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Item 9A. Controls and Procedures

2023-03-23 compared with 2022-03-30 · 30 added, 769 removed, 107 unchanged (88% of the section changed)

1 unchanged sentence

Evaluation of Disclosure Controls and Procedures

Our management, including our President and Chief Executive Officer (principal executive officer) and our Chief Financial Officer (principal financial and accounting officer), do not expect that our disclosure controls or our internal control over financial reporting will prevent all error and all fraud.

Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.

Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls.

The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Our President and Chief Executive Officer and our Chief Financial Officer have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this Annual Report.

Based on this evaluation, our President and Chief Executive Officer and our Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our President and Chief Executive Officer and our Chief Financial Officer, to allow for timely decisions regarding required disclosures, and recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Our President and Chief Executive Officer and our Interim Chief Financial Officer have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this Annual Report.

Based on this evaluation, our President and Chief Executive Officer and our Interim Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our President and Chief Executive Officer and our Chief Financial Officer, to allow for timely decisions regarding required disclosures, and recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Management’s Report on Internal Controls over Financial Reporting

This Annual Report does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of our independent registered public accounting firm due to a transition period established by rules of the SEC for new public companies.

Management is responsible for establishing and maintaining adequate internal control over our financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.

Under the supervision and with the participation of our management, including our President and Chief Executive Officer and our Interim Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting.

Management has used the framework set forth in the report entitled “Internal Control—Integrated Framework (2013)” published by the Committee of Sponsoring Organizations of the Treadway Commission to evaluate the effectiveness of our internal control over financial reporting.

Based on its evaluation, management has concluded that our internal control over financial reporting was effective as of December 31, 2022.

Changes in Internal Control

There were no changes in our internal control over financial reporting identified in connection with the evaluation described above that occurred during the year ended December 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management, including our President and Chief Executive Officer and our Interim Chief Financial Officer, does not expect that our disclosure controls and procedures or internal controls over financial reporting will prevent all errors and all fraud.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the system are met and cannot detect all deviations.

Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or deviations, if any, within the company have been detected.

Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Other Information

13 unchanged sentences

(a)(1) Financial Statements.

The following documents are included on pages F-1 through F-28 attached hereto and are filed as part of this Annual Report on Form 10-K.

Index to Consolidated Financial Statements

2 unchanged sentences

Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2022 and 2021

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the years ended December 31, 2021 and 2020

Consolidated Statements of Convertible Preferred Stock and Stockholders’ (Deficit) Equity for the years ended December 31, 2022 and 2021

Consolidated Statements of Cash Flows for the years ended December 31, 2022 and 2021

10 unchanged sentences

Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934

Form of Indenture

Third Amended and Restated Investors’ Rights Agreement

22 unchanged sentences

and Lisa Ricciardi

Office Lease Agreement, dated August 31, 2022

Employee Restrictive Covenant Agreement

3 unchanged sentences

National Institute on Aging, Notice of Award, dated 08/14/2016

National Institute on Aging, Notice of Award, dated 09/12/2017

National Institute on Aging, Notice of Award, dated 04/18/2018

National Institute on Aging, Notice of Award, dated 09/08/2018

National Institute on Aging, Notice of Award, dated 08/28/2020

National Institute on Aging, Notice of Award, dated 09/05/2020

Incorporated by Reference

Exhibit Description

National Institute on Aging, Notice of Award, dated 09/08/2018

3 unchanged sentences

National Institute on Aging, Notice of Award, dated 05/10/2021

Controlled Equity Offering SM Sales Agreement, dated December 23, 2022, by and among the registrant, Cantor Fitzgerald & Co.

Riley Securities, Inc.

Purchase Agreement, dated as of March 10, 2023, by and between Cognition Therapeutics, Inc.

and Lincoln Park Capital Fund, LLC

Registration Rights Agreement, dated as of March 10, 2023, by and between Cognition Therapeutics, Inc.

and Lincoln Park Capital Fund, LLC

Subsidiaries of Cognition Therapeutics, Inc.

