What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-03-26 compared with 2023-03-23 · 143 added, 222 removed, 443 unchanged (45% of the section changed)

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Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2023 and 2022

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

Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2023 and 2022

Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022

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

and Subsidiary (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive loss, convertible preferred stock and stockholders’ (deficit) equity 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, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with U.S.

and subsidiary (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations and comprehensive loss, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with U.S.

generally accepted accounting principles.

Basis of Opinion

Basis for Opinion

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

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Prepaid expenses and other current assets

Other receivables

Total current assets

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Stockholders’ equity:

Preferred stock, $ 0.001 par value, 10,000,000 shares authorized at December 31, 2022 and December 31, 2021;

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

no shares issued and outstanding at December 31, 2023 and December 31, 2022

Common stock, $ 0.001 par value, 250,000,000 shares authorized at December 31, 2022 and December 31, 2021;

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

32,165,478 and 28,991,548 shares issued and outstanding at December 31, 2023 and December 31, 2022, respectively

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Other income (expense):

Change in the fair value of the derivative liability

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

Other income (expense), net

Gain on debt extinguishment

Interest expense

Total other income, net

Cumulative preferred stock dividends

Net loss attributable to common stockholders

Unrealized loss on foreign currency translation

Unrealized gain (loss) on foreign currency translation

Total comprehensive loss

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AND SUBSIDIARY

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

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share amounts)

Preferred Stock

Comprehensive

Stockholders’

(Deficit) Equity

Balances as of December 31, 2021

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

Conversion of convertible preferred stock into common stock

( 51,450,435 )

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 common stock options

Exercise of common stock warrants

Issuance of common stock in follow-on public offering, net of discounts and issuance costs of $ 816

Equity-based compensation

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Balances as of December 31, 2022

Exercise of stock options

Proceeds from follow-on public offering, net of offering costs of $ 816

Issuance of common stock under the at-the-market (ATM) sales agreement, net of commissions and allocated fees of $ 159

Issuance of common stock as commitment shares for equity line financing (Note 8)

Issuance of common stock related to the equity line financing

Equity-based compensation

Other comprehensive loss

Other comprehensive gain

Balances as of December 31, 2023

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Amortization of right-of-use assets

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 Simple Agreements for Future Equity

Gain on debt extinguishment

Issuance of common stock as commitment shares for equity line financing

Changes in operating assets and liabilities:

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Other receivables

Accounts payable

Accrued expenses

Deferred grant income, current and other liabilities

Accounts payable and accrued expenses

Deferred grant income and other liabilities

Operating lease liabilities

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Cash flows from financing activities:

Proceeds from issuance of common stock under the ATM sales agreement, net of commissions and allocated fees

Proceeds from sale of common stock related to the equity line financing

Proceeds from issuance of common stock in follow-on public offering

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Payments on loan payable

Proceeds from issuance of common stock in initial public offering

Proceeds from issuance of Simple Agreements for Future Equity

Proceeds from exercise of stock warrants

Net cash provided by financing activities

Effect of exchange rate changes on cash and cash equivalents

Net (decrease) increase in cash and cash equivalents

Net decrease in cash and cash equivalents

Cash and cash equivalents

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Deferred offering costs included in Accounts payable

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

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

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(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 is a biopharmaceutical company developing disease-modifying therapies targeting age-related degenerative diseases and disorders of the central nervous system (“CNS”) and retina.

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.

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

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

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

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 (“SAFE”) 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.

On November 15, 2022, the Company closed its follow-on public offering of 5,000,000 shares of the Company’s common stock at a public offering price of $ 1.20 per share (“November 2022 Offering”).

The gross proceeds from the November 2022 Offering were $ 6,000 and the net proceeds were approximately $ 5,184 , after deducting underwriting discounts and commissions and other offering related expenses payable by the Company.

Additionally, the Company granted the underwriters in the November 2022 Offering an option to purchase up to 750,000 additional shares of its common stock at the public offering price, less underwriting discounts and commissions.

On December 23, 2022, the Company filed a Registration Statement on Form S-3 (File No.

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The Company also simultaneously entered into a sales agreement with Cantor Fitzgerald & Co.

