Item 8. Financial Statements and Supplementary Data
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
As of and for the years ended December 31, 2023 and 2022
Page
Report of Independent Registered Public Accounting Firm (PCAOB ID 42)
118
Consolidated Balance Sheets as of December 31, 2023 and 2022
119
Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2023 and 2022
120
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2023 and 2022
121
Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022
122
Notes to Consolidated Financial Statements
123
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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, 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 for 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 26, 2024
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COGNITION THERAPEUTICS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
As of December 31,
2023
2022
Assets
Current assets:
Cash and cash equivalents
$
29,922
$
41,562
Grant receivables
1,281
3,672
Prepaid expenses and other current assets
3,019
2,413
Total current assets
34,222
47,647
Property and equipment, net
284
233
Right-of-use assets, operating leases
657
813
Other assets
—
1,732
Total assets
$
35,163
$
50,425
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
3,695
3,216
Accrued expenses
4,055
2,094
Deferred grant income, current
1,701
1,702
Operating lease liabilities, current
174
149
Other current liabilities
544
634
Total current liabilities
10,169
7,795
Operating lease liabilities, noncurrent
520
695
Deferred grant income and other liabilities, noncurrent
—
1,686
Total liabilities
10,689
10,176
Commitments and contingencies (Note 7)
Stockholders’ equity:
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; 32,165,478 and 28,991,548 shares issued and outstanding at December 31, 2023 and December 31, 2022, respectively
32
29
Additional paid-in capital
165,826
155,820
Accumulated deficit
( 141,189 )
( 115,401 )
Accumulated other comprehensive loss
( 195 )
( 199 )
Total stockholders’ equity
24,474
40,249
Total liabilities and stockholders’ equity
$
35,163
$
50,425
The accompanying notes are an integral part of these consolidated financial statements.
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COGNITION THERAPEUTICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except share and per share amounts)
For the Year Ended
December 31,
2023
2022
Operating Expenses:
Research and development
$
37,196
$
30,324
General and administrative
13,528
13,227
Total operating expenses
50,724
43,551
Loss from operations
( 50,724 )
( 43,551 )
Other income (expense):
Grant income
24,805
22,217
Other income (expense), net
158
( 35 )
Interest expense
( 27 )
( 28 )
Total other income, net
24,936
22,154
Net loss
( 25,788 )
( 21,397 )
Unrealized gain (loss) on foreign currency translation
4
( 1 )
Total comprehensive loss
$
( 25,784 )
$
( 21,398 )
Net loss per share:
Basic
$
( 0.86 )
$
( 0.91 )
Diluted
$
( 0.86 )
$
( 0.91 )
Weighted-average common shares outstanding:
Basic
30,029,087
23,640,199
Diluted
30,029,087
23,640,199
The accompanying notes are an integral part of these consolidated financial statements.
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COGNITION THERAPEUTICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share amounts)
Accumulated
Additional
Other
Total
Common Stock
Paid-in
Accumulated
Comprehensive
Stockholders’
Shares
Amount
Capital
Deficit
Loss
Equity
Balances as of December 31, 2021
22,230,032
$
22
$
145,453
$
( 94,004 )
$
( 198 )
$
51,273
Exercise of common stock options
1,761,516
2
1,616
—
—
1,618
Issuance of common stock in follow-on public offering, net of discounts and issuance costs of $ 816
5,000,000
5
5,179
—
—
5,184
Equity-based compensation
—
—
3,572
—
—
3,572
Other comprehensive loss
—
—
—
—
( 1 )
( 1 )
Net loss
—
—
—
( 21,397 )
—
( 21,397 )
Balances as of December 31, 2022
28,991,548
$
29
$
155,820
$
( 115,401 )
$
( 199 )
$
40,249
Issuance of common stock under the at-the-market (ATM) sales agreement, net of commissions and allocated fees of $ 159
2,859,074
3
5,124
—
—
5,127
Issuance of common stock as commitment shares for equity line financing (Note 8)
189,856
—
318
—
—
318
Issuance of common stock related to the equity line financing
125,000
—
210
—
—
210
Equity-based compensation
—
—
4,354
—
—
4,354
Other comprehensive gain
—
—
—
—
4
4
Net loss
—
—
—
( 25,788 )
—
( 25,788 )
Balances as of December 31, 2023
32,165,478
$
32
$
165,826
$
( 141,189 )
$
( 195 )
$
24,474
The accompanying notes are an integral part of these consolidated financial statements.
