COMPASS Pathways plc 10-K

ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures Our management, with the participation of our Chief Executive Officer and Interim Chief Financial Officer (our principal executive officer and principal financial officer, respectively), evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of December 31, 2023. Based on such evaluation, our Chief Executive Officer and Interim Chief Financial Officer have concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our Chief Executive Officer and Interim Chief Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosures. Management’s Annual Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with general accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Under the supervision and with the participation of our management, including our Chief Executive Officer and Interim Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Based on our evaluation under that framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2023. 167 Table of Contents This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm because we are not an accelerated filer or large accelerated filer. Changes in Internal Control Over Financial Reporting There were no changes in our internal control over financial reporting during the quarter ended December 31, 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Inherent Limitations on Effectiveness of Controls Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. ITEM 9B. OTHER INFORMATION (a) The following summary contains a description of material U.S. federal income tax and UK tax consequences of the acquisition, ownership and disposition of our ordinary shares or ADSs. This summary should not be considered a comprehensive description of all the tax considerations that may be relevant to beneficial owners of ADSs. U.S. Federal Income Tax Considerations for U.S. holders The following is a description of the material U.S. federal income tax consequences to the U.S. Holders described below of owning and disposing of our ordinary shares or ADSs. It is not a comprehensive description of all tax considerations that may be relevant to a particular person’s decision to acquire securities. This discussion applies only to a U.S. Holder holds our ordinary shares or ADSs as a capital asset for tax purposes (generally, property held for investment). In addition, it does not describe all of the tax consequences that may be relevant in light of a U.S. Holder’s particular circumstances, including state and local tax consequences, estate tax consequences, alternative minimum tax consequences, the special tax accounting rules under Section 451(b) of the Code, the potential application of the Medicare contribution tax, and tax consequences applicable to U.S. Holders subject to special rules, such as: • banks, insurance companies, and certain other financial institutions; • U.S. expatriates and certain former citizens or long-term residents of the United States; • dealers or traders in securities who use a mark-to-market method of tax accounting; • persons holding ordinary shares or ADSs as part of a hedging transaction, “straddle,” wash sale, conversion transaction or integrated transaction or persons entering into a constructive sale with respect to ordinary shares or ADSs; • persons whose “functional currency” for U.S. federal income tax purposes is not the U.S. dollar; • brokers, dealers or traders in securities, commodities or currencies; • tax-exempt entities or government organizations; • S corporations, partnerships, or other entities or arrangements classified as partnerships for U.S. federal income tax purposes; • regulated investment companies or real estate investment trusts; • persons that own or are deemed to own 10% or more of the voting power or value of our ordinary shares or ADSs; • persons who acquired our ordinary shares or ADSs pursuant to the exercise of any employee share option or otherwise as compensation; 168 Table of Contents • persons holding our ordinary shares or ADSs in connection with a trade or business, permanent establishment, or fixed base outside the United States; and • persons who own (directly or through attribution) 10% or more (by vote or value) of our outstanding ordinary shares. If an entity that is classified as a partnership for U.S. federal income tax purposes holds ordinary shares or ADSs, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. Partnerships holding ordinary shares or ADSs and partners in such partnerships are encouraged to consult their tax advisers as to the particular U.S. federal income tax consequences of holding and disposing of ordinary shares or ADSs. The discussion is based on the Internal Revenue Code of 1986, as amended, or the Code, administrative pronouncements, judicial decisions, final, temporary and proposed Treasury Regulations, and the income tax treaty between the UK and the United States, all as of the date of this Annual Report, changes to any of which may affect the tax consequences described herein-possibly with retroactive effect. A “U.S. Holder” is a holder who, for U.S. federal income tax purposes, is a beneficial owner of ordinary shares or ADSs and is: • an individual who is a citizen or individual resident of the United States; • a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state therein or the District of Columbia; • an estate the income of which is subject to U.S. federal income taxation regardless of its source; or • a trust if (1) a U.S. court is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have authority to control all substantial decisions of the trust or (2) the trust has a valid election to be treated as a U.S. person under applicable U.S. Treasury Regulations. Generally, a U.S. Holder of an ADS should be treated for U.S. federal income tax purposes as holding the ordinary shares represented by our ADS. Accordingly, no gain or loss will be recognized upon an exchange of ADSs for ordinary shares. The U.S. Treasury has expressed concerns that intermediaries in the chain of ownership between the holder of an ADS and the issuer of the security underlying our ADS may be taking actions that are inconsistent with the beneficial ownership of the underlying security. Accordingly the creditability of foreign taxes, if any, as described below, could be affected by actions taken by intermediaries in the chain of ownership between the holders of ADSs and our company if as a result of such actions the holders of ADSs are not properly treated as beneficial owners of the underlying ordinary shares. These actions would also be inconsistent with the claiming of the reduced tax rate, described below, applicable to dividends received by certain non-corporate holders. PERSONS CONSIDERING AN INVESTMENT IN ORDINARY SHARES OR ADSs SHOULD CONSULT THEIR TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO THEM RELATING TO THE ACQUISITION, OWNERSHIP AND DISPOSITION OF THE ORDINARY SHARES OR ADSs, INCLUDING THE APPLICABILITY OF U.S. FEDERAL, STATE AND LOCAL TAX LAWS. Passive Foreign Investment Company Rules If we are classified as a passive foreign investment company, or PFIC, in any taxable year, a U.S. Holder will be subject to special rules generally intended to reduce or eliminate any benefits from the deferral of U.S. federal income tax that a U.S. Holder could derive from investing in a non-U.S. company that does not distribute all of its earnings on a current basis. A non-U.S. corporation will be classified as a PFIC for any taxable year in which, after applying certain look-through rules, either: • at least 75% of its gross income is passive income (such as interest income); or • at least 50% of its gross assets (determined on the basis of a quarterly average) is attributable to assets that produce passive income or are held for the production of passive income. We will be treated as owning our proportionate share of the assets and earning our proportionate share of the income of any other corporation, the equity of which we own, directly or indirectly, 25% or more (by value). 169 Table of Contents Based on the current and expected composition of our income and assets and the value of our assets, we believe that we were a PFIC for U.S. federal income tax purposes for our taxable year ended December 31, 2023. However, no assurances regarding our PFIC status can be provided for any past, the current, or any future taxable years. The determination of whether we are a PFIC is a fact-intensive determination made on an annual basis applying principles and methodologies that in some circumstances are unclear and subject to varying interpretation. If we are treated as a non-publicly traded CFC for the year being tested for purposes of the PFIC rules, the value of our assets will be measured by the adjusted tax basis of our assets. If we are a publicly traded CFC or not a CFC for such year, the value of our assets generally will be determined by reference to the market price of our ordinary shares or ADSs from time to time, which may fluctuate considerably. Under the income test, our status as a PFIC depends on the composition of our income which will depend on the transactions we enter into in the future and our corporate structure. The composition of our income and assets is also affected by the spending of the cash we raise in any offering. If we are classified as a PFIC in any year with respect to which a U.S. Holder owns the ordinary shares or ADSs, we will continue to be treated as a PFIC with respect to such U.S. Holder in all succeeding years during which the U.S. Holder owns the ordinary shares or ADSs, regardless of whether we continue to meet the tests described above unless (i) we cease to be a PFIC and the U.S. Holder has made a “deemed sale” election under the PFIC rules, or (ii) the U.S. Holder makes a Qualified Electing Fund Election, or QEF Election, with respect to all taxable years during such U.S. Holders holding period in which we are a PFIC. If the “deemed sale” election is made, a U.S. Holder will be deemed to have sold the ordinary shares or ADSs the U.S. Holder holds at their fair market value and any gain from such deemed sale would be subject to the rules described below. After the deemed sale election, so long as we do not become a PFIC in a subsequent taxable year, the U.S. Holder’s ordinary shares or ADSs with respect to which such election was made will not be treated as shares in a PFIC and the U.S. Holder will not be subject to the rules described below with respect to any “excess distribution” the U.S. Holder receives from us or any gain from an actual sale or other disposition of the ordinary shares or ADSs. U.S. Holders should consult their tax advisors as to the possibility and consequences of making a deemed sale election if we cease to be a PFIC and such election becomes available. For each taxable year we are treated as a PFIC with respect to U.S. Holders, U.S. Holders will be subject to special tax rules with respect to any “excess distribution” such U.S. Holder receives and any gain such U.S. Holder recognizes from a sale or other disposition (including, under certain circumstances, a pledge) of ordinary shares or ADSs, unless (i) such U.S. Holder makes a QEF Election or (ii) our ordinary shares or ADSs constitute “marketable” securities, and such U.S. Holder makes a mark-to-market election as discussed below. Distributions a U.S. Holder receives in a taxable year that are greater than 125% of the average annual distributions a U.S. Holder received during the shorter of the three preceding taxable years or the U.S. Holder’s holding period for the ordinary shares or ADSs will be treated as an excess distribution. Under these special tax rules: • the excess distribution or gain will be allocated ratably over a U.S. Holder’s holding period for the ordinary shares or ADSs; • the amount allocated to the taxable year of disposition or distribution, and any taxable year prior to the first taxable year in which we became a PFIC, will be treated as ordinary income; and • the amount allocated to each other year will be subject to the highest tax rate in effect for that year for individuals or corporations, as appropriate, and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year. The tax liability for amounts allocated to years prior to the year of disposition or “excess distribution” cannot be offset by any net operating losses for such years, and gains (but not losses) realized on the sale of the ordinary shares or ADSs cannot be treated as capital, even if a U.S. Holder holds the ordinary shares or ADSs as capital assets. If we are a PFIC, a U.S. Holder will generally be subject to similar rules with respect to distributions we receive from, and our dispositions of the stock of, any of our direct or indirect subsidiaries that also are PFICs, as if such distributions were indirectly received by, and/or dispositions were indirectly carried out by, such U.S. Holder. U.S. Holders should consult their tax advisors regarding the application of the PFIC rules to our subsidiaries. U.S. Holders can avoid the interest charge on excess distributions or gain relating to the ordinary shares or ADSs by making a mark-to-market election with respect to the ordinary shares or ADSs, provided that the ordinary shares or ADSs are “marketable.” Ordinary shares or ADSs will be marketable if they are “regularly traded” on certain U.S. stock exchanges or on a foreign stock exchange that meets certain conditions. For these purposes, the ordinary shares or ADSs will be considered regularly traded during any calendar year during which they are traded, other than in de minimis quantities, on at least 15 days 170 Table of Contents during each calendar quarter. Any trades that have as their principal purpose meeting this requirement will be disregarded. Our ADSs have been listed on Nasdaq, which is a qualified exchange for these purposes. Consequently, if our ADSs remain listed on Nasdaq and are regularly traded, and you are a holder of ADSs, we expect the mark-to-market election would be available to you if we are a PFIC. Each U.S. Holder should consult its tax advisor as to the whether a mark-to-market election is available or advisable with respect to the ordinary shares or ADSs. A U.S. Holder that makes a mark-to-market election must include in ordinary income for each year an amount equal to the excess, if any, of the fair market value of the ordinary shares or ADSs at the close of the taxable year over the U.S. Holder’s adjusted tax basis in the ordinary shares or ADSs. An electing holder may also claim an ordinary loss deduction for the excess, if any, of the U.S. Holder’s adjusted basis in the ordinary shares or ADSs over the fair market value of the ordinary shares or ADSs at the close of the taxable year, but this deduction is allowable only to the extent of any net mark-to-market gains for prior years. Gains from an actual sale or other disposition of the ordinary shares or ADSs will be treated as ordinary income, and any losses incurred on a sale or other disposition of the shares will be treated as an ordinary loss to the extent of any net mark-to-market gains for prior years. Once made, the election cannot be revoked without the consent of the Internal Revenue Service, or the IRS, unless the ordinary shares or ADSs cease to be marketable. However, a mark-to-market election generally cannot be made for equity interests in any lower-tier PFICs that we own, unless shares of such lower-tier PFIC are themselves “marketable.” As a result, even if a U.S. Holder validly makes a mark-to-market election with respect to our ordinary shares or ADSs, the U.S. Holder may continue to be subject to the PFIC rules (described above) with respect to its indirect interest in any of our investments that are treated as an equity interest in a PFIC for U.S. federal income tax purposes. U.S. Holders should consult their tax advisors to determine whether any of these elections would be available and if so, what the consequences of the alternative treatments would be in their particular circumstances. We do not intend to provide information necessary for U.S. holders to make QEF elections which, if available, would result in tax treatment different from the general tax treatment for PFICs described above . Unless otherwise provided by the U.S. Treasury, each U.S. shareholder of a PFIC is required to file an annual report containing such information as the U.S. Treasury may require. A U.S. Holder’s failure to file the annual report will cause the statute of limitations for such U.S. Holder’s U.S. federal income tax return to remain open with regard to the items required to be included in such report until three years after the U.S. Holder files the annual report, and, unless such failure is due to reasonable cause and not willful neglect, the statute of limitations for the U.S. Holder’s entire U.S. federal income tax return will remain open during such period. U.S. Holders should consult their tax advisors regarding the requirements of filing such information returns under these rules. WE STRONGLY URGE YOU TO CONSULT YOUR TAX ADVISOR REGARDING THE APPLICATION OF THE PFIC RULES TO YOUR INVESTMENT IN THE ORDINARY SHARES OR ADSs. Taxation of Distributions Subject to the discussion above under “Passive Foreign Investment Company Rules,” distributions paid on ordinary shares or ADSs, other than certain pro rata distributions of ordinary shares or ADSs, will generally be treated as dividends to the extent paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). Because we may not calculate our earnings and profits under U.S. federal income tax principles, we expect that distributions generally will be reported to U.S. Holders as dividends. Subject to applicable limitations and the discussions above regarding concerns expressed by the U.S. Treasury, dividends paid to certain non-corporate U.S. Holders may be taxable at preferential rates applicable to “qualified dividend income” if we are a “qualified foreign corporation” and certain other requirements are met. However, the qualified dividend income treatment will not apply if we are treated as a PFIC with respect to the U.S. Holder. The amount of the dividend will be treated as foreign-source dividend income to U.S. Holders and will not be eligible for the dividends-received deduction generally available to U.S. corporations under the Code. Dividends will generally be included in a U.S. Holder’s income on the date of the U.S. Holder’s receipt of the dividend. The amount of any dividend income paid in foreign currency will be the U.S. dollar amount calculated by reference to the exchange rate in effect on the date of actual or constructive receipt, regardless of whether the payment is in fact converted into U.S. dollars. If the dividend is converted into U.S. dollars on the date of receipt, a U.S. Holder should not be required to recognize foreign currency gain or loss in respect of the dividend income. A U.S. Holder may have foreign currency gain or loss if the dividend is converted into U.S. dollars after the date of receipt. Such gain or loss would generally be treated as U.S.-source ordinary income or loss. The amount of any distribution of property other than cash (and other than certain pro rata distributions of ordinary shares or ADSs or rights to acquire ordinary shares or ADSs) will be the fair market value of such property on the date of distribution. 171 Table of Contents For foreign tax credit limitation purposes, our dividends will generally be treated as passive category income. Because no UK taxes will be withheld from dividends on ordinary shares or ADSs, there will be no creditable foreign taxes associated with any dividends that a U.S. Holder will receive. The rules governing foreign tax credits are complex and U.S. Holders should therefore consult their tax advisers regarding the effect of the receipt of dividends for foreign tax credit limitation purposes. Sale or Other Taxable Disposition of Ordinary Shares and ADSs Subject to the discussion above under “Passive Foreign Investment Company Rules,” gain or loss realized on the sale or other taxable disposition of ordinary shares or ADSs will be capital gain or loss, and will be long-term capital gain or loss if the U.S. Holder held the ordinary shares or ADSs for more than one year at the time of sale or other taxable disposition. The amount of the gain or loss will equal the difference between the U.S. Holder’s tax basis in the ordinary shares or ADSs disposed of and the amount realized on the disposition, in each case as determined in U.S. dollars. This gain or loss will generally be U.S.-source gain or loss for foreign tax credit purposes. Subject to the PFIC rules described above, long-term capital gains recognized by certain non-corporate U.S. Holders (including individuals) will be, under current law, subject to reduced rates of U.S. federal income tax. The deductibility of capital losses is subject to limitations. If the consideration received by a U.S. Holder is not paid in U.S. dollars, the amount realized will be the U.S. dollar value of the payment received determined by reference to the spot rate of exchange on the date of the sale or other disposition. However, if the ordinary shares or ADSs are treated as traded on an “established securities market” and you are either a cash basis taxpayer or an accrual basis taxpayer that has made a special election (which must be applied consistently from year to year and cannot be changed without the consent of the IRS), you will determine the U.S. dollar value of the amount realized in a non-U.S. dollar currency by translating the amount received at the spot rate of exchange on the settlement date of the sale. If you are an accrual basis taxpayer that is not eligible to or does not elect to determine the amount realized using the spot rate on the settlement date, you will recognize foreign currency gain or loss to the extent of any difference between the U.S. dollar amount realized on the date of sale or disposition and the U.S. dollar value of the currency received at the spot rate on the settlement date. Information Reporting and Backup Withholding Payments of dividends and sales proceeds that are made within the United States or through certain U.S.-related financial intermediaries generally are subject to information reporting, and may be subject to backup withholding, unless (i) the U.S. Holder is a corporation or other exempt recipient or (ii) in the case of backup withholding, the U.S. Holder provides a correct taxpayer identification number and certifies that it is not subject to backup withholding on a duly executed IRS Form W-9 or otherwise establishes an exemption. The amount of any backup withholding from a payment to a U.S. Holder may be allowed as a credit against the U.S. Holder’s U.S. federal income tax liability and may entitle the U.S. Holder to a refund, provided that the required information is timely furnished to the IRS. Information with Respect to Foreign Financial Assets Certain U.S. Holders who are individuals (and, under regulations, certain entities) may be required to report information relating to the ordinary shares or ADSs, subject to certain exceptions (including an exception for ordinary shares or ADSs held in accounts maintained by certain U.S. financial institutions), by filing IRS Form 8938 (Statement of Specified Foreign Financial Assets) with their federal income tax return. Such U.S. Holders who fail to timely furnish the required information may be subject to a penalty. Additionally, if a U.S. Holder does not file the required information, the statute of limitations with respect to tax returns of the U.S. Holder to which the information relates may not close until three years after such information is filed. U.S. Holders should consult their tax advisers regarding their reporting obligations with respect to their ownership and disposition of the ordinary shares or ADSs. UK Taxation The following is intended as a general guide to current UK tax law and HM Revenue & Customs, or HMRC, published guidance (which is not binding) applying as at the date of this Annual Report (both of which are subject to change at any time, possibly with retrospective effect) relating to the holding of ADSs. It does not constitute legal or tax advice and does not purport to be a complete analysis of all UK tax considerations relating to the holding of ADSs, or all of the circumstances in which holders of ADSs may benefit from an exemption or relief from UK taxation. It is written on the basis that we do not (and will not) directly or indirectly derive 75% or more of its qualifying asset value from UK land, and that we are and will 172 Table of Contents remain solely resident in the UK for tax purposes and will therefore be subject to the UK tax regime and not the