Riley Securities, Inc., or the Sales Agents, providing for the offering, issuance and sale by the Company of up to $ 40,000 of its common stock from time to time in “at-the-market” offerings under the Shelf (the “ATM”).

The Company held cash and cash equivalents of $ 41,562 at December 31, 2022.

The Company expects that its cash and cash equivalents, including the net proceeds from its IPO and its follow-on public offering, 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.

Riley Securities, Inc.

(the “Sales Agents”) providing for the offering, issuance and sale by the Company of up to $ 40,000 of its common stock from time to time in “at-the-market” offerings under the Shelf (the “ATM”).

During the year ended December 31, 2023, the Company sold 2,859,074 shares of its common stock pursuant to the ATM for net proceeds of approximately $ 5,127 .

Please refer to Note 8 for further details.

On March 10, 2023, the Company entered into a purchase agreement with Lincoln Park Capital Fund, LLC (“Lincoln Park”) for an equity line financing (the “Purchase Agreement”).

The Purchase Agreement provides that, subject to the terms and conditions set forth therein, the Company has the right, but not the obligation, to direct Lincoln Park to purchase up to $ 35,000 of shares of common stock in the Company’s sole discretion, over a 36-month period commencing on March 10, 2023.

The Company filed a prospectus supplement to its Registration Statement on Form S-3 (File No.

333-268992) covering the resale of shares of common stock that may be issued under the Purchase Agreement.

As part of the Purchase Agreement, the Company issued 189,856 shares of its common stock as consideration for Lincoln Park’s commitment to purchase shares of common stock under the Purchase Agreement.

During the year ended December 31, 2023, the Company sold 125,000 shares of common stock to Lincoln Park for proceeds of $ 205 , as part of the equity line financing arrangement.

As of December 31, 2023, $ 34,795 was available to draw pursuant to the Purchase Agreement.

Please refer to Note 8 for further details.

The Company held cash and cash equivalents of $ 29,922 at December 31, 2023, and received net proceeds from a follow on public offering of common stock of $ 10,363 in March of 2024 (Note 13).

The Company expects that its cash and cash equivalents, including the net proceeds from its IPO, its follow-on public offerings, and its ATM 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.

Please refer to Note 13 for further details.

Summary of Significant Accounting Policies

Basis of Presentation

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

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

generally accepted accounting principles (“GAAP”).

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

The Company generates grant income through grants from government and other (non-government) organizations.

Grant income is recognized in other income (expense) in the period in which the reimbursable research and development services are incurred and the right to payment is realized.

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

For the year ended December 31, 2023 and 2022, the Company generated grant income of $ 24,805 and $ 22,217 , respectively, primarily from reimbursements from the National Institute of Aging, a division of the NIH for aging research.

The current and noncurrent portion of deferred grant income as of December 31, 2023 was $ 1,701 and $ 0 , respectively, as compared to the current and noncurrent portion of deferred grant income as of December 31, 2022 of $ 1,702 and $ 1,686 , respectively.

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 grants, 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.

While these NIH grants do not contain payback provisions, the NIH or other government agency may review the Company’s performance, cost structures and compliance

with applicable laws, regulations, policies and standards and the terms and conditions of the applicable NIH grant.

If any of the expenditures are found to be unallowable or allocated improperly or if the Company has otherwise violated terms of such NIH grant, the expenditures may not be reimbursed and/or the Company may be required to repay funds already disbursed.

To date, the Company has not been found to have breached the terms of any NIH grant.

As of December 31, 2023, the Company has been awarded grants with project periods that extend through May 31, 2027, subject to extension.

Deferred Offering Costs

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There were no indicators of impairment of long-lived assets during the years ended December 31, 2023 or 2022.

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.

The Company generates grant income through grants from government and other (non-government) organizations.

Grant income is recognized in other income (expense) in the period in which the reimbursable research and development services are incurred and the right to payment is realized.

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

For the year ended December 31, 2022 and 2021, the Company generated grant income of $ 22,217 and $ 17,447 , respectively, primarily from reimbursements from the National Institute of Aging, a division of the NIH for aging research.