10 unchanged sentences

Inline XBRL Taxonomy Extension Definition Linkbase Document

Incorporated by Reference

Exhibit Description

Inline XBRL Taxonomy Extension Label Linkbase Document

14 unchanged sentences

(Principal Executive Officer)

Chief Financial Officer

/s/ Andrew Einhorn

Interim Chief Financial Officer

March 23, 2023

Andrew Einhorn

(Principal Financial and Accounting Officer)

1 unchanged sentence

March 23, 2023

/s/ Aaron Fletcher, Ph.D.

Fletcher, Ph.D.

March 23, 2023

Aaron Fletcher, Ph.D.

Fletcher, Ph.D.

March 23, 2023

3 unchanged sentences

Peggy Wallace

Index to Consolidated Financial Statements

As of and for the years ended December 31, 2021 and 2020

Report of Independent Registered Public Accounting Firm (PCAOB ID 42)

Consolidated Balance Sheets as of December 31, 2021 and 2020

Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2021 and 2020

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the years ended December 31, 2021 and 2020

Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020

Notes to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Cognition Therapeutics, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Cognition Therapeutics, Inc.

and Subsidiary (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive loss, convertible preferred stock and stockholders’ equity (deficit) and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended, in conformity with U.S.

generally accepted accounting principles.

Basis of Opinion

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2020.

Philadelphia, Pennsylvania

March 30, 2022

COGNITION THERAPEUTICS, INC.

AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

As of December 31,

Current assets

Cash and cash equivalents

Grant receivables

Prepaid expenses

Other receivables

Other current assets

Total current assets

Property and equipment, net

Liabilities, Convertible Preferred Stock, and Stockholders’ Equity (Deficit)

Current liabilities

Accounts payable

Accrued expenses

Other current liabilities

Total current liabilities

Paycheck protection program loan

Derivative liability

Convertible notes, net

Accrued interest

Total liabilities

Commitments and contingencies

Convertible preferred stock:

Series A convertible preferred stock, par value $ 0.001 per share, 0 and 3,067,519 shares authorized at December 31, 2021 and 2020, respectively, 0 and 2,819,027 shares issued and outstanding as of December 31, 2021 and 2020, respectively;

liquidation preference of $ 0 as of December 31, 2021

Series A-1 convertible preferred stock, par value $ 0.001 per share, 0 and 3,970,776 shares authorized at December 31, 2021 and 2020, respectively, 0 and 3,730,366 shares issued and outstanding as of December 31, 2021 and 2020, respectively;

liquidation preference of $ 0 as of December 31, 2021

Series A-2 convertible preferred stock, par value $ 0.001 per share, 0 and 3,565,063 shares authorized at December 31, 2021 and 2020, respectively, 0 and 3,565,063 shares issued and outstanding as of December 31, 2021 and 2020, respectively;

liquidation preference of $ 0 as of December 31, 2021

Series B convertible preferred stock, par value $ 0.001 per share, 0 and 30,450,000 shares authorized at December 31, 2021 and 2020, respectively, 0 and 30,409,890 shares issued and outstanding as of December 31, 2021 and 2020, respectively;

liquidation preference of $ 0 as of December 31, 2021

Total convertible preferred stock

Stockholders’ equity (deficit):

Preferred stock, $ 0.001 par value, 10,000,000 and 0 shares authorized at December 31, 2021 and 2020, respectively;

no shares issued and outstanding at December 31, 2021 and 2020, respectively

Common stock, $ 0.001 par value, 250,000,000 and 58,000,000 shares authorized at December 31, 2021 and 2020, respectively;

22,230,032 and 538,793 shares issued and outstanding at December 31, 2021 and 2020, respectively

Additional paid-in capital

Accumulated deficit

Accumulated other comprehensive loss

Total stockholders’ equity (deficit)

Total liabilities, convertible preferred stock, and stockholders’ equity (deficit)

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

COGNITION THERAPEUTICS, INC.