U.S. tax regime save as set out above under “U.S. Federal Income Tax Considerations for U.S. Holders.” Except to the extent that the position of non-UK resident persons is expressly referred to, this guide relates only to persons who are resident (and in the case of individuals, domiciled or deemed domiciled) for tax purposes solely in the UK and do not have a permanent establishment, branch or agency (or equivalent) in any other jurisdiction with which the holding of our ADSs is connected, or UK Holders, who are absolute beneficial owners of our ADSs (and do not hold our ADSs through an Individual Savings Account or a Self-Invested Personal Pension). This guide may not relate to certain classes of UK Holders, such as (but not limited to): • persons who are connected with us; • financial institutions; • insurance companies; • charities or tax-exempt organizations; • collective investment schemes; • pension schemes; • market makers, intermediaries, brokers or dealers in securities or persons who hold ADSs otherwise than as an investment; • persons who have (or are deemed to have) acquired their ADSs by virtue of an office or employment or who are or have been our officers or employees or any of our affiliates; and • individuals who are subject to UK taxation on a remittance basis or to whom split-year treatment applies. The decision of the First-tier Tribunal (Tax Chamber) in HSBC Holdings PLC and The Bank of New York Mellon Corporation v HMRC (2012) cast some doubt on whether a holder of a depositary receipt is the beneficial owner of the underlying shares. However, based on published HMRC guidance we would expect that HMRC will regard a holder of ADSs as holding the beneficial interest in the underlying shares and therefore these paragraphs assume that a holder of ADSs is the beneficial owner of the underlying ordinary shares and any dividends paid in respect of the underlying ordinary shares (where the dividends are regarded for UK purposes as that person’s own income) for UK direct tax purposes. THESE PARAGRAPHS ARE A SUMMARY OF CERTAIN UK TAX CONSIDERATIONS AND ARE INTENDED AS A GENERAL GUIDE ONLY. IT IS RECOMMENDED THAT ALL HOLDERS OF ADSs OBTAIN ADVICE AS TO THE CONSEQUENCES OF THE ACQUISITION, OWNERSHIP AND DISPOSAL OF OUR ADSs IN THEIR OWN PARTICULAR CIRCUMSTANCES FROM THEIR OWN TAX ADVISORS. IN PARTICULAR, NON-UK RESIDENT OR DOMICILED PERSONS OR PERSONS SUBJECT TO TAXATION IN ANY JURISDICTION OTHER THAN THE UK ARE ADVISED TO CONSIDER THE POTENTIAL IMPACT OF ANY RELEVANT DOUBLE TAXATION AGREEMENTS. Dividends Withholding Tax Dividends that we pay will not be subject to any withholding or deduction for or on account of UK tax. Income Tax An individual UK Holder may, depending on his or her particular circumstances, be subject to UK tax on dividends received from us. An individual holder of ADSs who is not resident for tax purposes in the UK should not be chargeable to UK income tax on dividends received from us unless he or she carries on (whether solely or in partnership) a trade, profession or vocation in the UK through a permanent establishment, branch or agency to which our ADSs are attributable. There are certain exceptions for trading in the UK through independent agents, such as some brokers and investment managers. 173 Table of Contents Dividend income is treated as the top slice of the total income chargeable to UK income tax for an individual UK Holder. An individual UK Holder who receives a dividend in the 2023/2024 tax year will be entitled to a tax-free allowance of £1,000. However, the UK government has announced that the dividend tax-free allowance of £1,000 will be reduced to £500 with effect from April 2024. Income within the dividend allowance counts towards an individual’s basic, higher or additional rate limits and may, therefore, affect the level of personal allowance to which they are entitled. Dividend income received during the 2023/2024 tax year in excess of the relevant tax-free allowance will (subject to the availability of any income tax personal allowance) be taxed at 8.75% to the extent the excess amount falls within the basic rate band, 33.75% to the extent the excess amount falls within the higher rate band, and 39.35% to the extent the excess amount falls within the additional rate band. Corporation Tax A corporate holder of ADSs who is not resident for tax purposes in the UK should not be chargeable to UK corporation tax on dividends received from us unless it carries on (whether solely or in partnership) a trade in the UK through a permanent establishment to which our ADSs are attributable. Corporate UK Holders should not be subject to UK corporation tax on any dividend received from us so long as the dividends qualify for exemption, which should be the case, although certain conditions must be met. It should be noted that the exemptions, whilst of wide application, are not comprehensive and are subject to anti-avoidance rules in relation to a dividend. If the conditions for the exemption are not satisfied, or such anti-avoidance provisions apply or such UK Holder elects for an otherwise exempt dividend to be taxable, UK corporation tax will be chargeable on the amount of any dividends (at the current rate of 25% for companies with profits of more than £250,000 or 19% for companies with profits not exceeding £50,000 with a marginal relief applying to profits between £50,000 and £250,000, in each case for the 2023/2024 tax year). Chargeable Gains A disposal or deemed disposal of ADSs by a UK Holder may, depending on the UK Holder’s circumstances and subject to any available exemptions or reliefs (such as the annual exemption), give rise to a chargeable gain or an allowable loss for the purposes of UK capital gains tax (for individual UK Holders) and corporation tax on chargeable gains (for corporate UK Holders). If an individual UK Holder who is subject to UK income tax at either the higher or the additional rate is liable to UK capital gains tax on the disposal of ADSs, the current applicable rate will be 20% (for the tax year 2023/2024). For an individual UK Holder who is subject to UK income tax at the basic rate and liable to UK capital gains tax on such disposal, the current applicable rate would be 10% (for the tax year 2023/2024), save to the extent that any capital gains when aggregated with the UK Holder’s other taxable income and gains in the relevant tax year exceed the unused basic rate tax band. In that case, the capital gains tax rate currently applicable to the excess would be 20% (for the tax year 2023/2024). If a corporate UK Holder becomes liable to UK corporation tax on the disposal (or deemed disposal) of ADSs, the main rate of UK corporation tax would apply (currently at 25% for companies with profits of more than £250,000 or 19% for companies with profits not exceeding £50,000 with a marginal relief applying to profits between £50,000 and £250,000, in each case for the 2023/2024 tax year). A holder of ADSs that is not resident for tax purposes in the UK should not normally be liable to UK capital gains tax or corporation tax on chargeable gains on a disposal (or deemed disposal) of ADSs, unless the person is carrying on (whether solely or in partnership) a trade, profession or vocation in the UK through a branch or agency (or, in the case of a corporate holder of ADSs, through a permanent establishment) to which our ADSs are attributable. However, an individual holder of ADSs who has ceased to be resident for tax purposes in the UK or is treated as resident outside the UK for the purposes of a double taxation treaty for a period of five years or less and who disposes of ADSs during that period of temporary non-residence may be liable on his or her return to the UK (or upon ceasing to be regarded as resident outside the UK for the purposes of any relevant double taxation treaty) to UK tax on any capital gain realized (subject to any available exemption or relief). Stamp Duty and Stamp Duty Reserve Tax The discussion below relates to the holders of our ordinary shares or ADSs wherever resident, however it should be noted that special rules may apply to certain persons such as market makers, brokers, dealers or intermediaries. Issue of Ordinary Shares 174 Table of Contents As a general rule (and except in relation to depositary receipt systems and clearance services (as to which see below)), no UK stamp duty or stamp duty reserve tax, or SDRT, is generally payable on the issue of the ordinary shares underlying our ADSs. Transfer of Ordinary Shares An unconditional agreement to transfer ordinary shares will normally give rise to a charge to SDRT at the rate of 0.5% of the amount or value of the consideration payable for the transfer. The purchaser of the ordinary shares is liable for the SDRT. Transfers of ordinary shares by way of a written instrument of transfer are generally also subject to stamp duty at the rate of 0.5% of the amount or value of the consideration given for the transfer (rounded up to the nearest £5.00). Stamp duty is normally paid by the purchaser. The charge to SDRT will be cancelled or, if already paid, repaid (generally with interest), where a transfer instrument has been duly stamped within six years of the charge arising, (either by paying the stamp duty or by claiming an appropriate relief) or if the instrument is otherwise exempt from stamp duty. Clearance Services and Depositary Receipts Unless an exemption applies, when ordinary shares are issued or transferred into a depositary receipt system or a clearance service (including to a nominee, or agent for, a person whose business is or includes the issue of depositary receipts or the provision of clearance services), a higher rate of 1.5% UK stamp duty or UK SDRT, which we refer to as the 1.5% Charge, as applicable, generally arises. However, under current UK tax law (as set out in the Finance Bill 2023-24, which received royal assent on 22 February 2024, becoming the Finance Act 2024), with effect from 1 January 2024,, no 1.5% Charge (to UK SDRT or, where effected by a written instrument, UK stamp duty) should arise in respect of an issue of ordinary shares, or an unconditional agreement to issue ordinary shares, to a clearance service or a depositary receipt system. Further, subject to the below, no 1.5% Charge should arise in respect of a transfer of ordinary shares, or an unconditional agreement to transfer ordinary shares, to a clearance service or depositary receipt system, where the transfer is carried out in the course of “capital-raising arrangements”, being arrangements pursuant to which the relevant ordinary shares are issued by the company for the purpose of raising new capital. Where any ordinary shares are subject to restriction that has the effect of preventing the transfer of such ordinary shares into a clearance service or depositary receipt system in the course of capital-raising arrangements, such ordinary shares must be transferred as soon as reasonably practicable after the time at which the restriction ceases to have effect in order to prevent the 1.5% Charge from applying. Where a clearance service has made and maintained an election under section 97A of the UK Finance Act 1986, or a section 97A election, no 1.5% Charge will apply on any transfer of ordinary shares, or an unconditional agreement to transfer ordinary shares, to that clearance service. It is understood that HMRC regards the facilities of DTC as a clearance service for these purposes, and we are not aware of any section 97A election having been made by the DTC. If arising, any UK stamp duty or UK SDRT payable on a transfer of ordinary shares to a depositary receipt system or clearance service will in practice generally be paid by the transferors or participants in the clearance service or depositary receipt system. Issue of ADSs No UK stamp duty or UK SDRT should be payable on the issue of ADSs in the Company. If arising, any stamp duty or SDRT payable on a transfer of ordinary shares to a depositary receipt system or clearance service will in practice generally be paid by the transferors or participants in the clearance service or depositary receipt system. Transfer of ADSs within a clearance system No UK SDRT should be required to be paid in respect of a paperless transfer of ADSs through the facilities of DTC, provided that no section 97A election has been made and maintained by DTC, and such ADSs are held through DTC at the time of any agreement for their transfer. We are not aware of any section 97A election having been made by the DTC. Issue or Transfers of ADRs On the basis of current published HMRC guidance, an ADR is not regarded as stock or a marketable security for the purposes of UK stamp duty or a chargeable security for the purposes of UK SDRT and, as such, no UK stamp duty or SDRT should be required to be paid on the issue or transfer of (including an agreement to transfer) ADRs in the Company. (b) None . 