What changed in this filing

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Item 1. Financial Statements

2022-05-11 compared with 2021-11-17 · 220 added, 384 removed, 275 unchanged (69% of the section changed)

4 unchanged sentences

(in thousands, except share and per share amounts)

September 30, 2021

March 31, 2022

December 31, 2021

2 unchanged sentences

Grant receivables

Prepaid expenses

Prepaid expenses and other current assets

Other receivables

Other current assets

Total current assets

Deferred offering costs

Property and equipment, net

Liabilities, Convertible Preferred Stock, and Stockholders’ Deficit

Right-of-use assets, operating leases

Liabilities and Stockholders’ Equity

Current liabilities

1 unchanged sentence

Accrued expenses

Deferred grant income, current

Operating lease liabilities, current

Other current liabilities

Total current liabilities

Simple Agreements for Future Equity

Paycheck protection program loan

Derivative liability

Convertible notes, net

Accrued interest

Operating lease liabilities, noncurrent

Deferred grant income and other liabilities, noncurrent

Total liabilities

Commitments and contingencies

Convertible preferred stock:

Series A convertible preferred stock, par value $ 0.001 per share, 3,067,519 shares authorized at September 30, 2021 and December 31, 2020, 2,819,027 shares issued and outstanding as of September 30, 2021 and December 31, 2020;

liquidation preference of $ 5,051 as of September 30, 2021

Series A-1 convertible preferred stock, par value $ 0.001 per share, 3,970,776 shares authorized at September 30, 2021 and December 31, 2020, 3,730,366 shares issued and outstanding as of September 30, 2021 and December 31, 2020;

liquidation preference of $ 5,906 as of September 30, 2021

Series A-2 convertible preferred stock, par value $ 0.001 per share, 3,565,063 shares authorized at September 30, 2021 and December 31, 2020, 3,565,063 shares issued and outstanding as of September 30, 2021 and December 31, 2020;

liquidation preference of $ 6,355 as of September 30, 2021

Series B convertible preferred stock, par value $ 0.001 per share, 30,450,000 shares authorized at September 30, 2021 and December 31, 2020, 30,409,890 shares issued and outstanding as of September 30, 2021 and December 31, 2020;

liquidation preference of $ 43,269 as of September 30, 2021

Series B-1 convertible preferred stock, par value $ 0.001 per share, 10,928,155 and 0 shares authorized at September 30, 2021 and December 31, 2020, respectively, 10,926,089 and 0 shares issued and outstanding as of September 30, 2021 and December 31, 2020;

liquidation preference of $ 16,038 as of September 30, 2021

Total convertible preferred stock

Stockholders’ deficit:

Common stock, $ 0.001 par value, 70,000,000 and 58,000,000 shares authorized at September 30, 2021 and December 31, 2020, respectively;

615,907 and 538,793 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively

Commitments and contingencies (Note 6)

Stockholders’ equity:

Preferred stock, $ 0.001 par value, 10,000,000 shares authorized;

no shares issued and outstanding at March 31, 2022 and December 31, 2021

Common stock, $ 0.001 par value, 250,000,000 shares authorized;

22,578,584 and 22,230,032 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively

Additional paid-in capital

1 unchanged sentence

Accumulated other comprehensive loss

Total stockholders’ deficit

Total liabilities, convertible preferred stock, and stockholders’ deficit

Total stockholders’ equity

Total liabilities and stockholders’ equity

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

3 unchanged sentences

(in thousands, except share and per share amounts)

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Operating Expenses:

5 unchanged sentences

Change in the fair value of the derivative liability

Change in the fair value of the warrant liability

Change in the fair value of the Simple Agreements for Future Equity

Other income, net

Gain (loss) on debt extinguishment

Other (expense) income, net

Gain on debt extinguishment

Interest expense, net

Total other income, net

Loss before income tax

Income tax expense

Net (loss) income

Cumulative preferred stock dividends

Net loss attributable to common stockholders

Unrealized (loss) gain on foreign currency translation

Total comprehensive loss

Unrealized gain (loss) on foreign currency translation

Total comprehensive (loss) income

Net loss per share attributable to common stockholders, basic and diluted

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AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT

CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT )

(in thousands, except share amounts)

Preferred Stock

Comprehensive

5 unchanged sentences

Balances as of March 31, 2022

Exercise of common stock warrants

Equity-based compensation

Issuance of Series B-1 Convertible Preferred Stock upon conversion of debt

Other comprehensive loss

Balances as of June 30, 2021

Exercise of stock options

Exercise of common stock warrants

Equity-based compensation

Other comprehensive loss

Balances as of September 30, 2021

Preferred Stock

5 unchanged sentences

Balances as of December 31, 2020

Exercise of stock options

Equity-based compensation

Accretion of convertible preferred stock to redemption value

Other comprehensive loss

Balances as of March 31, 2021

Exercise of stock options

Exercise of common stock warrants

Equity-based compensation

Accretion of convertible preferred stock to redemption value

Other comprehensive gain

Balances as of June 30, 2020

Exercise of stock options

Equity-based compensation

Accretion of convertible preferred stock to redemption value

Other comprehensive gain

Balances as of September 30, 2020

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

3 unchanged sentences

(in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from operating activities:

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

Net (loss) income

Adjustments to reconcile net (loss) income to net cash used in operating activities:

Depreciation and amortization

Equity-based compensation

Amortization of right-of-use assets

Amortization of debt issuance costs

1 unchanged sentence

Change in the fair value of the derivative liability

Change in the fair value of the warrant liability

Change in the fair value of the Simple Agreements for Future Equity

(Gain) loss on debt extinguishment

Equity-based compensation

Gain on debt extinguishment

Changes in operating assets and liabilities:

3 unchanged sentences

Accounts payable

Accrued expenses and interest

Accrued expenses

Other current liabilities

Deferred grant income, current

Other noncurrent liabilities

Operating lease liabilities

Net cash used in operating activities

3 unchanged sentences

Cash flows from financing activities:

Payments on capital lease obligation

Proceeds from the exercise of common stock options

Payments on loan payable

Proceeds from issuance of Simple Agreements for Future Equity

Proceeds from the exercise of stock warrants

Proceeds from the exercise of stock options

Proceeds from the issuance of convertible notes

Deferred offering costs

Debt issuance costs related to convertible notes

Net cash provided by financing activities

Net cash (used in) provided by financing activities

Effect of exchange rate changes on cash and cash equivalents

Net increase in cash and cash equivalents

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents

2 unchanged sentences

Supplemental disclosures of non-cash financing activities:

Non-cash accretion of convertible preferred stock to redemption value

Deferred offering costs included in accounts payable

Issuance of Series B-1 Convertible Preferred Stock upon conversion of debt

Accrued issuance costs related to Simple Agreements for Future Equity

Deferred offering costs included in accounts payable and accrued expenses

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

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On July 14, 2015, the Company formed Cognition Therapeutics PTY LTD, as its wholly owned subsidiary (the “Subsidiary”), primarily for the purpose of conducting research and development efforts at facilities located in Australia.

Assets and liabilities of the Company’s Australian subsidiary, which uses the Australian dollar as its local functional currency, are translated to United States (U.S.) dollars at year-end exchange rates.

Assets and liabilities of the Subsidiary, which uses the Australian dollar as its local functional currency, are translated to United States (U.S.) dollars at year-end exchange rates.

Income statement accounts are translated using the average exchange rates prevailing during the month in which income and expenses are generated.

Translation adjustments are recorded to accumulated other comprehensive income (loss) (“AOCI”) within stockholders’ deficit.

Translation adjustments are recorded to accumulated other comprehensive income (loss) (“AOCI”) within stockholders’ equity (deficit).

Gains and losses from foreign currency transactions are included in net loss as a part of other income, net.

On October 13, 2021, the Company closed its initial public offering (“IPO”) of 3,768,116 shares of the Company’s common stock at a public offering price of $ 12.00 per share.

The gross proceeds from the IPO, including the overallotment exercise, were $ 45.2 million and the net proceeds were approximately $ 38.1 million, after deducting underwriting discounts and commissions and other offering related expenses payable by the Company.