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except share and per share amounts)

For the Year Ended

Operating Expenses:

Research and development

General and administrative

Total operating expenses

Loss from operations

Other income (expense):

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

Total other income, net

Cumulative preferred stock dividends

Net loss attributable to common stockholders

Unrealized loss on foreign currency translation

Total comprehensive loss

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

Weighted-average common shares outstanding, basic and diluted

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

COGNITION THERAPEUTICS, INC.

AND SUBSIDIARY

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

(in thousands, except share amounts)

Preferred Stock

Comprehensive

Stockholders’

Equity (Deficit)

Balances as of December 31, 2019

Exercise of common stock warrants

Exercise of stock options

Equity-based compensation

Accretion of convertible preferred stock to redemption value

Other comprehensive loss

Balances as of December 31, 2020

Issuance of Series B-1 convertible preferred stock upon conversion of debt

Conversion of convertible preferred stock into common stock

( 2,819,027 )

( 3,730,366 )

( 3,565,063 )

( 30,409,890 )

( 10,926,089 )

Issuance of common stock in initial public offering, net of discounts and issuance costs of $ 7,783

Conversion of SAFE into common stock

Exercise of stock options

Exercise of common stock warrants

Equity-based compensation

Other comprehensive loss

Balances as of December 31, 2021

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

COGNITION THERAPEUTICS, INC.

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

For the Year Ended December 31,

Cash flows from operating activities:

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

Depreciation and amortization

Amortization of debt issuance costs

Amortization of debt discount

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

Changes in operating assets and liabilities:

Grant receivables

Prepaid expenses and other current assets

Other receivables

Accounts payable

Accrued expenses and interest

Other current liabilities

Net cash used in operating activities

Cash flows from investing activities:

Payments for property and equipment

Net cash used in investing activities

Cash flows from financing activities:

Payments on capital lease obligation

Proceeds from issuance of common stock in initial public offering

Proceeds from issuance of Simple Agreements for Future Equity

Proceeds from the exercise of common stock options

Proceeds from the exercise of common stock warrants

Payments on loan payable

Proceeds from the paycheck protection program loan

Proceeds from the issuance of convertible notes

Debt issuance costs related to convertible notes

Net cash provided by financing activities

Effect of exchange rate changes on cash and cash equivalents

Net increase in cash and cash equivalents

Cash and cash equivalents

Cash and cash equivalents – beginning of period

Cash and cash equivalents – end of period

Supplemental disclosures of non-cash financing activities:

Conversion of convertible preferred stock into common stock in initial public offering

Conversion of Simple Agreements for Future Equity into common stock in initial public offering

Issuance of Series B-1 convertible preferred stock upon conversion of debt

Prepayment of insurance through third-party financing

Non-cash accretion of convertible preferred stock to redemption value

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

COGNITION THERAPEUTICS, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts)

Description of Business and Financial Condition

Cognition Therapeutics, Inc.

(the “Company”) was incorporated as a Delaware corporation on August 21, 2007.

The Company is a biopharmaceutical company developing disease modifying therapies for central nervous system (“CNS”) disorders.

The Company’s pipeline candidates were discovered using proprietary biology and chemistry platforms designed to identify novel drug targets and disease-modifying therapies that address dysregulated pathways specifically associated with neurodegenerative diseases.

The Company was founded on the unique combination of biological expertise around these targets, including proprietary assays that emphasize functional responses, and proprietary medicinal chemistry intended to produce novel, high-quality small-molecule drug candidates.

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 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.

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, excluding the overallotment 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 $ 6,783 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 $ 54,721 at December 31, 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 through at least the one year period subsequent to the filing date of this Annual Report on Form 10-K.

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

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

Basis of Presentation

The accompanying financial statements have been prepared in conformity with U.S.

generally accepted accounting principles (“GAAP”).