175 Table of Contents ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not Applicable. 176 Table of Contents PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Our board of directors has adopted a code of business conduct and ethics that applies to all of our employees, officers and directors, including our Chief Executive Officer, Interim Chief Financial Officer and other executive and senior officers. The full text of our code of business conduct and ethics is posted on the Investor Relations section of our website at ir.compasspathways.com. Our website is not incorporated by reference in this filing. We will disclose any amendments to our code of business conduct and ethics, or waivers of its requirements granted to our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions, on our website or in filings under the Exchange Act as required by applicable law or the listing standards of the Nasdaq Stock Market. The remaining information called for by this item, including information about our Directors, Executive Officers and Audit Committee, will be set forth in our Proxy Statement for the 2024 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2023 and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information called for by this item will be set forth in our Proxy Statement for the 2024 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2023 and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information called for by this item will be set forth in our Proxy Statement for the 2024 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2023 and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information called for by this item will be set forth in our Proxy Statement for the 2024 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2023 and is incorporated herein by reference. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information called for by this item will be set forth in our Proxy Statement for the 2024 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2023 and is incorporated herein by reference. 177 Table of Contents PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Listing of Documents 1. Financial Statements The following financial statements are submitted in a separate section beginning on page F-1 of this Annual Report, as follows: Page Report of Independent Registered Public Accounting Firm (PCAOB ID 876) F-2 Consolidated Balance Sheets F- 3 Consolidated Statements of Operations and Comprehensive Loss F- 4 Consolidated Statements of Shareholders’ Equity F- 5 Consolidated Statements of Cash Flows F- 6 Notes to Consolidated Financial Statements F- 8 2. Financial Statement Schedules All other schedules have been omitted because they are not required, not applicable, or the required information is otherwise included. 3. Exhibits The documents listed in the Exhibit Index of this Annual Report are incorporated by reference or are filed with this Annual Report, in each case as indicated therein (numbered in accordance with Item 601 of Regulation S-K). INDEX Exhibit Number Description Incorporation by reference Schedule/Form File Number Exhibit File Date 3.2 Articles of Association of COMPASS Pathways plc. Form F-1/A 333-248484 3.2 9/14/2020 4.1 Deposit Agreement Form F-6/A 333-248514 99.(A) 9/17/2020 4.2 Form of American Depositary Receipt (included in exhibit 4.1). 4.3 Description of Securities Form 10-K 001-39522 4.3 02/28/2023 4.4 Form of Lender Warrant Form 8-K 001-39522 4.1 07/05/2023 4.5 Form of PIPE Investor Warrant Form 8-K 001-39522 4.1 08/16/2023 10.1# Investment and shareholders’ agreement by and between COMPASS Rx Limited and the shareholders named therein, dated April 17, 2020 and amended and restated on August 7, 2020. Form F-1 333-248484 10.1 8/28/2020 10.2# Lease Agreement by and between Fora Space Limited and the Company, dated July 9, 2021 Form 6-K 001-39522 10.1 8/11/2021 178 Table of Contents 10.3# Employment Agreement with George Goldsmith. Form 20-F 001-39522 10.2 3/9/2021 10.4# Employment Agreement with Ekaterina Malievskaia. Form 20-F 001-39522 10.7 3/9/2021 10.5# 2020 Employee Share Option and Incentive Plan with Non-Employee Sub-Plan and U.S. Sub-Plan, as amended. Form F-1/A 333-248484 10.2 9/14/2020 10.6# 2020 Employee Share Purchase Plan Form F-1/A 333-248484 10.3 9/14/2020 10.7 Form of Deed of Indemnity between COMPASS Pathways plc and each of its Directors and Officers. Form F-1/A 333-248484 10.6 9/14/2020 10.8# Employment Agreement with Michael Falvey Form 6-K 001-39522 10.1 12/7/2021 10.9# Form of Non-Qualified Share Option Agreement for Company Employees under the 2020 Share Option and Incentive Plan. Form 8-K 001-39522 10.2 02/04/2022 10.10# Restricted share unit award agreement for company employees under the COMPASS Pathways plc 2020 Share Option and Incentive Plan Form 10-K 001-39522 10.12 02/28/2023 10.11# Employment Agreement with Matthew Owens 10-K 001-39522 10.20 02/24/2022 10.12 Services Agreement by and between BioInnovation Labs LLC and COMPASS Pathways Inc dated January 31, 2022 10-K 001-39522 10.21 02/24/2024 10.13 Service Agreement by and between Movassate Family Trust and COMPASS Pathways Inc dated August 3, 2021 10-K 001-39522 10.22 02/24/2022 10.14 Master Research Collaboration Agreement by and among COMPASS Pathfinder Limited, King’s College London and South London and Maudsley NHS Foundation Trust, dated March 22, 2022 10-Q 001-39522 10.1 05/10/2022 10.15# Employment Agreement dated August 1, 2022 by and between COMPASS Pathways plc and Kabir Nath. 8-K 001-39522 10.1 07/19/2022 10.16# Amendment to Employment Agreement dated September 14, 2020 by and between COMPASS Pathways plc and George Goldsmith. 8-K 001-39522 10.2 07/19/2022 10.17 WeWork Membership Agreement dated August 22, 2022 by and between COMPASS Pathways Inc and 130 Madison Avenue Tenant LLC 10-K 001-39522 10.19 02/28/23 10.18# Form of Inducement Award Non-Qualified Share Option Agreement. 10-Q 001-39522 10.3 8/04/2022 10.19 License Agreement between Fora Space Limited and COMPASS Pathfinder Limited dated April 4, 2023. 10-Q 001-39522 10.1 05/11/2023 10.20† Loan and Security Agreement, dated as of June 30, 2023, by and among the COMPASS Pathways plc, and is entered into by and among COMPASS Pathways plc and its subsidiaries, the lenders party thereto and Hercules Capital, Inc., in its capacity as administrative agent and collateral agent. 8-K 001-39522 10.1 07/05/2023 10.21 Securities Purchase Agreement, dated August 1 6, 2023, by and among the Company and the Purchasers. 8-K 001-39522 10.1 08/16/2023 10.22 Lease Agreement between Azul NYC LLC and COMPASS Pathways, Inc. dated September 28, 2023. 10-Q 001-39522 10.2 11/2/2023 10.23# Separation Agreement dated October 24, 2023 by and between the Company and Michael Falvey 8-K 001-39522 10.1 10/26/2023 10.24#* Employment Agreement dated May 7, 2020 by and between Compass Pathways and Mary-Rose Hughes, as amended 10.25# Employment Agreement dated December 6, 2023, by and between Compass Pathways and Teri Loxam. 8-K 001-39522 10.1 12/07/2023 10.26#* Amendment to Employment Agreement dated August 1, 2023 by and between Kabir Nath and Compass Pathways, Inc. dated August 1, 2023 179 Table of Contents 21.1 Subsidiaries of COMPASS Pathways plc. Form F-1 333-248484 21.1 8/28/2020 23.1* Consent of PricewaterhouseCoopers LLP, an Independent Registered Public Accounting Firm 31.1* Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, Rule 13(a)-14(a)/15d-14(a), by Principal Executive Officer 31.2* Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, Rule 13(a)-14(a)/15d-14(a), by Principal Finance Officer 32.1** Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by Principal Executive Officer and Principle Financial Officer 97.1* Compass Pathways plc Compensation Recovery Policy 101.INS* XBRL Instance Document 101.SCH* Inline XBRL Taxonomy Extension Schema Document. 101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document. 101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document. 101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document. 101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document. 104 Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101). _________________ # Indicates a management contract or any compensatory plan, contract or arrangement. † Certain confidential portions (indicated by brackets and asterisks) have been omitted from this exhibit pursuant to Item 601(b)(10)(iv). The Company undertakes to furnish supplementally an unredacted copy of the exhibit to the Securities and Exchange Commission upon its request. * Filed herewith ** The certifications furnished in Exhibit 32.1 hereto are deemed to accompany this Annual Report on Form 10-K and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the Registrant specifically incorporates it by reference. Such certifications will not be deemed to be incorporated by reference into any filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Registrant specifically incorporates it by reference. 180 Table of Contents ITEM 16. FORM 10-K SUMMARY Not applicable. INDEX TO THE FINANCIAL STATEMENTS Consolidated Financial Statements of Compass Pathways Plc INDEX TO ANNUAL CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm (PCAOB ID 876 ) F- 1 Consolidated Balance Sheets F- 3 Consolidated Statements of Operations and Comprehensive Loss F- 4 Consolidated Statements of Shareholders’ Equity F- 5 Consolidated Statements of Cash Flows F- 6 Notes to Consolidated Financial Statements F- 8 181 Table of Contents Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of COMPASS Pathways plc Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of COMPASS Pathways plc and its subsidiaries (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of operations and comprehensive loss, of shareholders’ equity, and of cash flows for each of the three years in the period ended December 31, 2023, including 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 as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023 in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated 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 of these consolidated financial statements 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 consolidated 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 consolidated 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 consolidated 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 consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Benefit from Research and Development Tax Credit As described in Notes 2 and 3 to the consolidated financial statements, the Company carries out extensive research and development (“R&D”) activities and benefits from the UK R&D tax credit regime under the scheme for small and medium-sized enterprises (“SME”). For the year ended December 31, 2023, the Company recognized $12.9 million in benefit from R&D tax credit. As disclosed by management, they evaluate which UK R&D tax credit programs the Company is expected to be eligible for, that they plan to submit a claim for and have reasonable assurance that the amount will ultimately be realized. Management assesses the Company’s R&D activities and expenditures to determine whether the nature of the activities and expenditures will qualify for credit under the SME regime and whether the claim will ultimately be realized based on the allowable reimbursable expense criteria established by the UK government. Management makes judgements and estimates relating to the allocation of time spent on R&D activities by individuals. F-1 Table of Contents The principal considerations for our determination that performing procedures relating to benefit from research and development tax credit is a critical audit matter are (i) the significant judgement by management when determining the nature and amount of expenses that qualify under the tax credit program, including estimating the allocation of time spent by individuals on R&D activities; and (ii) a high degree of auditor judgement, subjectivity and effort in performing procedures and evaluating audit evidence related to the benefit from R&D tax credit. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others, (i) evaluating management’s assessment of the nature of the activities performed by the Company and their qualification for the R&D tax credit program available for small and medium sized enterprises, (ii) testing management’s process for determining R&D costs that qualify for the SME regime, (iii) evaluating the appropriateness of management’s allocation of qualifying expenses including determining the amount expected to be realized based on relevant criteria outlined in the tax credit program, (iv) testing the completeness and accuracy of the data used in the R&D tax credit calculations, and (v) obtaining evidence over the recoverability of the prior year claim given that the cash has not yet been received, to support the assessment that the benefit will ultimately be realized. /s/ PricewaterhouseCoopers LLP Reading, United Kingdom February 29, 2024 We have served as the Company's auditor since 2018. F-2 Table of Contents COMPASS PATHWAYS PLC Consolidated Balance Sheets (in thousands, except share and per share amounts) (expressed in U.S. Dollars, unless otherwise stated) December 31, 2023 2022 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 220,198 $ 143,206 Restricted cash 440 175 Prepaid income tax 1,123 575 Prepaid expenses and other current assets 39,535 47,695 Total current assets 261,296 191,651 NON-CURRENT ASSETS: Operating lease right-of-use assets 4,306 2,006 Deferred tax assets 3,336 2,224 Long-term prepaid expenses and other assets 7,049 1,413 Total assets $ 275,987 $ 197,294 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 5,892 $ 4,761 Accrued expenses and other liabilities 11,301 9,325 Operating lease liabilities - current 2,411 1,510 Total current liabilities 19,604 15,596 NON-CURRENT LIABILITIES Long-term debt 28,757 — Operating lease liabilities - non-current 1,882 418 Total liabilities 50,243 16,014 Commitments and contingencies (Note 12) SHAREHOLDERS' EQUITY: Ordinary shares, £ 0.008 par value; 61,943,471 and 42,631,794 shares authorized, issued and outstanding at December 31, 2023 and 2022, respectively 635 440 Deferred shares, £ 21,921.504 par value; nil and 1 share authorized, issued and outstanding at December 31, 2023 and 2022, respectively — 28 Additional paid-in capital 621,645 458,825 Accumulated other comprehensive loss ( 16,926 ) ( 16,867 ) Accumulated deficit ( 379,610 ) ( 261,146 ) Total shareholders' equity 225,744 181,280 Total liabilities and shareholders' equity $ 275,987 $ 197,294 The accompanying notes are an integral part of these consolidated financial statements. F-3 Table of Contents COMPASS PATHWAYS PLC Consolidated Statements of Operations and Comprehensive Loss (in thousands, except share and per share amounts) (expressed in U.S. Dollars, unless otherwise stated) Year Ended December 31, 2023 2022 2021 OPERATING EXPENSES: Research and development $ 87,518 $ 65,053 $ 44,027 General and administrative 49,401 45,350 39,194 Total operating expenses 136,919 110,403 83,221 LOSS FROM OPERATIONS: ( 136,919 ) ( 110,403 ) ( 83,221 ) OTHER INCOME (EXPENSE), NET: Other income 4,878 4,061 40 Interest expense ( 2,204 ) — — Foreign exchange gains 3,686 821 1,990 Benefit from R&D tax credit 12,875 14,424 9,648 Total other income, net 19,235 19,306 11,678 Loss before income taxes ( 117,684 ) ( 91,097 ) ( 71,543 ) Income tax expense ( 780 ) ( 408 ) ( 199 ) Net loss ( 118,464 ) ( 91,505 ) ( 71,742 ) Net loss per share attributable to ordinary shareholders—basic and diluted $ ( 2.32 ) $ ( 2.16 ) $ ( 1.79 ) Weighted average ordinary shares outstanding—basic and diluted 51,028,024 42,436,292 39,997,587 Net loss ( 118,464 ) ( 91,505 ) ( 71,742 ) Other comprehensive loss: Foreign exchange translation adjustment ( 59 ) ( 25,707 ) ( 5,745 ) Comprehensive loss ( 118,523 ) ( 117,212 ) ( 77,487 ) The accompanying notes are an integral part of these consolidated financial statements. F-4 Table of Contents COMPASS PATHWAYS PLC Consolidated Statements of Shareholders’ Equity (in thousands, except share and per share amounts) (expressed in U.S. Dollars, unless otherwise stated) ORDINARY SHARES DEFERRED SHARES ADDITIONAL PAID-IN CAPITAL ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS) ACCUMULATED DEFICIT TOTAL SHAREHOLDERS' EQUITY £ 0.008 PAR VALUE £ 21,921.504 PAR VALUE SHARES AMOUNT SHARES AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT Balance at December 31, 2020 35,930,331 $ 367 1 $ 28 $ 279,480 $ 14,585 $ ( 97,899 ) $ 196,561 Exercise of share options 1,244,709 14 — — 1,891 — — 1,905 Issuance of shares due to options exercised in previous year 232,227 3 — — ( 3 ) — — — Issuance of ordinary shares, net of issuance costs 4,600,000 51 — — 154,743 — — 154,794 Issuance of ordinary shares to settle vested restricted stock units 12,607 — — — — — — — Share-based compensation expense — — — — 8,639 — — 8,639 Unrealized loss on foreign currency translation — — — — — ( 5,745 ) — ( 5,745 ) Net loss — — — — — — ( 71,742 ) ( 71,742 ) Balance at December 31, 2021 42,019,874 $ 435 1 $ 28 $ 444,750 $ 8,840 $ ( 169,641 ) $ 284,412 Issuance of ordinary shares under ATM offering, net of issuance costs 44,416 1 — — 439 — — 440 Exercise of share options 462,722 4 — — 397 — — 401 Issuance of ordinary shares to settle vested restricted stock units 82,622 — — — — — — — Issuance of ordinary shares under employee share purchase plan 22,160 — — — 199 — — 199 Shares tendered for withholding taxes — — — — ( 83 ) — — ( 83 ) Share-based compensation expense — — — — 13,123 — — 13,123 Unrealized loss on foreign currency translation — — — — — ( 25,707 ) — ( 25,707 ) Net loss — — — — — — ( 91,505 ) ( 91,505 ) Balance at December 31, 2022 42,631,794 $ 440 1 $ 28 $ 458,825 $ ( 16,867 ) $ ( 261,146 ) $ 181,280 Exercise of share options 166,801 2 — — — — — 2 Issuance of ordinary shares under ATM offering, net of issuance costs 2,937,622 29 — — 28,091 — — 28,120 Issuance of ordinary shares under PIPE offering, net of issuance costs 16,076,750 163 — — 116,652 — — 116,815 Issuance of warrants to purchase ordinary shares — — — — 687 — — 687 Issuance of ordinary shares to settle vested restricted stock units 78,022 1 — — ( 1 ) — — — Cancellation of deferred share — — ( 1 ) ( 28 ) 28 — — — Issuance of ordinary shares under employee share purchase plan 52,482 — — — 351 — — 351 Shares tendered for withholding taxes — — — — ( 265 ) — — ( 265 ) Share-based compensation expense — — — — 17,277 — — 17,277 Unrealized loss on foreign currency translation — — — — — ( 59 ) — ( 59 ) Net loss — — — — — — ( 118,464 ) ( 118,464 ) Balance at December 31, 2023 61,943,471 $ 635 — $ — $ 621,645 $ ( 16,926 ) $ ( 379,610 ) $ 225,744 The accompanying notes are an integral part of these consolidated financial statements. F-5 Table of Contents COMPASS PATHWAYS PLC Consolidated Statements of Cash Flows (in thousands) (expressed in U.S. Dollars, unless otherwise stated) Year Ended December 31, 2023 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 118,464 ) $ ( 91,505 ) $ ( 71,742 ) Adjustments to reconcile net loss to net cash used in operating activities Depreciation and amortization 242 330 175 Non-cash interest 636 — — Loss on disposal of property and equipment 40 — — Non-cash (gain) loss on foreign currency remeasurement ( 2,617 ) 1,141 22 Non-cash share-based compensation 17,277 13,123 8,639 Non-cash lease expenses 2,027 2,126 1,797 Changes in operating assets and liabilities Prepaid expenses and other current assets 10,458 ( 28,760 ) ( 8,984 ) Deferred and prepaid tax assets ( 1,661 ) ( 1,701 ) ( 877 ) Long-term prepaid expenses and other assets ( 5,842 ) ( 307 ) ( 160 ) Operating lease liabilities ( 1,959 ) ( 2,081 ) ( 1,880 ) Accounts payable 864 2,497 ( 163 ) Accrued expenses and other liabilities 1,623 ( 314 ) 5,428 Net cash used in operating activities ( 97,376 ) ( 105,451 ) ( 67,745 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment ( 66 ) ( 596 ) ( 334 ) Proceeds from disposal of property and equipment 2 — — Net cash used in investing activities ( 64 ) ( 596 ) ( 334 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of ordinary shares, net of issuance costs 144,935 440 154,794 Proceeds from the issuance of shares under the employee share purchase plan 351 199 — Payments of withholding tax on stock award ( 265 ) — — Net proceeds from issuance of long-term debt 29,585 — — Payment of issuance cost of long-term debt ( 778 ) — — Proceeds from exercise of share options 2 401 1,852 Net cash provided by financing activities 173,830 1,040 156,646 Effect of exchange rate changes on cash, cash equivalents and restricted cash 867 ( 24,959 ) ( 5,576 ) Net increase/(decrease) in cash, cash equivalents and restricted cash 77,257 ( 129,966 ) 82,991 Cash, cash equivalents and restricted cash, beginning of the period 143,381 273,347 190,356 Cash, cash equivalents and restricted cash, end of the period $ 220,638 $ 143,381 $ 273,347 SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for interest $ 1,254 $ — $ — SUPPLEMENTAL NON-CASH TRANSACTIONS: Right-of-use assets obtained in exchange for new operating lease liabilities $ 4,184 $ 783 $ 5,562 Unpaid withholding tax on stock award recognized in accrued and other liabilities $ — $ 85 $ — Proceeds from exercise of options received and recorded in other current assets $ — $ — $ 53 Deferred issuance costs included in accrued expenses $ — $ — $ 856 Issuance of warrants together with long-term debt $ 687 $ — $ — Issuance of warrants together with issuance of ordinary shares $ 2,011 $ — $ — F-6 Table of Contents The following table provides a reconciliation of the cash, cash equivalents and restricted cash balances as of each of the periods, shown above: Year Ended December 31, 2023 2022 2021 Cash and cash equivalents $ 220,198 $ 143,206 $ 273,243 Short-term restricted cash 440 175 104 Total cash, cash equivalents and restricted cash $ 220,638 $ 143,381 $ 273,347 The accompanying notes are an integral part of these consolidated financial statements. F-7 Table of Contents COMPASS PATHWAYS PLC Notes to Consolidated Financial Statements 1. Nature of Business Compass Pathways plc, or the Company, is a biotechnology company dedicated to accelerating patient access to evidence-based innovation in mental health. The Company is developing its investigational COMP360 psilocybin treatment through late-stage clinical trials in Europe and North America for patients with treatment-resistant depression. The Company is subject to risks and uncertainties common to clinical stage companies in the biotechnology industry, including, but not limited to, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary intellectual property and technology, compliance with government regulations and the ability to secure additional capital to fund operations. Therapeutic candidates currently under development will require significant additional research and development efforts, including preclinical and clinical testing and regulatory approval, prior to commercialization. These efforts require significant amounts of capital, adequate personnel and infrastructure and extensive compliance-reporting capabilities. Even if the Company’s therapeutic development efforts are successful, it is uncertain when, if ever, the Company will realize revenue from sales. The Company has funded its operations primarily with proceeds from the sale of its convertible preferred shares, the issuance of convertible notes, and through the sale of American Depository Shares, or ADSs, in connection with the Company’s initial public offering, or the IPO, in September 2020, and its May 2021 follow-on offering. On October 8, 2021, the Company entered into a Sales Agreement with Cowen and Company, LLC, or Cowen, under which the Company may issue and sell from time to time up to $ 150.0 million of its ADSs, each representing one ordinary share, through Cowen as the sales agent. Sales of the Company’s ADSs, if any, will be made at market prices. Through December 31, 2023, the Company sold 2,982,038 ADSs under the Sales Agreement, resulting in $ 28.6 million in net proceeds. On June 30, 2023 (the “Effective Date”), the Company entered into a Loan Agreement with Hercules, which provided for aggregate maximum borrowings of up to $ 50.0 