Upon completion of the IPO, all of the Company’s then outstanding preferred stock as of September 30, 2021 was automatically converted into an aggregate of 15,906,537 shares of common stock and an aggregate amount of $ 8.9 million of simple agreements for future equity (“SAFEs”), as of September 30, 2021, was automatically converted into an aggregate of 931,485 shares of common stock (see Note 13).

The gross proceeds from the IPO, excluding the over-allotment exercise, were $ 45,217 and the net proceeds were approximately $ 37,909 , after deducting underwriting discounts and commissions and other offering related expenses payable by the Company.

Upon completion of the IPO, all of the Company’s then outstanding preferred stock was automatically converted into an aggregate of 15,906,537 shares of common stock and an aggregate amount of $ 8,942 of simple agreements for future equity (“SAFEs”) was automatically converted into an aggregate of 931,485 shares of common stock.

On November 10, 2021, the representative of the underwriters for the IPO provided notice to the Company that it had elected to exercise its over-allotment option in full to purchase 565,217 shares of the Company’s common stock.

The representative’s exercise of the over-allotment option closed on November 12, 2021, resulting in gross proceeds of $ 6.8 million and net proceeds to the Company of approximately $ 6.3 million, after deducting underwriting discounts and commissions and other offering related expenses.

The Company held cash and cash equivalents of $ 8.3 million at September 30, 2021.

The Company expects that its cash and cash equivalents, including the net proceeds from its IPO, will enable it to fund its operating expenses and capital expenditure requirements for at least twelve months from November 17, 2021, the filing date of this Quarterly Report on Form 10-Q.

The representative’s exercise of the over-allotment option closed on November 12, 2021, resulting in gross proceeds of $ 6,783 and net proceeds to the Company of approximately $ 6,308 , after deducting underwriting discounts and commissions and other offering related expenses.

The Company held cash and cash equivalents of $ 51,509 at March 31, 2022.

The Company expects that its cash and cash equivalents, including the net proceeds from its IPO, will enable it to fund its operating expenses and capital expenditure requirements through at least the one year period subsequent to the filing date of this Form 10-Q.

However, additional funding will be necessary beyond this point to fund future preclinical and clinical activities.

The Company expects to finance its future cash needs through a combination of equity or debt financings, collaboration agreements, strategic alliances and licensing arrangements.

The Company expects to finance its future cash needs through a combination of grant awards, equity or debt financings, collaboration agreements, strategic alliances and licensing arrangements.

Summary of Significant Accounting Policies

The Company’s significant accounting policies are disclosed in the audited financial statements for the year ended December 31, 2020, which are contained in the Company’s final prospectus for its IPO, dated October 7, 2021, and filed with the Securities and Exchange Commission (“SEC”) pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended (the “Prospectus”).

Since the date of those financial statements, there have been no changes to its significant accounting policies.

Basis of Presentation

The accompanying consolidated financial statements as of September 30, 2021, and for the three and nine months ended September 30, 2021 and 2020, have been prepared in accordance with the rules and regulations of the SEC and generally accepted accounting principles in the United States of America (“U.S.

The accompanying consolidated financial statements as of March 31, 2022, and for the three months ended March 31, 2022 and 2021, have been prepared in accordance with the rules and regulations of the Securities Exchange and Commission (“SEC”) and generally accepted accounting principles in the United States of America (“U.S.

GAAP”) for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X.

Accordingly, they do not include all of the information and footnotes required by U.S.

GAAP for complete financial statements.

In the opinion of the Company’s management, the accompanying unaudited interim consolidated financial statements contain all adjustments that are necessary to present fairly the Company’s financial position as of September 30, 2021, the statements of operations and comprehensive loss and convertible preferred stock and stockholders’ deficit for the three and nine months ended September 30, 2021 and 2020, and the statement of cash flows for the nine months ended September 30, 2021 and 2020.

In the opinion of

the Company’s management, the accompanying unaudited interim consolidated financial statements contain all adjustments that are necessary to present fairly the Company’s financial position as of March 31, 2022, the statements of operations and comprehensive loss and convertible preferred stock and stockholders’ equity (deficit), and cash flows for the three months ended March 31, 2022 and 2021.

Such adjustments are of a normal and recurring nature.

The results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results for the year ending December 31, 2021, or for any future period.

These interim financial statements should be read in conjunction with the audited financial statements as of and for the year ended December 31, 2020, and the notes thereto, which are included in the Prospectus.

The results for the three months ended March 31, 2022 are not necessarily indicative of the results for the year ending December 31, 2022, or for any future period.

These interim financial statements should be read in conjunction with the audited financial statements as of and for the year ended December 31, 2021, and the notes thereto, which are included on Form 10-K filed with the SEC on March 30, 2022.

Use of Estimates

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The Company expects all receivables to be collectible, and accordingly, there is no allowance for doubtful accounts required on these grant receivables.

Other Receivables

Other receivables consist of research and development tax credits from the Commonwealth of Pennsylvania and the Australian research and development tax credit from the Australian Tax Authority.

Historically, the Company has sold the Pennsylvania tax credits to third parties, while the Australian tax refund is paid directly to the Company by the Australian Tax Authority.

Research and development tax refunds and credits are carried at their estimated collectible amounts.

The Company expects all receivables to be collectible and accordingly, there is no allowance for doubtful accounts required on these other receivables.

Deferred Offering Costs

The Company capitalizes certain legal, accounting and other third-party fees that are directly associated with in-process equity financings, including the 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 in the consolidated statement of operations and comprehensive loss.

During the three and nine months ended September 30, 2021, the Company incurred $ 769 and $ 3,210 of deferred offering costs in connection with

its IPO registration process, respectively.

During the three and nine months ended September 30, 2020, the Company incurred $ 0 of deferred offering costs.

Property and Equipment

5 unchanged sentences

If expected cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of the assets.

There were no indicators of impairment of long-lived assets during the three and nine months ended September 30, 2021 or 2020.

There were no indicators of impairment of long-lived assets during the three months ended March 31, 2022 or 2021.

Convertible Instruments

1 unchanged sentence

The Company also follows ASC 480-10, Distinguishing Liabilities from Equity (“ASC 480-10”) when evaluating the accounting for its hybrid instruments.

A financial instrument that embodies an unconditional obligation, or a financial instrument other than an outstanding share that embodies a conditional obligation, that the issuer must or may settle by issuing a variable number of its equity shares shall be classified as a liability (or an asset in some circumstances) if, at inception, the monetary value of the obligation is based solely or predominantly on any one of the following:

(a) a fixed monetary amount known at inception;

2 unchanged sentences

Hybrid instruments meeting these criteria are not further evaluated for any embedded derivatives and are carried as a liability at fair value at each balance sheet date.

Debt Issuance Costs and Discounts

The Company incurred third-party costs in connection with the convertible notes as described in Note 6.

These costs are classified on the balance sheet as a direct deduction from the convertible notes and amortized over the term of the agreement as interest expense using the effective interest rate method.

Discounts related to bifurcated derivatives resulting from the convertible note issuances are recorded as a reduction to the carrying value of the debt and amortized over the life of the debt using the effective interest method.

Warrants Issued in Connection with Financings

The Company generally accounts for warrants issued in connection with debt and equity financings as a component of equity, unless the warrants include specific features, such as if the warrants are exercisable for securities that are considered contingently redeemable.

For warrants that are exercisable for securities that are considered contingently redeemable, the Company records the fair value of the warrants as a liability at each balance sheet date and records changes in fair value in other income (expense) in the consolidated statement of operations and comprehensive loss.

Convertible Preferred Stock

The Company has classified convertible preferred stock outside of stockholders’ deficit in the accompanying balance sheets due to the convertible preferred stock’s redemption features.

Originally, the convertible preferred stock was eligible to become redeemable at the holders’ option at any time after March 20, 2021.

This right was removed in

connection with an amendment to the Company’s articles of incorporation on July 29, 2020.

Pre-amendment, the convertible preferred stock was redeemable due to the passage of time, and therefore, the Company recorded changes in the redemption value and accreted the convertible preferred stock immediately to the redemption value during each period presented.

These increases were affected through charges against retained earnings, if any, and then to additional paid-in capital.

In the absence of additional paid-in capital, the accretion is charged to accumulated deficit.

Post-amendment, the convertible preferred stock is considered to be contingently redeemable only upon the occurrence of a deemed liquidation event (Note 7).

As a result, the Company ceased accreting the convertible preferred stock on July 29, 2020.