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COGNITION THERAPEUTICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Year Ended December 31,
2023
2022
Cash flows from operating activities:
Net loss
$
( 25,788 )
$
( 21,397 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
96
83
Equity-based compensation
4,354
3,572
Amortization of right-of-use assets
156
152
Issuance of common stock as commitment shares for equity line financing
318
—
Changes in operating assets and liabilities:
Grant receivables
2,391
( 1,873 )
Prepaid expenses and other assets
1,852
( 1,302 )
Other receivables
—
467
Accounts payable and accrued expenses
2,440
( 749 )
Deferred grant income and other liabilities
( 1,687 )
2,635
Operating lease liabilities
( 150 )
( 121 )
Net cash used in operating activities
( 16,018 )
( 18,533 )
Cash flows from investing activities:
Payments for property and equipment
( 147 )
( 171 )
Net cash used in investing activities
( 147 )
( 171 )
Cash flows from financing activities:
Proceeds from issuance of common stock under the ATM sales agreement, net of commissions and allocated fees
5,127
—
Proceeds from sale of common stock related to the equity line financing
205
—
Proceeds from issuance of common stock in follow-on public offering
—
5,324
Proceeds from the exercise of common stock options
—
1,618
Payments on loan payable
( 811 )
( 1,396 )
Net cash provided by financing activities
4,521
5,546
Effect of exchange rate changes on cash and cash equivalents
4
( 1 )
Net decrease in cash and cash equivalents
( 11,640 )
( 13,159 )
Cash and cash equivalents
Cash and cash equivalents – beginning of period
41,562
54,721
Cash and cash equivalents – end of period
$
29,922
$
41,562
Supplemental disclosures of non-cash financing activities:
Prepayment of insurance through third-party financing
$
721
$
838
Remeasurement of right-of-use asset and operating lease liability
$
—
$
349
Deferred offering costs included in Accounts payable
$
—
$
140
The accompanying notes are an integral part of these consolidated financial statements.
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COGNITION THERAPEUTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
1. 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 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. 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’ equity. Gains and losses from foreign currency transactions are included in net loss as a part of other income, net.
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.
On December 23, 2022, the Company filed a Registration Statement on Form S-3 (File No. 333-268992) (the “Shelf”) with the Securities and Exchange Commission (“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. and B. 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
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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.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated 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.
Receivables
Grant Receivables
Grant receivables relate to outstanding amounts due for reimbursable expenditures of awarded grants issued by the National Institute of Health (“NIH”) 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.
Grant income
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
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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
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 are stated at cost, net of 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. Equipment finance leases are included in Property and Equipment, net and other liabilities on the consolidated balance sheet.
The Company reviews the recorded values of property and equipment for impairment whenever events or changes in business circumstances indicate that the carrying amount of an asset or group of assets may not be fully recoverable. There were no indicators of impairment of long-lived assets during the years ended December 31, 2023 or 2022.
Research and Development Costs
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. 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.
Leases
The Company adopted Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842) using the optional transition method of the modified retrospective approach, as of January 1, 2022. Accordingly, prior periods will not be restated to reflect the adoption of the standard. The Company elected the practical expedient to not apply the recognition requirements in the leasing standards to short-term leases (a lease that at commencement date has a lease term of 12 months or less and does not contain a purchase option that it is reasonably certain to exercise) and the practical expedient that permits lessees to make an accounting policy election (by class of underlying asset) to not separate lease components of a contract from non-lease components.
The Company determines if an arrangement is a lease at contract inception. The Company’s contracts are determined to contain a lease when all of the following criteria based on the specific circumstances of the arrangement are met: (1) there is an identified asset for which there are no substantive substitution rights; (2) the Company has the right to obtain substantially all of the economic benefits from the identified asset; and (3) the Company has the right to direct the use of the identified asset.
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At the commencement date, operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of future lease payments over the expected lease term. The Company’s lease agreements do not provide an implicit rate. As a result, the Company utilizes an estimated incremental borrowing rate to discount lease payments, which is based on the rate of interest the Company would have to pay to borrow a similar amount on a collateralized basis over a similar term. Certain adjustments to the right-of-use asset may be required for items such as initial direct costs paid or lease incentives received. Operating lease cost is recognized over the expected term on a straight-line basis. Variable lease cost is recognized as incurred. The expected lease term for those leases commencing prior to January 1, 2022 did not change with the adoption of the new leasing standards.
As a result of the adoption of the new leasing standard, on January 1, 2022, the Company recorded a right-of-use asset of $ 616 and corresponding current and noncurrent operating lease liabilities of $ 130 and $ 486 , respectively. The adoption did not have a material impact on the condensed consolidated statement of operations or cash flows. For additional information on the adoption of the new leasing standard, refer to Note 7.
Impact of Adoption of ASC 842 on the Consolidated Financial Statements
Prior to adoption
Adjustment for
of new leasing
adoption of new
standards
leasing standards
As adjusted
Right-of-use assets (1)
$
—
$
616
$
616
Deferred rent (2)
$
6
$
( 6 )
$
—
Operating lease liabilities (3)
$
—
$
130
$
130
Operating lease liabilities, net of current portion (3)
$
—
$
486
$
486
(1) Represents recognition of operating lease right-of-use assets.
