What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-11-14 compared with 2022-08-09 · 89 added, 103 removed, 228 unchanged (46% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial conditions and results of operations should be read together with our consolidated financial statements and related notes appearing elsewhere in this Quarterly Report and our audited financial statements and notes thereto as of and for the years ended December 31, 2021 and 2020 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, including Contractual Obligations, included in our Annual Report filed with the SEC on March 30, 2022.

In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions and other factors that could cause actual results to differ materially from those made, projected or implied in the forward-looking statements.

3 unchanged sentences

Currently available therapies for these diseases are limited, with many diseases having no approved therapies or treatments.

Our goal is to develop disease modifying treatments for patients with these degenerative disorders by initially leveraging our expertise in the S2R, which is expressed by multiple cell types, including neuronal synapses, and acts as a key regulator of cellular damage commonly associated with certain age-related degenerative diseases of the CNS and retina.

Our goal is to develop disease modifying treatments for patients with these degenerative disorders by initially leveraging our expertise in the σ-2 (sigma-2) receptorc, or S2R, which is expressed by multiple cell types, including neuronal synapses, and acts as a key regulator of cellular damage commonly associated with certain age-related degenerative diseases of the CNS and retina.

We believe that targeting the S2R complex represents a mechanism that is functionally distinct from other current approaches in clinical development for the treatment of degenerative diseases.

In August 2022, at the Alzheimer’s Association International Conference (AAIC), we presented a proteomic analysis of clinical biomarker data from all participants enrolled in our SPARC study for whom end-of-study (at six months) and baseline cerebrospinal fluid samples were available (n=18).

The SPARC study (COG0105) enrolled 23 individuals with mild-to-moderate Alzheimer’s disease, or AD, who were randomized to receive oral once-daily treatment with CT1812 or placebo for six months.

The analyses demonstrated the effect of CT1812 on multiple priority AD biomarkers, including YKL-40, a biomarker of inflammation, which is upregulated in AD.

Participants treated with CT1812 exhibited a downward shift in YKL-40 towards levels observed in healthy, non-demented individuals, supporting a potential positive impact of CT1812 on disease biology.

In addition, CT1812 had a significant impact on CSF levels of clusterin (CLU), which has been identified as a genetic risk factor for AD by several independent, large-scale genome-wide association studies (GWAS).

We believe the analytic results support the proposed synaptoprotective mechanism of action of CT1812 and role in normalizing cellular processes known to be adversely disrupted in AD.

Since our inception in 2007, we have incurred significant operating losses and devoted substantially all of our time and resources to developing our lead product candidate, CT1812, building our intellectual property portfolio, raising capital and recruiting management and technical staff to support these operations.

As of June 30, 2022, we had an accumulated deficit of $103.6 million.

We incurred a net loss of $5.8 million and $9.6 million for the three and six months ended June 30, 2022, respectively, and net loss of $1.5 million and $1.3 million for the three and six months ended June 30, 2021, respectively.

To date, we have funded our operations primarily with proceeds from grants awarded by the National Institute of Aging, or NIA, a division of the National Institutes of Health, or NIH, and proceeds from our IPO, the sales of our convertible promissory notes, convertible preferred stock, simple agreements for future equity, or SAFEs, and stock option exercises.

As of September 30, 2022, we had an accumulated deficit of $110.2 million.

We incurred a net loss of $6.6 million and $16.2 million for the three and nine months ended September 30, 2022, respectively, and net loss of $3.1 million and $4.4 million for the three and nine months ended September 30, 2021, respectively.

To date, we have funded our operations primarily with proceeds from grants awarded by the National Institute of Aging, or NIA, a division of the National Institutes of Health, or NIH, and proceeds from our initial public offering, or IPO, completed in October 2021, the sales of our convertible promissory notes, convertible preferred stock, simple agreements for future equity, or SAFEs, and stock option exercises.