million, including a term loan of $ 30.0 million, which was funded on the Effective Date. On August 16, 2023, the Company entered into a Securities Purchase Agreement, pursuant to which the Company agreed to sell and issue in a private placement transaction (the “PIPE”) (i) 16,076,750 ADSs and (ii) PIPE Warrants to purchase up to 16,076,750 ADSs, at a purchase price of approximately $ 7.78 per ADS and accompanying PIPE Warrant to purchase one ADS. Each PIPE Warrant has an exercise price of $ 9.93 per ADS and is exercisable for a three year period beginning in February 2024. The PIPE Warrants may be exercised on a cashless basis if there is no effective registration statement registering the shares underlying the PIPE Warrants. The Company has incurred recurring losses since its inception, including net losses of $ 118.5 million and $ 91.5 million for the years ended December 31, 2023 and 2022, respectively. In addition, as of December 31, 2023, the Company had an accumulated deficit of $ 379.6 million. The Company expects to continue to generate operating losses for the foreseeable future. The Company believes the cash and cash equivalents on hand as of December 31, 2023 of $ 220.2 million, together with the net proceeds raised to date during the first quarter, will be sufficient to fund its operating expenses and capital expenditure requirements into late 2025. The future viability of the Company is dependent on its ability to raise additional capital to finance its operations. The Company’s inability to raise capital as and when needed could have a negative impact on its financial condition and ability to pursue its business strategies. There can be no assurance that the current operating plan will be achieved or that additional funding will be available on terms acceptable to the Company, or at all. The Company may raise additional capital through a combination of equity offerings, debt financings, collaborations, and other strategic transactions, including marketing, distribution or licensing arrangements. The failure of the Company to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on the Company’s business, results of operations, and financial conditions. Market volatility, instability in the banking system, geopolitical tensions resulting from the ongoing war between Ukraine and Russia, the Israel-Hamas war, fluctuating inflation and interest rates and the related impact on U.S., U.K. and global economies, the risk of economic slowdown or recession or a potential government shutdown in the United States, the upcoming presidential election the United States or other factors could adversely impact our operations, financial results and ability to raise additional funding. 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, or U.S. GAAP. F-8 Table of Contents Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated on consolidation. Use of Estimates The preparation of the 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, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses during the reporting periods. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, research and development expenses and the research and development tax credit. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ materially from those estimates. Cash and Cash Equivalents The Company considers all highly liquid investments that have maturities of three months or less when acquired to be cash equivalents. The Company does not currently have any material cash equivalents. Restricted Cash Restricted cash as of December 31, 2023 and 2022 represents a collateral deposit for employee credit cards. Investment The Company’s investment of $ 0.5 million to acquire 8 % (on a fully diluted basis) shareholding in Delix Therapeutics, Inc., does not have a readily determinable fair value and it is carried at cost, less impairment, adjusted for subsequent changes to estimated fair value up to the original cost, in circumstances where the Company does not have the ability to exercise significant influence or control over the operating and financial policies of the investee. As of December 31, 2023, no impairment loss was recognized. Fair Value Measurements Certain assets and liabilities of the Company are carried at fair value under U.S. GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the inputs for the first two are considered observable and the inputs for the last are considered unobservable: • Level 1—Quoted prices in active markets for identical assets or liabilities. • Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data. • Level 3—Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques The carrying amounts reflected in the consolidated balance sheets for the Company’s cash and cash equivalents, restricted cash, accounts payable and accrued expenses approximate fair value because of the short-term nature of these instruments. F-9 Table of Contents Concentration of Credit Risk Financial instruments that subject the Company to credit risk consist primarily of cash and cash equivalents. The Company places cash and cash equivalents in diversified and established financial institutions. Accounts at each institution are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. The Company has cash and cash equivalents in excess of the FDIC insured limit. The Company has no significant off-balance-sheet risk or concentration of credit risk, such as foreign exchange contracts, options contracts, or other foreign hedging arrangements. Property and Equipment Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the respective assets, which are as follows: Estimated Useful Life Lab equipment 5 years Office equipment 3 - 5 years Furniture and fixtures 3 years Leasehold improvements Shorter of useful life or remaining lease term Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the consolidated statements of operations and comprehensive loss. Expenditures for repairs and maintenance are charged to expense as incurred. Impairment of Long-Lived Assets The Company evaluates assets for potential impairment when events or changes in circumstances indicate the carrying value of the assets may not be recoverable. Recoverability is measured by comparing the book values of the assets to the expected future net undiscounted cash flows that the assets are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the book values of the assets exceed their fair value. The Company has not recognized any impairment losses or had triggering events related to its underlying assets for the years ended December 31, 2023 and 2022. Segment Information Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker in deciding how to allocate resources and assess performance. The Company and the Company’s chief operating decision maker, the Company’s Chief Executive Officer, view the Company’s operations and manage its business as a single operating segment, which carries out its operations in two geographic regions: the United Kingdom, or UK, and the United States. The Company’s property and equipment are primarily located in the UK. The Company’s singular concentration is focused on accelerating patient access to evidence-based innovation in mental health. Research and Development Costs Research and development costs are expensed as incurred. Research and development expenses consist of costs incurred in performing research and development activities, including salaries, share-based compensation and benefits, travel, and external costs of outside vendors engaged to conduct clinical development activities, clinical trials and the cost to manufacture clinical trial materials. Research Contract Costs, Prepayments and Accruals The Company has entered into various research and development-related contracts with research institutions and other companies. These agreements are generally cancellable, and related payments are recorded as research and development expenses as incurred. The Company records prepayments and accruals for estimated ongoing research costs and receives updated estimates of costs and amounts owed on a monthly basis from its third-party service providers. When evaluating the adequacy of the prepayments and accrued liabilities, the Company analyzes progress of the studies or clinical trials, including the phase or completion of events, invoices received and contracted cost estimates from third-party service providers. F-10 Table of Contents Estimates are made in determining the prepaid and accrued balances at the end of any reporting period. The Company considers any prepayment that is more than 12 months in advance of the associated expense to be long-term. Actual results could differ from the Company’s estimates. The Company’s historical prepayments and accrual estimates have not been materially different from the actual costs. Share-Based Compensation The Company accounts for all share-based payment awards granted to employees and non-employees as share-based compensation expense at fair value. The Company grants equity awards under its share-based compensation programs, which may include share options and restricted share units. The measurement date for employee and non-employee awards is the date of grant, and share-based compensation costs are recognized as an expense over the requisite service period, which is the vesting period, on a straight-line basis. Share-based compensation expense is classified in the accompanying consolidated statements of operations and comprehensive loss based on the function to which the related services are provided. The Company recognizes share-based compensation expense for the portion of awards that have vested. Forfeitures are recorded as they occur. On October 1, 2021, the Company launched the Share Incentive Plan, or the SIP, and Employee Share Purchase Plan, or the ESPP, through which employees can purchase shares at a discounted price. The Company estimates the fair value of stock options and shares to be issued under the SIP and ESPP using the Black-Scholes option-pricing model on the date of grant. The fair value of shares to be issued under these plans are recognized and amortized on a straight-line basis over the purchase period, which is generally six months. There have been no performance conditions attached to the share options granted by the Company to date. The fair value of each share option grant is estimated on the date of grant using the Black-Scholes option pricing model. See Note 8 for the Company’s assumptions used in connection with option grants made during the periods covered by these consolidated financial statements. Assumptions used in the option pricing model include the following: Expected volatility . The Company lacks sufficient company-specific historical and implied volatility information for its ordinary shares. Therefore, it estimates its expected share volatility based on the historical volatility of publicly traded peer companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded share price. Expected term. The expected term of the Company’s share options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options. The Company utilizes this method due to the lack of historical exercise data and the plain nature of its share-based awards. Risk-free interest rate . The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods that are approximately equal to the expected term of the award. Expected dividend. Expected dividend yield of zero is based on the fact that the Company has never paid cash dividends on ordinary shares and does not expect to pay any cash dividends in the foreseeable future. In addition, the Loan Agreement with Hercules currently prohibits dividends that may be declared or paid on our ordinary shares. Fair value of ordinary shares. The fair value of ordinary shares is determined by reference to the closing price of ADSs on the Nasdaq Global Select Market on the day prior to or day of the grant. Leases At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present in the arrangement. Leases with a term greater than one year are recognized on the balance sheet as right-of-use assets and current and non-current lease liabilities, as applicable. The Company has elected to account for lease and non-lease components together as a single lease component for all underlying assets and to allocate all the contract consideration to the lease component only. All the Company’s leases are classified as operating leases. Lease liabilities