-based compensation expense — — — — — — — — — — 243 — — 243 Net loss — — — — — — — — — — — — (42,280 ) (42,280 ) Balance as of December 31, 2020 6,289,609 $ 7,675 14,496,835 $ 64,387 — $ — — $ — 6,137,206 $ 1 $ 1,188 $ — $ (67,914 ) $ (66,725 ) Issuance of Series C-1 redeemable convertible preferred stock, net of issuance costs of $209 — — — — 13,150,430 134,791 — — — — — — — — Conversion of convertible notes and accrued interest into Series C-2 redeemable convertible preferred stock, net of issuance cost of $50 — — — — — — 3,170,585 32,498 — — — — — — Issuance of common stock upon exercise of stock options — — — — — — — — 883,281 — 343 — — 343 Stock-based compensation expense — — — — — — — — — — 3,136 — — 3,136 Other comprehensive loss — — — — — — — — — — — 9 — 9 Net loss — — — — — — — — — — — — (87,931 ) (87,931 ) Balance as of December 31, 2021 6,289,609 $ 7,675 14,496,835 $ 64,387 13,150,430 $ 134,791 3,170,585 $ 32,498 7,020,487 $ 1 $ 4,667 $ 9 $ (155,845 ) $ (151,168 ) The accompanying notes are an integral part of these consolidated financial statements. F- 6 AMYLYX PHARMACEUTICALS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Year Ended December 31, 2021 2020 Cash flows used in operating activities: Net loss $ (87,931 ) $ (42,280 ) Adjustments to reconcile net loss to net cash used in operating activities: Change in fair value of derivative liability — 1,270 Non-cash interest expense — 1,738 Stock-based compensation expense 3,136 243 Depreciation expense 52 1 Net amortization of premiums and discounts on investments 121 — Gain on extinguishment of convertible notes — (268 ) Change in fair value of convertible notes 5,228 — Changes in operating assets and liabilities: Interest receivable (144 ) — Prepaid expenses and other current assets (4,486 ) (651 ) Other assets 125 (107 ) Accounts payable 670 1,418 Accrued expenses and deferred rent 8,432 1,389 Accrued interest and accrued interest—related parties (2 ) 550 Net cash used in operating activities (74,799 ) (36,697 ) Cash flows used in investing activities: Purchases of property and equipment (353 ) (151 ) Purchases of investments (49,053 ) — Investment matured 3,000 — Net cash used in investing activities (46,406 ) (151 ) Cash flows from financing activities: Repayment and proceeds from PPP loan (263 ) 263 Proceeds from issuance of convertible notes—related parties 14,272 4,794 Proceeds from issuance of convertible notes, net of issuance costs 11,887 10,598 Issuance costs related to conversion of convertible notes (50 ) — Proceeds from issuance of Series B redeemable convertible preferred stock, net of issuance costs — 29,958 Proceeds from issuance of Series C-1 redeemable convertible preferred stock 135,000 — Issuance costs related to issuance of Series C-1 redeemable convertible preferred stock (209 ) — Proceeds from exercise of stock options 343 48 Proceeds received in advance of issuance of 2021 Notes — 1,162 Payment of deferred offering costs (2,474 ) — Net cash provided by financing activities 158,506 46,823 Effect of exchange rate changes on cash, cash equivalents and restricted cash 13 — Net increase in cash, cash equivalents and restricted cash 37,314 9,975 Cash, cash equivalents and restricted cash, beginning of period 13,066 3,091 Cash, cash equivalents and restricted cash, end of period $ 50,380 $ 13,066 Supplemental disclosure of cash flow information: Recognition of initial derivative liability and associated debt discount $ — $ 4,636 Conversion of convertible notes into Series B redeemable convertible preferred stock $ — $ 34,697 Conversion of convertible notes and accrued interest into Series C-2 redeemable convertible preferred stock $ 32,548 $ — Unrealized loss on short-term investments $ 5 $ — Purchases of property and equipment included in accounts payable $ 22 $ — Deferred offering costs included in accounts payable and accrued expenses $ 967 $ — The accompanying notes are an integral part of these consolidated financial statements. F- 7 AMYLYX PHARMACEUTICALS, INC. NOTES TO Consolidated FINANCIAL STATEMENTS 1. Nature of Business Amylyx Pharmaceuticals, Inc. (“Amylyx”) was incorporated under the laws of the State of Delaware on January 10, 2014. The Company has two subsidiaries, Amylyx Pharmaceuticals Canada, Inc. (“Amylyx Canada”) and Amylyx Pharmaceuticals EMEA B.V ("Amylyx EU", and together with “Amylyx” and "Amylyx Canada", the “Company”). The Company is headquartered in Cambridge, Massachusetts. The Company is a clinical stage biotechnology company with a goal to improve the quality and length of life of patients suffering from neurodegenerative disease. The Company is pursuing commercialization of its asset, AMX0035, which it believes is the first drug candidate to show both a functional and survival benefit in a large-scale clinical trial of patients with amyotrophic lateral sclerosis, or ALS. The Company believes AMX0035 has the potential to be a foundational therapy, meaning a that it could be used alone or in conjunction with other therapies to change the treatment paradigm across a broad range neurodegenerative diseases. The Company has designed AMX0035 to target two key pathways of neuron death, specifically endoplasmic reticulum, or ER, stress and mitochondrial dysfunction. The Company is focused on the development of and potential commercialization of AMX0035 for ALS globally. In addition, the Company is developing AMX0035 for other neurodegenerative diseases by leveraging its unique knowledge and relationships in the neurodegenerative space. Risks and Uncertainties The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, the outcome of clinical trials, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations, ability to secure additional capital to fund operations, and risks associated with the COVID-19 global pandemic, including potential delays associated with the Company’s ongoing and anticipated trials. COVID-19 may have an adverse impact on the Company’s operations, supply chains and distribution systems or those of its contractors, and increase expenses, including as a result of impacts associated with preventive and precautionary measures that are being taken, such as restrictions on travel and border crossings, quarantine polices and social distancing. The Company and its contractors may experience disruptions in supply of items that are essential for its research and development activities, including, for example, raw materials and bulk drug substances that the Company imports from Europe and Canada used in the manufacturing of AMX0035, and any future product candidates. In addition, the spread of COVID-19 has disrupted global healthcare and healthcare regulatory systems which could divert healthcare resources away from, or materially delay, U.S. Food and Drug Administration (“FDA”) approval and approval by other health authorities worldwide with respect to AMX0035 and any future product candidates. Furthermore, the Company’s clinical trials may be negatively affected by the COVID-19 outbreak. Site initiation, patient enrollment and patient follow-up visits may be delayed, for example, due to prioritization of hospital resources toward the COVID-19 outbreak, travel restrictions, the inability to access sites for initiation and monitoring, and difficulties recruiting or retaining patients in the Company’s ongoing and planned clinical trials. There can be no assurance that the Company will be able to successfully complete the development of, or receive regulatory approval for, any products developed, and if approved, that any products will be commercially viable. Any products resulting from the Company’s current research and development efforts will require significant additional research and development, including extensive preclinical and clinical testing and regulatory approval prior to commercialization. These efforts will require significant amounts of additional capital, adequate personnel, infrastructure, and extensive compliance reporting capabilities. The Company has not generated any revenues from the sale of any products to date. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales. Going Concern In accordance with Accounting Standards Update (“ASU”) 2014-15, Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40) , the Company has evaluated whether there are conditions and events that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the consolidated financial statements are issued. F- 8 Since its inception, the Company has devoted substantially all of its efforts to research and development activities, including recruiting management and technical staff, raising capital, producing materials for non-clinical and clinical studies, and building infrastructure to support such activities. Expenses have primarily been for research and development and related general and administrative costs. The Company has generated revenues through five grants from ALS Association, ALS Finding a Cure Foundation, Cure Alzheimer’s Fund, Alzheimer’s Drug Discovery Foundation and Alzheimer’s Association (collectively, the “Grantors”). In addition to money received from its grants, the Company has also financed its operations through the issuance of redeemable convertible preferred stock and convertible notes (see Notes 9 and 7, respectively). In addition, the Company has financed its operation pursuant to the loan under the Paycheck Protection Program, or the PPP, of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act (the “PPP Loan”) as administered by the SBA (See Note 6). Subsequently in January 2021, the Company completed an initial public offering of its common stock (see Note 17). The accompanying consolidated financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has incurred recurring losses and negative cash flows from operations since inception. As of December 31, 2021, the Company had an accumulated deficit of $155.8 million. The Company expects its operating losses and negative operating cash flows to continue into the foreseeable future as it continues to build capabilities and develop AMX0035, and any future product candidates. The Company expects that its cash, cash equivalents and short-term investments as of December 31, 2021 will enable the Company to fund its ongoing operating expenses and capital expenditure requirements for at least the twelve-month period following the issuance of these consolidated financial statements. 2. Summary of Significant Accounting Policies Basis of Presentation and Consolidation— The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and ASU of the Financial Accounting Standards Board (“FASB”). Use of Estimates— The preparation of the consolidated financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amount of expenses during the reporting period. Actual results could differ from those estimates. Management considers many factors in selecting appropriate financial accounting policies in developing the estimates and assumptions that are used in the preparation of the financial statements. Management must apply significant judgment in this process. Management’s estimation process often may yield a range of potentially reasonable estimates and management must select an amount that falls within that range of reasonable estimates. Estimates are used in the following areas, among others: determining the fair value of the Company’s common stock; determining the fair value of derivative liabilities; determining the fair value of convertible notes; accrued expenses; stock option valuations; valuation allowance for deferred tax assets and research and development expenses. Grant Revenue— Grant revenue consists of amounts earned from performing contracted research and development services. The grants between the Company and the Grantors generally provide for the Company to meet certain research milestones in order for funds to be provided. The Company accounts for grants received to perform research and development services in accordance with ASC 730-20, Research and Development Arrangements , which requires an assessment, at the inception of the grant, of whether the grant is a liability or a contract to perform research and development services for others. If the Company is obligated to repay the grant funds to the Grantor regardless of the outcome of the research and development activities, then the Company is required to estimate and recognize that