To evaluate whether the changes to the terms of the preferred stock should be accounted for as a modification or extinguishment, the Company follows the qualitative approach, in which amendments to preferred shares are analyzed based on the expected economics as well as the business purpose of the amendment.

The Company concluded that the amendment did not result in a significant change to the fundamental nature of the preferred stock, and accordingly, the amendment was accounted for as a modification, and there was no accounting impact for the modification.

For the three and nine months ended September 30, 2021, the Company generated grant income of $ 3,037 and $ 12,375 , respectively, from reimbursements from the National Institute of Health (“NIH”) for aging research.

For the three and nine months ended September 30, 2020, the Company generated grant income of $ 3,192 and $ 8,146 , respectively.

For the three months ended March 31, 2022 and 2021, the Company generated grant income of $ 5,904 and $ 4,692 , respectively, primarily from reimbursements from the National Institute of Aging (“NIA”), a division of the National Institutes of Health, or NIH, for aging research.

The Company records grant income in other income (expense) in the period in which the reimbursable research and development services are incurred and the right to payment is realized.

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Only costs that are allowable under the grant award, certain government regulations and the NIH’s supplemental policy and procedure manual may be claimed for reimbursement, and the reimbursements are subject to routine audits from governmental agencies from time to time.

Deferred grant income represents grant proceeds received by the Company prior to the period in which the reimbursable research and development services are incurred.

As of March 31, 2022, the Company has been awarded grants with project periods that extend through May 31, 2025, subject to extension.

Research and Development Costs

5 unchanged sentences

Costs for certain research and development activities are recognized based on the pattern of performance of the individual arrangements, which may differ from the pattern of billings incurred, and are reflected in the consolidated financial statements as prepaid expenses or as accrued research and development expenses.

The Company adopted Accounting Standards Update (ASU) No.

2016-02, Leases (Topic 842) using the optional transition method of the modified retrospective approach, as of January 1, 2022.

Accordingly, prior periods will not be restated to reflect the adoption of the standard.

The Company elected the practical expedient to not apply the recognition requirements in the leasing standards to short-term leases (a lease that at commencement date has a lease term of 12 months or less and does not contain a purchase option that it is reasonably certain to exercise) and the practical expedient that permits lessees to make an accounting policy election (by class of underlying asset) to not separate lease components of a contract from non-lease components.

The Company determines if an arrangement is a lease at contract inception.

The Company’s contracts are determined to contain a lease when all of the following criteria based on the specific circumstances of the arrangement are met:

(1) there is an identified asset for which there are no substantive substitution rights;

(2) the Company has the right to obtain substantially all of the economic benefits from the identified asset;

and (3) the Company has the right to direct the use of the identified asset.

At the commencement date, operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of future lease payments over the expected lease term.

The Company’s lease agreements do not

provide an implicit rate.

As a result, the Company utilizes an estimated incremental borrowing rate, or IBR, to discount lease payments, which is based on the rate of interest the Company would have to pay to borrow a similar amount on a collateralized basis over a similar term.

Certain adjustments to the right-of-use asset may be required for items such as initial direct costs paid or lease incentives received.

Operating lease cost is recognized over the expected term on a straight-line basis.

Variable lease cost is recognized as incurred.

The expected lease term for those leases commencing prior to January 1, 2022 did not change with the adoption of the new leasing standards.

As a result of the adoption of the new leasing standard, on January 1, 2022, the Company recorded a right-of-use asset of $ 616 and operating lease liabilities of $ 616 .

The adoption did not have a material impact on the condensed consolidated statement of operations or cash flows.

For additional information on the adoption of the new leasing standard, refer to Note 6.

The Company will continue to report financial information for fiscal years ended before December 31, 2021 under ASC 840.

Impact of Adoption of ASC 842 on the Consolidated Financial Statements

Prior to adoption

Adjustment for adoption

of new leasing

Right-of-use assets (1)

Deferred rent (2)

Operating lease liabilities (3)

Operating lease liabilities, net of current portion (3)

(1) Represents recognition of operating lease right-of-use assets.

(2) Represents reclassification of deferred rent to operating lease.

(3) Represents recognition of operating lease liabilities.

Equity-based Compensation

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Black-Scholes requires inputs based on certain subjective assumptions, including (i) the expected stock price volatility, (ii) the expected term of the award, (iii) the risk-free interest rate and (iv) expected dividends.

Due to the lack

of a public market for the Company’s common stock and lack of company specific historical and implied volatility data, the Company has based its computation of expected volatility on the historical volatility of a representative group of public companies with similar characteristics to the Company, including stage of product development and life science industry focus.

Due to a lack of sufficient public market data for the Company’s common stock and lack of company-specific historical and implied volatility data, the Company has based its computation of expected volatility on the historical volatility of a representative group of public companies with similar characteristics to the Company, including stage of product development and life science industry focus.

The historical volatility is calculated based on a period of time commensurate with expected term assumption.

3 unchanged sentences

The expected dividend yield is assumed to be zero as the Company has never paid dividends and has no current plans to pay any dividends on its common stock.

Due to the absence of an active market for the Company’s common stock, the Company utilized methodologies in accordance with the framework of the American Institute of Certified Public Accountants Technical Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation , to estimate the fair value of its common stock.

Prior to the IPO, due to the absence of an active market for the Company’s common stock, the Company utilized methodologies in accordance with the framework of the American Institute of Certified Public Accountants Technical Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation , to estimate the fair value

of its common stock.

In determining the exercise prices for stock options granted, the Company has considered the estimated fair value of the common stock as of the measurement date.

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Significant changes to the key assumptions underlying the factors used could result in different fair values of common stock at each valuation date.

Subsequent to the IPO, the board of directors will determine the fair value of the shares of common stock underlying the stock-based awards based off of the closing price as reported on the Nasdaq Stock Market LLC on the grant date.

Concentration of Credit Risk

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Unobservable inputs reflect the entity’s own assumptions based on market data and the entity’s judgments about the assumptions that market participants would use in pricing the asset or liability and are to be developed based on the best information available in the circumstances.

The carrying value of the Company’s cash and cash equivalents, grants receivable, prepaid expense, other receivables, other current assets, accounts payable, accrued expenses and other current liabilities approximate fair value because of the short-term maturity of these financial instruments.

In addition, the Company records its warrant liability, derivative liability, and SAFEs at fair value.

The carrying value of the Company’s cash and cash equivalents, grants receivable, prepaid expense, other receivables, other current assets, accounts payable, accrued expenses, deferred grant income, and other current liabilities approximate fair value because of the short-term maturity of these financial instruments.

In addition, the Company records its derivative liability and SAFEs at fair value.

The valuation hierarchy is composed of three levels.

5 unchanged sentences

● Level 3 — Inputs to the fair value measurement are unobservable inputs, such as estimates, assumptions, and valuation techniques when little or no market data exists for the assets or liabilities.

Comprehensive Loss

The Company recorded $ 3 and $ 9 in other comprehensive loss related to foreign currency translation for the three and nine months ended September 30, 2021, respectively.

The Company recorded $ 18 in other comprehensive gain and $ 40 in other comprehensive loss for the three and nine months ended September 30, 2020, respectively.

The Company presents comprehensive loss in a single statement within its consolidated financial statements.

Net Loss Per Share Attributable to Common Stockholders

1 unchanged sentence

Diluted net loss attributable to common shares includes the effect, if any, from the potential exercise or conversion of securities, such as convertible preferred stock and stock options, which would result in the issuance of incremental shares of common stock.

For diluted net loss per share, the weighted-average number of shares of common stock is the same for basic net loss per share due to the fact that when a net loss exists, dilutive securities are not included in the calculation as the impact is anti-dilutive.

The Company’s convertible preferred stock entitles the holder to participate in dividends and earnings of the Company, and, if the Company were to recognize net income attributable to common stockholders, it would have to use the two-class method to calculate earnings per share.

The two-class method is not applicable during periods with a net loss attributable to common stockholders, as the holders of the convertible preferred stock have no obligation to fund losses.

For diluted net loss attributable to common stockholders, the weighted-average number of shares of common stock is the same for basic net loss attributable to common stockholders, due to the fact that when a net loss exists, dilutive securities are not included in the calculation as the impact is anti-dilutive.