(2) Represents reclassification of deferred rent to operating lease.
(3) Represents recognition of operating lease liabilities.
Income Taxes
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, 2023 and 2022 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
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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 assets, accounts payable, accrued expenses and other liabilities approximate fair value because of the short-term maturity of these financial instruments.
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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 $ 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. 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.
Segments
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
Adopted
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
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(“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.
3. Financial Instruments and Fair Value Measurements
Financial assets and liabilities measured at fair value are summarized below:
As of December 31, 2023
Significant
Quoted Priced in
Significant Other
Unobservable
Active Markets
Observable Inputs
Inputs
(Level 1)
(Level 2)
(Level 3)
Total
Assets:
Money market funds
$
29,391
$
—
$
—
$
29,391
Total assets
$
29,391
$
—
$
—
$
29,391
As of December 31, 2022
Significant
Quoted Priced in
Significant Other
Unobservable
Active Markets
Observable Inputs
Inputs
(Level 1)
(Level 2)
(Level 3)
Total
Assets:
Money market funds
$
37,479
$
—
$
—
$
37,479
Total assets
$
37,479
$
—
$
—
$
37,479
There were no Level 3 financial instruments during the year ended December 31, 2023 and 2022.
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4. Property and Equipment
Property and equipment, net, consisted of the following:
As of December 31,
2023
2022
Equipment
$
1,193
$
1,057
Furniture and fixtures
140
129
$
1,333
$
1,186
Less: Accumulated depreciation
( 1,049 )
( 953 )
Property and equipment, net
$
284
$
233
Depreciation expense for the years ended December 31, 2023 and 2022 was $ 96 and $ 83 , respectively, which includes amortization expense of $ 2 and $ 2 for the years ended December 31, 2023 and 2022, respectively.
5. Accrued Expenses
Accrued expense consists of the following:
As of December 31,
2023
2022
Employee compensation, benefits, and related accruals
$
1,165
$
870
Research and development costs
2,520
900
Professional fees and other accruals
370
324
Total
$
4,055
$
2,094
6. Other Current Liabilities
In October 2022, the Company entered into an insurance premium financing agreement with a lender. Under the agreement, the Company financed $ 841 of certain premiums at a 6.85 % annual interest rate. 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. 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 .
7. Commitments and Contingencies
Operating Leases
The Company’s principal executive offices are 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, Pennsylvania under leases that expire in June of 2026.
On August 31, 2022, the Company entered into a lease agreement for approximately 2,980 square feet of office space located in Pittsburgh, Pennsylvania. The lease has a term of 45 months and commenced on October 1, 2022. 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.
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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,
2023
2022
Assets
Operating lease assets
$
657
$
813
Total operating lease assets
$
657
$
813
Liabilities
Current
Operating lease liabilities
$
174
$
149
Noncurrent
Operating lease liabilities, net of current
520
695
Total operating lease liabilities
$
694
$
844
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:
For the Years Ended December 31,
Operating Leases
2024
$
221
2025
222
2026
155
2027
87
2028
88
Thereafter
37
Total undiscounted lease payments
$
810
Less: Imputed interest
( 116 )
Present value of operating lease liabilities
$
694
The following table summarizes the lease term and discount rate as of December 31, 2023 and 2022:
As of December 31,
2023
2022
Weighted-average remaining lease term (years)
Operating leases
4.1
5.0
Weighted-average discount rate
Operating leases
8.1 %
8.1 %
Operating cash flows used for operating leases for the year ended December 31, 2023 and 2022 was $ 209 and $ 172 , respectively.
Litigation and Contingencies
From time to time, the Company may be involved in disputes or regulatory inquiries that arise in the ordinary course of business. 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.
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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.
8. 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.
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.
ATM
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 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. 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 (the “Commitment Shares”). 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.
9. Equity-based Compensation
2021 Equity Incentive Plan
On October 7, 2021, the date upon which the Company’s Registration Statement on Form S-1 in connection with the IPO was declared effective, the Company’s 2021 Equity Incentive Plan (the “2021 Plan”) became effective. On the same date, the Company ceased granting awards under its 2017 Equity Incentive Plan (the “2017 Plan”). The 2021 Plan authorizes the award of both equity-based and cash-based incentive awards, including: (i) stock options (both incentive stock options and nonqualified stock options), (ii) stock appreciation rights, (iii) restricted stock awards, (iv) restricted stock units, or RSUs, and (v) cash or other stock-based awards. Incentive stock options may be granted only to employees. All other types of awards may be issued to employees, directors, consultants, and other service providers.