liability. Alternatively, if the Company is not required to repay, or if it is required to repay the grant funds only if the research and development activities are successful, then the grant agreement is accounted for as a contract to perform research and development services for others, in which case, grant revenue is recognized as the related research and development expenses are incurred. The Company obtained funding from the Grantors of $0.3 million and $0.7 million during the years ended December 31, 2021 and 2020, respectively, which was recorded as grant revenue in the Company’s consolidated statements of operations. Under the terms of the grants, the Company will be required to pay royalties upon occurrence of contingent future events (see Note 16). F- 9 Comprehensive Income (Loss)— Comprehensive loss includes net loss, as well as other changes in stockholders’ deficit that result from transactions and economic events other than those with stockholders. Comprehensive loss is composed of net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) consists of unrealized gains and losses on marketable securities and foreign currency translation. Cash and Cash Equivalents— The Company considers all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents. Cash equivalents represent funds invested in readily available checking and money market funds. Restricted Cash— As of December 31, 2021 and 2020, the Company maintained a restricted cash account with a balance of $0.2 million. The restricted cash represents collateral provided for a letter of credit issued as a security deposit in connection with the Company’s lease of its corporate office. The lease expires in October 2026 at which time the cash will be released from restriction. Short-Term Investments— Short-term investments are composed of corporate debt securities and commercial paper with maturities of less than one year from the balance sheet date. The Company classifies all of its short-term investments as available-for-sale. Accordingly, these investments are recorded at fair value, which is determined based on quoted market prices. Unrealized gains and losses on available-for-sale securities are included as a separate component of other accumulated comprehensive loss. The cost of short-term investments is adjusted for amortization of premiums and accretion of discounts until maturity. Such amortization and accretion are included in other income, net. Realized gains and losses are included in other income, net. The Company evaluates short-term investments for other-than-temporary impairment at the balance sheet date. Declines in fair value, if any, determined to be other than temporary-than-temporary are also included in other income, net. When assessing short-term investments for other-than-temporary declines in value, the Company considers such factors as, among other things, how significant the decline in value is as a percentage of the original cost, how long the market value of the investment has been less than its original cost, and the Company’s ability and intent to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value and market conditions in general. As of December 31, 2021, there were no impairment charges on short-term investments. Concentrations of Credit Risk— Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents and short-term investments. The Company maintains its cash in financial institutions that it believes have high credit quality. The Company has not experienced any losses on such accounts, and does not believe it is exposed to any unusual credit risk beyond the normal credit risk associated with commercial banking relationships. Convertible Note—Derivative— The Company reviews the terms of the convertible note issued to determine whether there are features, including redemption and conversion features, which are required to be bifurcated and accounted for separately as derivative financial instruments. In circumstances where the host instrument contains more than one embedded derivative instrument that is required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument. Bifurcated embedded derivatives are initially recorded at fair value and are then revalued at the end of each reporting period and immediately prior to the conversion or the extinguishment of the convertible note. Changes in the fair value are reported in the consolidated statement of operations. When the convertible note contains embedded derivative instruments that are to be bifurcated and accounted for as liabilities, the total proceeds received are first allocated to the fair value of all the bifurcated derivative instruments. The remaining proceeds, if any, are then allocated to the host instruments themselves, usually resulting in those host instruments being recorded at a discount from their face value. The discount from the face value of the convertible note, together with the stated interest on the host instrument, is amortized over the life of the host instrument through periodic charges to interest expense. The Company’s convertible notes, as further discussed in Note 7, had embedded derivatives that required bifurcation from the host instrument. Convertible Note—Beneficial Conversion Feature— If the conversion feature is not treated as a derivative, the Company assesses whether it is a beneficial conversion feature (“BCF”). A BCF exists if the conversion price of the convertible note is less than the price of the stock into which it is convertible to on the commitment date. This typically occurs when the conversion price is less than the fair value of the stock on the date the instrument was issued. The value of a BCF is equal to the intrinsic value of the feature, the difference between the effective conversion price and the fair value of the stock into which it is convertible to and is recorded as additional paid-in capital and as a debt discount in the consolidated F- 10 balance sheets. The Company amortizes the debt discount as non-cash interest expense over the life of the underlying convertible note using the effective interest method. If the convertible note is retired early, the associated debt discount is then recognized immediately as non-cash interest expense in the consolidated statements of operations. If the conversion feature does not qualify for either the derivative treatment or as a BCF, the convertible note is treated as traditional debt. Fair Value Measurements— Assets and liabilities recorded at fair value on a recurring basis on the consolidated balance sheet are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The authoritative guidance on fair value measurements establishes a three-tier fair value hierarchy for disclosure of fair value measurements as follows: • Level 1 —Quoted prices in active markets for identical assets or liabilities. • Level 2 —Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data. • Level 3 —Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques. 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 the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The Company’s financial instruments consist of cash, cash equivalents, restricted cash, short-term investments, accounts payable, accrued expenses and convertible notes. The Company’s short-term investments are carried at fair value, determined according to Level 2 inputs to the fair value hierarchy described above. The Company’s 2021 Notes (as defined in Note 7) and derivative liability is carried at fair value, determined according to Level 3 inputs in the fair value hierarchy described above (see Note 8). The remaining financial instruments are stated at their respective carrying amounts, which approximate fair value due to the short-term nature of these assets and liabilities. Deferred Offering Costs— The Company capitalizes certain legal, professional accounting and other third-party fees that are directly associated with in-process equity financings, including the initial public offering (IPO), as deferred costs until such financings are consummated. After consummation of the equity financing, these costs are recorded in stockholders’ deficit as a reduction of proceeds generated as a result of the offering. Should an in-process equity financing be abandoned, the deferred offering costs will be expensed immediately as a charge to operating expenses in the consolidated statements of operations and consolidated statements of comprehensive loss. The Company recorded deferred offering costs of $3.4 million, which are included in the consolidated balance sheet as of December 31, 2021. Property and Equipment, net— Property and equipment are stated at cost, net of accumulated depreciation. Depreciation of property and equipment is calculated using the straight-line method over the estimated useful lives of the respective assets. Maintenance and repairs that do not improve or extend the life of the assets are expensed when incurred. Upon sale or retirement of assets, the cost and accumulated depreciation are removed from the consolidated balance sheets and any resulting gain or loss is reflected in the consolidated statements of operations in the period realized. The range of useful lives of property and equipment is as follows: Estimated Useful Life Leasehold improvements Lesser of the estimated life or remaining lease term Furniture and fixtures 4 years Computer hardware and software 3 years Construction in progress Not depreciated F- 11 Impairment of Long-Lived Assets— The Company evaluates assets for potential impairment when events or changes in circumstances indicate the carrying value of the assets may not be recoverable. Recoverability is measured by comparing the book values of the assets to the expected future net undiscounted cash flows that the assets are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the book values of the assets exceed their fair value. The Company has not recognized any impairment losses in the years ended December 31, 2021 and 2020. Research and Development— Research and development expenses include costs directly attributable to the conduct of research and development activities. Expenditures relating to research and development are expensed in the period incurred. Nonrefundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made. In addition, research and development-related salaries and benefits, facility, and overhead costs, supplies and other related costs are included in research and development expense. Patent-Related Costs— Patent-related costs incurred in connection with filing and prosecuting patent applications are expensed as incurred due to the uncertainty about the recovery of the expenditure. Amounts incurred are classified as general and administrative expenses in the accompanying consolidated statements of operations and comprehensive loss. Stock-Based Compensation Expense— The Company accounts for stock-based compensation under the provisions of ASC 718-10, Compensation—Stock Compensation , which requires all share-based payments to employees, non-employees and directors, including grants of stock options and restricted stock, to be recognized in the consolidated statements of operations and comprehensive loss based on their fair values on the date of grant over the requisite service period, which is generally the vesting period of the respective award. Forfeitures are accounted for as they occur. Generally, the Company issues stock option awards with only service-based vesting conditions and records the expense for these awards using the straight-line method. The Company classifies stock-based compensation expense in the same manner in which the awards recipient’s payroll or service provider’s costs are classified. The fair value of each restricted common stock award is estimated on the date of grant based on the fair value of the Company’s common stock on that same date. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model, which requires inputs based on certain subjective assumptions, including the expected stock price volatility, the expected term of the award, the risk-free interest rate, and expected dividends. As there is no public market for the Company’s common stock, the estimated fair value of common stock was determined by the Company’s Board of Directors as of the date of each option grant, with input from management, considering third-party valuations of its common stock as well as the Company’s Board of Directors’ assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent third-party valuation through the date of the grant. These third-party valuations were performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants’ Accounting and Valuation Guide, Valuation of Privately Held Company Equity Securities Issued as Compensation . The Company estimates its expected stock price volatility based on the historical volatility of publicly traded peer companies. The expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain vanilla” options. 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. There is no expected dividend yield since the Company has never paid cash dividends on common stock and does not expect to pay any cash dividends in the foreseeable future. Contingencies— From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of business activities. The Company accrues for loss contingencies when losses become probable and are reasonably estimable. If the reasonable estimate of the loss is a range and no amount within the range is a better estimate, the minimum amount of the range is recorded as a liability on the Company’s consolidated balance sheets. The Company does not accrue for contingent losses that, in its judgement, are considered to be reasonably possible, but not probable; however, it discloses the range of reasonably possible losses. There were no loss or gain contingencies recorded in the Company’s consolidated financial statements as of and during the years ended December 31, 2021 and 2020. Leases— The Company leases its offices, and may from time to time, enter into other lease agreements in conducting its business. At the inception of each lease, the Company evaluates the lease agreement to determine whether the lease is an operating or capital lease in accordance with ASC 840, Leases (ASC 840) . When any one of the four test criteria in ASC 840 is met, the lease then qualifies as a capital lease. If the lease agreements contain renewal options, tenant F- 12 improvement allowances, rent holidays or rent escalation clauses, the Company records a deferred rent asset or liability equal to the difference between the rent expense and future minimum lease payments due. The rent expense related to operating leases is recognized on a straight-line basis in the statements of operations over the term of each lease. The Company did not have capital leases as of December 31, 2021 and 2020. Income Taxes— The Company accounts for income taxes using the asset and liability approach. Deferred tax assets and liabilities represent future tax consequences of temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities and for loss carryforwards using enacted tax rates expected to be in effect in the years in which the differences reverse. A valuation allowance is established to reduce deferred tax assets to the amounts expected to be realized. The Company also recognizes a tax benefit from uncertain tax positions only if it is “more likely than not” that the position is sustainable based on its technical merits. The Company accounts for interest and penalties related to uncertain tax positions as part of its provision for income taxes. To date, the Company has not incurred interest and penalties related to uncertain tax positions. Segment Information— An operating segment is defined as a component of a business that engages in business activities for which it may earn revenues and incur expenses and for which discrete financial information is available that is evaluated regularly by the chief operating decision maker or makers in order to make decisions about resources to be allocated to the segment and assess its performance. The Company has determined that its chief executive officers are the chief operating decision maker (“CODM”). The CODM reviews consolidated operating results to make decisions about allocating resources or capital to specific compounds or projects in line with the Company’s overall strategies and goals. The Company's entire business is managed by a single management team, which reports to the Chief Executive Officers. The Company has one operating segment which is the business of researching and developing therapeutics for neurodegenerative disorders. For the years ended December 31, 2021 and 2020, all of the Company's long-lived assets were held within the U.S. Net income (loss) per share— The Company follows the two-class method when computing net income (loss) per share as the Company has issued shares that meet the definition of participating securities. The two-class method determines net income (loss) per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income available to common stockholders for the period to be allocated between common and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed. Basic net income (loss) per share attributable to common stockholders is computed by dividing the net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted net income (loss) attributable to common stockholders is computed by adjusting net income (loss) attributable to common stockholders to reallocate undistributed earnings based on the potential impact of dilutive securities. Diluted net income (loss) per share attributable to common stockholders is computed by dividing the diluted net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding for the period, including potential dilutive common shares. For purpose of this calculation, stock options, convertible notes, and redeemable convertible preferred stock are considered potential dilutive common shares. The Company’s redeemable convertible preferred stock contractually entitles the holders of such shares to participate in dividends but does not contractually require the holders of such shares to participate in losses of the Company. Accordingly, in periods in which the Company reports a net loss attributable to common stockholders, such losses are not allocated to such participating securities. In periods in which the Company reports a net loss attributable to common stockholders, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive. Emerging Growth Company Status— The Company is an emerging growth company (“EGC”) as defined in the Jumpstart Our Business Startups Act of 2012, as amended (the “JOBS Act”), and may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not EGCs. The Company may take advantage of these exemptions until it is no longer an EGC under Section 107 of the JOBS Act and has elected to use the extended transition period for complying with new or revised accounting standards. As a result of this election, the Company’s consolidated financial statements may not be comparable to companies that comply with public company FASB standards’ effective dates. The Company intends to take advantage of the reduced reporting requirements and exemptions up until the last day of the fiscal year following the fifth anniversary of an offering or such earlier time that it is no longer an EGC. F- 13 Recent Accounting Pronouncements New Accounting Pronouncements Not Yet Adopted— In February 2016, the FASB issued ASU No. 2016-02, Leases , as subsequently amended (collectively “ASC 842”). The guidance amends the existing accounting standards for lease accounting, including requirements for lessees to recognize assets and liabilities related to long-term leases on the balance sheet and expanding disclosure requirements regarding leasing arrangements. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the consolidated statement of operations. In July 2018, the FASB issued additional guidance, which offers a transition option to entities adopting ASC 842 in which entities can elect to apply the new guidance using a modified retrospective approach at the beginning of the year in which the new lease standard is adopted. The Company currently expects to utilize this transition option whereby financial information for prior periods presented before the ASC 842 effective date will not be updated. In November 2019, the FASB issued ASU 2019-10 deferring the effective date for private entities for fiscal years beginning after December 15, 2020 and interim periods within fiscal years beginning after December 15, 2021. In June 2020, the FASB issued ASU 2020-05 which further defers the effective date for private entities for fiscal years beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 2022. The Company expects to elect the available package of practical expedients which allows it to not reassess previous accounting conclusions around whether arrangements are or contain leases, the classification of its leases, and the treatment of initial direct costs. The Company also expects it will make an accounting policy election to keep leases with an initial term of 12 months or less off of the balance sheet. The Company is continuing to evaluate developments within the new lease guidance and is finalizing its evaluation of its existing population of contracts to ensure all contracts that meet the definition of a lease contract under the new standard are identified. The Company has assessed the impact that the adoption of this guidance will have on its financial statements and footnote disclosures. The standard will have a material impact on the consolidated balance sheet related to the recognition of right-of-use assets and lease liabilities for operating leases. The standard will not have a material impact on the consolidated statement of operations. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The provisions of ASU 2016-13 modify the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology and require a consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses rather than as a direct write-down to the security. ASU 2016-13 requires a cumulative effect adjustment to the consolidated balance sheet as of the beginning of the first reporting period in which the guidance is effective. In November 2019, the FASB issued ASU 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) and Leases (Topic 842): Effective Dates , which defers the effective date of ASU 2016-13 to fiscal years beginning after December 15, 2022 for all entities except Securities and Exchange Commission filers that are not smaller reporting companies. ASU 2016-13 will be effective for the Company beginning January 1, 2023. The Company intends to adopt the ASU when it becomes effective. The Company is currently evaluating the impact of this ASU and does not expect that adoption of this standard will have a material impact on its consolidated financial statements and related disclosures. Recently Adopted Accounting Pronouncements In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”) , which eliminates certain disclosure requirements for fair value measurements for all entities, requires public entities to disclose certain new information and modifies some disclosure requirements. The Company adopted this standard on January 1, 2020 and it did not have a material impact on its consolidated financial statements. In December 2019, the FASB issued ASU 2019-12, " Income Taxes (Topic 740) : Simplifying the Accounting for Income Taxes ," which is intended to enhance and simplify various aspects of the accounting for income taxes. The amendments in this update remove certain exceptions to the general principles in ASC Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also clarifies and amends existing guidance to improve consistency in application of the accounting for franchise taxes, enacted changes in tax laws or rates and transactions that result in a step-up in the tax basis of goodwill. The adoption of ASU 2019-12 on January 1, 2021 did not have a material effect on our consolidated financial statements. F- 14 In August 2020, the FASB issued Accounting Standards Update 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”, (“ASU 2020-06”) . ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. ASU 2020-06 removes from U.S. GAAP the separation models for (i) convertible debt with a cash conversion feature and (ii) convertible instruments with a beneficial conversion feature. As a result, after adopting the ASU’s guidance, entities will not separately present in equity an embedded conversion feature in such debt. Instead, the entity will account for a convertible debt instrument wholly as debt, and for convertible preferred stock wholly as preferred stock (i.e., as a single unit of account), unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC 815 or (2) a convertible debt instrument was issued at a substantial premium. In addition, the ASU also states that entities must apply the if-converted method to all convertible instruments for calculation of diluted earnings per share and the treasury stock method is no longer available. The Company early adopted ASU 2020-06 on January 1, 2021 using the modified retrospective transition approach. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements. In October 2020, the FASB issued ASU 2020-10, Codification Improvements , which provided codification updates for technical corrections such as conforming amendments, clarifications to guidance, simplifications to wording or structure of guidance, and other minor improvements. Additionally, changes to clarify the codification or correct unintended application of guidance that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities were also included in this update. The adoption of ASU 2020-10 on January 1, 2021 did not have a material effect on our consolidated financial statements. 3. SHORT-TERM INVESTMENTS Short-term investments, which are classified as available-for-sale, consisted of the following: December 31, 2021 Amortized Cost Basis Unrealized Loss Fair Values (in thousands) Commercial paper $ 33,979 $ (1 ) $ 33,978 Corporate debt securities 11,953 (4 ) 11,949 Total short-term investments $ 45,932 $ (5 ) $ 45,927 As of December 31, 2021, all investments had contractual maturities within one year. 4. Property and equipment, net Property and equipment, net consisted of the following: December 31, 2021 December 31, 2020 (in thousands) Furniture and fixtures $ 88 $ 49 Computer hardware and software 250 — Leasehold improvements 50 41 Construction in progress 139 62 Total property and equipment 527 152 Less: accumulated depreciation (53 ) (1 ) Total property and equipment, net $ 474 $ 151 F- 15 5. Accrued Expenses Accrued expenses consisted of the following: December 31, 2021 2020 (in thousands) External research and development $ 5,666 $ 293 Payroll and employee related expenses 4,280 1,855 Accrued legal and other professional fees 2,820 584 Other accrued expenses 258 981 Total accrued expenses $ 13,024 $ 3,713 6. PPP LOAN In April 2020, the Company obtained a PPP Loan from First Republic Bank in the aggregate amount of $0.3 million, which was established under the CARES Act. Under the terms of the CARES Act and the PPP, all or a portion of the principal amount of the PPP Loan is subject to forgiveness so long as, over the 24-week period following the Company’s receipt of the proceeds of the PPP Loan, the Company uses those proceeds for payroll costs, rent, utility costs or the maintenance of employee and compensation levels. The PPP Loan is unsecured, guaranteed by the SBA, and has a two-year term, maturing in April 2022. Interest accrues on the PPP Loan beginning with the initial disbursement. The application for the forgiveness of the PPP Loan can be made during an 8-week period beginning from the date of initial disbursement. Unless forgiven in whole or in part in accordance with the PPP regulation, the terms of the PPP Loan provide for the Company to make monthly payments of the principal and interest on the outstanding principal balance of the PPP Loan equal to the balance of the PPP Loan amortized over the term of the PPP Loan beginning seven (7) months from the initial disbursement until maturity. The terms of the PPP loan provide for customary events of default including, among other things, payment defaults, breach of representations and warranties, and insolvency events. The Company has determined to account for the PPP Loan as debt under ASC 470, Debt . The PPP loan was repaid in full in October 2021. As of December 31, 2021 and 2020, the outstanding balance of the PPP Loan was $0 and $0.3 million, respectively. 7. CONVERTIBLE NOTES Convertible Notes There were no convertible notes outstanding as of December 31, 2021 and 2020. Issuance of the 2017 Notes, 2018 Notes, 2019 Notes and 2020 Notes (collectively, the “Notes”) In July 2017, the Company commenced an offering to issue $2.3 million convertible notes (“2017 Notes”) to certain investors with a maturity date of December 31, 2021. These 2017 Notes carried both a voluntary conversion feature and an automatic conversion feature. The 2017 Notes were secured and carried an interest rate of 6%. In November 2018, the Company commenced an offering to issue $13.0 million convertible notes (“2018 Notes”) with a maturity date of December 31, 2021. These 2018 Notes carried both a voluntary conversion feature and an automatic conversion feature. The 2018 Notes were secured and carried an interest rate of 6%. In December 2019, the Company issued $0.6 million of convertible notes (“2019 Notes”) to certain investors with a maturity date of December 31, 2021. These 2019 Notes carried an automatic conversion feature only. The 2019 Notes were secured and carried an interest rate of 2%. In January, February and April 2020, the Company issued, in aggregate, $15.4 million in convertible notes (“2020 Notes”) to certain investors with a maturity date of December 31, 2021. These 2020 Notes carried an automatic conversion feature only. The 2020 Notes were secured and carried an interest rate of 2%. F- 16 The Notes contained the following features: Automatic Conversion Features —The Notes were to automatically convert into Conversion Shares upon (i) the sale of substantially all of the assets of the Company (“Asset Sale”), (ii) the occurrence of a transaction or series of transactions in which holders of 100% of the Company’s outstanding shares of stock immediately before such transaction held 50% or less of the outstanding shares of the Company’s stock or the surviving corporation immediately after such transaction (“Stock Sale”), and (iii) sale of equity securities of any kind after the issuance of the Notes for which the Company had received consideration of at least $5.0 million (“Financing”, and together with the Asset Sale and Stock Sale, collectively, “Triggering Events”). In the event of an Asset Sale or Stock Sale, the Conversion Shares would be Common Stock of the Company. In the event of a Financing event, the Conversion Shares would be the class of equity shares issued in such transaction. Conversion Price —Upon the occurrence of a Triggering Event, the 2017 Notes would convert based on the amount equal to the lesser of (i) 85% of the share price paid by the investors in the Financing, Asset Sale or Stock Sale and (ii) $25.0 million divided by the fully diluted capital. Upon the occurrence of a Triggering Event, the 2018 Notes, would convert based on the amount equal to the lesser of (i) 85% of the share price paid by the investors in the Financing, Asset Sale or Stock Sale and (ii) $30.0 million divided by the fully diluted capital. Upon the occurrence of a Triggering Event, the 2019 and 2020 Notes would convert based on the amount equal to 90% of the share price paid by the investors in the Financing, Asset Sale or Stock Sale. Voluntary Conversion Feature —Under the terms of the 2017 Notes, the holders of the 2017 Notes had the option to convert their notes at any time prior to maturity into shares of the Company’s common stock at a conversion price equal to the $25.0 million divided by the fully diluted capital, provided their notes had not been previously converted pursuant to a Triggering Event. Under the terms of the 2018 Notes, the holders of the 2018 Notes had the option to convert their notes at any time prior to the maturity into shares of the Company’s common stock at a conversion price equal to the $30.0 million divided by the fully diluted capital, provided their notes had not been previously converted pursuant to a Triggering Event. Embedded Derivatives The Company assessed all the terms of the Notes in order to identify any potential embedded features and determined that the redemption features included in the Notes required bifurcation and separate accounting as derivatives. The Company bundled these features together and accounted for the features as a single, compound embedded derivative. The Company determined the fair value of the embedded derivative as the difference between the estimated fair value of the respective Notes with and without the redemption features, which resulted in the Company recording the respective Notes at a discount. The fair value of the bifurcated embedded derivatives as of the respective issuance dates of the 2017 Notes, 2018 Notes, 2019 Notes and 2020 Notes was determined to be $0.3 million, $0.9 million, $0.2 million, and $4.6 million, respectively. The Company amortized the debt discount over the contractual life of the Notes as a non-cash interest expense utilizing the effective interest method. At each financial reporting period, and immediately prior to conversion, the Company remeasured the fair value of the derivative liability bifurcated from the Notes and recognized changes in the fair value of derivative liability in the statements of operations. As of December 31, 2020, there was no derivative liability due to the conversion of the Notes in June 2020. Conversion of the Notes In June 2020, the Company consummated a financing transaction in which it issued shares of Series B redeemable convertible preferred stock. The consummation of this financing transaction resulted in the automatic conversion of the Notes into shares of Series B redeemable convertible preferred stock pursuant to their original terms. Immediately prior to F- 17 conversion of the Notes, the Company remeasured the fair value of the derivative liability bifurcated from the Notes and recognized changes in the fair value of derivative liability. The Company recognized $1.3 million of net loss related to change in fair value of derivative liability in its consolidated statement of operations for the year ended December 31, 2020. The 2017 Notes and 2018 Notes contained contingent beneficial conversion features, which were not readily determinable upon the issuance of the notes because the conversion features were contingent upon the occurrence of an undetermined future financing transaction and neither the timing, including the type of security that would be issued in such transaction, nor the value of such transaction could be estimated at the time the notes were issued. Upon the automatic conversion of the 2017 Notes in connection with the consummation of the financing transaction that resulted in the issuance of the Series B redeemable convertible preferred stock, the Company initially recorded $0.6 million as a debt discount that was immediately recognized through interest expense with an offset to additional paid-in capital to reflect the contingent beneficial conversion feature associated with the conversion of the 2017 Notes into Series B redeemable convertible preferred stock. The intrinsic value of the beneficial conversion feature was calculated as the difference between (i) the effective conversion price for the 2017 Notes, which was represented by the price at which the 2017 Notes converted into Series B redeemable convertible preferred stock and (ii) the fair value of the existing Series A redeemable convertible preferred stock at the original commitment date (which is the only class available to benchmark to). Additionally, as the 2017 Notes included a contingent beneficial conversion feature, the Company recognized all of the unamortized discount remaining at the date of conversion relating to the original allocation of proceeds to the bifurcated derivative to interest expense. This amounted to $0.1 million and resulted in an increase in the carrying value of the 2017 Notes and an immediate charge to non-cash interest expense in the consolidated statements of operations. Also, there were no beneficial conversion features recorded for the Series B redeemable convertible preferred stock, which are convertible into common stock at any time, issued upon the conversion of the 2017 Notes as there was no intrinsic value. Upon the automatic conversion of the 2018 Notes in connection with the consummation of the financing transaction that resulted in the issuance of the Series B redeemable convertible preferred stock, the Company did