The Company’s convertible preferred stock entitles the holder to participate in dividends and earnings of the Company, and, if the Company were to recognize net income, it would have to use the two-class method to calculate earnings per share.

The two-class method is not applicable during periods with a net loss, as the holders of the convertible preferred stock have no obligation to fund losses.

The Company has determined that it operates and manages one operating segment, which is the business of developing and commercializing therapeutics.

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A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term.

2016-02 is effective for the Company for annual periods beginning after December 15, 2021.

Early adoption is permitted.

The Company expects to adopt this guidance when effective and is assessing what effect the adoption of ASU 2016-02 will have on its consolidated financial statements and accompanying notes.

The Company expects to record right-of-use assets and liabilities upon adoption.

In June 2018, the FASB issued ASU 2018-07, Compensation — Stock Compensation (Topic 718) Improvements to Nonemployee Share-Based Payment Accounting.

The new ASU simplifies the accounting for share-based payments to non-employees by aligning it with the accounting for share-based payments to employees, with certain exceptions.

The Company adopted the standard on January 1, 2020 and it did not have a material impact on the Company’s financial condition, results of operations and cash flows.

In August 2018, the FASB issued ASU No.

2018-13, Fair Value Measurement (Topic 820).

This standard modifies disclosure requirements related to fair value measurement and is effective for all entities for fiscal years beginning after December 15, 2019.

Among other things, ASU 2018-13 requires public entities to disclose the range and weighted average used to develop significant unobservable inputs for level 3 fair value measurements, while eliminating the requirement for public entities to disclose the amount of and reasons for transfers between level 1 and level 2 of the fair value hierarchy.

Implementation on a prospective or retrospective basis varies by specific disclosure requirement.

The standard also allows for early adoption of any removed or modified disclosures upon issuance while delaying adoption of the additional disclosures until their effective date.

The Company adopted this guidance on January 1, 2020 and the adoption did not have a material impact on its financial statements.

In August 2020, the FASB issued ASU 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.

This ASU simplifies the accounting for certain convertible instruments.

ASU 2020-06 will be effective for fiscal years beginning after December 15, 2021, with early adoption permitted for interim and annual reporting periods beginning after December 15, 2020.

The Company adopted ASU 2020-06 on January 1, 2021, and the adoption did not have a material impact on the Company’s consolidated financial statements and related disclosures.

In October 2020, the FASB issued ASU 2020-10, Codification Improvements , which updates various codification topics by clarifying or improving disclosure requirements to align with the SEC’s regulations.

The Company adopted ASU 2016-02 on January 1, 2022.

The adoption of ASU 2020-10 did not have a material impact on the Company’s consolidated financial statements and related disclosures.

All other new accounting pronouncements issued, but not yet effective or adopted have been deemed to be not relevant to the Company and, accordingly, are not expected to have a material impact once adopted.

For additional information on the adoption of the new leasing standards, please refer to section titled “Leases” above, and Note 6.

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt – Modifications and Extinguishments (Subtopic 470-50), Compensation – Stock Compensation (Topic 718), and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40) :

Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options.

This ASU clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange.

ASU 2021-04 is effective for fiscal years beginning after December 15, 2021, with early adoption permitted for all entities.

The Company adopted ASU 2021-04 as of the reporting period beginning January 1, 2022.

The adoption of this update did not have a material effect on the Company’s financial statements.

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832) :

Disclosures by Business Entities about Government Assistance.

This ASU increases the transparency of government assistance including the disclosure of (1) the types of assistance, (2) an entity’s accounting for the assistance, and (3) the effect of the assistance on an entity’s financial statements.

The disclosure requirements can be applied either retrospectively or prospectively to

all transactions in the scope of the amendments that are reflected in the financial statements at the date of initial application and new transactions entered into after the date of initial application.

The Company adopted ASU 2021-10 prospectively as of the reporting period beginning January 1, 2022.

The adoption of this update and the additional annual disclosure requirements are not expected to have a material effect on the Company’s financial statements.

Reverse Stock Split

In July 2021, the Company's board of directors approved an amendment to the Company's second amended and restated certificate of incorporation to effect a 1 -for-3.2345 reverse stock split of the Company's common stock, which was effected on October 1, 2021 with a filing made with the Secretary of State of the State of Delaware.

Stockholders entitled to fractional shares as a result of the reverse stock split will receive a cash payment in lieu of receiving fractional shares.

Stockholders entitled to fractional shares as a result of the reverse stock split received a cash payment in lieu of receiving fractional shares.

The par value of the common stock was not adjusted as a result of the reverse stock split.

Shares of common stock underlying outstanding stock options and other equity instruments were proportionately reduced and the respective exercise prices, if applicable, were proportionately increased in accordance with the terms of the appropriate securities agreements.

Shares of common stock reserved for issuance upon the conversion of our convertible preferred stock were

proportionately reduced and the respective conversion prices were proportionately increased.

All common share and per share data have been retrospectively revised to reflect the reverse stock split.

Shares of common stock reserved for issuance upon the conversion of our convertible preferred stock were proportionately reduced and the respective conversion prices were proportionately increased.

All shares of common stock and per share data have been retrospectively revised to reflect the reverse stock split.

In accordance with ASC 270, Interim Reporting , and ASC 740, Income Taxes , the Company is required at the end of each interim period to determine the best estimate of its annual effective tax rate, apply that rate in providing for income taxes on a current year-to-date (interim period) basis, and including the tax impact for discrete items within the interim period.

For the three months ended March 31, 2022, the Company recorded income tax expense of $ 125 related to a certain state, and there was no income tax expense or benefit recorded during the three months ended March 31, 2021.

The Company maintains a full valuation allowance against all deferred tax assets as of March 31, 2022 and December 31, 2021, as management has determined that it is not more likely than not that the Company will realize these future tax benefits.

As of March 31, 2022 and December 31, 2021, the Company had no uncertain tax positions.

Financial Instruments and Fair Value Measurements

Financial assets and liabilities measured at fair value are summarized below:

As of September 30, 2021

As of March 31, 2022

Quoted Priced in

3 unchanged sentences

Money market funds

Simple Agreements for Future Equity

Total liabilities

As of December 31, 2021

4 unchanged sentences

Money market funds

Derivative liability

Total liabilities

The following table sets forth a summary of the changes in fair value of the Level 3 liabilities for the nine months ended September 30, 2021 and 2020:

Nine Months Ended September 30, 2021

The following table sets forth a summary of the changes in fair value of the Level 3 liabilities for the three months ended March 31, 2021:

Three Months Ended March 31, 2021

Balance at December 31, 2020

Change in the fair value of the warrant liability

Fair value recognized upon the issuance of SAFE

Change in the fair value of the liability

Balance at September 30, 2021

Nine Months Ended September 30, 2020

Balance at December 31, 2019

Change in the fair value of the warrant liability

Fair value recognized upon the issuance of Convertible Notes

Change in the fair value of the liability

Balance at September 30, 2020

Change in the fair value of the derivative liability

Balance at March 31, 2021

Derivative Liability — The Company recognizes derivative liabilities as a result of the issuance of the convertible notes that contain conversion and redemption features that are required to be bifurcated.

7 unchanged sentences

Changes in fair value are recognized as a gain or loss within other income (expense) on the consolidated statements of operations and comprehensive loss.

The derivative liability expired unexercised upon the conversion of the convertible notes into Series B-1 Convertible Preferred Stock in May of 2021 (Note 7).

Warrant Liability — The Company issued 180,724 Series A-1 preferred stock warrants in December 2010.

The Company recorded a change in fair value adjustment of $ 1 and $ 33 in the consolidated statement of operations and comprehensive loss for the three and nine months ended September 30, 2020, respectively.

The warrants expired unexercised in October 2020.

The derivative liability expired unexercised upon the conversion of the convertible notes into Series B-1 Convertible Preferred Stock in May of 2021.

Simple Agreements for Future Equity — On March 25, 2021, the Company entered into SAFEs with existing investors, pursuant to which the Company received gross proceeds in an aggregate amount equal to $ 8,942 .

1 unchanged sentence

(1) probability of occurrence of future events (such as a change of control or public offering), and (2) discount rate for implied return required by investor.

The Company recorded a change in fair value adjustment of $ 932 and $ 1,976 in the consolidated statement of operations and comprehensive loss for the three and nine months ended September 30, 2021, respectively.