As of 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, 2023 pursuant to an evergreen provision therein by 1,449,577 shares, representing 5 % of total common shares
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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 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.
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, 2023, a total of 209,532 shares of common stock was 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.
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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:
Year Ended December 31,
2023
2022
Fair value of common stock
$ 1.20 – $ 2.99
$ 1.72 – $ 3.05
Expected volatility
91.47 % – 92.68 %
91.09 % – 92.73 %
Risk-free interest rate
3.46 % – 4.71 %
1.87 % – 4.22 %
Dividend yield
0.00 %
0.00 %
Expected term (years)
6.18 – 6.37
5.50 – 6.40
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. 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.
Activity for options was as follows:
Options Outstanding
Weighted
Weighted-
Aggregate
Average
Average
Intrinsic
Remaining
Number of
Exercise
Value
Contractual Life
Options
Price
(in 000’s)
(In Years)
Balance, December 31, 2022
3,679,468
$
5.13
$
2,085
6.7
Options granted
628,769
2.01
Options exercised
—
—
Options forfeited
( 83,931 )
1.98
Options expired
( 10,901 )
2.10
Balance, December 31, 2023
4,213,405
$
4.73
$
1,579
6.5
Exercisable as of December 31, 2023
3,012,499
$
5.00
$
1,431
5.7
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The weighted-average grant date fair value of stock options granted was $ 1.56 and $ 1.83 during the years ended December 31, 2023 and 2022, respectively. There were 628,769 stock options granted at an aggregate fair value of $ 983 for the year ended December 31, 2023 and 524,370 stock options granted at an aggregate fair value of $ 943 for the year ended December 31, 2022. During the year ended December 31, 2023 and 2022, there were 0 and 1,761,516 stock options exercised, respectively, with an aggregate grant date fair value of $ 0 and $ 1,325 , respectively. The intrinsic value of stock options exercised during the year ended December 31, 2023 and 2022 was $ 0 and $ 2,738 , respectively.
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:
Number of
Weighted-Average
Restricted Stock Units
Grant Date Fair Value
Outstanding at December 31, 2022
—
$
—
Granted
542,419
$
2.07
Vested
—
$
—
Forfeited
( 20,264 )
$
1.97
Outstanding at December 31, 2023
522,155
$
2.07
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,
2023
2022
Research and development
$
670
$
528
General and administrative
3,684
3,044
Total equity-based compensation
$
4,354
$
3,572
As of December 31, 2023, total future compensation expense related to unvested awards yet to be recognized by the Company was $ 4,258 . 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 1.6 years.
10. Net Loss per Share
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:
December 31,
2023
2022
Options issued and outstanding
4,213,405
3,679,468
Restricted stock units issued and outstanding
522,155
—
Total
4,735,560
3,679,468
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11. 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 6 % of the employees’ compensation per person per year. All matching contributions vest immediately. Company matching contributions to the 401(k) retirement plan totaled $ 199 and $ 156 for the year ended December 31, 2023 and 2022, respectively.
12. Income Taxes
The net loss consists of the following components:
Year Ended December 31,
2023
2022
Domestic
$
( 25,767 )
$
( 21,384 )
Foreign
( 21 )
( 13 )
Total
$
( 25,788 )
$
( 21,397 )
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. 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 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:
Year Ended December 31,
2023
2022
Income tax computed at federal statutory rate
21.0
%
21.0
%
State taxes, net of federal benefit
0.5
%
( 15.3 )
%
Change in valuation allowance
( 22.4 )
%
12.0
%
R&D Credit
4.5
%
( 15.1 )
%
Equity-based compensation
( 3.2 )
%
( 1.7 )
%
Other
( 0.4 )
%
( 0.9 )
%
Effective income tax rate
—
%
—
%
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The Company’s deferred tax assets and liabilities consist of the following:
Year Ended December 31,
2023
2022
Deferred tax assets:
Net operating loss carryforwards
$
6,847
$
8,194
Tax credit carryforwards
3,112
1,728
Equity-based compensation
407
307
Operating lease liabilities
148
178
Capitalized research expenditures
11,371
5,687
Deferred grant income
223
354
Other
246
165
Deferred tax assets
22,354
16,613
Less: valuation allowance
( 22,207 )
( 16,435 )
Deferred tax assets after valuation allowance
147
178
Deferred tax liabilities:
Property and equipment, net
( 8 )
( 7 )
Right-of-use assets, operating leases
( 139 )
( 171 )
Deferred tax liabilities
( 147 )
( 178 )
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, 2023 and 2022. Management has considered the Company’s history of cumulative net losses and has concluded as of December 31, 2023 and 2022, 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, 2023 and 2022. 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 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, 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. 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. 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. 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. This
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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. 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 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.
13. Subsequent Events
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.
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.