Since our inception, we have received approximately $171.0 million in cumulative grant awards to fund our clinical trials, primarily from the NIA, and we have raised approximately $103.6 million in net proceeds from sales of our equity securities, convertible notes, SAFEs, stock option exercises, and our IPO.

As of June 30, 2022, we had cash and cash equivalents of $45.8 million.

As of September 30, 2022, we had cash and cash equivalents of $46.6 million.

On November 10, 2022, we entered into an underwriting agreement with respect to a follow-on public offering, pursunt to which we agreed to issue and sell 5,000,000 shares of our common stock at a public offering price of $1.20 per share.

In connection with the follow-on public offering, we are expected to receive net proceeds of approximately $5.4 million, after deducting underwriting discounts and commissions and other offering related expenses.

The follow-on public offering is expected to close on November 15, 2022, subject to customary closing conditions.

Additionally, we granted the underwriters in the follow-on public offering an option to purchase up to 750,000 additional shares of our common stock at the public offering price, less underwriting discounts and commissions.

On October 13, 2021, we completed our IPO, pursuant to which we issued and sold 3,768,116 shares of our common stock at a public offering price of $12.00 per share.

Additionally, on November 12, 2021, the underwriters exercise of their over-allotment option in full to purchase 565,217 shares of our common stock closed.

In connection

with the IPO, we received net proceeds of approximately $44.2 million, after deducting underwriting discounts and commissions and other offering related expenses payable by us, which includes net proceeds of approximately $6.3 million from the exercise of the over-allotment option.

We expect to continue to incur significant and increasing expenses and net losses for the foreseeable future, as we advance our current and future product candidates through preclinical and clinical development, manufacture drug product and drug supply, seek regulatory approval for our current and future product candidates, maintain and expand our intellectual property portfolio, hire additional research and development and business personnel and operate as a public company.

In connection with the IPO, we received net proceeds of approximately $44.2 million, after deducting underwriting discounts and commissions and other offering related expenses payable by us, which includes net proceeds of approximately $6.3 million from the exercise of the over-allotment option.

We expect to continue to incur significant and increasing

expenses and net losses for the foreseeable future, as we advance our current and future product candidates through preclinical and clinical development, manufacture drug product and drug supply, seek regulatory approval for our current and future product candidates, maintain and expand our intellectual property portfolio, hire additional research and development and business personnel and operate as a public company.

We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for our product candidates.

14 unchanged sentences

Our business has been and could continue to be adversely affected by the effects of the ongoing COVID-19 pandemic, including, but not limited to, our clinical trials.

For example, the COVID-19 pandemic may impact patient enrollment in our ongoing and future clinical trials of CT1812.

In particular, some sites have in the past or may in the future pause enrollment to focus on, and direct resources to, COVID-19, while at other sites, patients may choose not to enroll or continue participating in the clinical trial as a result of the pandemic.

In addition, patient visits to medical providers in the United States have slowed as a result of the COVID-19 pandemic.

Further, according to the Centers for Disease Control and Prevention, people who have serious chronic medical conditions are at higher risk of getting very sick from COVID-19.

As a result, potential patients in our ongoing and future clinical trials of CT1812 may choose to not enroll, not participate in follow-up clinical visits or drop out of the trial as a precaution against contracting COVID-19.

Further, some patients may not be able or willing to comply with clinical trial protocols if quarantines impede patient movement or interrupts healthcare services.

Our ongoing or planned clinical trials may also be impacted by interruptions or delays in the operations of the FDA and comparable foreign regulatory authorities.

For example, we have made certain adjustments to the operation of our trials in an effort to ensure the monitoring and safety of patients and minimize risks to trial integrity during the pandemic in accordance with the guidance issued by the FDA and may need to make further adjustments in the future.

also initiated our clinical trial protocols to enable remote visits to mitigate any potential impacts as a result of the COVID-19 pandemic.

For example, our ongoing and/or planned clinical trials may be impacted by interruptions or delays in the operations of the FDA and comparable foreign regulatory authorities.