The fair value of the SAFEs was determined using a probability weighted expected return method (PWERM), in which the probability and timing of potential future events is considered in order to estimate the fair value of the SAFEs as of each valuation date.

Management determined the fair value of the SAFEs using the following significant unobservable inputs:

September 30,

Expected term (in years)

5 unchanged sentences

Probability of change of control occurrence

In addition, the Company recorded the Series B-1 convertible preferred stock within mezzanine equity at fair value on the date of issuance, May 1, 2021 (Note 7).

There was no change in fair value of the SAFEs from the March 25, 2021 issuance date until March 31, 2021.

In addition, the Company recorded the Series B-1 convertible preferred stock within mezzanine equity at fair value on the date of issuance, May 1, 2021.

This non-recurring fair value measure was based on level 3 unobservable inputs.

1 unchanged sentence

Accrued expense consists of the following as of:

September 30,

Employee compensation, benefits, and related accruals

Research and development costs

Income taxes payable

Professional fees

Other accrued

Other Current Liabilities

In October 2021, the Company entered into an insurance premium financing agreement with a lender.

Under the agreement, the Company financed $ 1,453 of certain premiums at a 3.25 % annual interest rate.

Payments of approximately $ 134 are due monthly from October 2021 through September 2022.

As of March 31, 2022 and December 31, 2021, respectively, the outstanding principal of the loan was $ 799 and $ 1,191 and is included in other current liabilities on the consolidated balance sheet.

Commitments and Contingencies

The Company has operating leases for its office and laboratory facilities under agreements that run through February 28, 2029.

Minimum lease commitments consisted of the following as of September 30, 2021:

Operating Leases

The Company’s corporate headquarters is located in Purchase, New York where we currently occupy 2,864 square feet of office space under a lease that expires in May, 2029.

The Company also leases approximately 6,068 square feet of laboratory and office space located in Pittsburgh, Pennsylvania under leases that expire in June, 2023.

Amounts reported in the consolidated balance sheets for leases where the Company is the lessee as of March 31, 2022 were as follows, in thousands:

As of March 31,

Operating lease assets

Total operating lease assets

Operating lease liabilities

Operating lease liabilities, net of current

Total operating lease liabilities

The following table summarizes operating lease costs for the three months ended March 31, 2022:

Three Months Ended

March 31, 2022

Operating lease costs

Variable lease costs

Total lease costs

Rent expense for the three months ended March 31, 2021 was $ 34 .

The maturities of the operating lease liabilities and minimum lease payments as of March 31, 2022 were as follows:

For the Years Ended December 31,

Operating Leases

Total lease commitments

Rent expense was $ 34 and $ 116 for the three and nine months ended September 30, 2021, respectively, and $ 40 and $ 145 for the three and nine months ended September 30, 2020, respectively.

2022 (remaining)

Total undiscounted lease payments

Imputed interest

Present value of operating lease liabilities

The following table summarizes the lease term and discount rate as of March 31, 2022:

As of March 31,

Weighted-average remaining lease term (years)

Operating leases

Weighted-average discount rate

Operating leases

The following table summarizes cash paid for amounts included in the measurement of the Company’s operating lease liabilities for the three months ended March 31, 2022:

Three Months Ended March 31, 2022

(in thousands)

Operating cash flows used for operating leases

Litigation and Contingencies

From time to time, the Company may be involved in disputes or regulatory inquiries that arise in the ordinary course of business.

1 unchanged sentence

When a material loss contingency is only reasonably possible, the Company does not record a liability but instead discloses the nature and the amount of the claim and an estimate of the loss or range of loss, if such an estimate can reasonably be made.

As of September 30, 2021 and December 31, 2020, there was no litigation or contingency with at least a reasonable possibility of a material loss.

On March 8, 2018, the Company entered into a Convertible Note Purchase Agreement (the “Original Agreement”) with existing investors of the Company.

Under the terms of the Original Agreement, the Company agreed to issue up to $ 5,000 in principle Convertible Notes (the “Original Notes”).

The Original Notes accrued interest at 4.0 % per annum from the date of issuance with a maturity date of February 27, 2020 (subsequently extended — see below).

The Company issued $ 2,965 in Original Notes in March and April 2018.

Under the terms of the Original Agreement, the following features were included:

● Automatic conversion into equity securities upon the closing of an equity financing with aggregate gross proceeds of at least $ 10,000 , at the conversion price equal to 90.0 % of the lowest price per share of the equity financing securities sold (a “Automatic Conversion Upon a Qualified Financing”);

● Optional conversion into equity securities upon the closing of an equity financing that does not constitute a Qualified Financing at a conversion price equal to 90.0 % of the price per share of the equity financing securities sold (a “Optional Conversion Upon a Non-Qualified Financing”);

● Optional conversion of the unpaid principal balance plus accrued and unpaid interest to into B-1 Convertible Preferred Stock at a conversion price of $ 1.385 per share or redemption of the unpaid principal balance plus accrued and unpaid interest if (i) a transaction results in any person or group with over 50.0 % voting power, (ii) any consolidation or merger transaction, or (iii) a sale or transfer of substantially all of the Company’s assets (“Option Conversion or Redemption”) Optional conversion of the unpaid principal balance plus accrued and unpaid interest to into Series B-1 convertible preferred stock at a conversion price of $ 1.385 per share or redemption of the unpaid principal balance plus accrued and unpaid interest if (i) a transaction results in any person or group with over 50.0 % voting power, (ii) any consolidation or merger transaction, or (iii) a sale or transfer of substantially all of the Company’s assets (“Option Conversion or Redemption”);

● Automatic redemption of unpaid principal and all accrued and unpaid interest upon maturity, liquidation, dissolution, winding up, or event of default (“Automatic Redemption”).

On November 15, 2018, the Company entered into a Convertible Note Purchase Agreement (the “Additional Agreement”) with existing investors of the Company.

Under the terms of the Additional Agreement, the Company agreed to issue up to an aggregate of $ 8,000 in principle Convertible Notes (the “Additional Notes”).

In connection with the Additional Agreement, the Company amended the Original Notes (the “Amendment”).

The Amendment resulted in the following changes to the Original Notes:

● the interest rate of the Original Notes accrue interest at 4.0 % from issuance to November 15, 2018, and accrue interest at 8.0 % from November 15, 2018 to maturity or conversion;

● the conversion price was amended to 80.0 % of the price per share in connection with conversion of the notes upon a Qualified or Non-Qualified Financing;

● the holder’s option upon a sale event to receive repayment, at two times the principal plus accrued and unpaid interest, (“Optional Redemption Upon a Sales Transaction”);

● a condition that each holder of $ 1,000 in aggregate principal must be included in the 66 2/3% of the holders of the principal amount of the Notes to provide consent to make any further amendments or waivers.

On February 27, 2020, the Company entered into a Convertible Note Purchase Agreement (the “Second Amendment”) with existing investors of the Company.

Under the terms of the Second Amendment, the Company agreed to issue up to an aggregate of $ 10,035 in principle Convertible Notes (the “Second Amendment Notes”).

In connection with the Second Amendment, the Company amended the Original Notes and Additional Notes.

The Second Amendment resulted in the following changes:

● extend the maturity date to June 30, 2021;

● add a cap for a conversion in connection with a Qualified Financing;

● provide for mandatory conversion of the Combined Notes into Series B-1 Preferred Convertible Stock of the Company if the Company has not completed a Qualified Financing on or before June 30, 2021.

The Company applied extinguishment accounting to the Original Notes upon execution of the Amendment in 2018 on the basis that the present value of the cash flows under the terms of the Amendment of the Original notes were determined to be substantially different.

The Company applied extinguishment accounting upon execution of the Second Amendment as the addition of the conversion features are substantive and recorded a loss on debt extinguishment of $ 0

and $ 129 in the consolidated statement of operations and comprehensive loss for the three and nine months ended September 30, 2020, respectively.

Each Additional Note and Second Amendment Note (collectively with the Original Notes, the “Convertible Notes” or the “Notes) included the features set forth above.

The Company issued $ 2,965 Original Notes in 2018, $ 4,661 Additional Notes in 2018 and 2019, and $ 5,372 Second Amendment Notes in 2020.

The total issuance costs incurred in connection with all closings of the Convertible Notes was $ 205 .