and their corresponding right-of-use assets are initially recorded based on the present value of lease payments over the expected remaining lease term. Certain adjustments to the right-of-use asset may be required for items such as incentives received. When readily determinable, the discount rate used to calculate the lease liability is the rate implicit in the lease. As the Company’s leases do not typically provide an implicit rate, the Company utilizes its incremental borrowing F-11 Table of Contents rate to discount lease payments, which reflects the fixed rate at which the Company could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, in a similar economic environment. As the Company does not have a rating agency-based credit rating, quotes were obtained from lenders to establish an estimated secured rate to borrow based on Company and market-based factors as of the respective lease measurement dates. The Company has elected not to recognize leases with an original term of one year or less on the balance sheets. The Company typically only includes the non-cancelable lease term in its assessment of a lease arrangement unless there is an option to extend the lease that is reasonably certain of exercise. Prospectively, the Company will adjust the right-of-use assets for straight-line rent expense or any incentives received and remeasure the lease liability at the net present value using the same incremental borrowing rate that was in effect as of the lease commencement or transition date. Operating lease costs are recognized on a straight-line basis over the lease term, and they are categorized within research and development and general and administrative expenses in the consolidated statements of operations and comprehensive loss. The operating lease cash flows are categorized under net cash used in operating activities in the consolidated statements of cash flows. Foreign Currency Translation The functional currency is the currency of the primary economic environment in which an entity’s operations are conducted. On January 1, 2023, Compass Pathways plc and its wholly owned subsidiary Compass Pathfinder Holdings Limited changed their functional currency to the U.S. dollar. Compass Pathways plc and Compass Pathfinder Holdings Limited have no operating activities and their primary functions are to serve as a financing vehicle to fund the operations of the Company’s operating entities, to serve as the listing company needed to access U.S. capital markets, and to hold investments. Therefore, its financing source is the primary indicator of its cash flows and its functional currency. The change in functional currency from the British Pound Sterling is due to a change in the source of the Company’s financing and cash flows going forward, which will now primarily be U.S. Dollars (“USD”). The functional currency of Compass Pathfinder Holdings Limited’s wholly owned non-U.S. subsidiary, Compass Pathfinder Limited, is British Pound Sterling and the functional currency of its U.S. subsidiary, Compass Pathways Inc. is USD. The functional currency of these subsidiaries is the same as the local currency. The translated balances of monetary and non-monetary assets and liabilities recorded in the reporting entity’s consolidated financial statements as of the end of the prior reporting period become the new accounting basis for those assets and liabilities in the period of the change. To the extent that the distinct and separable operation has monetary assets and liabilities denominated in the old functional currency, such balances will create transaction gains and losses subsequent to the change in functional currency. The balance recorded in the cumulative translation adjustment account for prior periods is not reversed upon the change in functional currency. The Company translates the assets and liabilities of Compass Pathfinder Limited into USD at the exchange rate in effect on the balance sheet date. Income and expenses are translated at the average exchange rate in effect during the period. Unrealized translation gains and losses are recorded as a cumulative translation adjustment, which is included in the consolidated statements of shareholders’ equity as a component of accumulated other comprehensive income/(loss). Income Taxes The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the consolidated financial statements or in its tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company assesses the likelihood that deferred tax assets will be recovered in the future to the extent management believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies. The Company accounts for uncertainty in income taxes in the consolidated financial statements by applying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more- F-12 Table of Contents likely-than-not to be sustained, the tax position is then assessed as the amount of benefit to recognize in the consolidated financial statements. The amount of benefit that may be used is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate, as well as the related net interest and penalties. As of December 31, 2023 and 2022, the Company has not identified any material uncertain tax positions. The Company recognizes interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statements of operations and comprehensive loss. As of December 31, 2023 and 2022 no accrued interest or penalties are included on the related tax liability line in the consolidated balance sheets. Benefit from Research and Development Tax Credit As a company that carries out extensive research and development activities, the Company benefits from the UK research and development tax credit regime under the scheme for small or medium-sized enterprises, or SME. Under the SME regime, in effect through December 31, 2023, the Company is able to surrender some of its trading losses that arise from qualifying research and development activities for a cash rebate of a portion of such qualifying research and development expenditure. Up until April 1, 2023 the effective rate was 33.3% on in-house expenditures and 21.7% on work that was contracted out (to unconnected subcontractors). On and after April 1, 2023, the effective rates reduced to 18.6% and 12.1%, respectively. New rules were announced in the Finance Bill 2023-24 for an enhanced effective rate of relief for loss making research intensive SMEs, which would be 27.0% for qualifying in-house expenditures and 17.5% for qualifying subcontracted expenditures. The legislation was not substantively enacted at the balance sheet date, although based on the proposed rules, the Company does not believe that it would meet the criteria for the enhanced rate of relief for the year through December 31, 2023. After the Finance Bill has received Royal Assent, the R&D claim will be reviewed at a transaction level, and the threshold calculation prepared with more certainty to determine whether the enhanced rate can be applied for submission of the claim. The Company currently meets the conditions of the SME regime. A large portion of costs relating to research and development, clinical trials and manufacturing activities are eligible for inclusion within these tax credit cash rebate claims. The Company is subject to corporate taxation in the UK. Due to the nature of the business, the Company has generated losses since inception. The benefit from research and development, or R&D, tax credits is recognized in the consolidated statements of operations and comprehensive loss as a component of other income, net, and represents the sum of the research and development tax credits recoverable in the UK. The UK research and development tax credit is fully refundable to the Company and is not dependent on current or future taxable income. As a result, the Company has recorded the entire benefit from the UK research and development tax credit as a benefit which is included in net loss before income tax and accordingly, not reflected as part of the income tax provision. If, in the future, any UK research and development tax credits generated are needed to offset a corporation tax liability in the UK, that portion would be recorded as a benefit within the income tax provision and any refundable portion not dependent on taxable income would continue to be recorded within other income, net. The Company may not be able to continue to claim research and development tax credits under the SME regime in the future because it may no longer qualify as a small or medium-sized company. In addition, there is a maximum cap in respect of a given project of € 7.5 million which may impact the Company’s ability to claim R&D tax credits in future. Further, the U.K. Finance Act of 2021 introduced a cap on credit claims under the SME Program in excess of £ 20,000 with effect from April 2021 by reference to, broadly, three times the total Pay As You Earn, or PAYE, and National Insurance Contributions, or NICs, liability of the company, subject to an exception which prevents the cap from applying. That exception requires the company to be creating, taking steps to create or managing intellectual property, as well as having qualifying research and development expenditure in respect of connected parties, which does not exceed 15 % of the total claimed. If such exception does not apply, this could restrict the amount of payable credit that the Company claims. Unsurrendered UK losses may be carried forward indefinitely to be offset against future taxable profits, subject to numerous utilization criteria and restrictions. The amount that can be offset each year is limited to £ 5.0 million plus an incremental 50 % of UK taxable profits. Comprehensive Loss Comprehensive loss includes net loss as well as other changes in shareholders’ equity that result from transactions and economic events other than those with shareholders. For the years ended December 31, 2023 and 2022, the only component of F-13 Table of Contents accumulated other comprehensive loss is foreign currency translation adjustment. Net Loss per Share The Company has reported losses since inception and has computed basic net loss per share attributable to ordinary shareholders by dividing net loss attributable to ordinary shareholders by the weighted-average number of ordinary shares outstanding for the period, without consideration for potentially dilutive securities. The Company computes diluted net loss per ordinary share after giving consideration to all potentially dilutive ordinary shares, including unvested restricted shares, outstanding options and warrants. Because the Company has reported net losses since inception, these potential ordinary shares have been anti-dilutive and basic and diluted loss per share were the same for all periods presented. Derivatives The Company enters into foreign currency contracts to reduce the risk that its cash flows and earnings will be adversely affected by foreign currency exchange rate fluctuations. The Company does not enter into foreign currency contracts for speculative purposes. The Company recognizes derivative instruments, which do not qualify for hedge accounting, as either assets or liabilities on the balance sheet at fair value. The Company records changes in the fair value (gains or losses) of the derivatives in the accompanying consolidated statements of operations and comprehensive loss as other income, net. The Company did not enter into any contracts during the year ended December 31, 2023. During the year ended December 31, 2022, the Company entered into and settled a foreign forward agreement, resulting in a positive fair value change of $ 2.3 million in other income. During the year ended December 31, 2021, the Company did not enter into any contracts. Long-term Debt On June 30, 2023, the Company entered into the Loan Agreement with Hercules. The Company assessed all terms and features of the Loan Agreement in order to identify any potential embedded features that would require bifurcation. As part of this analysis, the Company assessed the economic characteristics and risks of the debt. The Company determined that all features of the Loan Agreement are clearly and closely associated with a debt host and, as such, do not require separate accounting as a derivative liability. Debt issuance costs consist of costs incurred in obtaining long-term financing. These costs are classified on the consolidated balance sheet as a direct deduction