not record a beneficial conversion feature for the 2018 Notes as there was no intrinsic value attributed to the contingent beneficial conversion feature. The fair value of the Series B redeemable convertible preferred stock issued upon conversion of the 2017 Notes and the proceeds allocated to the 2017 Notes were $46.5 million and $2.6 million, respectively. The fair value of the Series B redeemable convertible preferred stock issued upon conversion of the 2018 Notes and the proceeds allocated to the 2018 Notes were $151.6 million and $13.7 million, respectively. The Series B redeemable convertible preferred stock issued upon conversion of the Notes and in exchange for cash payment did not contain a recognized beneficial conversion feature at the time of issuance, but the shares do contain a contingent beneficial conversion feature to the extent the security’s conversion price decreases below the commitment date fair value of the Company’s common stock. Upon conversion of the 2017 Notes and 2018 Notes, the Company derecognized the carrying values of these notes including accrued interest of $16.4 million and recognized Series B redeemable convertible preferred stock. The Company accounted for the conversion of the 2019 Notes and 2020 Notes as an extinguishment as these notes converted pursuant to redemption features that were bifurcated as embedded derivatives at the original commitment date. The Company recorded a gain on extinguishment of convertible notes of $0.3 million, which is included in other income, net in the consolidated statement of operations for the year ended December 31, 2020. The gain on extinguishment of convertible notes is the excess of (i) the total carrying value of the 2019 Notes and 2020 Notes including accrued interest of $12.2 million and the derivative liability of $6.1 million over (ii) the fair value of the shares of Series B redeemable convertible preferred stock into which the 2019 Notes and 2020 Notes converted of $18.0 million. Issuance of the 2021 Notes (the “2021 Notes”) In January 2021, the Company issued, in aggregate, $27.3 million in convertible notes (“2021 Notes”) to certain investors, including related parties, of which proceeds of $1.2 million were received in advance of issuance of the 2021 Notes in December 2020 and the remaining proceeds of $26.1 million were received in January and February 2021. The 2021 Notes were to mature on June 30, 2022 and carried both automatic and optional conversion features. The 2021 Notes were secured and carried an interest rate of 3%. The Company recorded the $1.2 million of proceeds received in December 2020 as proceeds received in advance of issuance of 2021 Notes in the consolidated balance sheet as of December 31, 2020, as the subscription agreement and commitment to issue the 2021 Notes was not effective until January 2021. The 2021 Notes contained the following features: F- 18 Automatic Conversion Features —The 2021 Notes were to automatically convert into Conversion Shares upon (i) an IPO, (ii) any transaction in which the Company merges with, consolidates with or enters into other similar transaction with a Special Purpose acquisition Corp (“SPAC”), resulting in some or all of its shares being registered for sale under applicable securities laws and listed for trading on a national or foreign exchange (“De-SPAC transaction”), (iii) the acquisition of the Company by another person or entity by means of any transaction in which holders of the outstanding voting securities of the Company immediately before such transaction held less than 50% of the voting securities of the Company or the surviving corporation after such transaction or a sale of all or substantially all of the assets of the Company but excluding De-SPAC transaction, IPO, and the occurrence of equity financing in which the Company sold shares of its preferred stock for new money and which was neither an IPO or a Qualified Financing (“Change of Control”) and (iv) the closing of a sale of an equity transaction in which the Company sold shares with an aggregate gross proceeds of at least $10.0 million (“Qualified Financing”). In the event of a Change of Control, De-SPAC transaction, or an IPO, the Conversion Shares would be common stock of the Company. In the event of a Qualified Financing, the Conversion Shares would be shares of preferred stock issued in such transaction. Optional Conversion Feature —The holders of the 2021 Notes had the option to elect to convert their notes into Conversion Shares at the Conversion Price upon the occurrence of an equity financing in which the Company sold shares of its preferred stock for new money and which was neither an IPO or a Qualified Financing (“Non-Qualified Financing” and together with the IPO, De-SPAC transaction, Change of Control, and the Qualified Financing, collectively, the “Conversion Events”). In the event of a Non-Qualified Financing, the Conversion Shares would be the class of equity shares issued in such transaction. The 2021 Notes would be deemed to have converted into the Conversion Shares if no election was made by the holders of the 2021 Notes. Conversion Price —Upon the occurrence of an IPO, the 2021 Notes would convert into shares of common stock at the conversion price equal to the lesser of (i) 85% of the price at which the Company offered each share of common stock in the IPO without deducting any amount for discounts, commissions, fees, or other costs and (ii) $600.0 million divided by the fully diluted capital. Upon the occurrence of a De-SPAC transaction, the 2021 Notes would convert into shares of common stock at the conversion price equal to the lesser of (i) 85% of the common stock price in the De-SPAC transaction, which would be determined by dividing (x) the total consideration to be paid to common stockholders upon a De-SPAC transaction less the principal amount of the 2021 Notes including accrued and unpaid interest by (y) the common stock issued and outstanding immediately prior to the De-SPAC transaction and that would be exchanged as a result of the De-SPAC transaction including common stock that would be issued upon the exercise of stock options immediately before the Change of Control transaction but excluding the common stock issuable upon conversion of the 2021 Notes and (ii) $600.0 million divided by the fully diluted capital. Upon the occurrence of a Change of Control, the 2021 Notes would convert into shares of common stock at the conversion price equal to the lesser of (i) 85% of the common stock price in the Change of Control, which would be determined by dividing (x) the total consideration to be paid to common stockholders upon a Change of Control less the principal amount of the 2021 Notes including accrued and unpaid interest by (y) the common stock issued and outstanding immediately prior to the Change of Control and that would be exchanged upon a Change of Control including common stock that would be issued upon the exercise of stock options before the Change of Control but excluding the common stock issuable upon conversion of the 2021 Notes and (ii) $600.0 million divided by the fully diluted capital. Upon a Qualified Financing, the 2021 Notes would convert into shares of preferred stock issued in the Non-Qualified Financing at the conversion price equal to the lesser of (i) 85% of the lowest price at which the Company sold shares of its stock in the Qualified Financing and (ii) $600.0 million divided by the fully diluted capital. Repayment —Each holder of the 2021 Notes had the option to elect to receive a payment in the amount equal to the principal amount plus accrued and unpaid interests upon a Change of Control. If a Change of Control occurred and no election was made by the holder, the principal amount and accrued and unpaid interest would be deemed to have automatically be converted into shares of the Company’s common stock of the Company immediately prior to the close of the Change of Control. F- 19 The Company qualified for and elected to account for the 2021 Notes under the fair value option and, in doing so, bypassed the analysis of potential embedded derivative features. The Company believes that the fair value option better reflects the underlying economics of the 2021 Notes. As a result, the 2021 Notes were recorded at fair value upon issuance, which was determined to be equal to principal amounts of these notes of $27.3 million. At each financial reporting period, and immediately prior to conversion, the Company remeasured the fair value of the 2021 Notes. The change in fair value of the 2021 Notes from issuance date to the conversion date totaled $5.2 million, which is recorded as change in fair value of convertible notes in the consolidated statement of operations for the year ended December 31, 2021. Conversion of the 2021 Notes In July 2021, the Company consummated a financing transaction in which it issued shares of Series C-1 redeemable convertible preferred stock. The consummation of this financing transaction resulted in the automatic conversion of the 2021 Notes into shares of Series C-2 redeemable convertible preferred stock (together with the Series C-1 redeemable convertible preferred stock, the “Series C Preferred Stock”) pursuant to their original terms. The Series C Preferred Stock was determined to have a fair value of $10.265809. Under the fair value option, the 2021 Notes were remeasured to fair value immediately prior to conversion at a price per share equal to the fair value of the Series C-1 redeemable convertible preferred stock. The Company recorded $5.2 million loss related to change in fair value of the 2021 Notes in its consolidated statement of operations for the year ended December 31, 2021. The 2021 Notes converted into 3,170,585 shares of Series C-2 redeemable convertible preferred stock at the effective conversion price of $8.725938. Convertible Notes—Related Parties There were no convertible notes issued to related parties that were outstanding as of December 31, 2021 and 2020. In connection with the issuance of the 2021 Notes, the Company issued, in aggregate, $14.3 million of convertible notes to certain related parties. These notes were issued under the same terms and conditions as the 2021 Notes. 8 . FAIR VALUE MEASUREMENTS The following table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicates the level of the fair value hierarchy utilized to determine such fair values: December 31, 2021 Level 1 Level 2 Level 3 Total (in thousands) Assets: Money market funds $ 49,271 $ — $ — $ 49,271 Short-term investments: Commercial paper — 33,978 — 33,978 Corporate debt securities — 11,949 — 11,949 Restricted cash 189 — — 189 Total financial assets $ 49,460 $ 45,927 $ — $ 95,387 December 31, 2020 Level 1 Level 2 Level 3 Total (in thousands) Assets: Money market funds $ 10,004 $ — $ — $ 10,004 Restricted cash 189 — — 189 Total financial assets $ 10,193 $ — $ — $ 10,193 Valuation of Short-Term Investments The Company estimates the fair values of the short-term investments by taking into consideration valuations obtained from third-party pricing sources. These pricing sources utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include market pricing based on real-time trade data for the same or similar securities, issuer credit spreads, benchmark yields, and other observable inputs. The Company validates the prices provided by our third-party F- 20 pricing sources by understanding the models used, obtaining market values from other pricing sources and analyzing pricing data in certain instances. Valuation of Derivative Liabilities The fair value of the derivative liabilities was measured using a with-and-without valuation methodology. Inputs used to determine the estimated fair value of the derivative instruments include the probability estimates of potential settlement scenarios for the convertible promissory notes, a present value discount rate and an estimate of the expected timing of settlement. Certain unobservable inputs used in the fair value measurement of the derivative instruments associated with the convertible promissory notes are the scenario probabilities and the discount rate estimated at the valuation date. Generally, an increase or decrease in the discount rate would result in a directionally opposite impact to the fair value measurement of the derivative instruments. Also, a change in the probability