Any reference in these notes to applicable guidance is meant to refer to the authoritative United States generally accepted accounting principles as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”).

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents consist primarily of interest-bearing deposits at various financial institutions and money markets.

The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.

Grant Receivables

Grant receivables relate to outstanding amounts due for reimbursable expenditures of awarded grants issued by the National Institute of Health and 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 grant receivables.

Other Receivables

Other receivables consist of Australian research and development tax credit from the Australian Tax Authority, as well as other receivables from time to time.

Historically, 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.

Property and Equipment

Property and equipment is recorded at cost, less accumulated depreciation.

Depreciation is computed on the straight-line basis over the estimated useful life of the asset.

The Company estimates the useful life to be 5 and 6 years for equipment and furniture and fixtures, respectively.

The cost of repairs and maintenance is charged to expense as incurred.

Property and equipment is evaluated for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition.

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 years ended December 31, 2021 or 2020.

Convertible Instruments

ASC 815, Derivatives and Hedging Activities (“ASC 815”) requires companies to bifurcate certain conversion options and redemption features from their host instruments and account for them as free-standing derivative financial instruments should certain criteria be met.

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;

(b) variations in something other than the fair value of the issuer’s equity shares;

or (c) variations inversely related to changes in the fair value of the issuer’s equity shares.

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 8.

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 holder’s 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 9).

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 year ended December 31, 2021 and 2020, the Company generated grant income of $ 17,447 and $ 10,855 from reimbursements from the National Institute of Health (“NIH”) for aging research, respectively.

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.

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 (“CROs”), 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 the Company is reimbursed for its

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.

Research and Development Costs

The Company is involved in research and development aimed at the development of treatments for a variety of diseases related to the central nervous system, with a primary focus on Alzheimer’s Disease.

Research and development costs are expensed as incurred.

Research and development expenses consist principally of personnel costs, including salaries, stock-based compensation, and benefits for employees, third-party license fees and other operational costs related to our research and development activities, including allocated facility-related expenses and external costs of outside vendors, and other direct and indirect costs.

Non-refundable research and development costs are deferred and expensed as the related goods are delivered or services are performed.

Costs for external development activities are recognized based on an evaluation of the progress to completion of specific tasks.

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 accounts for income taxes under the asset and liability method pursuant to authoritative guidance.

Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carryforwards.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

Under this authoritative guidance, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

If it is more likely than not that some portion or all of a deferred tax asset will not be recognized, a valuation allowance is recognized.

The Company accounts for uncertainty in income taxes using a recognition threshold of more-likely-than-not to be sustained upon examination by the appropriate taxing authority.

Measurement of the uncertainty occurs if the recognition threshold is met.

The Company has determined that there were no uncertainties as of December 31, 2021 and 2020 that met the recognition threshold.

Equity-based Compensation

Following the provisions of ASC 718, Compensation — Stock Compensation , the Company recognizes compensation expense for equity-based grants using the straight-line attribution method, in which the expense is recognized ratably over the requisite service period within operating expenses based on the grant date fair value.

The Company also has granted awards subject to performance-based vesting.

The Company would recognize compensation expense for these awards commencing in the period in which the vesting condition becomes probable of achievement.

Grant date fair value is estimated on the date of grant using the Black-Scholes option pricing model.

Forfeitures are recognized in the period in which they occur.

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 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.

The Company uses the simplified method to calculate the expected term

for stock options granted to employees whereby the expected term equals the arithmetic average of the vesting term and the original contractual term of the stock options due to its lack of sufficient historical data.

The risk-free interest rate is based on U.S.

Treasury securities with a maturity date commensurate with the expected term of the associated award.

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.

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.

The estimated fair value of the common stock has been determined at each grant date based upon a variety of factors, including the illiquid nature of the common stock, arm’s-length sales of the Company’s capital stock (including convertible preferred stock), the effect of the rights and preferences of the preferred stockholders and the prospects of a liquidity event.