Additionally, we have made certain adjustments to the operation of our trials in an effort to ensure the monitoring and safety of patients and minimize risks to trial integrity during the pandemic in accordance with the guidance issued by the FDA and may need to make further adjustments in the future.

We have also initiated our clinical trial protocols to enable remote visits to mitigate any potential impacts as a result of the COVID-19 pandemic.

Many of these adjustments are new and untested, may not be effective, may affect the integrity of data collected, and may have unforeseen effects on the progress and completion of our clinical trials and the findings from such clinical trials.

The spread of COVID 19, including the spread of new strains and variants of COVID-19, and actions taken to reduce such spread may also materially affect us economically.

While the potential economic impact brought by, and the duration of, the COVID 19 pandemic may be difficult to assess or predict, there could be a significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity and financial position.

In addition, the trading prices for other pharmaceutical companies have been highly volatile as a result of the COVID 19 pandemic.

As a result, we may face difficulties raising capital through sales of our common stock or such sales may be on unfavorable terms.

While the potential further economic impact brought by, and the duration of, the COVID 19 pandemic may be difficult to assess or predict, there could be a significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity and financial position.

As a result, we may face difficulties raising capital through future sales of our common stock or such sales may be on unfavorable terms.

Components of Our Results of Operations

20 unchanged sentences

Grant income relates to the grants awarded from governmental bodies that are conditional cost reimbursement grants and are recognized as grant income as allowable costs are incurred and the right to payment is realized.

The grants awarded relate to agreed upon direct and indirect costs for specific studies or clinical trials, which may include personnel and consulting costs, costs paid to contract research organizations, research institutions and /or consortiums involved in the grant, as well as facilities and administrative costs.

The grants awarded relate to agreed upon direct and indirect costs for specific studies or clinical trials, which may include personnel

and consulting costs, costs paid to contract research organizations, research institutions and /or consortiums involved in the grant, as well as facilities and administrative costs.

These grants are cost plus fixed fee arrangements in which we are reimbursed for eligible direct and indirect costs over time, up to the maximum amount of each specific grant award.

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.

As of June 30, 2022, the Company has been awarded grants with project periods that extend through May 31, 2025, subject to extension.

As of September 30, 2022, we have been awarded grants with project periods that extend through May 31, 2025, subject to extension.

Our clinical trials have been funded by approximately $171.0 million in cumulative grants awarded primarily by the NIA, which includes an approximately $81.0 million grant from the NIA to fund our Phase 2 (COG0203) study of CT1812 in patients with early-stage AD, an approximately $30.5 million grant from the NIA to fund our Phase 2 (COG0201) study of CT1812 in patients with mild to moderate AD, and an approximately $29.5 million grant from the NIA to fund our Phase 2 (COG1201) study of CT1812 in patients with dementia with lewy bodies.

9 unchanged sentences

Other (expense) income, net consists primarily of research and development tax credits earned in the applicable period, as well as foreign currency transaction gains or losses.

Income tax benefit (expense)

Our income tax benefit (expense) relates primarily to state income taxes related to an individual state.

We maintain a full valuation allowance against all deferred tax assets as of June 30, 2022 and December 31, 2021, as management has determined that it is not more likely than not that we will realize these future tax benefits.

Results of Operations

Comparison of the Three Months Ended June 30, 2022 and 2021

Comparison of the Three Months Ended September 30, 2022 and 2021

The following table summarizes our results of operations (in thousands):

Three Months Ended June 30,

Three Months Ended September 30,

Operating Expenses:

4 unchanged sentences

Other income (expense):

Change in the fair value of the derivative liability

Change in the fair value of SAFEs

2 unchanged sentences

Total other income, net

Loss before income taxes

Income tax benefit

Research and Development Expenses

The following table summarizes our research and development expenses (in thousands):

Three Months Ended June 30,

Three Months Ended September 30,

Clinical programs

2 unchanged sentences

Facilities and other costs

Research and development expenses were $9.1 million for the three months ended June 30, 2022, compared to $4.9 million for the three months ended June 30, 2021.

Research and development expenses were $8.3 million for the three months ended September 30, 2022, compared to $3.7 million for the three months ended September 30, 2021.

The increase of $4.6 million was primarily due to the following:

1 unchanged sentence

● an increase of $1.1 million in personnel costs associated with expanded research and development activities, and equity-based compensation expense;

● a decrease of $1.3 million in manufacturing expense related to costs incurred with contract manufacturing organizations for production of pre-clinical and future clinical trial materials associated with our most advanced product candidates due to the timing of the manufacturing of the pre-clinical and clinical trial materials.

● an increase of $0.4 million in manufacturing and preclinical program expense related to costs incurred with contract manufacturing organizations for production of pre-clinical and future clinical trial materials associated with our most advanced product candidates.

General and Administrative Expenses

General and administrative expenses were $3.1 million for the three months ended June 30, 2022, compared to $1.1 million for the three months ended June 30, 2021.

General and administrative expenses were $4.4 million for the three months ended September 30, 2022, compared to $1.6 million for the three months ended September 30, 2021.

The increase of $2.8 million was primarily due to:

● an increase of $0.4 million in Director & Officer liability insurance and other expenses;

● an increase of $0.3 million in compensation expense driven by increased headcount;

● an increase of $0.6 million in professional fees driven by increased audit, tax, and legal services;

● an increase of $0.5 million in compensation and benefits expense driven by increased headcount;

● an increase of $1.3 million in professional fees and other costs driven by increased audit, tax, and legal expenses;

● an increase of $0.6 million in equity-based compensation from stock option grants.

Other Income (Expense)

Grant income was $6.4 million for the three months ended June 30, 2022, compared to $4.6 million for the three months ended June 30, 2021.

Grant income was $5.9 million for the three months ended September 30, 2022, compared to $3.0 million for the three months ended September 30, 2021.

The change in grant income is correlated with the increase in eligible reimbursable costs incurred during 2022 as compared to 2021.

Change in Fair Value of the Derivative Liability

Changes in the fair value derivative liability resulted in a gain of $1.1 million for the three months ended June 30, 2021.

There was no gain or loss for the three months ended June 30, 2022 as the derecognition of the derivative liability occurred in May 2021 upon the conversion of convertible notes into shares of our Series B-1 convertible preferred stock.

Change in Fair Value of the SAFEs

Changes in the fair value of the SAFEs resulted in a loss of $1.0 million for the three months ended June 30, 2021.

There was no change in the fair value for the three months ended June 30, 2022 as the derecognition of the SAFE liability occurred when the SAFEs converted into shares of our common stock upon the closing of our IPO.

Other Income (Expense), Net

Other expense, net was less than $0.1 million for the three months ended June 30, 2022, compared to other income, net of $0.1 million for the three months ended June 30, 2021.

Changes in the fair value of the SAFEs resulted in a loss of $1.0 million for the three months ended September 30, 2021.

There was no change in the fair value for the three months ended September 30, 2022 as the derecognition of the SAFE liability occurred when the SAFEs converted into shares of our common stock upon the closing of our IPO.

Other Income, Net

Other income, net was less than $0.1 million for the three months ended September 30, 2022, compared to other income, net of less than $0.1 million for the three months ended September 30, 2021.

Overall, the change in other expense was not significant in either period.

Interest Expense, Net

Interest expense, net was less than $0.1 million for the three months ended June 30, 2022, compared to Interest expense, net of $0.4 million for the three months ended June 30, 2021.

The change of $0.4 million in interest expense, net was the result of the convertible notes outstanding balance during the three months ended June 30, 2021, which were subsequently converted into shares of our Series B-1 convertible preferred stock in May 2021.

Income Tax Benefit

Income tax benefit for the three months ended June 30, 2022 was $0.1 million related to the reversal of a prior period estimate of state income tax for a particular state.

Comparison of the Six Months Ended June 30, 2022 and 2021

Interest expense, net was less than $0.1 million for the three months ended September 30, 2022, compared to no interest expense, net for the three months ended September 30, 2021.

Interest expense, net was not significant in either period.

Comparison of the Nine Months Ended September 30, 2022 and 2021

The following table summarizes our results of operations (in thousands):

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands)

12 unchanged sentences

Total other income, net

Loss before income taxes

Research and Development Expenses

The following table summarizes our research and development expenses (in thousands):

Six Months Ended June 30,

Nine Months Ended September 30,

Clinical programs

2 unchanged sentences

Facilities and other costs

Research and development expenses were $15.6 million for the six months ended June 30, 2022, compared to $9.3 million for the six months ended June 30, 2021.

Research and development expenses were $23.9 million for the nine months ended September 30, 2022, compared to $13.0 million for the nine months ended September 30, 2021.

The increase of $10.9 million was primarily due to the following:

1 unchanged sentence

● an increase of $2.6 million in personnel costs associated with expanded research and development activities, and equity-based compensation expense;

● a decrease of $2.6 million in manufacturing expense related to costs incurred with contract manufacturing organizations for production of pre-clinical and future clinical trial materials associated with our most

advanced product candidates due to the timing of the manufacturing of the pre-clinical and clinical trial materials;

● a decrease of $2.5 million in manufacturing expense related to costs incurred with contract manufacturing organizations for production of pre-clinical and future clinical trial materials associated with our most advanced product candidates due to the timing of the manufacturing of the pre-clinical and clinical trial materials;

● an increase of $0.4 million in preclinical programs due to increased sponsored research spend under grants.

General and Administrative Expenses

General and administrative expenses were $6.0 million for the six months ended June 30, 2022, compared to $2.2 million for the six months ended June 30, 2021.

General and administrative expenses were $10.4 million for the nine months ended September 30, 2022, compared to $3.8 million for the nine months ended September 30, 2021.

The increase of $6.6 million was primarily due to:

● an increase of $1.6 million in Director & Officer liability insurance and other expenses;

● an increase of $0.4 million in compensation driven by increased headcount;

● an increase of $0.8 million in professional fees driven by increased audit, tax, and legal services;

● an increase of $0.9 million in compensation and employee benefits driven by increased headcount;

● an increase of $2.1 million in professional fees and other costs driven by increased audit, tax, and legal expenses;

● an increase of $2.0 million in equity-based compensation from stock option grants.

Other Income (Expense)

Grant income was $12.3 million for the six months ended June 30, 2022, compared to $9.3 million for the six months ended June 30, 2021.

Grant income was $18.2 million for the nine months ended September 30, 2022, compared to $12.4 million for the nine months ended September 30, 2021.

The change in grant income is correlated with the increase in eligible reimbursable costs incurred during 2022 as compared to 2021.

Change in Fair Value of the Derivative Liability

Changes in the fair value derivative liability resulted in a gain of $2.2 million for the six months ended June 30, 2021.

There was no gain or loss for the six months ended June 30, 2022 as the derecognition of the derivative liability occurred in May 2021 upon the conversion of convertible notes into shares of Series B-1 convertible preferred stock.

Changes in the fair value derivative liability resulted in a gain of $2.2 million for the nine months ended September 30, 2021.

There was no gain or loss for the nine months ended September 30, 2022 as the derecognition of the derivative liability occurred in May 2021 upon the conversion of convertible notes into shares of Series B-1 convertible preferred stock.

Change in Fair Value of the SAFEs

Changes in the fair value of the SAFEs resulted in a loss of $1.0 million for the six months ended June 30, 2021.

There was no change in the fair value for the six months ended June 30, 2022 as the derecognition of the SAFE liability occurred when the SAFEs converted into shares of our common stock upon the closing of our IPO.

Changes in the fair value of the SAFEs resulted in a loss of $2.0 million for the nine months ended September 30, 2021.

There was no change in the fair value for the nine months ended September 30, 2022 as the derecognition of the SAFE liability occurred when the SAFEs converted into shares of our common stock upon the closing of our IPO.

Other Income (Expense), Net

Other expense, net was $0.2 million for the six months ended June 30, 2022, compared to other income, net of $0.2 million for the six months ended June 30, 2021.

Other expense, net was $0.2 million for the nine months ended September 30, 2022, compared to other income, net of $0.3 million for the nine months ended September 30, 2021.

Overall, management believes that the change in other expense was not significant in either period.

Gain on Debt Extinguishment

There was no gain or loss on debt extinguishment for the six months ended June 30, 2022.

Gain on debt extinguishment was $0.4 million for the six months ended June 30, 2021 as a result of the forgiveness of the Paycheck Protection Program loan on January 21, 2021.

There was no gain or loss on debt extinguishment for the nine months ended September 30, 2022.

Gain on debt extinguishment was $0.4 million for the nine months ended September 30, 2021 as a result of the forgiveness of the Paycheck Protection Program loan on January 21, 2021.

Interest Expense, Net

Interest expense, net was less than $0.1 million for the six months ended June 30, 2022, compared to interest expense, net of $0.9 million for the six months ended June 30, 2021.

The change of $0.9 million in interest expense, net was the result of the convertible notes outstanding balance during the six months ended June 30, 2021, which were subsequently converted into shares of our Series B-1 convertible preferred stock in May 2021.

Interest expense, net was less than $0.1 million for the nine months ended September 30, 2022, compared to interest expense, net of $0.9 million for the nine months ended September 30, 2021.

The change of $0.9 million in interest expense, net was the result of the convertible notes outstanding balance during the nine months ended September 30, 2021, which were subsequently converted into shares of our Series B-1 convertible preferred stock in May 2021.

Liquidity and Capital Resources

5 unchanged sentences

Additionally, on November 12, 2021, the underwriters exercise of their over-allotment option to purchase 565,217 shares of our common stock closed.

The net proceeds were approximately $44.2 million, after deducting underwriting discounts and commissions and other offering related expenses payable by the Company, which includes net proceeds of approximately $6.3 million from the exercise of the over-allotment option.

As of June 30, 2022, we had $45.8 million in cash and cash equivalents and have not generated positive cash flows from operations.

Based on our current business plans, we believe that the net proceeds from the IPO, together with our existing cash and cash equivalents and income from non-dilutive grants, will be sufficient for us to fund our operating expenses and capital expenditures requirements into the fourth quarter of 2023.

The net proceeds were approximately $44.2 million, after deducting underwriting discounts and commissions and other offering related expenses payable by us, which includes net proceeds of approximately $6.3 million from the exercise of the over-allotment option.

As of September 30, 2022, we had $46.6 million in cash and cash equivalents and have not generated positive cash flows from operations.

On November 10, 2022, we entered into an underwriting agreement with respect to a follow-on public offering, pursuant to an effective registration statement on Form S-1 (File No.

333-268228), selling 5,000,000 shares of our common stock at a public offering price of $1.20 per share.

The net proceeds are expected to be approximately $5.4 million, after deducting underwriting discounts and commissions and other offering-related expenses payable by us.

The follow-on public offering is expected to close on November 15, 2022.

Based on our current business plans, we believe that the net proceeds from the IPO and follow-on public offering, together with our existing cash and cash equivalents and income from non-dilutive grants, will be sufficient for us to fund our operating expenses and capital expenditures requirements into the first half of 2024.

We have based these estimates on assumptions that may prove to be incorrect or require adjustment as a result of business decisions, and we could utilize our available capital resources sooner than we currently expect.

3 unchanged sentences

We are subject to the risks typically related to the development of new products, and we may encounter unforeseen expenses, difficulties, complications, delays, and other unknown factors that may adversely affect our business.

Even with the closing of our IPO, we will need to raise substantial additional capital to fund the development of our product candidates.

Our future funding requirements will depend on many factors, including, but not limited to:

24 unchanged sentences

The following table summarizes our cash flows for the periods indicated (in thousands):

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows used in operating activities

Cash flows used in investing activities

Cash flows (used in) provided by financing activities

Cash flows provided by financing activities

Effect of exchange rate changes on cash and cash equivalents

1 unchanged sentence

Operating Activities

Net cash used in operating activities for the six months ended June 30, 2022 was $8.3 million, which consisted primarily of our net loss of $9.6 million, offset by the impact of equity-based compensation of $1.9 million and a net change of $0.8 million in our operating assets and liabilities.

The net change in our operating assets and liabilities was primarily due to an increase in grant receivables of $1.5 million, an increase in other assets of $1.3 million, offset by an increase in other noncurrent liabilities of $1.7 million, and an increase in deferred grant income of $0.5 million.

Net cash used in operating activities for the six months ended June 30, 2021 was $1.7 million, which consisted primarily of our net loss of $1.3 million as well as net non-cash gains of $1.0 million and a net change of $0.6 million in our operating assets and liabilities.

The net non-cash gains primarily consisted of amortization of debt discounts of $0.4 million, change in derivative liabilities of $2.2 million, change in fair value of the SAFEs of $1.0 million, a gain on debt extinguishment of $0.4 million, and equity-based compensation of $0.2 million.

The net change in our operating assets and liabilities was primarily due to an increase in grant receivables of $1.7 million, an increase in prepaid expenses and other current assets of $0.3 million, a decrease in other receivables of $0.3 million, an increase in accounts payable of $0.4 million, an increase in accrued expenses of $1.3 million, and an increase in other current liabilities of $0.5 million.

Net cash used in operating activities for the nine months ended September 30, 2022 was $8.4 million, which consisted primarily of our net loss of $16.2 million, offset by the impact of equity-based compensation of $2.7 million and a net change of $5.0 million in our operating assets and liabilities.

The net change in our operating assets and liabilities was primarily due to a decrease in grant receivables of $0.7 million, an increase in prepaids and other assets of $1.5 million, offset by an increase in accounts payable of $3.9 million, and an increase in deferred grant income, current and other liabilities of $2.4 million.

Net cash used in operating activities for the nine months ended September 30, 2021 was $3.7 million, which consisted primarily of our net loss of $4.4 million as well as net non-cash gains of less than $0.1 million and a net change of $0.6 million in our operating assets and liabilities.

The net non-cash gains primarily consisted of amortization of debt discounts of $0.4 million, change in derivative liabilities of $2.2 million, change in fair value of the Simple Agreements for Future Equity of $2.0 million, a gain on debt extinguishment of $0.4 million, and equity-based compensation of $0.3 million.

The net change in our operating assets and liabilities was primarily due to an increase in grant receivables of $0.3 million, an increase in prepaid expenses and other current assets of less than $0.1 million, a decrease in other receivables of $0.3 million, a decrease in accounts payable of $0.3 million, an increase in accrued expenses of $0.3 million, and an increase in other current liabilities of $0.7 million.

Investing Activities

Net cash used in investing activities for the six months ended June 30, 2022 was $0.1 million related to purchases of fixed assets.

We did not use any cash for investing activities for the six months ended June 30, 2021.

Net cash used in investing activities for the nine months ended September 30, 2022 was $0.2 million related to purchases of fixed assets.

We did not use any cash for investing activities for the nine months ended September 30, 2021.

Financing Activities

Net cash used in financing activities was $0.5 million for the six months ended June 30, 2022, and net cash provided by financing activities was $7.8 million for the six months ended June 30, 2021.

The decrease in cash relates primarily to the $8.9 million of SAFEs issued during the six months ended June 30, 2021.

Net cash provided by financing activities was $0.4 million for the nine months ended September 30, 2022, and net cash provided by financing activities was $6.8 million for the nine months ended September 30, 2021.

The decrease in cash relates primarily to the $8.9 million of SAFEs issued during the nine months ended September 30, 2021.

Contractual Obligations

The following table summarizes our contractual obligations as of June 30, 2022 (in thousands):

The following table summarizes our contractual obligations as of September 30, 2022 (in thousands):

Operating lease obligations:

1 unchanged sentence

The amounts reflected in the table above consist of the future minimum lease payments under the non-cancelable lease arrangements.

On July 1, 2021, we entered into an agreement to lease 2,864 square feet of office space in Purchase, New York.

The lease has a term of 89 months and commenced on December 9, 2021.

The annual base rent under the lease is less than $0.1 million for the first lease year and is subject to annual increases of between 1.82% and 2.04%.

We provided a security deposit in the form of a Letter of Credit in the amount of less than $0.1 million pursuant to the terms of the lease.

In addition, in October 2021, we entered into an insurance premium financing arrangement with a lender.

On August 31, 2022, we entered into an agreement to lease 2,980 square feet of office space in Pittsburgh, Pennsylvania.

The lease has a term of 45 months and commenced on October 1, 2022.

The annual base rent under the lease is less than $0.1 million throughout the term of the lease.

The impact of the new agreement is not reflected in the table above as the commencement date was October 1, 2022.

Total payments due over the term of the lease are $0.2 million.

Additionally, on August 31, 2022, we modified one of our existing lease agreements with the landlord for approximately 3,706 square feet of lab space at the same location to extend the lease term termination date from June 30, 2023 until June 30, 2026.

In October 2021, we entered into an insurance premium financing arrangement with a lender.

Under the agreement, we financed $1.5 million of certain premiums at a 3.25% annual interest rate.

Payments of $0.1 million are due monthly from October 2021 through September 2022.

As of June 30, 2022, the outstanding principal of the loan was $0.4 million.

As of September 30, 2022, there was no remaining outstanding principal on the loan.

In October 2022, we entered into an insurance premium financing arrangement with the same lender whereby we financed $0.8 million of certain premiums at a 6.85% annual interest rate.

Payments of less than $0.1 million are due monthly from October 2022 through September 2023.

We enter into contracts in the normal course of business with contract research organizations and other vendors to assist in the performance of our research and development and other services and products for operating purposes.

24 unchanged sentences

● 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.

Up until October 13, 2021, we were privately held and did not have a trading history of our 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 we consider to be comparable to our business over a period equivalent to the expected term of the stock-based awards.

We will continue to derive expected volatility from average historical stock volatilities of industry peers until we have compiled a trading history of its own for a sufficient period of time.

● Expected Dividend Yield.

4 unchanged sentences

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.

See Note 7 to our consolidated financial statements for the three and six months ended June 30, 2022 for more information concerning certain of the specific assumptions we used in applying the Black-Scholes option pricing model to determine the estimated fair value of our stock options.

See Note 7 to our consolidated financial statements for the three and nine months ended September 30, 2022 for more information concerning certain of the specific assumptions we used in applying the Black-Scholes option pricing model to determine the estimated fair value of our stock options.

Certain of such assumptions involve inherent uncertainties and the application of significant judgment.

As of June 30, 2022, the total unrecognized compensation expense related to unvested time-based vesting awards was $9.0 million, which is expected to be recognized over weighted-average remaining vesting period of approximately 2.5 years.

As of September 30, 2022, the total unrecognized compensation expense related to unvested time-based vesting awards was $7.3 million, which is expected to be recognized over weighted-average remaining vesting period of approximately 2.2 years.

Recent Accounting Pronouncements

4 unchanged sentences

We elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we (1) are no longer an emerging growth company or (2) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act.

As a result, our financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

result, our financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

We will remain an emerging growth company until the earliest to occur of:

6 unchanged sentences

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 2. Management’s Discussion and Analysis