scenarios would have varying impacts depending on the weighting of each specific scenario. Heavier weighting toward a qualified financing would result in an increase in the fair value of the derivative liability. Changes in these assumptions can materially affect the fair value. An initial fair value valuation was performed at each date of issuance of the outstanding convertible notes and subsequently remeasured as of each reporting period and immediately prior to conversion. The change in fair value between measurement dates was determined to be a loss of $1.3 million the years ended December 31, 2020, which was recognized in the consolidated statements of operations. The following table sets forth the significant inputs to the probability weighted valuation model used to value the derivative liability at issuance of the 2020 Notes: Type of Event Expected Date Probability of Event Discount Rates Convertible Notes Qualified Financing June 30, 2020 75.0 % 30 % 2020 Notes Stock or Asset Sale March 31, 2021 5.0 % 30 % 2020 Notes Note Reaches Maturity December 31, 2021 20.0 % 30 % 2020 Notes The following table sets forth the significant inputs to the probability weighted valuation model used to value the derivative liability upon conversion of the Notes in June 2020: Type of Event Expected Date Probability of Event Discount Rates Convertible Notes Qualified Financing June 18, 2020 100 % 25 % 2017, 2018, 2019 and 2020 Notes Stock or Asset Sale n/a 25 % 2017, 2018, 2019 and 2020 Notes Note Reaches Maturity n/a 25 % 2017, 2018, 2019 and 2020 Notes Valuation of the 2021 Notes At the issuance date of the 2021 Notes, the Company determined that the fair value of the 2021 Notes approximated the principal amounts of the 2021 Notes as the transaction was deemed to be at arm’s length. Subsequent measurement of fair value of the 2021 Notes at each reporting period was estimated based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The Company used a scenario-based analysis to incorporate estimates and assumptions concerning the Company’s prospects and market indications into a model to estimate the value of the 2021 Notes. The most significant estimates and assumptions used as inputs were those concerning timing, probability of possible scenarios for conversion or settlement of the 2021 Notes and discount rates. The fair value of the 2021 Notes upon settlement in July 2021 was determined based on the fair value of the Series C-1 redeemable convertible preferred stock issued. This method was selected as the Company concluded that the contemporaneous financing transaction was an arm’s length transaction. The issuance of the Series C-1 redeemable convertible preferred stock was considered to be a Qualified Financing (see Note 7) pursuant to the original terms of the 2021 Notes. Accordingly, the fair value calculation for the 2021 Notes immediately before conversion considered both the fair value of the Series C-1 redeemable convertible preferred stock and the conversion price, which was 85% of the fair value of the Series C-1 redeemable convertible preferred stock. The fair value of the 2021 Notes as of June 30, 2021 was determined to be the same as that on the settlement date in F- 21 July 2021 based on management’s determination of no material changes to the assumptions underlying the determination of the fair value of the 2021 Notes. The following table represents changes in the derivative liabilities and 2021 Notes with significant unobservable inputs (Level 3): Derivative Liability 2021 Notes (in thousands) Balance as of December 31, 2019 $ 222 $ — Increase in derivative liability resulting from issuance of convertible notes 4,636 — Increase in derivative liability resulting from change in estimated fair value 1,270 — Derivative liability settled upon conversion of convertible notes (6,128 ) — Balance as of December 31, 2020 $ — $ — Initial fair value of convertible notes — 27,320 Change in fair value of convertible notes — 5,228 Conversion of convertible notes — (32,548 ) Balance as of December 31, 2021 $ — $ — There were no other assets or liabilities that were measured at fair value on a recurring basis as of December 31, 2021 and 2020. 9. Redeemable Convertible Preferred Stock In August 2016, the Company consummated a financing transaction in which it issued Series A redeemable convertible preferred stock. The issuance of the Series A redeemable convertible preferred stock occurred pursuant to the Series A Preferred Stock Purchase Agreement the Company entered into with certain investors (the “Series A Agreement”). In connection with the issuance of the Series A redeemable convertible preferred stock, certain convertible notes issued by the Company including interest accrued on such notes also converted into 2,333,276 shares of Series A redeemable convertible preferred stock. In connection with the conversion of these notes, the Company recorded a loss on extinguishment of convertible notes of $0.6 million, which is calculated as the difference between the fair value of the Series A redeemable convertible preferred stock and the carrying value of the notes. At the initial closing of the issuance of the Series A redeemable convertible preferred stock, the Company issued 3,000,731 shares of Series A redeemable convertible preferred stock at $1.22907 per share for a total consideration of $3.7 million. Between November 2016 and November 2017, the Company issued, in aggregate, an additional 955,602 shares of Series A redeemable convertible preferred stock at $1.22907 per share for a total consideration of $1.2 million. The aggregate purchase price of the Series A redeemable convertible preferred stock was $7.7 million and incurred issuance costs of $0.1 million, recorded as a reduction to Series A redeemable convertible preferred stock carrying value. In June 2020, the Company entered into a Series B Preferred Stock Purchase Agreement (the “Series B Agreement”) with certain investors in which the Company issued 1,767,401 shares of Series B redeemable convertible preferred stock, $0.0001 par value, for a total consideration of $30.0 million. In connection with the issuance of these shares, the carrying value including accrued interest of the Notes totaling $34.7 million automatically converted into 12,729,434 shares of Series B redeemable convertible preferred stock. On June 18, 2020, the Company amended its certificate of incorporation in which (i) the Company authorized 15,100,000 of shares of Series B redeemable convertible preferred stock and (ii) the authorized number of Series A redeemable convertible preferred stock was decreased to 6,289,609 shares. In July 2021, the Company consummated a financing transaction in which it issued 13,150,430 shares of Series C-1 redeemable convertible preferred stock. In connection with the issuance of these shares, the principal including accrued interest of the 2021 Notes totaling $27.7 million automatically converted into 3,170,585 shares of Series C-2 redeemable convertible preferred stock. F- 22 On July 1, 2021, the Company amended its certificate of incorporation in which it authorized 13,150,430 shares of Series C-1 redeemable convertible preferred stock and 3,170,585 shares of Series C-2 redeemable convertible preferred stock. The Company’s redeemable convertible preferred stock consisted of the following: December 31, 2021 (dollars in thousands) Preferred Shares Authorized Preferred Shares Issued and Outstanding Carrying Value Liquidation Preference Common Stock Issuable Upon Conversion Series A preferred stock 6,289,609 6,289,609 $ 7,675 $ 7,730 6,407,256 Series B preferred stock 15,100,000 14,496,835 $ 64,387 $ 246,070 16,746,059 Series C-1 preferred stock 13,150,430 13,150,430 $ 134,791 $ 135,000 13,150,430 Series C-2 preferred stock 3,170,585 3,170,585 $ 32,498 $ 27,666 3,170,585 37,710,624 37,107,459 $ 239,351 $ 416,466 39,474,330 December 31, 2020 (dollars in thousands) Preferred Shares Authorized Preferred Shares Issued and Outstanding Carrying Value Liquidation Preference Common Stock Issuable Upon Conversion Series A preferred stock 6,289,609 6,289,609 $ 7,675 $ 7,730 6,407,259 Series B preferred stock 15,100,000 14,496,835 $ 64,387 $ 246,070 14,496,835 21,389,609 20,786,444 $ 72,062 $ 253,800 20,904,094 As of December 31, 2021, the holders of the Series C Preferred Stock (together with the “Series A redeemable convertible preferred stock” and “Series B redeemable convertible preferred stock”, collectively, the “Preferred Stock”) have the following rights and preferences: Conversion— On June 18, 2020, in connection with the conversion of the 2017 Notes, the Company adjusted the conversion price for the Series A redeemable convertible preferred stock of $1.229073 per share to $1.2065. The adjustment was made in accordance with the anti-dilution provisions in the certificate of incorporation then in effect immediately prior to the conversion of the 2017 Notes. The adjustment to the conversion price resulted in neither modification nor extinguishment of the Series A redeemable convertible preferred stock as the terms of the Series A redeemable convertible preferred stock were not amended. The adjustment to the conversion price resulted in additional 117,650 shares of common stock to be issued to holders of the Series A redeemable convertible preferred stock upon conversion of such shares into common stock. As of December 31, 2020, these additional shares of common stock were not issued and outstanding. In July 2021, in connection with the conversion of the 2021 Notes, the Company adjusted the conversion price for the Series B redeemable convertible preferred stock of $16.974077 per share to $14.6942. The adjustment was made in accordance with the anti-dilution provisions in the certificate of incorporation then in effect immediately prior to the conversion of the 2021 Notes. The adjustment to the conversion price resulted in additional 2,249,224 shares of common stock into which Series B redeemable convertible preferred stock would be convertible. As of December 31, 2021, these additional shares were not issued and outstanding. Each share of Preferred Stock is convertible into an equivalent number of common stock, at any time, at the option of the holder. The initial conversion price for the Series C-1 redeemable convertible preferred stock and Series C-2 redeemable convertible preferred stock is the respective original issue prices. The conversion price for the Preferred Stock is subject to adjustments for stock splits, stock dividends, or similar recapitalization, and subject to adjustments in accordance with the anti-dilution provisions. The shares of Preferred Stock will automatically convert into common stock of the Company immediately upon either (a) the closing of the sale of shares of common stock to the public in a firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act, resulting in at least $75.0 million of proceeds, net of the underwriting discount and commissions, to the Company (a “Qualified IPO”) or (b) the date and time, or the occurrence of an event, specified by vote or written consent of the holders of a majority of the then outstanding shares of Preferred Stock. F- 23 Dividends —Dividends may be paid to the holders of the Series A redeemable convertible preferred stock. The holders the Series A redeemable convertible preferred stock are entitled to receive non-cumulative dividends at a rate per annum of $0.073744 per share when and if declared by the Board of Directors. The holders of the Series B redeemable convertible preferred stock are entitled to receive a non-cumulative dividend at the rate of 6% per annum of the Series B original issue price per share when and if declared by the Board of Directors. As of December 31, 2021 and 2020, no cash dividends were declared or paid. From and after the date of issuance of the Series C Preferred Stock, the Company will not set, declare, pay or set aside unless holders of the Series C Preferred Stock then outstanding shall first receive, or simultaneously receive, dividends on each outstanding share of Series C Preferred Stock in an amount equal to (i) in the case of dividends being distributed to common stock or any class or series of capital stock that is convertible into common stock, the equivalent dividend on an as-converted basis or (ii) in the case of dividends being distributed on a series