Among other factors are the Company’s financial position and historical financial performance, the status of technological developments within the Company’s research, the composition and ability of the current research and management team, an evaluation or benchmark of the Company’s competition and the current business climate in the marketplace.

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

The Company’s financial instruments that are exposed to credit risks consist of cash and cash equivalents.

The Company maintains its cash and cash equivalents in bank deposit accounts which, at times, may exceed the federally insured limit.

The Company has not experienced any losses in these accounts and does not believe it is exposed to any significant credit risk related to these funds.

Fair Value of Financial Instruments

The Company applies ASC 820, Fair Value Measurement (“ASC 820”), which establishes a framework for measuring fair value and clarifies the definition of fair value within that framework.

ASC 820 defines fair value as an exit price, which is the price that would be received for an asset or paid to transfer a liability in the Company’s principal or most advantageous market in an orderly transaction between market participants on the measurement date.

The fair value hierarchy established in ASC 820 generally requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

Observable inputs reflect the assumptions that market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the reporting entity.

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 valuation hierarchy is composed of three levels.

The classification within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement.

The levels within the valuation hierarchy are described below:

● Level 1 — Assets and liabilities with unadjusted, quoted prices listed on active market exchanges.

Inputs to the fair value measurement are observable inputs, such as quoted prices in active markets for identical assets or liabilities.

● Level 2 — Inputs to the fair value measurement are determined using prices for recently traded assets and liabilities with similar underlying terms, as well as direct or indirect observable inputs, such as interest rates and yield curves that are observable at commonly quoted intervals.

● 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 $ 11 and $ 2 in other comprehensive loss related to foreign currency translation for the years ended December 31, 2021 and 2020, respectively.

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

Net Loss Per Share Attributable to Common Stockholders

Basic net loss attributable to common shares is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during each period.

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, 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.

The Company’s chief operating decision maker, its chief executive officer, reviews financial information on an aggregate basis for the purpose of allocating resources.

Emerging Growth Company Status

The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”).

Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies.

The Company has 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 it is (a) no longer an emerging growth company or (b) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act.

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

Recent Accounting Pronouncements

In February 2016, the FASB issued Accounting Standards Update (ASU) No.

2016-02, Leases (Topic 842).

2016-02 requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet.

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 adopted this standard on January 1, 2022.

The Company expects to elect the package of practical expedients permitted under the transition guidance within the new standard, which, among other things, allows the Company to carry forward historical lease classification.

The Company has substantially completed its evaluation of the

impact of the adoption of ASU 2016-02 on its consolidated financial statements and upon adoption, expects to recognize a lease liability and related right-of-use asset on its consolidated balance sheet.

The Company does not expect the standard to have a material impact on its operations or cash flows.

In addition, the Company is currently implementing changes to processes and controls to support lease accounting and related disclosures under the new standard.

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

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 2020-10 as of the reporting period beginning January 1, 2021.

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

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 will adopt ASU 2021-04 as of the reporting period beginning January 1, 2022.

The Company is currently evaluating the impact of the pending adoption of the new standard on the Company’s consolidated 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 Company will adopt ASU 2021-10 for the reporting period beginning on January 1, 2022.

The Company is currently evaluating the impact of the pending adoption of the new standard on the Company’s consolidated 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 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.

Financial Instruments and Fair Value Measurements

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

As of December 31, 2021

Quoted Priced in

Significant Other

Active Markets

Observable Inputs

Money market funds

As of December 31, 2020

Quoted Priced in

Significant Other

Active Markets

Observable Inputs

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 years ended December 31, 2021 and 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 derivative liability

Balance at December 31, 2020

Fair value recognized upon the issuance of SAFE

Change in the fair value of the liability

Fair value recognized upon conversion of SAFE into common stock

Balance at December 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.