The current and noncurrent portion of deferred grant income as of December 31, 2022 was $ 1,702 and $ 1,686 , respectively, as compared to the current and noncurrent portion of deferred grant income as of December 31, 2021 of $ 753 and $ 0 , respectively.

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.

While these NIH grants do not contain payback provisions, the NIH or other government agency may review the Company’s performance, cost structures and compliance with applicable laws, regulations, policies and standards and the terms and conditions of the applicable NIH grant.

To date, the Company has not been found to have breached the terms of any NIH grant.

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

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.

The Company is involved in research and development of treatments for a variety of diseases related to the central nervous system, with a focus on Alzheimer’s disease, dementia with Lewy bodies, and geographic atrophy (GA) secondary to dry age-related macular degeneration.

Research and development costs are expensed as incurred.

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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.

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

The Company adopted Accounting Standards Update (ASU) No.

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For additional information on the adoption of the new leasing standard, refer to Note 7.

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

Impact of Adoption of ASC 842 on the Consolidated Financial Statements

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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.

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.

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The carrying value of the Company’s cash and cash equivalents, grants receivable, prepaid expense, other receivables, other assets, accounts payable, accrued expenses and other 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 SAFE at fair value.

The valuation hierarchy is composed of three levels.

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Comprehensive Loss

The Company recorded $ 1 and $ 11 in other comprehensive loss related to foreign currency translation for the years ended December 31, 2022 and 2021, 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 recorded $ 4 in other comprehensive gain and $ 1 in other comprehensive loss related to foreign currency translation for the years ended December 31, 2023 and 2022, respectively.

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

Net Loss Per Share

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

Diluted net loss per share includes the effect, if any, from the potential exercise or vesting of securities, such stock options and restricted stock units, which would result in the issuance of incremental shares of common stock.

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

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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.

The Company adopted ASU No.

2016-02 on January 1, 2022.

For additional information on the adoption of the new leasing standards, please refer to the section titled “Leases” above, and Note 7.

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

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

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

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

The Company adopted ASU 2021-04 on January 1, 2022.

The adoption of ASU 2021-04 did not have a material impact 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 adopted ASU 2021-10 on January 1, 2022.

The adoption of ASU 2021-10 did not have a material impact on the Company’s consolidated financial statements.

For additional information on the Company’s governmental assistance transactions, please refer to the sections titled “Grant Receivables” and “Grant Income” above.

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

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.

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2016-13, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments

(“ASU 2016-13”), with amendments in 2018, 2019, 2020, and 2022.

The ASU sets forth a “current expected credit loss” model that requires companies to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts.

ASU 2016-13 applies to financial instruments that are not measured at fair value, including receivables that result from revenue transactions.

The Company adopted ASU 2020-06 on January 1, 2023, using a modified retrospective approach, and it did not have a material impact on the Company’s consolidated financial statements.

Not Yet Adopted

In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements (“ASU 2023-06”), to clarify or improve disclosure and presentation requirements of a variety of topics and align the requirements in the FASB ASC with the SEC's regulations.

The Company is currently evaluating ASU 2023-06 to determine its impact on the Company's consolidated financial statements and disclosures.

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures (“ASU 2023-09”).

The standard enhances transparency in income tax disclosures by requiring, on an annual basis, certain disaggregated information about a reporting entity’s effective tax rate reconciliation and income taxes paid.

The ASU also requires disaggregated disclosure related to pre-tax income (or loss) and income tax expense (or benefit) and eliminates certain disclosures related to the balance of an entity’s unrecognized tax benefit and the cumulative amount of certain temporary differences.

The ASU is effective for the Company beginning on January 1, 2025.

The Company is currently evaluating ASU 2023-09 to determine its impact on the Company's disclosures.

Financial Instruments and Fair Value Measurements

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Money market funds

There were no Level 3 financial instruments during the year ended December 31, 2022.

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

Year Ended December 31, 2021

Balance at December 31, 2020

Fair value recognized upon the issuance of SAFE

Change in the fair value of the derivative liability

Change in the fair value of SAFE

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.

Simple Agreement for Future Equity — On March 25, 2021, the Company entered into SAFE 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 SAFE converted into 931,485 shares of common stock.