or class not convertible into common stock, an additional dividend equal to a dividend rate calculated based on the respective original issue price of the Series C Preferred Stock. The original issue price per share for the Series C-1 redeemable convertible preferred stock and Series C-2 redeemable convertible preferred stock was $ 10.265809 and $8.725938, respectively. Voting Rights — The holders of the Preferred Stock are entitled to vote on any matter presented to stockholders of the Company for consideration. Each holder of the Preferred Stock will be entitled to cast the number of votes equal to the number of shares of common stock into which the shares of the Preferred Stock held by such holder are convertible on such date. Redemption— The Preferred Stock does not contain any mandatory redemption features. In accordance with FASB ASC Topic 480, Distinguishing Liabilities from Equity (ASC 480), preferred stock issued with redemption provisions that are outside of the control of the Company or that contain certain redemption rights in a deemed liquidation event is required to be presented outside of stockholders’ deficit on the face of the consolidated balance sheets. The Company classified the Preferred Stock outside of the stockholders’ deficit as mezzanine equity because in the event of certain deemed liquidation events, which included events such as a sale or merger, that were not solely within the control of the Company, the shares of the Preferred Stock would become redeemable at the option of the holders. As of December 31, 2021 and 2020, the Company did not adjust the carrying values of the Preferred Stock to the redemption values of such shares since a deemed liquidation event did not occur and the shares were not probable of becoming redeemable in the future as of the consolidated balance sheet dates. Liquidation— In the event of a liquidation, deemed liquidation, dissolution or winding up of the Company, holders of the Preferred Stock will be entitled to be paid out of the assets of the Company that are available for distribution before any payment is made to the holders of common stock. The amount to paid will be the greater of (i) respective original issue prices plus any dividends declared but unpaid or (ii) the amount that would have been payable had all shares of Preferred Stock been converted into common stock immediately before such event. If upon any such liquidation, deemed liquidation, dissolution or winding up of the Company, the assets of the Company available for distribution to its stockholders shall be insufficient to pay the holders of Preferred Stock the full amount to which they shall be entitled, the holders of Preferred Stock shall share ratably in any distribution of the assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full. After the payment of all preferential amounts required to be paid to the holders of Preferred Stock, the remaining assets of the Company available for distribution to its stockholders shall be distributed among the holders of the shares of common stock on a pro rata basis based on the number of shares held by each such holder. 10. Stockholders’ Deficit Common Stock— Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders provided, however, that, except as otherwise required by law, holders of common stock shall not be entitled to vote on any amendment to the Corporation’s Certificate of Incorporation that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together with the holders of one or more other such series, to vote thereon pursuant to the Certificate of Incorporation or pursuant to the Delaware General Corporation Law. Common stockholders are entitled to receive dividends, as may be declared by the Company’s Board of Directors, if any, subject to the preferential dividend rights of the Preferred Stock. No dividends have been declared or paid during the years ended December 31, 2021 and 2020. F- 24 The Company had reserved shares of common stock for issuance in connection with the following: December 31, 2021 2020 Common stock authorized 56,500,000 35,000,000 Common stock issued and outstanding 7,020,487 6,137,206 Common stock authorized and reserved for future issuances: Series A redeemable convertible preferred stock 6,407,256 6,407,259 Series B redeemable convertible preferred stock 16,746,059 14,496,835 Series C-1 redeemable convertible preferred stock 13,150,430 — Series C-2 redeemable convertible preferred stock 3,170,585 — Common stock reserved for the exercise of stock options 5,339,011 3,012,092 Common stock reserved for future issuance of share-based awards 1,444,492 1,170,692 Total common stock authorized and reserved for future issuance 46,257,833 25,086,878 Unreserved common stock available for future issuance 3,221,680 3,775,916 11. Stock Option and Grant Plan 2015 Plan— The Company sponsors the 2015 Plan to encourage and enable the officers, employees, directors, consultants, and other key persons to acquire a proprietary interest in the Company. The 2015 Plan provides for the granting of incentive stock options, non-statutory stock options, and restricted stock awards to eligible employees, officers, directors, consultants, and advisors as determined by the Board of Directors. Terms of restricted stock awards and stock option agreements, including vesting requirements, are determined by the Board of Directors or compensation committee of the Board of Directors, subject to the provisions of the 2015 Plan. The options issued the 2015 Plan expire ten years from the grant date. The options generally vest over four or five years, with 25% vesting on the first anniversary and the balance vesting ratably over the remaining three to four years. Through amendments on December 9, 2015, July 30, 2016, February 15, 2019, February 26, 2020 and July 1, 2021, the total number of share-based awards authorized for issuance was increased to a total of 8,474,374. As of December 31, 2021 and 2020, there were 1,444,492 and 1,170,692 common shares available for future grant under the 2015 Plan, respectively. The Company estimates the fair value of stock option awards on the grant date using the Black-Scholes option pricing model with the following weighted-average assumptions: Year Ended December 31, 2021 2020 Fair value of underlying common stock $ 7.69 $ 4.30 Risk-free interest rate 1.01 % 0.85 % Expected term (in years) 5.73 6.04 Expected volatility 81.61 % 81.35 % Dividend yield 0.00 % 0.00 % The per share weighted average grant date fair value of stock options granted during the year ended December 31, 2021 and 2020 was $5.25 and $2.95, respectively. As of December 31, 2021, total unrecognized compensation expense related to stock options totaled $17.1 million which is expected to be recognized over a weighted average period of 2.6 years. F- 25 The following table summarizes the activity under the Company’s stock option activity under the 2015 Plan during the years ended December 31, 2021: Number of Options Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (in thousands) Outstanding at December 31, 2020 3,012,092 $ 1.73 6.3 $ 15,501 Granted 3,377,200 $ 7.66 Exercised (883,281 ) $ 0.39 Cancelled or forfeited (167,000 ) $ 6.82 Outstanding at December 31, 2021 5,339,011 $ 5.54 8.7 $ 15,627 Exercisable at December 31, 2021 1,266,035 $ 1.42 6.9 $ 8,928 Unvested at December 31, 2021 4,072,976 $ 6.83 9.2 $ 6,699 The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the options and the fair value of the Company’s common stock for those options that had exercise prices lower than the fair value of the Company’s common stock. The aggregate intrinsic value of options exercised during the years ended December 31, 2021 and 2020, was $6.2 million and $0.4 million, respectively. The total fair value of stock options vested during the years ended December 31, 2021 and 2020 was $1.3 million and $0.2 million, respectively. There were no restricted shares granted, vested, or forfeited during the year ended December 31, 2021 and 2020. Stock-Based Compensation Expense— The Company recorded stock-based compensation expense in the following expense categories of its statements of operations: Year Ended December 31, 2021 2020 (in thousands) Research and development expenses $ 888 $ 102 General and administrative expenses 2,248 141 Total stock-based compensation $ 3,136 $ 243 12. Income Taxes The components of net loss before the provision for income taxes are as follows: Year Ended December 31, 2021 2020 (in thousands) U.S. $ (87,904 ) $ (42,280 ) Non-U.S. (27 ) — Income before income taxes $ (87,931 ) $ (42,280 ) F- 26 There was no provision for (benefit) from income taxes for the years ended December 31, 2021 and 2020. A reconciliation of the Company’s effective income tax rate to the U.S. statutory federal income tax rate of 21% for the years ended December 31, 2021 and 2020 is as follows: Year Ended December 31, 2021 2020 Tax at U.S. statutory tax rate 21.0 % 21.0 % State income tax benefit 4.0 % 6.4 % Permanent items (1.3 )% (1.8 )% Provision to Return 0.2 % — ASC 740-10 liability (0.2 )% (0.4 )% Prior year adjustments — 0.6 % Research and development tax credits 1.5 % 2.4 % Valuation allowances (24.4 )% (28.2 )% Other (0.8 )% — Effective income tax rate 0.0 % 0.0 % Deferred tax assets and liabilities reflect the net tax effects of net operating loss and tax credit carryforwards and temporary differences between the carrying amount of assets and liabilities for financial reporting and the amounts used for tax purposes. Significant components of the Company’s deferred tax assets and liabilities were as follows for the years ended December 31, 2021 and 2020: Year Ended December 31, 2021 2020 (in thousands) Deferred tax assets: Federal net operating loss carryforwards $ 24,303 $ 9,824 State net operating loss carryforwards 5,474 2,837 Capitalized research and development costs 6,205 3,985 Tax credits 2,808 1,903 Accruals and other 1,556 545 Total deferred tax assets $ 40,346 $ 19,094 Valuation allowance (40,346 ) (18,900 ) Net total deferred tax assets $ — $ 194 Deferred tax liabilities: Prepaid Expenses — (194 ) Total deferred tax liabilities $ — $ (194 ) Net deferred tax assets $ — $ — The Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets. The Company has considered its history of cumulative net losses incurred since inception and has concluded that it is more likely than not that it will not realize the benefits of the deferred tax assets. Accordingly, a full valuation allowance has been established against the net deferred tax assets as of December 31, 2021 and 2020. The Company reevaluates the positive and negative evidence at each reporting period. As of December 31, 2021 and 2020, the Company had federal net operating loss carryforwards of approximately $115.7 million and $46.8 million, respectively, and state net operating loss carryforwards of approximately $102.9 million and $44.9 million, respectively, which are available to reduce future taxable income. Of the $115.7 million federal net operating loss carryforwards, $1.3 million begin to expire in 2034 and the remaining $114.5 million net operating losses carryforward indefinitely. Of the $102.9 million state net operating loss carryforwards, $101.1 million of Massachusetts net operating loss carryforwards begin to expire in 2034. As of December 31, 2021 and 2020, the Company also had federal tax credits of $2.7 million and $1.6 million, respectively, and state tax credits of $1.2 million and $0.7 million, respectively. The tax credit carryforwards will expire at various dates beginning in 2029. F- 27 The utilization of the net operating loss carryforwards and research and development tax credit carryforwards may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”) due to ownership changes that have occurred previously or that could occur in the future. These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income. The Company has not conducted a formal study to assess whether a change of control has occurred or whether there have been multiple changes of control since inception due to the significant complexity and cost associated with such a study. If the Company has experienced a change of control, as defined by Section 382 and 383 of the Code, at any time since inception, utilization of the net operating loss carryforwards or research and development tax credit carryforwards