The fair value measurement of

the derivative liability is classified as Level 3 under the fair value hierarchy as it has been valued using certain unobservable inputs.

These inputs include:

(1) probability of occurrence of future events (such as a qualified financing or a sale), and (2) discount rate for implied return required by investor.

Significant increases or decreases in any of those inputs in isolation could result in a significantly lower or higher fair value measurement.

The fair value of the derivative liability was determined by calculating the fair value of the notes with the conversion and redemption features as compared to the fair value of the notes without such features, with the difference representing the value of the conversion and redemption features, or the derivative liability.

The conversion and redemption features are measured at fair value as of each reporting date and the change in the fair value for the period is recorded in the consolidated statements of operations as a change in the fair value of the derivative liability.

The fair value of the derivative liability is based on Level 3 unobservable inputs.

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 9).

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 $ 181 in the consolidated statement of operations and comprehensive loss for the year ended December 31, 2020.

The warrants expired unexercised in October 2020.

Simple Agreement 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 .

The fair value of the SAFE liability is estimated using a fair value model that includes inputs such as:

(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 $ 2,236 in the consolidated statement of operations and comprehensive loss for the year ended December 31, 2021.

Upon the occurrence of the Company’s IPO on October 7, 2021, the SAFEs converted into 931,485 shares of common stock.

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:

Expected term (in years)

Discount upon conversion

Discount upon implied return

Probability of initial public offering occurrence

Probability of dissolution event occurrence

Probability of equity financing occurrence

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 10).

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

Property and Equipment

Property and equipment, net, consisted of the following:

As of December 31,

Furniture and fixtures

Property and equipment, gross

Accumulated depreciation

Property and equipment, net

Depreciation expense for the years ended December 31, 2021 and 2020 was $ 93 and $ 60 , respectively, which includes amortization expense of $ 38 and $ 38 for the years ended December 31, 2021 and 2020, respectively, for assets under a capital lease.

Equipment cost includes an asset under a capital lease totaling $ 190 on December 31, 2021 and 2020, respectively.

Accumulated amortization of the leased equipment as of December 31, 2021 and 2020 was $ 190 and $ 152 , respectively.

Accrued Expenses

Accrued expense consists of the following:

As of December 31,

Employee compensation, benefits, and related accruals

Research and development costs

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 December 31, 2021, the outstanding principal of the loan was $ 1,191 included in other current liabilities on the consolidated balance sheet.

Commitments and Contingencies

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 of 2029.

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

Minimum lease commitments consisted of the following as of December 31, 2021:

For the Years Ended December 31,

Operating Leases

Total lease commitments

Rent expense was $ 163 and $ 179 for the years ended December 31, 2021 and 2020, respectively.

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

When the Company determines that a loss is both probable and reasonably estimable, a liability is recorded and disclosed if the amount is material to the financial statements taken as a whole.

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 December 31, 2021 and 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 $ 129 in the consolidated statement of operations and comprehensive loss during 2020.

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.

The Convertible Notes as of December 31, 2021 and 2020 consist of the following:

Year Ended December 31,

Convertible notes principal

unamortized note issuance costs

debt discount

Interest expense on the convertible notes, including amortization of debt issuance costs, consisted of the following for the year ended December 31, 2021 and 2020:

Year Ended December 31,

Coupon interest

Issuance costs amortization

Discount amortization

In May 2021, the convertible notes and accrued interest thereon were converted into shares of the Company’s Series B-1 convertible preferred stock (Note 10).

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 $ 443 of income for the debt extinguishment pursuant to ASC 470-50-15-4 for the year ended December 31, 2021.

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 the 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.

As of December 31, 2020, convertible preferred stock consisted of the following:

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

Rights, preferences, privileges, and restrictions:

The holders of shares of Series A, A-1, A-2, B and B-1 convertible preferred stock (or collectively, the “Preferred Stock”) had 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.

Common Stock Warrants

The following is a summary of the Company’s outstanding common stock warrants as of December 31, 2020:

Number of 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 issued.