The Convertible Notes were considered to be a hybrid financial instrument consisting of a fixed interest rate host with certain embedded features requiring evaluation for bifurcation and separate accounting.

The Company determined that the Automatic Conversion Upon a Qualified Financing, Optional Conversion Upon a Non-Qualified Financing and the Optional Redemption Upon a Sales Transaction were considered freestanding financial instruments which required bifurcation from the host debt instruments.

The resulting debt discount from the derivative liabilities was presented as a direct deduction from the carrying amount of the Convertible Notes and amortized to interest expense using the effective interest rate method.

Interest expense on the convertible notes, including amortization of debt issuance costs, consisted of the following for the three and nine months ended September 30, 2021 and 2020:

Three Months Ended September 30,

Nine Months Ended September 30,

Coupon interest

Issuance costs amortization

Discount amortization

In May of 2021, the convertible notes and accrued interest thereon were converted into shares of the Company’s Series B-1 convertible preferred stock (Note 7).

In April 2020, the Company received a $ 443 unsecured loan, bearing interest at 1.0 %, pursuant to the Paycheck Protection Program (the “PPP”), a program implemented by the U.S.

Small Business Administration (the “SBA”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) (the “PPP Loan”).

The PPP provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business.

The loan and accrued interest are forgivable after eight weeks if the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities.

The amount of loan forgiveness may be reduced if the borrower terminates employees or reduces salaries during the eight-week period.

The unforgiven portion of the PPP loan is payable over two years at an interest rate of 1.0 %, with a deferral of payments for the first six months .

The Company used the proceeds for purposes consistent with the PPP.

On January 21, 2021, the Company received confirmation from the SBA that the PPP Loan had been forgiven in full, including all interest incurred.

Accordingly, the Company recognized $ 0 and $ 443 of income for the debt extinguishment pursuant to ASC 470-50-15-4 for the three and nine months ended September 30, 2021, respectively.

Preferred Stock

Convertible preferred stock consisted of the following:

As of September 30, 2021:

Preferred Stock

Issuable Upon

Class of Preferred

Series A Convertible Preferred Stock

Series A‑1 Convertible Preferred Stock

Series A‑2 Convertible Preferred Stock

Series B Convertible Preferred Stock

Series B‑1 Convertible Preferred Stock

As of December 31, 2020:

Preferred Stock

Issuable Upon

Class of Preferred

Series A Convertible Preferred Stock

Series A‑1 Convertible Preferred Stock

Series A‑2 Convertible Preferred Stock

Series B Convertible Preferred Stock

On May 1, 2021, the holders of all of our outstanding convertible promissory notes agreed to an acceleration of the date of the automatic conversion from June 30, 2021 to May 1, 2021 for all convertible promissory notes.

Accordingly, on May 1, 2021, all of our outstanding convertible promissory notes were converted into 10,926,089 shares of our Series B-1 convertible preferred stock, at a conversion price equal to $ 1.385 per share.

The Series B-1 convertible preferred stock was recorded within mezzanine equity at fair value on the date of issuance.

On October 13, 2021, upon the closing of the IPO, all shares of preferred stock were converted into 15,906,537 shares of common stock (see Note 13).

Rights, preferences, privileges, and restrictions:

The holders of shares of Series A, A-1, A-2, B and B-1 convertible preferred stock (collectively, the “Preferred Stock”) have the rights, preferences, privileges, and restrictions as set forth below:

The holders of the Preferred Stock are entitled to receive cumulative dividends when, as and if declared by the Company’s Board of Directors.

Accrued dividends shall accrue only on the unreturned amount of the original issue price taking into account the payment of any mandatory dividend.

As used herein, “original issue price” means $ 0.69 per share with respect to the Series A and A-1 convertible preferred stock, $ 0.8415 per share with respect to the Series A-2 convertible preferred Stock, $ 0.923 per share with respect to the Series B convertible preferred stock, and $ 1.385 per share with respect to the Series B-1 convertible preferred stock.

After such time the holders receive their full preferred liquidation amount, less any and all mandatory dividends, the holders of preferred stock will not be entitled to any additional accruing dividends;

provided that the holders of the preferred stock will share in all dividends and distributions declared by the board of directors and paid by the Company with the holders of common stock on an as if converted to common stock basis.

Voting Rights:

The holders of Preferred Stock are entitled to voting rights equal to the number of shares of common stock into which the shares of Preferred Stock can be converted.

In addition, as long as there are shares of Preferred Stock outstanding, each of the holders of over 7.5 % of the total Preferred Stock outstanding on a converted basis are entitled to designate one director of the Company to be elected by the holders of Preferred Stock.

The holders of a majority of the then outstanding shares of common stock, voting together as a single class, are entitled to elect one director of the Company.

If the holders of the Preferred Stock or common stock fail to elect a sufficient number of directors to fulfill directorships for which they are entitled to elect directors, then any directorship shall remain vacant until the holders of the Preferred Stock or common stock elect such person.

Liquidation Rights:

In the event of any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the holders of Preferred Stock have liquidation preferences, before any distribution or payment is made to holders of any common stock, in an amount per share equal to the original issue price for such Preferred Stock plus all accruing dividends (the “Preferred Liquidation Amount”).

If the assets and funds to be distributed among the holders of Preferred Stock are insufficient to permit the payment to such holders, then the entire assets and funds of the Company legally available for distribution will be distributed ratably among the holders of Preferred Stock in proportion to the Preferred Liquidation Amount each such holder is otherwise entitled to receive on each share, less any mandatory dividends.

Upon completion of the payment of the full liquidation preference of Preferred Stock less any and all mandatory dividends previously distributed, the remaining assets of the Company, if any, shall be distributed among the holders of common stock and Preferred Stock, pro rata based on the number of common shares held by each (assuming conversion of all shares of the Preferred Stock into common stock).

Each share of Preferred Stock is convertible into shares of common stock, at the option of the holder, at any time after date of issuance.

Each share of Preferred Stock automatically converts to the number of shares of common stock determined in accordance with the conversion rate upon the closing of a public offering, at a price per share of not less than three times the highest, then applicable conversion price, resulting in offering proceeds of at least $ 30,000 net of underwriting discounts and commissions.

The conversion ratio will be adjusted in the case of specified changes to the Company’s capitalization as a result of stock splits, combinations, common stock dividends and distributions, reclassifications, exchanges, substitutions, reorganizations, mergers or consolidations.

Prior to the July 29, 2020 amendment to the Company’s second amended and restated certificate of incorporation, holders of Preferred Stock had the right to redeem shares of preferred stock on or after March 20, 2021 after receipt of written notice requesting redemption from 60 % of the then outstanding shares of the preferred stock voting together as a single class on an as-converted to common stock basis at a price equal to the original issue price plus all accruing dividends.

As the Preferred Stock was redeemable due to the passage of time prior to the amendment, the Company recorded changes in the redemption value and accreted the Preferred Stock immediately to its redemption value during each reporting period.

On July 29, 2020, the Company’s second amended and restated certificate of incorporation was amended resulting in the removal of the redemption right.

As the redemption option was removed in connection with the amendment, the only option for redemption is based on the occurrence of a deemed liquidation event.

As the events that would trigger a deemed liquidation event are corporate transactions that are not certain to occur, the Company determined that post July 29, 2020, the Preferred Stock is no longer considered probable to become redeemable, and is instead contingently redeemable.

As a result, the Company ceased the accretion of the Preferred Stock to redemption value upon execution of the amendment to the articles of incorporation.