The fair value of the SAFE 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 SAFE as of each valuation date.

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

Expected term (in years)

Discount upon conversion

Discount upon implied return

Probability of IPO 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.

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

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 provided 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.

There were no Level 3 financial instruments during the year ended December 31, 2023 and 2022.

Property and Equipment

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Research and development costs

Legal reserves, professional fees, and other accruals

Professional fees and other accruals

Other Current Liabilities

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Under the agreement, the Company financed $ 841 of certain premiums at a 6.85 % annual interest rate.

Payments of approximately $ 72 are due monthly from November 2022 through December 2023.

As of December 31, 2022, the outstanding principal of the loan was $ 634 included in other current liabilities on the consolidated balance sheet.

Total payments of approximately $ 72 , including interest and principal, are due monthly from November 2022 through October 2023.

As of December 31, 2022, the outstanding principal of the loan was $ 634 and the amount was paid off in 2023 .

In October 2023, the Company entered into an insurance premium financing agreement with a lender.

Under the agreement, the Company financed $ 721 of certain premiums at a 8.65 % annual interest rate.

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

The loan paid in full as of September 30, 2022.

Total payments of approximately $ 62 , including interest and principal, are due monthly from November 2023 through October 2024.

As of December 31, 2023, the outstanding principal of the loan was $ 544 .

Commitments and Contingencies

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

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

December 31, 2022

Amounts reported in the consolidated balance sheets for leases where the Company is the lessee as of December 31, 2023 and 2022 were as follows, in thousands:

As of December 31,

Operating lease assets

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Total operating lease liabilities

Operating lease costs for the year ended December 31, 2022 was $ 203 .

Rent expense was $ 163 for the year ended December 31, 2021.

Operating lease costs for the year ended December 31, 2023 and 2022 was $ 215 and $ 203 , respectively.

The maturities of the operating lease liabilities and minimum lease payments as of December 31, 2023 were as follows:

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Present value of operating lease liabilities

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

December 31, 2022

The following table summarizes the lease term and discount rate as of December 31, 2023 and 2022:

As of December 31,

Weighted-average remaining lease term (years)

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Operating leases

Operating cash flows used for operating leases for the year ended December 31, 2022 was $ 172 .

Operating cash flows used for operating leases for the year ended December 31, 2023 and 2022 was $ 209 and $ 172 , respectively.

Litigation and Contingencies

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As of December 31, 2023 and 2022, there was no litigation or contingency with at least a reasonable possibility of a material loss.

Stockholders’ Equity

Common and Preferred Stock

The Company is authorized to issue up to 250,000,000 shares of common stock with a par value of $ 0.001 per share, and 10,000,000 shares of preferred stock with a par value of $ 0.001 per share.

As of December 31, 2023 and 2022, there were 32,165,478 and 28,991,548 shares of common stock issued and outstanding , respectively.

On October 13, 2021, in connection with the completion of the Company’s IPO, 2,819,027 shares of Series A convertible preferred stock, 3,730,366 shares of Series A-1 convertible preferred stock, 3,565,063 shares of Series A-2 convertible preferred stock, 30,409,890 shares of Series B convertible preferred stock, and 10,926,089 shares of Series B-1 convertible preferred stock automatically converted into 15,906,537 shares of common stock.

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, 2023, no dividends on common stock had been declared by the Company.

As of December 31, 2022 and 2021, the Company has reserved the following shares of common stock for issuance as follows:

Options issued and outstanding

Shares available for future issuance under 2021 Plan

Shares available for future issuance under ESPP

On December 23, 2022, the Company filed a shelf registration statement on Form S-3 with the SEC in relation to the registration of common stock, preferred stock, debt securities, warrants, subscription rights, and/or units of any combination thereof of up to $ 200,000 in aggregate (the “Shelf”).

The Shelf was declared effective on January 3, 2023 by the SEC.

The Company also simultaneously entered into a sales agreement with the Sales Agents providing for the offering, issuance and sale by the Company of up to $ 40,000 of its common stock from time to time in ATM offerings under the Shelf.

The Company sold 2,859,074 shares of common stock pursuant to the ATM during the year ended December 31, 2023 for gross proceeds of approximately $ 5,286 .