A total of 198,198 common stock warrants were exercised in 2021, and the remainder were forfeited.

There are no warrants outstanding as of December 31, 2021.

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.

For the year ended December 31, 2020, the Company recorded a fair value adjustment of $ 181 in the consolidated statement of operations and comprehensive loss.

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 December 31, 2021 and 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, exercise of stock options, and future issuances as of December 31:

Convertible preferred stock (as converted)

Warrants for common stock

Shares available for future issuance under Prior Plans

Options issued and outstanding

Shares available for future issuance under 2021 Plan

Shares available for future issuance under ESPP

Equity-based Compensation

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, or SARs, (iii) restricted stock awards, or RSAs, (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 December 31, 2021, the aggregate number of shares of common stock of the Company that may be issued under the Plan is 7,514,395 .

The number of shares reserved for issuance under the 2021 Plan will increase automatically on January 1, 2022 and 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 board or 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 underling 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 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, or 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 December 31, 2021, subject to adjustment as provided in the ESPP, a total of 209,532 shares of common stock will be 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 our 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 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:

Year Ended December 31,

Fair value of common stock

$ 1.75 – $ 12.13

Expected volatility

100.82 % – 104.79 %

101.35 % – 109.34 %

Risk-free interest rate

0.67 % – 1.26 %

0.27 % – 1.60 %

Dividend yield

Expected term (years)

Expected Term — The expected term represents the period that the stock-based awards are expected to be outstanding.

As the Company does not have sufficient historical experience for determining the expected term of the stock option awards granted, expected term has been calculated using the simplified method.

Risk-Free Interest Rate — The risk-free interest rate is based on the U.S.

Treasury yield curve in effect at the date of grant for zero-coupon U.S.

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

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 — 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:

Options Outstanding

Contractual Life

Balance, December 31, 2020

Options granted

Options exercised

Options forfeited

Options expired

Balance, December 31, 2021

Exercisable as of December 31, 2021

Vested and expected to vest as of December 31, 2021

The weighted-average grant date fair value of stock options granted was $ 9.09 and $ 0.97 during the years ended December 31, 2021 and 2020, respectively.

There were 1,697,076 stock options granted at an aggregate fair value of $ 15,424 for the year ended December 31, 2021 and 1,245,865 stock options granted at an aggregate fair value of $ 1,210 for the year ended December 31, 2020.

During the year ended December 31, 2021 and 2020, there were 321,686 and 18,545 stock options exercised, respectively, with an aggregate grant date fair value of $ 188 and $ 11 , respectively.

The intrinsic value of stock options exercised during the year ended December 31, 2021 was $ 1,610 .

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

As of December 31, 2021, the performance targets were achieved and therefore, $ 108 of expense was recognized for these awards during the year ended December 31, 2021.

No expense was recognized during the year ended December 31, 2020.

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:

Year Ended December 31,

Research and development

General and administrative

Total equity-based compensation

As of December 31, 2021, total future compensation expense related to unvested awards yet to be recognized by the Company was $ 11,792 .

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 3.2 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:

Convertible preferred stock (as converted)

Warrants for common stock

Shares available for future issuance under Prior Plans

Options issued and outstanding

Shares available for future issuance under 2021 Plan

Shares available for future issuance under ESPP

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

Cumulative preferred stock dividends

Net loss attributable to common stockholders

Weighted-average common shares outstanding - basic and diluted

Retirement Plan

The Company maintains a 401(k) retirement plan to provide retirement and incidental benefits for its employees.

Employees may contribute a percentage of their annual compensation to the 401(k) retirement plan, limited to a maximum annual amount as set periodically by the Internal Revenue Service.

The Company matches employee contributions dollar for dollar up to a maximum of 4 % of the employees’ compensation per person per year.

All matching contributions vest immediately.

Company matching contributions to the 401(k) retirement plan totaled $ 113 and $ 110 for the year ended December 31, 2021 and 2020, respectively.