Protective Provisions:

At any time when shares of Preferred Stock are outstanding, the Company shall not, either directly, indirectly by amendment, merger, consolidation or otherwise, do any of the following without the written consent or affirmative vote of at least 60 % of the then outstanding shares of Preferred Stock, voting together as a single class on an as-converted to Common Stock basis:

(i) effect the consummation of a liquidation event or any other merger or consolidation, (ii) amend, alter or repeal any provision of the Company’s certificate of incorporation of bylaws in a manner that adversely affects the powers, preferences or rights of the Preferred Stock, (iii) amend, alter, or repeal any provision of the by-laws of the Company, in a manner that affects the powers, preferences, or rights of Preferred Stock, (iv) increase or decrease the authorized number of shares of Preferred Stock or Common Stock, (v) reclassify, alter, or amend any existing security of the Company in respect to the distribution of assets on the liquidation, dissolution, or winding up of the Company or payment of dividends, if such reclassification, alteration, or amendment would render such other security senior to Preferred Stock in respect to any such right, preference, or privilege, (vi) purchase or redeem, or declare any dividend, on any shares of capital stock of the Company other than repurchase of stock pursuant to stock restriction agreements approved by the board of directors that grant to the Company the right of repurchase upon termination of the service, (vii) borrow or authorize any amount of indebtedness, other than inventory financing in the ordinary course of business and any indebtedness in an amount of up to $ 250 in aggregate that is approved by the board of directors, (viii) increase or decrease the authorized number of directors of the board of directors (ix) effect a change in business from the discovery and development of small molecule therapeutics targeting toxic proteins that cause cognitive decline associated with Alzheimer’s disease and other neurodegenerative diseases, (x) enter into any transaction with any person other than in the ordinary course of business on an arm’s length basis, (xi) increase the number of shares of common stock reserved for issuance, (xii) make any loan except advances in ordinary course of business or advances up to $ 50 in aggregate approved by the board of directors, (xiii) hire, terminate, or change compensation in excess of $ 100 of any officer, director, or employee, unless approved by the board of directors, (xiv) own any stock or securities of any other corporation, unless approved by the board of directors, (xv) guarantee any indebtedness except for trade accounts of the Company or any guarantee approved by the board of directors, (xvi) make any investment other than investments in prime commercial paper, money market funds, certificates of deposits in any United States bank having a net worth in excess of $ 100,000 or obligations issued or guaranteed by the United States of America, unless approved by the board of directors.

In conjunction with both debt and equity investments, the Company issued warrants on each of the following classes of stock:

common stock and Series A-1 convertible preferred stock.

The following is a summary of the Company’s outstanding common stock warrants:

As of September 30, 2021:

Number of Warrants

As of December 31, 2020:

Number of Warrants

Series A-1 Convertible Preferred Stock Warrants

The Company reviewed the classification of the warrants as liabilities or equity under the guidance of ASC 480-10, Distinguishing Liabilities from Equity, and concluded that the Series A-1 convertible preferred stock warrants should be classified as a liability.

The Company re-measures the warrant liability to fair market value at the end of each reporting period.

The Series A-1 convertible preferred stock warrants expired in October 2020 and were not exercised.

Common Stock Warrants

The Company’s common stock warrants are equity classified as there are no features within the warrant agreements that require liability treatment.

Accordingly, the warrants are recorded as a component of equity when they are issued.

Upon the closing of the IPO on October 13, 2021, 147,702 warrants were exercised into shares of common stock (see Note 13).

The remaining warrants were not exercised and expired pursuant to their terms.

Common stockholders are entitled to dividends if and when declared by the Company’s board of directors subject to the rights of the preferred stockholders.

As of September 30, 2021 and December 31, 2020, no dividends on common stock had been declared by the Company.

The Company has reserved the following shares of common stock for conversion of preferred stock, exercise of warrants and exercise of stock options as of:

September 30, 2021

December 31, 2020

Convertible preferred stock (as converted)

Options issued and outstanding

Warrants for common stock

As of March 31, 2022 and December 31, 2021, there was no litigation or contingency with at least a reasonable possibility of a material loss.

Equity-based Compensation

On September 15, 2017, the Company’s board of directors approved the 2017 Amended and Restated Equity Incentive Plan (the “Plan”), which provides for the granting of incentive stock options, non-qualified stock options and stock awards to employees, certain consultants and directors.

2021 Equity Incentive Plan

On October 7, 2021, the date upon which the Registration Statement on Form S-1 in connection with the IPO was declared effective, the 2021 Equity Incentive Plan (the “2021 Plan”) became effective.

On the same date, the Company ceased granting awards under its 2017 Equity Incentive Plan (the “2017 Plan”).

The 2021 Plan authorizes the award of

both equity-based and cash-based incentive awards, including:

(i) stock options (both incentive stock options and nonqualified stock options), (ii) stock appreciation rights, (iii) restricted stock awards, (iv) restricted stock units, or RSUs, and (v) cash or other stock-based awards.

Incentive stock options may be granted only to employees.

All other types of awards may be issued to employees, directors, consultants, and other service providers.

As of March 31, 2022, the aggregate number of shares of common stock of the Company that may be issued under the Plan is 3,625,897 .

The number of shares reserved for issuance under the 2021 Plan increased automatically on January 1, 2022 pursuant to an evergreen provision therein by 1,111,502 shares, representing 5 % of total common shares outstanding at December 31, 2021.

The aggregate number of shares will increase each anniversary of such date prior to the termination of the 2021 Plan, equal to the lesser of (i) 5 % of our shares of common stock issued and outstanding on the last day of the immediately preceding fiscal year and (ii) such smaller number of shares as determined by the Company’s board of directors or the compensation committee.

No more than 7,543,185 shares of common stock may be issued under the 2021 Plan through incentive stock options.

Shares subject to the 2017 Plan or the 2007 Equity Incentive Plan (the “2007 Plan” and collectively with the 2017 Plan, the “Prior Plans”) that expire, terminate or are cancelled or forfeited for any reason after the effectiveness of the 2021 Plan will be added (or added back) to the shares available for issuance under the 2021 Plan.

The total number of shares underlying the Prior Plan awards that may be recycled into the 2021 Plan will not exceed 4,334,131 shares.

2017 Equity Incentive Plan

On September 15, 2017, the Company’s board of directors approved the 2017 Plan, which provides for the granting of incentive stock options, non-qualified stock options and stock awards to employees, certain consultants and directors.

The Board, or its designated committee, has the sole authority to select the individuals to whom awards are granted and determine the terms of each award, including the number of shares and the schedule upon which the award becomes exercisable.

Upon the effectiveness of the 2021 Plan, no further awards will be granted under the 2017 Plan.

The aggregate number of shares of common stock of the Company that may be issued under the 2017 Plan is 4,334,131 (taking into account shares of common stock that may become issuable pursuant to Section 3(b) of the 2017 Plan in respect of shares of common stock reserved under the Company’s Amended and Restated 2007 Equity Incentive Plan).

The Plan also allows for a provision for shares granted which are cancelled, forfeited, exchanged or surrendered without having been exercised to subsequently be available for reissuance under the Plan.

The Company recorded total equity-based compensation expense in the statement of operations and comprehensive loss related to incentive stock options and nonstatutory stock options as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

Research and development

General and administrative

Total equity-based compensation

As of September 30, 2021, total future compensation expense related to unvested awards yet to be recognized by the Company was $ 887 .

Total future compensation expense related to unvested awards yet to be recognized by the Company is expected to be recognized over a weighted-average remaining vesting period of approximately 2.6 years.

The 2021 Plan allows for a provision for shares granted under the Prior Plans which are cancelled, forfeited, exchanged or surrendered without having been exercised to subsequently be available for reissuance under the 2021 Plan.

Employee Stock Purchase Plan

The Company’s board of directors approved the Employee Stock Purchase Plan (the “ESPP”) prior to the closing of the IPO.

Under the ESPP, the Company may provide employees and employees of the Subsidiary with an opportunity to purchase shares of the Company’s common stock at a discounted purchase price.

As of March 31, 2022, subject to adjustment as provided in the ESPP, a total of 209,532 shares of common stock are authorized and reserved for issuance under the ESPP.

Subject to prior approval by the board of directors in each instance, on or about January 1, 2022 and each anniversary of such date thereafter prior to the termination of the ESPP, the number of shares of common stock authorized and reserved for issuance under the ESPP will be increased by a number of shares of common stock equal to the least of (i) 1,000,000 shares of the Company’s common stock, (ii) 1 % of the shares of common stock outstanding on the final day of the immediately preceding calendar year, and (iii) such smaller number of shares of common stock as determined by the Company’s board of directors.

Such shares of common stock may be newly issued shares, treasury shares or shares acquired on the open market.

In the event that any dividend or other distribution (whether in the form of cash, our common stock, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, or exchange of common stock or other securities, or other change in the structure affecting common stock occurs, then in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the ESPP, the compensation committee will, in such manner as it deems equitable, adjust the number of shares and class of common stock that may be delivered under the ESPP, the purchase price per

share and the number of shares covered by each outstanding option under the ESPP, and the numerical limits described above.