As of December 31, 2023, there was $ 34,714 remaining of common stock available for sale under the ATM.

Lincoln Park Purchase Agreement

On March 10, 2023, the Company entered into a purchase agreement with Lincoln Park for an equity line financing.

The Company recorded $ 318 to other expense, net in connection with the issuance of the Commitment Shares.

During the year ended December 31, 2023, the Company sold 125,000 shares of common stock to Lincoln Park for proceeds of $ 205 , as part of the equity line financing arrangement.

As of December 31, 2023, $ 34,795 was available to draw pursuant to the Purchase Agreement.

Equity-based Compensation

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As of December 31, 2023, the aggregate number of shares of common stock of the Company that may be issued under the Plan is 2,954,570 .

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

The number of shares reserved for issuance under the 2021 Plan increased automatically on January 1, 2023 pursuant to an evergreen provision therein by 1,449,577 shares, representing 5 % of total common shares

outstanding at December 31, 2022.

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

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

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

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

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

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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

Stock Options

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

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Options exercised

( 1,761,516 )

Options forfeited

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The intrinsic value of stock options exercised during the year ended December 31, 2023 and 2022 was $ 0 and $ 2,738 , respectively.

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:

Restricted Stock Units

The fair values of RSUs are based on the fair market value of the Company’s common stock on the date of grant.

Each RSU represents a contingent right to receive one share of the Company’s common stock upon vesting.

RSUs for employees vest annually over three years on each anniversary of the Grant Date and RSUs for non-employee directors vest on the one-year anniversary of the Grant Date.

The following table summarizes the Company’s RSU activity for the year ended December 31, 2023:

Weighted-Average

Restricted Stock Units

Grant Date Fair Value

Outstanding at December 31, 2022

Outstanding at December 31, 2023

Equity-based Compensation Expense

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

Year Ended December 31,

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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:

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

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:

Net loss per share:

Restricted stock units issued and outstanding

Retirement Plan

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During the years ended December 31, 2023 and 2022, 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.

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.

Effective January 1, 2022, the Tax Cuts and Jobs Act of 2017 requires the Company to capitalize, and subsequently amortize R&D expense over five years for research activities conducted in the U.S.

and over fifteen years for research activities conducted outside of the U.S.

This results in a material increase to the Company’s net deferred tax assets.

Furthermore, since the Company provides for a full valuation allowance against U.S deferred tax assets, this has an adverse effect on the effective tax rate.

Effective January 1, 2022, the Tax Cuts and Jobs Act of 2017 requires the Company to capitalize, and subsequently amortize R&D expense over five years for research activities conducted in the United States and over fifteen years for research activities conducted outside of the United States.

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:

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Change in valuation allowance

Interest expense

Non-deductible stock compensation

Fair value adjustments

Equity-based compensation

Effective income tax rate

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Capitalized research expenditures

Deferred revenue

Deferred grant income

Deferred tax assets

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Accordingly, a full valuation allowance has been established against the deferred tax assets as of December 31, 2023 and 2022.

The valuation allowance decreased by $ 2,610 and increased by $ 3,866 for the years ended December 31, 2022 and 2021, respectively.

The decrease in valuation allowance in 2022 was primarily a result of a reduction in operating losses and tax credits, offset partially by the capitalized research expenditures, while the increase in 2021 was primarily a result of operating losses generated with no corresponding financial statement benefit.

The valuation allowance increased by $ 5,772 and decreased by $ 2,610 for the years ended December 31, 2023 and 2022, respectively.

The increase in valuation allowance in 2023 was primarily a result of an increase to capitalized research expenditures, while the decrease in valuation allowance in 2022 was primarily a result of a reduction in operating losses and tax credits, offset partially by the capitalized research expenditures.

The Company incurred net operating losses (“NOL”) since inception through December 31, 2021.

Due to tax law changes, effective January 1, 2022, requiring the Company to capitalize and amortize R&D expenses, the Company is in a taxable position as of December 31, 2022 and has utilized NOL generated in prior years to fully offset their current income tax expense.

As of December 31, 2022, the Company had federal net operating loss carryforwards of $ 36,272 .