may be subject to an annual limitation under Section 382 and 383 of the Code, which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term tax-exempt rate, and then could be subject to additional adjustments, as required. Any limitation may result in expiration of a portion of the net operating loss carryforwards or research and development tax credit carryforwards before utilization. The Company has not yet conducted a study of its research and development credit carryforward. Such a study, once undertaken by the Company, may result in an adjustment to the Company’s research and development credit carryforward. A full valuation allowance has been provided against the Company’s research and development credit and, if an adjustment is required, this adjustment would be offset by an adjustment to the valuation allowance. ASC 740 requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. After consideration of all the evidence, both positive and negative, the Company has recorded a valuation allowance against its deferred tax assets as of December 31, 2021 and 2020, because the Company’s management has determined that it is more likely than not that these assets will not be fully realized. The increase in the valuation allowance recorded during the year primarily relates to the net operating loss incurred by the Company as well as the increase in research and development credits. The following table reflects the roll-forward of the Company’s valuation allowance: Year Ended December 31, 2021 2020 (in thousands) Valuation allowance at beginning of year $ 18,900 $ 6,919 Increases recorded to income tax provision 21,446 11,981 Valuation allowance at end of year $ 40,346 $ 18,900 The Company accounts for Uncertainty in Income Taxes under the provisions of ASC 740 which defines the thresholds for recognizing the benefits of tax return positions in the consolidated financial statements as “more likely than not” to be sustained by the taxing authority. The tax benefit is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. As of December 31, 2021 and 2020, the Company has recorded an unrecognized tax benefit of $0.6 million and $0.3 million, respectively. Year Ended December 31, 2021 2020 (in thousands) Balance at beginning of the period $ 349 $ 160 Settlement/decreases related to tax positions taken during prior years — (20 ) Increases related to tax positions taken during the prior years 215 209 Balance at end of the period $ 564 $ 349 The Company has reviewed the tax positions taken, or to be taken, in its tax returns for all tax years currently open to examination by a taxing authority. Unrecognized tax benefits represent the aggregate tax effect of differences between tax return positions and the benefits recognized in the consolidated financial statements. As of December 31, 2021 and 2020, the Company had $0.6 million and $0.3 million respectively, of net unrecognized tax benefits, related to tax credit carryforwards. The Company does not expect the amount of unrecognized tax benefits to change over next 12 months. The Company accrues interest and penalties related to unrecognized tax benefits as a component of its “Provision for (benefit from) income taxes.” The Company did not recognize any interest or penalties related to uncertain tax positions during the two years ended December 31, 2021 and 2020. F- 28 The Company files U.S. federal, foreign and state income tax returns in various jurisdictions. The status of limitations varies by jurisdiction. There are currently no federal or state audits or examinations in process. 13. EMPLOYEE BENEFIT PLANS The Company maintains a tax-qualified retirement plan that provides eligible U.S. employees with an opportunity to save for retirement on a tax-advantaged basis. Plan participants are able to defer eligible compensation subject to applicable annual Internal Revenue Code limits. The Company provides a safe-harbor contribution of 3% of employee compensation to employees who satisfy the minimum service requirements. The Company made $0.3 million of safe-harbor contributions for the year ended December 31, 2021. The Company made no safe-harbor contributions for the year ended December 31, 2020. 14. NET LOSS PER SHARE Net Loss per Share Attributable to Common Stockholders— Because the Company reports a net loss attributable to common stockholders, basic and diluted net loss per share attributable to common stockholders are the same for both periods presented. All preferred stock and stock options have been excluded from the computation of diluted weighted-average shares outstanding because such securities would have an antidilutive impact. The following common stock equivalents outstanding at each period end have been excluded from the calculation of diluted net loss per share because their inclusion would have been antidilutive: December 31, 2021 2020 Options to purchase common stock 5,339,011 3,012,092 Redeemable convertible preferred stock 39,474,330 20,904,094 15. Related party transactions Convertible Notes In connection with the issuance of the 2021 Notes, the Company issued, in aggregate, $14.3 million of convertible promissory notes to Morningside Ventures Investments Limited, and certain members of the board of directors of the Company. Morningside Ventures Investments Limited is a 5% significant stockholder and has appointed representatives to the board of directors of the Company. These notes were issued under the same terms and conditions as the 2021 Notes (see Note 7). Supplier Agreements In the ordinary course of business, the Company may purchase materials or supplies or services from entities that are associated with a party that meets the criteria of a related party of the Company. These transactions are reviewed quarterly and to date have not been material to the Company’s consolidated financial statements. 16. Commitments and Contingencies Operating Leases— In October 2018, the Company entered into a lease agreement (“Original Lease”) for its office space in Cambridge, Massachusetts. The lease commenced in December 2018 and was set to expire in December 2023. The Original Lease did not include an option to renew at the end of the term. The Original Lease called for a security deposit of less than $0.1 million. The annual rent was subject to fixed annual increases. The security deposit is included in other assets on the consolidated balance sheet as of December 31, 2021. The Company analyzed the terms of the Original Lease and determined that it was an operating lease. In January 2020, the Company entered into an amendment (“Lease Amendment”) to extend the lease term of the Original Lease and to lease an additional office space (“Expansion Space”). The extension of the term of the Original Lease and the lease term for the Expansion Space is six years from the date the Expansion Space was delivered to the Company, which occurred in October 2020. As a result of the Lease Amendment, the lease term of the Original Lease and the Expansion Space will expire in October 2026. In August 2021, the Company entered into a lease agreement (the “Amsterdam Lease”) for additional office space in Amsterdam, Netherlands. The Amsterdam Lease commenced in September 2021 and is set to expire in August 2022. The F- 29 Amsterdam Lease includes an option to renew for successive one-year terms at the end of each term at the then prevailing market rate. The Amsterdam Lease called for security deposits of less than $0.1 million in total. The security deposits are included in other assets on the consolidated balance sheet as of December 31, 2021. The Company analyzed the terms of the Amsterdam Lease and determined that they were both operating leases. Rent expense, including common area maintenance, parking and other rental fees for the years ended December 31, 2021 and 2020, was $0.6 million and $0.2 million, respectively. Future minimum payments under the noncancelable operating lease as of December 31, 2021 are as follows: Minimum Lease Payments (in thousands) Years Ending December 31, 2022 $ 532 2023 541 2024 555 2025 563 2026 476 $ 2,667 Letter of Credit— Restricted cash consists of cash serving as collateral for a letter of credit issued for the Company’s office space. As of December 31, 2021 and 2020, the Company’s restricted cash balance was $0.2 million and $0.2 million on its consolidated balance sheets, respectively. Legal Proceedings— The Company is not currently a party to any material legal proceedings. At each reporting date, the Company evaluates whether or not a potential loss amount or potential range of loss is probable and reasonably estimated under the provisions of the authoritative guidance that addresses accounting for contingencies. The Company recognizes expenses for its costs related to its legal proceedings, as incurred. Royalty Payments— Between August 2016 and February 2019, the Company entered into agreements with the Grantors. Under the terms of the agreements, the Company was granted, in aggregate, $4.3 million. These grants were provided to the Company for the purpose of furthering the research and development of AMX0035 as a therapeutic benefit for ALS disease and Alzheimer’s diseases. Under the terms of the arrangements, the Company would receive a tranche of funds as it completes certain milestones. Pursuant to the terms of the grant agreements, the Company has certain payment obligations that are contingent upon future events such as the achievement of commercialization or the receipt of proceeds from a revenue generating transaction resulting from the projects for which the grants are used for. Pursuant to the terms of the respective grant agreements among the Company, ALS Association and ALS Finding a Cure, the Company will be required to make royalty payments to each Grantor in the total amount equal to 150% of the grant received. The royalty payments will be achieved through a combination of the following payment methods: (i) an annual installment payment of 3% of net sales of any products developed under the project for which the grant was used for and (ii) 3% of cash proceeds resulting from revenue generating transaction under the project for which the grants are used for. Under the terms of the respective grant agreements among the Company, Alzheimer’s Drug Discovery Foundation, the Alzheimer’s Association, and Cure Alzheimer’s Fund, the Company will make royalty payments up to the maximum amount of $15.0 million to each Grantor (or $45.0 million in aggregate). The royalty payment will be made through a combination of the following payment methods: (i) 4% of annual net sales of any product commercialized from the project for which the grant was used for and directly related to the treatment of the Alzheimer’s disease and (ii) 15% of all royalties and cash proceeds resulting from revenue generating transactions associated with the projects for which the grants were used for under the grant agreements. As the achievement and timing of these future royalty payments were not probable or estimable, such amounts have not been included in the consolidated balance sheets as of December 31, 2021 and 2020. 17. Subsequent Events The Company has evaluated all subsequent events after December 31, 2021, and there were no material subsequent events requiring disclosure, except the following. F- 30 Leases —In January 2022, the Company entered into a lease agreement for additional office space in Cambridge, Massachusetts. The lease commenced in January 2022 and is set to expire in July 2025. The lease includes an option to extend the lease term for one period of three years at the then prevailing market rate. The lease called for a security deposit of $0.5 million. The lease was amended in March 2022 to increase the monthly minimum rent payment amount. Total minimum rental payments over the initial lease term are expected to be $5.7 million. Initial Public Offering —In January 2022, the Company completed an initial public offering of its common stock, in which the Company issued and sold 11,369,369 shares, at $19.00 per share. After deducting underwriting discounts and commissions and estimated offering expenses, the Company received net proceeds of approximately $196.9 million. Upon the completion of the Company's initial public offering, all of the Company's outstanding shares of preferred stock were converted into shares of its common stock. F- 31