The net loss consists of the following components:

Year Ended December 31,

During the years ended December 31, 2021 and 2020, the Company recorded no current or deferred income tax expenses or benefits as the Company has incurred losses since inception and has provided a full valuation allowance against its deferred tax assets.

Global Intangible Low-Taxed Income (“GILTI”) is the excess of a U.S.

shareholders total net foreign income over a deemed return on tangible assets.

In January 2018, in response to inquiries by companies, the FASB issued guidance that allows companies to elect as an accounting policy whether to treat the GILTI tax as a period cost or to recognize deferred tax assets and liabilities when basis differences exist that are expected to affect the amount of GILTI inclusion upon reversal.

The Company has elected to treat GILTI as a period expense.

A reconciliation of the expected income tax (benefit) computed using the federal statutory income tax rate to the Company’s effective income tax rate is as follows:

Year Ended December 31,

Income tax computed at federal statutory rate

State taxes, net of federal benefit

Change in valuation allowance

Interest expense

Equity-based compensation

Fair value adjustments

Effective income tax rate

The Company’s deferred tax assets and liabilities consist of the following:

Year Ended December 31,

Deferred tax assets:

Net operating loss carryforwards

Tax credit carryforwards

Equity-based compensation

Deferred tax assets

valuation allowance

Deferred tax assets after valuation allowance

Deferred tax liabilities

Net deferred tax assets

The Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets as of December 31, 2021 and 2020.

Management has considered the Company’s history of cumulative net losses and has concluded as of December 31, 2021 and 2020, that it was more likely than not that the Company will not realize all of the benefits of the deferred tax assets.

Accordingly, a full valuation allowance has been established against the deferred tax assets as of December 31, 2021 and 2020.

The valuation allowance increased by $ 3,866 and $ 2,814 for the years ended December 31, 2021 and 2020, respectively, primarily as a result of operating losses generated with no corresponding financial statement benefit.

The Company has incurred net operating losses (“NOL”) since inception.

As of December 31, 2021, the Company had federal net operating loss carryforwards of $ 44,572 that expire at various dates through 2037.

Included in the federal net operating loss carryforwards of $ 44,572 is $ 18,345 that can be carried forward indefinitely.

As of December 31, 2021, the Company had state net operating loss carryforwards of $ 44,571 , available to reduce future state taxable income, which expire at various dates through 2041.

As of December 31, 2021, the Company had foreign net operating loss carryforwards of $ 1,202 that can be carried forward indefinitely.

As of December 31, 2021, the Company had federal research and development tax credit carryforwards of $ 4,959 available to reduce future federal tax liabilities, which expire at various dates through 2041.

Utilization of the Company’s net operating loss carryforwards and research and development tax credit carryforwards may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986 due to ownership changes that have occurred previously or that could occur in the future.

These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income.

In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more than 50% over a three-year period.

The Company has not conducted a study to assess whether a change of control has occurred or whether there have been multiple changes of control since inception due to the significant complexity and cost associated with such a study.

If the Company has experienced a change of control, as defined by Section 382, at any time since inception, utilization of the net operating loss carryforwards or research and development tax credit carryforwards would be subject to an annual limitation under Section 382, which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term tax-exempt rate, and then could be subject to additional adjustments, as required.

Any limitation may result in expiration of a portion of the net operating loss carryforwards or research and development tax credit carryforwards before utilization.

Further, until a study is completed, and any limitation is known, no amounts are being presented as an uncertain tax position.

The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates.

In the normal course of business, the Company is subject to examination by federal and state jurisdictions, where applicable.

There are currently no pending tax examinations.

The Company is open to further tax examination under statue from 2017 to present;

however, carryforward attributes that were generated prior to December 31, 2017 may still be adjusted upon examination by federal, state or local tax authorities if they either have been or will be used in a future period.

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 9A. Controls and Procedures