Due to tax law changes, effective January 1, 2022, requiring the Company to capitalize and amortize R&D expenses, the Company was in a taxable position as of December 31, 2023 and 2022, and has utilized NOL generated in prior years to fully offset their income tax expense.

As of December 31, 2023, the Company had federal net operating loss carryforwards of $ 29,843 , net of Section 382 limited amounts.

Included in federal net operating loss carryforwards of $ 29,843 is $ 11,501 that begin to expire in 2035 and $ 18,342 that can be carried forward indefinitely.

As of December 31, 2023, the Company had state net operating loss carryforwards of $ 12,060 , available to reduce future state taxable income, which will begin to expire in 2028.

As of December 31, 2022, the Company had foreign net operating loss carryforwards of $ 314 that can be carried forward indefinitely.

As of December 31, 2022, the Company had federal research and development tax credit carryforwards of $ 1,728 available to reduce future federal tax liabilities, which will begin to expire in 2027.

As of December 31, 2023, the Company had foreign net operating loss carryforwards of $ 349 and foreign research and development tax credit carryforwards of $ 268 that can be carried forward indefinitely.

As of December 31, 2023, the Company had federal research and development tax credit carryforwards of $ 2,851 , net of Section 382 limited amounts, available to reduce future federal tax liabilities, which will begin to expire in 2029.

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.

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

The amount of the limitation is determined based on the value of the Company immediately prior to the ownership change and 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.

In 2023 the Company completed an analysis covering the periods from inception through December 31, 2022 to determine whether there may have been a Section 382 ownership change.

analysis showed an ownership change occurred in January 2009 and the Section 382 limitation would result in $ 589 of federal net operating loss carryforwards expiring unutilized.

The Company updated the analysis through December 31, 2023 and determined that it is more-likely-than-not that the Company’s existing net operating loss and research and development tax credit carryforwards could be utilized to offset current and future taxable income or tax, respectively, due to the conclusion that an ownership change did not occur in 2023.

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

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There are currently no pending tax examinations.

The Company is open to further tax examination under statue from 2018 to present;

however, carryforward attributes that were generated prior to December 31, 2018 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.

The Company is open to further tax examination under statue for tax years beginning on or after January 1, 2020;

however, carryforward attributes that were generated prior to January 1, 2020 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.

Subsequent Events

On December 23, 2022, the Company filed the Shelf (File No.

333-268992) with the SEC in relation to the registration of common stock, preferred stock, debt securities, warrants, subscription rights, and/or units of any combination thereof of up to $ 200,000 in aggregate.

The Shelf was declared effective on January 3, 2023 by the SEC.

The Company also simultaneously entered into a sales agreement with Cantor Fitzgerald & Co.

On March 10, 2023, the Company entered into a purchase agreement with Lincoln Park Capital Fund, LLC (“Lincoln Park”) for an equity line financing (the “Purchase Agreement”).

The Purchase Agreement provides that, subject to the terms and conditions set forth therein, the Company has the right, but not the obligation, to direct Lincoln Park to purchase up to $ 35,000 of shares of common stock at our sole discretion, over a 36-month period commencing on March 10, 2023.

The Company filed a supplemental registration statement on Form S-3 (File No.

333-268992) covering the resale of shares of common stock that are issued under the Purchase Agreement.

In March 2024, the Company entered into an underwriting agreement with Titan Partners Group LLC, a division of American Capital Partners, LLC, as representatives of the several underwriters named therein, relating to the issuance and sale by the Company of 6,571,428 shares of its common stock, at a public offering price of $ 1.75 per share before deducting the underwriters’ discount.

The underwriters were granted an option to purchase 985,714 additional shares of common stock, at a public offering price of $ 1.75 per share before deducting the underwriters’ discount.

This offering was made pursuant to the Company’s Shelf Registration Statement, and a related prospectus supplement dated March 11, 2024.

On March 14, 2024, the Company closed the offering, excluding the underwriters’ option to purchase 985,714 additional shares of common stock.

The Company received net proceeds of approximately $ 10,361 , after deducting $ 1,139 of underwriting discounts and commissions and estimated offering expenses payable by the Company.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data