Equity-based Compensation

The fair value of options granted was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:

Nine Months Ended September 30,

Three Months Ended March 31,

Fair value of common stock

$ 1.75 - $ 6.15

Expected volatility

101.38% – 101.83 %

104.60 % - 109.34 %

Risk-free interest rate

0.67 % – 0.84 %

0.38 % - 1.60 %

Dividend yield

5 unchanged sentences

Treasury constant maturity notes with terms approximately equal to the stock-based awards’ expected term.

Expected Volatility — Since the Company is privately held and does not have a trading history of common stock, the expected volatility was derived from the average historical stock volatilities of the common stock of several public companies within the industry that the Company considers to be comparable to our business over a period equivalent to the expected term of the stock-based awards.

Expected Volatility — Up until October 13, 2021, the Company was privately held and did not have a trading history of common stock.

As such, the expected volatility was derived from the average historical stock volatilities of the common stock of several public companies within the industry that the Company considers to be comparable to our business over a period equivalent to the expected term of the stock-based awards.

The Company will continue to derive expected volatility from average historical stock volatilities of industry peers until the Company has compiled a trading history of its own for a sufficient period of time.

Dividend Yield — The expected dividend yield is zero as the Company has not paid and does not anticipate paying any dividends in the foreseeable future.

Fair Value of Common Stock — The fair value of the shares of common stock underlying the stock-based awards has historically been determined by the board of directors with input from management.

Because there has been no public market for the common stock, the board of directors has determined the fair value of the common stock at the time of grant of the stock-based award by considering a number of objective and subjective factors, including having contemporaneous valuations of the common stock performed by a third-party valuation specialist.

Fair Value of Common Stock — Prior to the IPO, the fair value of the shares of common stock underlying the stock-based awards had historically been determined by the board of directors with input from management.

Because there was no public market for the common stock, the board of directors had determined the fair value of the common stock at the time of grant of the stock-based award by considering a number of objective and subjective factors, including having contemporaneous valuations of the common stock performed by a third-party valuation specialist.

Activity for options was as follows:

6 unchanged sentences

Options expired

Balance, September 30, 2021

Exercisable as of September 30, 2021

Vested and expected to vest as of September 30, 2021

The weighted-average grant date fair value of stock options granted was $ 1.79 during the nine months ended September 30, 2021.

There were no stock options granted for the three months ended September 30, 2021 and 67,232 stock options granted at an aggregate fair value of $ 121 for the nine months ended September 30, 2021.

The total grant-date fair value of stock options vested during the three and nine months ended September 30, 2021 was $ 83 and $ 383 , respectively.

During the three and nine months ended September 30, 2021, there were 4,996 and 25,783 stock options exercised, respectively, with an aggregate grant date fair value of $ 3 and $ 14 , respectively.

The intrinsic value of stock options exercised during the three and nine months ended September 30, 2021 was $ 26 and $ 140 , respectively.

The Company granted 349,150 option awards containing performance conditions to an executive during 2019.

As of September 30, 2021, the Company determined that the achievement of the performance targets was not probable and therefore, there was no expense recognized for these awards during the three and nine months ended September 30, 2021.

As of September 30, 2021, total unrecognized compensation expense related to un-vested performance-based awards was $ 254 , which would be recognized commencing with the period in which the performance condition is deemed probable of achievement.

Balance, March 31, 2022

Exercisable as of March 31, 2022

Vested and expected to vest as of March 31, 2022

The weighted-average grant date fair value of stock options granted was $ 2.31 and $ 1.39 during the three months ended March 31, 2022 and 2021, respectively.

There were 212,450 stock options granted at an aggregate fair value of $ 491 for the three months ended March 31, 2022 and 55,639 stock options granted at an aggregate fair value of $ 77 for the three months ended March 31, 2021.

During the three months ended March 31, 2022 and 2021, there were 348,552 and 20,787 stock options exercised, respectively, with an aggregate grant date fair value of $ 209 and $ 11 , respectively.

The intrinsic value of stock options exercised during the three months ended March 31, 2022 was $ 1,084 and was $ 22 for the three months ended March 31, 2021.

The Company recorded total equity-based compensation expense in the statement of operations and comprehensive loss related to incentive stock options and nonstatutory stock options as follows:

Three Months Ended March 31,

Research and development

General and administrative

Total equity-based compensation

As of March 31, 2022, total future compensation expense related to unvested awards yet to be recognized by the Company was $ 9,621 , which is expected to be recognized over a weighted-average remaining vesting period of approximately 3.1 years.

Net Loss per Share

The following outstanding potentially dilutive common stock equivalents have been excluded from the calculation of diluted net loss per share attributable to common stockholders for the periods presented due to their antidilutive effect:

September 30,

Convertible preferred stock (as converted)

Options issued and outstanding

Convertible preferred stock (as converted)

Warrants for common stock

The basic and diluted net loss per share attributable to common stockholders has been prepared as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

Cumulative preferred stock dividends

Net loss attributable to common stockholders

Weighted-average common shares outstanding - basic and diluted

Simple Agreements for Future Equity (SAFEs)

On March 25, 2021, the Company entered into SAFEs with existing investors, pursuant to which the Company received gross proceeds in an aggregate amount equal to $ 8,942 .

Pursuant to the arrangement, all of the SAFEs were initially issued with a conversion price equal to 80.0 % of either the common stock price upon the occurrence of an IPO, or the price paid for shares of preferred stock by other investors upon a subsequent private financing.

Upon a change of control, investors are entitled to receive a portion of proceeds equal to the greater of the purchase amount or the amount payable on the number of shares of common stock equal to the purchase amount divided by the liquidity price.

In a liquidity or dissolution event, the investors’ right to receive cash is junior to payment of outstanding indebtedness and creditor claims, on par for other SAFEs and preferred stock, and senior to common stock.

The SAFE agreements have no interest rate or maturity date, and the SAFE investors have no voting right prior to conversion.

The SAFEs included a provision allowing for cash redemption upon either the occurrence of a change of control or dissolution event, the occurrence of which is outside the control of the Company.

Therefore, the SAFEs are classified as marked-to-market liabilities pursuant to ASC 480, Distinguishing Liabilities from Equity .

The Company recorded a change in fair value adjustment of $ 932 and $ 1,976 in the consolidated statement of operations and comprehensive loss for the three and nine months ended September 30, 2021.

In connection with the close of the Company’s IPO, the SAFEs were automatically converted into 931,485 shares of common stock (see Note 13).

Subsequent Events

Initial Public Offering:

On October 13, 2021, the Company closed its initial public offering of 3,768,116 shares of the Company’s common stock at a public offering price of $ 12.00 per share.

The gross proceeds from the IPO were $ 45.2 million and the net proceeds were approximately $ 38.1 million, after deducting underwriting discounts and commissions and other offering expenses payable by the Company.

Upon the completion of the Company’s IPO, all of the Company’s then outstanding preferred stock was automatically converted into an aggregate of 15,906,537 shares of common stock.

In addition, 931,485 shares of common stock were issued in connection with the automatic conversion of the SAFEs in the aggregate amount of $ 8.9 million and 147,702 shares of common stock were issued in connection with the exercise of common stock warrants.

Changes to the Certificate of Incorporation:

In connection with the reverse stock split effected on October 1, 2021, the number of shares of common stock the Company is authorized to issue increased from 70,000,000 to 80,000,000 .

Subsequently, in connection with the completion of the IPO, a third amended and restated certificate of incorporation was filed with the Secretary of State of the State of Delaware on October 13, 2021 to, among other things, provide for 250,000,000 authorized shares of common stock, par value $ 0.001 per share, and 10,000,000 authorized shares of “blank check” preferred stock, par value $ 0.001 per share.

The Company’s board of directors adopted the Company’s 2021 Equity Incentive Plan (“2021 Plan”) and an Employee Stock Purchase Plan (the “ESPP”) in July 2021, each of which became effective upon the effectiveness of the registration statement filed in connection with the IPO on October 7, 2021.

Since October 7, 2021, the Company has granted 1,942,804 options to purchase shares of the Company’s common stock to certain executives and directors under the 2021 Plan.

As of September 30, 2021, 209,532 shares of common stock have been reserved for future issuance under the ESPP.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements