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Item 7. Management’s Discussion and Analysis

2023-03-23 compared with 2022-03-30 · 91 added, 93 removed, 190 unchanged (49% 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 included elsewhere in this Annual Report and our Prospectus for our IPO, dated October 7, 2021 and filed with the SEC pursuant to Rule 424(b)(4) under the Securities Act.

Some of the information with respect to our plans and strategy for our business, including forward-looking statements, involve risks and uncertainties.

As a result of many factors, including those set forth in the section entitled “Risk Factors” in Part I, Item 1A of this Annual Report, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

You should carefully read the section entitled “Risk Factors” in Part I, Item 1A of this Annual Report to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes to those statements included elsewhere in this Annual Report on Form 10-K.

In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions.

Some of the numbers included herein have been rounded for the convenience of presentation.

Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under Item 1A, Risk factors, in this Annual Report on Form 10-K.

We are a clinical-stage biopharmaceutical company engaged in the discovery and development of innovative, small molecule therapeutics targeting age-related degenerative diseases and disorders of the central nervous system, or CNS, and retina.

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We incurred net losses of $21.4 million and $11.7 million for the years ended December 31, 2022 and 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.

Since our inception, we have received approximately $168.9 million in cumulative grant awards to fund our clinical trials, primarily from the NIA, and we have raised approximately $102.0 million in net proceeds from sales of our equity securities, convertible notes, SAFEs, stock option exercises, and our IPO.

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, proceeds from our follow-on public offering in November 2022, and the sales of our convertible promissory notes, convertible preferred stock, simple agreements for future equity, or SAFE, 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 $108.8 million in net proceeds from sales of our equity securities, convertible notes, SAFE, stock option exercises, our IPO and follow-on public offering.

As of December 31, 2022, we had cash and cash equivalents of $41.6 million.

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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 over-allotment exercise.

On November 15, 2022, we completed our follow-on public offering, pursuant to which we issued and sold 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 received net proceeds of approximately $5.2 million, after deducting underwriting discounts and commissions and other offering related expenses.

On December 23, 2022, we entered into a sales agreement with Cantor Fitzgerald & Co.

Riley Securities, Inc., or the Sales Agents, providing for the offering, issuance and sale by us of up to $40 million of our common stock from time to time in “at-the-market” offerings (the “ATM”).

For the year ended December 31, 2022, we have not sold any shares of common stock under the ATM.

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.

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As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy.

Until we can generate significant revenue from product sales, if ever, we expect to finance our operations

through a combination of public or private equity offerings, debt financings or other sources, such as potential collaboration agreements and strategic alliances, licensing or similar arrangements with third parties.

Until we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity offerings, debt financings or other sources, such as potential collaboration agreements and strategic alliances, licensing or similar arrangements with third parties.

To the extent available, we expect to continue our pursuit of non-dilutive research contributions, or grants, including additional NIA grant funding.

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Impact of COVID-19 on Our Business

Our business has been and could continue to be adversely affected by the effects of the recent and evolving COVID-19 pandemic, which was declared by the World Health Organization as a global pandemic.

Our clinical trials have been, and may in the future be, affected by the COVID-19 pandemic.

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.

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, 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.

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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

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We expense general and administrative costs as incurred.

We expect that our general and administrative expenses will increase substantially for the foreseeable future as we increase our headcount to support our continued research activities and development of our programs.

Following the completion of our IPO on October 13, 2021, we will incur substantially increased expenses as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the SEC, and those of any national securities exchange on which our securities are traded, legal, auditing, additional insurance expenses, investor relations activities, and other administrative and professional services.

We expect that our general and administrative expenses will increase for the foreseeable future as we increase our headcount to support our continued research activities and development of our programs.

Following the completion of our IPO on October 13, 2021, we have incurred, and will continue to incur, substantially increased expenses as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the SEC, and those of any national securities exchange on which our securities are traded, legal, auditing, additional insurance expenses, investor relations activities, and other administrative and professional services.

Other Income (Expense)

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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, or CROs, research institutions and /or consortiums involved in the grant, as well as facilities and administrative costs.

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.

Our clinical trials have been funded by approximately $168.9 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.

As of December 31, 2022, the Company has been awarded grants with project periods that extend through May 31, 2026, 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.

Change in fair value of derivative liability

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

Change in fair value of warrant liability

Change in fair value of our warrant liability consists primarily of the change in fair value of our unexercised Series A-1 convertible preferred stock warrants during the applicable periods.

These warrants expired unexercised in October 2020 and were derecognized at that time.

Change in fair value of SAFEs

Change in fair value of our SAFEs consist of fair value adjustments to these instruments based primarily on the changes in the probability of occurrence and estimated timing of future event inputs in the valuation model.

Upon the occurrence of our IPO on October 7, 2021, the SAFEs were converted into 931,485 shares of our common stock.

Interest expense, net

Interest expense, net primarily consists of interest expense from our convertible notes, partially offset by interest income from interest-bearing cash equivalents.

Other (expense) income, net

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.

Change in fair value of SAFE

Change in fair value of our SAFE consists of fair value adjustments to these instruments based primarily on the changes in the probability of occurrence and estimated timing of future event inputs in the valuation model.

Upon the occurrence of our IPO on October 7, 2021, the SAFE was converted into 931,485 shares of our common stock.

Gain on Debt Extinguishment

Gain on debt extinguishment for the year ended December 31, 2021 was the 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 year ended December 31, 2022.

Interest expense

Interest expense for the year ended December 31, 2022 consisted of interest expense related to the insurance premium financing arrangement with a lender.

Interest expense for the year ended December 31, 2021 primarily consisted of interest expense from our convertible notes.

Other income (expense), net

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

Results of Operations

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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 (expense) income, net

(Gain) loss on debt extinguishment

Interest expense, net

Change in the fair value of SAFE

Other income (expense), net

Gain on debt extinguishment

Interest expense

Total other income, net

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The increase of $11.7 million was primarily due to the following:

● a decrease of $0.6 million in clinical programs related to delays due to COVID 19, resulting in timing and scope changes to clinical studies;

● an increase of $0.9 million in personnel costs due to increased salaries and bonus expense, increased headcount associated with expanded research and development activities, and equity-based compensation expense;

● an increase of $5.7 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;

● a decrease of $0.3 million in preclinical programs due to decreased sponsored research spend under grants.

● an increase of $11.1 million in clinical programs related to increased Phase 2 trial activity primarily due to increased contract research organization spend;

● an increase of $2.6 million in personnel costs associated with expanded research and development activities;

● a decrease of $2.8 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 $0.9 million in preclinical programs, facilities and other costs primarily due to increased sponsored research spend under grants.

General and Administrative Expenses

General and administrative expenses were $13.2 million for the year ended December 31, 2022, compared to $10.0 million for the year ended December 31, 2021.

The increase of $5.5 million was primarily due to the following:

● an increase of $0.5 million in insurance and employee benefits primarily due to the addition of director and officer liability insurance;

● an increase of $1.0 million in professional fees driven by increased audit, tax, valuation and legal services;

● an increase of $4.0 million in equity-based compensation primarily driven by option grants made subsequent to the IPO.

The increase of $3.2 million was primarily due to:

● an increase of $1.1 million in Director & Officer liability insurance and other expenses;

● an increase of $0.8 million in compensation and employee benefits driven by increased headcount;

● an increase of $2.6 million in professional fees driven by increased audit, tax, and legal services;

● a decrease of $1.3 million in equity-based compensation from stock option grants.

Other Income (Expense)

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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 year ended December 31, 2021, compared to a gain of less than $0.1 million for the year ended December 31, 2020.

The increase in the gain recorded for the year ended December 31, 2021 relates to the derecognition of the derivative liability in May 2021 upon the conversion of the convertible notes into Series B-1 convertible preferred stock at that time.

Change in Fair Value of the Warrant Liability

Changes in the fair value of warrant liabilities resulted in no gain or loss for the year ended December 31, 2021, compared to a gain of $0.2 million for the year ended December 31, 2020.

The decrease of $0.2 million was due to the expiration of warrants to purchase Series A-1 preferred stock in October 2020.

Change in Fair Value of the SAFEs

Changes in the fair value of the SAFEs resulted in a loss of $2.2 million for the year ended December 31, 2021.

There was no change in fair value for the year ended December 31, 2020 as the SAFEs were entered into in March 2021.

The change in fair value was primarily driven by the conversion of the SAFE into common shares and the associated discount applied upon the occurrence of the IPO on October 7, 2021.

Other (Expense) Income, Net

Other expense, net was less than $0.1 million for the year ended December 31, 2021, compared to other income, net of $0.4 million for the year ended December 31, 2020.

The decrease was primarily the result of a decrease in research and development incentive income of $0.4 million.

Gain (Loss) on Debt Extinguishment

Gain on debt extinguishment was $0.4 million for the year ended December 31, 2021, compared to a loss on debt extinguishment of $0.1 million for the year ended December 31, 2020.

The 2020 loss was the result of the execution of the second amendment to the convertible notes on February 27, 2020, which resulted in an extinguishment of the

existing notes for accounting purposes.

The 2021 gain was the result of the forgiveness of the Paycheck Protection Program loan on January 21, 2021.

Interest Expense, Net

Interest expense, net was $0.9 million for the year ended December 31, 2021 compared to interest expense, net of $1.8 million for the year ended December 31, 2020.

The change of $0.9 million in interest expense, net was the result of a higher overall convertible note balance during 2020.

Changes in the fair value derivative liability resulted in a gain of $2.2 million for the year ended December 31, 2021.

There was no gain or loss for the year ended December 31, 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 SAFE

Changes in the fair value of the SAFE resulted in a loss of $2.2 million for the year ended December 31, 2021.

There was no gain or loss for the year ended December 31, 2022 as the derecognition of the SAFE liability occurred when the SAFE converted into shares of our common stock upon the closing of our IPO.

Other Income (Expense), Net

Other income, net was less than $0.1 million for the year ended December 31, 2022, compared to other expense, net of less than $0.1 million for the year ended December 31, 2021.

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

Gain on Debt Extinguishment

Gain on debt extinguishment was $0.4 million for the year ended December 31, 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 year ended December 31, 2022.

Interest Expense

Interest expense was less than $0.1 million for the year ended December 31, 2022, compared to interest expense of $0.9 million for the year ended December 31, 2021.

The change of $0.9 million in interest expense was the result of the convertible notes outstanding balance during the year ended December 31, 2021, which were subsequently converted into shares of our Series B-1 convertible preferred stock in May 2021.

Liquidity and Capital Resources

Sources of Liquidity

To date, we have funded our operations primarily with proceeds from grants awarded by the NIA, and proceeds from the sales of our convertible promissory notes, convertible preferred stock, SAFEs, stock option exercises, and our IPO.

Since our inception, we have received grant awards primarily from the NIA in the aggregate amount of approximately $168.9 million and have raised approximately $102.0 million in net proceeds from sales of our equity securities, convertible notes and SAFEs, stock option exercises, and our IPO.

Since our inception, we have received grant awards primarily from the NIA in the aggregate amount of approximately $171.0 million and have raised approximately $108.8 million in net proceeds from sales of our equity securities, convertible notes and SAFE, stock option exercises, our IPO and our follow-on public offering.

On March 25, 2021, we completed a SAFE offering with various investors, pursuant to which we received gross proceeds in an aggregate amount equal to $8.9 million.

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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 over-allotment exercise.

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.

On November 15, 2022, we closed our follow-on public offering, selling 5,000,000 shares of our common stock at a public offering price of $1.20 per share.

The net proceeds were approximately $5.2 million, after deducting underwriting discounts and commissions and other offering related expenses payable by us.

On December 23, 2022, we entered into a sales agreement with the Sales Agents, providing for the offering, issuance and sale by us of up to $40.0 million of our common stock from time to time in ATM offerings.

As of December 31, 2022, we have not sold any shares of common stock under the ATM.

In addition, in March 2023, we entered into a Purchase Agreement with Lincoln Park Capital Fund, LLC, or Lincoln Park, giving the Company the right, but not the obligation to sell to Lincoln Park up to $35.0 million worth of shares of our common stock.

As of December 31, 2022, we had $41.6 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 second half of 2023.

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 second half of 2024, which assumes no usage from the ATM nor purchase agreement with Lincoln Park.

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.

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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:

● the scope, progress, costs and results of our ongoing and planned clinical trials of CT1812, as well as the associated costs, including any unforeseen costs we may incur as a result of preclinical study or clinical trial delays due to the COVID-19 pandemic or other diseases, macroeconomic conditions, global or political instability, such as the ongoing conflict between Ukraine and Russia, inflation, or other delays;

● the scope, progress, costs and results of preclinical development, laboratory testing and clinical trials for any future product candidates we may decide to pursue;

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Adequate funding may not be available when needed or on terms acceptable to us, or at all.

Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic and otherwise.

and international financial banking systems, and otherwise.

If we fail to obtain necessary capital when needed on acceptable terms, or at all, it could force us to delay, limit, reduce or terminate our product development programs, commercialization efforts or other operations.

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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

Operating Activities

Net cash used in operating activities for the year ended December 31, 2022 was $18.5 million, which consisted primarily of our net loss of $21.4 million partially offset by net non-cash charges of $3.8 million and a net change of $0.9 million in our operating assets and liabilities.

The non-cash charges primarily consisted of depreciation and amortization of less than $0.1 million, amortization of right-of-use assets of $0.2 million, and equity-based compensation of $3.6 million.

The net change in our operating assets and liabilities was primarily due to an increase in grant receivables of $1.9 million, an increase in other assets of $1.7 million, a decrease in accounts payable of $1.1 million, partially offset by an increase in deferred grant income and other liabilities of $2.6 million, and a decrease of $0.9 million of prepaid expenses, other current assets, and other receivables.

Net cash used in operating activities for the year ended December 31, 2021 was $3.6 million, which consisted primarily of our net loss of $11.7 million partially offset by net non-cash charges of $5.2 million and a net change of $2.8 million in our operating assets and liabilities.

The non-cash charges primarily consisted of depreciation and amortization of $0.1 million, amortization of debt discount of $0.4 million, change in fair value of SAFE of $2.2 million, and equity-based compensation of $5.1 million, partially offset by a change in the fair value of the derivative liability of $2.2 million.

The net change in our operating assets and liabilities was primarily due to an increase in accounts payable of $2.2 million, an increase in accrued expenses of $1.3 million, and an increase in other current liabilities of $0.5 million, partially offset by an increase in grant receivables of $1.2 million.

Net cash used in operating activities for the year ended December 31, 2020 was $3.4 million, which consisted primarily of our net loss of $7.8 million partially offset by net non-cash charges of $1.3 million and a net decrease of $3.1 million in our operating assets and liabilities.

The non-cash charges primarily consisted of depreciation and amortization of $0.1 million, amortization of debt issuances costs of $0.1 million, amortization of debt discounts of $0.8 million, change in warrant liabilities of $0.2 million, loss on debt extinguishment of $0.1 million, and equity-based compensation of $0.5 million.

The net decrease in our net operating assets was primarily due to a net decrease in other receivables of $0.9 million, a decrease in accounts payable of $0.4 million, an increase in accrued expenses of $0.6 million, a decrease in grant receivables of $2.1 million, and an increase in other current liabilities of $0.3 million.

Investing Activities

During the years ended December 31, 2021 and 2020, we used less than $0.1 million of cash, respectively, for investing activities related to purchases of property and equipment.

During the years ended December 31, 2022 and 2021, we used $0.2 and less than $0.1 million of cash, respectively, for investing activities related to purchases of property and equipment.

Financing Activities

Net cash provided by financing activities was $5.5 million and $53.2 million for the years ended December 31, 2022 and 2021, respectively.

The increase in cash provided by financing activities in 2021 relates primarily to proceeds received in connection with the IPO in the amount of $44.2 million.

The decrease in cash provided by financing activities relates primarily to the IPO of our stock whereby we received net proceeds of $44.2 million and the issuance of SAFEs whereby we received $8.9 million during the year ended December 31, 2021.

This is partially offset by proceeds received from the exercise of common stock options in the amount of $1.6 million, as well as proceeds from issuance of common stock in our follow-on public offering in the amount of $5.3 million during the year ended December 31, 2022.

Contractual Obligations

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Operating lease obligations:

We have entered into an operating leases for office and laboratory facilities under agreements that run through May 31, 2029.

In October 2022, we entered into an insurance premium financing arrangement with a lender.

Under the agreement, 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.

As of December 31, 2022, the outstanding principal of the loan was $0.6 million.

We have entered into operating leases for office and laboratory facilities under agreements that run through May 31, 2029.

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

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.

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.

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

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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.

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 December 31, 2021, the outstanding principal of the loan was $1.2 million.

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.

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As of December 31, 2022, the total unrecognized compensation expense related to unvested time-based vesting awards was $6.5 million, which is expected to be recognized over weighted-average remaining vesting period of approximately 2.0 years.

As of December 31, 2021, total unrecognized compensation expense related to un-vested performance-based awards was $0.3 million.

Recent Accounting Pronouncements

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(1) the last day of the fiscal year in which we have at least $1.235 billion in annual revenue;

(2) the last day of the fiscal year in which we are deemed to be a “large accelerated filer,” as defined in Rule 12b 2 under the Securities Exchange Act, which would occur if the market value of our common stock held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such year;

(2) the last day of the fiscal year in which we are deemed to be a “large accelerated filer,” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such year;

(3) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period;

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As a “smaller reporting company,” as that term is defined in Rule 229.10(f)(1), we are not required to provide the information required by this Item.

Financial Statements and Supplementary Data

The financial statements required to be filed pursuant to this Item 8 are appended to this Annual Report.

An index of those financial statements can be found in Item 15 of Part IV of this Annual Report.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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-K

Item 7. Management’s Discussion and Analysis