from the carrying amount of the related debt liability. These expenses are deferred and amortized as part of interest expense in the consolidated statement of operations using the effective interest rate method over the term of the debt agreement. Warrants On June 30, 2023, the Company entered into a warrant agreement with Hercules. The Company assessed all terms and features of the Warrant Agreement in order to determine accounting classification of the warrants as equity or liability. As part of this analysis, the Company determined it appropriate to account for the warrants issued under the Loan Agreement as equity. On August 18, 2023, in connection with the PIPE, the Company issued and sold PIPE Warrants to purchase up to 16,076,750 ADSs, each representing one ordinary share, at an exercise price of $ 9.93 per ADS. The PIPE Warrants are exercisable for a three year period beginning in February 2024. The Company assessed all terms and features of the PIPE Warrant Agreement in order to determine accounting classification of the warrants as equity or liability. As part of this analysis, the Company determined it appropriate to account for the PIPE Warrants as equity. The Company measures warrants at inception at fair value using the Black-Scholes valuation model. Assumptions used in the warrant pricing model include the following: Expected volatility . The Company lacks sufficient company-specific historical and implied volatility information for its ordinary shares. Therefore, it estimates its expected share volatility based on the historical volatility of publicly traded peer companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded share price. F-14 Table of Contents Expected term. The expected term of the Hercules warrants is ten years . The expected term of the PIPE Warrants is three and a half years. Risk-free interest rate . The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of the issuance for time periods that are approximately equal to the expected term of the warrant. Expected dividend. Expected dividend yield of zero is based on the fact that the Company has never paid cash dividends on ordinary shares and does not expect to pay any cash dividends in the foreseeable future. In addition, the Loan Agreement with Hercules currently prohibits, and any future debt financing arrangements may contain terms prohibiting or limiting the number of dividends that may be declared or paid on our ordinary shares. Fair value of ordinary shares. The fair value of the warrants is determined by reference to the closing price of ADSs on the Nasdaq Global Select Market on the day of issuance. Recently Issued Accounting Pronouncements In November 2023, the Financial Accounting Standard Board ("FASB") issued new guidance designed to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant expenses per segment. The guidance is effective for all fiscal years beginning after December 15, 2023, and for interim periods beginning after December 15, 2024. The new standard must be adopted on a retrospective basis and early adoption is permitted. The Company is not early adopting the standard. We are currently evaluating this guidance to determine its impact on our consolidated financial statements. In December 2023, the FASB issued new guidance designed to improve income tax disclosure requirements, primarily through increased disaggregation disclosures within the effective tax rate reconciliation as well as enhanced disclosures on income taxes paid. The guidance is effective for all fiscal years beginning after December 15, 2024. The new standard can be adopted on a prospective basis with an option to be adopted retrospectively and early adoption is permitted. The Company is not early adopting the standard. We are currently evaluating this guidance to determine its impact on our consolidated financial statements. 3. Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consisted of the following (in thousands): December 31, 2023 2022 UK R&D tax credit $ 27,877 $ 13,972 Prepaid insurance premium 1,885 2,818 Prepaid research and development 6,826 28,211 VAT recoverable 1,052 1,652 Other current assets 1,895 1,042 $ 39,535 $ 47,695 F-15 Table of Contents 4. Long-term Prepaid Expenses and Other Assets Long-term prepaid expenses and other assets consisted of the following (in thousands): December 31, 2023 2022 Prepaid research and development - long-term 5,955 — Property and equipment 423 617 Other investment 469 469 Other assets 202 327 $ 7,049 $ 1,413 5. Accrued Expenses and Other Liabilities Accrued expenses and other liabilities consisted of the following (in thousands): December 31, 2023 2022 Accrued research and development expense $ 2,117 $ 1,684 Accrued professional expenses 1,077 1,284 Accrued compensation and benefit costs 7,069 5,534 Payroll tax payable 13 167 Other liabilities 1,025 656 $ 11,301 $ 9,325 6. Debt On June 30, 2023, the Company entered into the Loan Agreement with Hercules, which provided for aggregate maximum borrowings of up to $ 50.0 million, consisting of (i) a term loan of $ 30.0 million, which was funded on the Effective Date, (ii) subject to the Company achieving certain performance milestones and available until December 15, 2024, an additional term loan of $ 10.0 million, and (iii) subject to the approval of Hercules’ investment committee in its sole discretion, and available during the interest-only period, an additional term loan of $ 10.0 million. The term loan will mature on July 1, 2027. The outstanding principal balance of the term loan bears interest at an annual rate equal to the greater of either (i) the prime rate as reported in The Wall Street Journal plus 1.50 % or (ii) 9.75 %. Accrued interest is payable monthly following the funding of each term loan. In addition to accrued interest, payment-in-kind (PIK) interest of 1.40 % will be added to the balance of the loan. Payments under the Loan Agreement are interest only until the first principal payment is due on July 1, 2025 (or if the Borrowers achieve certain performance milestones, the interest only period may be extended to January 2, 2026 and, upon the achievement of certain additional performance milestones, the interest only period may be extended to July 1, 2026), followed by equal monthly payments of principal and interest through the scheduled maturity date, July 1, 2027. The Company incurred fees and transaction costs totaling $ 3.3 million associated with the initial term loan, which are recorded as a reduction to the carrying value of the long-term debt in the consolidated balance sheet. These fees included $ 0.4 million of facility fees, $ 0.8 million of company fees, $ 0.7 million in warrants, and $ 1.4 million of end of term charges. The fees, transaction costs, and the end of term charge are amortized to interest expense through the maturity date using the effective interest method. The effective interest rate of the Loan Agreement was 15.8 % as of December 31, 2023. The Company issued warrants to Hercules to purchase the Company’s Ordinary Shares equal to the quotient derived by dividing (i) the amount equal to (a) 2.5 % times (b) the aggregate principal amount of term loan advances made and funded under the Loan Agreement by (ii) the exercise price of the warrants. Upon receipt of the first term loan, 94,222 shares became exercisable to Hercules with a fair market value of $ 0.7 million. The Loan Agreement includes a financial covenant requiring us to maintain a minimum level of $ 22.5 million of cash during the period commencing on July 1, 2024 (subject to adjustment if certain performance milestones are met). If the F-16 Table of Contents Company meets the performance milestones, the minimum cash covenant will not apply if its market capitalization is at least $ 750.0 million. The Company was in compliance with all covenants of the Loan Agreement as of December 31, 2023. Long-term debt consisted of the following (in thousands): December 31, 2023 Term loan payable $ 30,000 End of term charge 1,425 Future principal payments and end of term charge $ 31,425 PIK interest payable 216 Unamortized debt issuance costs ( 2,884 ) Carrying value of long-term debt $ 28,757 Future principal payments, including End of Term Charge, are as follows (in thousands): December 31, 2024 — December 31, 2025 6,572 December 31, 2026 14,166 December 31, 2027 10,687 Total $ 31,425 Interest expense associated with the Loan Agreement for the year ended December 31, 2023 was $ 2.2 million. 7. Shareholders’ Equity Ordinary Shares On May 4, 2021, the Company sold 4,000,000 ordinary shares in connection with its follow-on offering. On May 19, 2021 the underwriters exercised their option to purchase an additional 600,000 ordinary shares. This capital raise resulted in net proceeds of approximately $ 154.8 million after deducting underwriting fees and offering costs. Each ordinary share entitles the holder to one vote on all matters submitted to a vote of the Company’s shareholders. Ordinary shareholders are entitled to receive dividends, if any, as may be declared by the board of directors. Through December 31, 2023 , no cash dividends had been declared or paid by the Company. On October 8, 2021, the Company entered into a Sales Agreement with Cowen and Company, LLC, or Cowen, under which the Company may issue and sell from time to time up to $ 150.0 million of its ADSs, each representing one ordinary share, through Cowen as the sales agent. Sales of the Company’s ADSs, if any, will be made at market prices. Through December 31, 2023, we sold 2,982,038 ADSs, resulting in $ 28.6 million in net proceeds. During the years ended December 31, 2023, 2022 and 2021 , the Company issued ordinary shares in the amount of 166,801 , 462,722 and 1,476,936 , respectively, to settle share options exercised by employees and non-employees. During the year ended December 31, 2023, a total of 96,177 restricted share units vested, of which 69,120 shares were issued and 27,057 shares were settled. During the year ended December 31, 2023, a total of 78,022 ordinary shares were issued in settlement of restricted share units, of which 8,902 shares were vested and not issued at December 31, 2022. During the year ended December 31, 2022, a total of 42,635 restricted share units vested, of which 24,747 shares were vested and issued in settlement, 8,902 shares were vested but had not been issued and 8,986 shares were settled at December 31, 2022. During the year ended December 31, 2022, a total of 82,622 shares were issued in settlement, of which 57,875 vested in 2021 and 24,747 vested in 2022. During the year ended December 31, 2021, a total of 70,482 restricted share units vested, of which 12,607 shares were vested and issued in settlement and 57,875 shares were vested but had not been issued at December 31, 2021. F-17 Table of Contents During the years ended December 31, 2023, 2022, and 2021 the Company issued in total 52,482 , 22,160 and nil shares, respectively, under the employee share purchase plan. Deferred Shares Immediately prior to the completion of the Company’s IPO in September 2020, the different classes of issued share capital of Compass Pathways plc were reorganized by way of a reverse share split, which was retroactively restated in our consolidated financial statements. As part of this reverse share split, the nominal value of Compass Pathways plc’s ordinary shares changed from £ 0.001 per share to £ 0.008 per share and a single, non-voting deferred share with a nominal value of £ 21,921.504 in the capital of the Company was created and transferred to the Company. On June 28, 2023, the single deferred share was cancelled. Warrants On June 30, 2023, the Company entered into a Warrant Agreement with Hercules, which provides Hercules with the right to purchase a number of shares of the Company’s Ordinary Shares equal to the quotient derived by dividing (i) the amount equal to (a) 2.5 % times (b) the aggregate principal amount of term loan advances made and funded under the Loan Agreement by (ii) the exercise price. Upon receipt of each term loan, the Warrant will automatically become exercisable and will expire in 10 years (on June 30, 2033). On June 30, 2023, with the receipt of the first term loan, 94,222 shares became exercisable to Hercules with a fair market value of $ 0.7 million. On August 18, 2023, in connection with the PIPE, the Company issued and sold warrants to purchase up to 16,076,750 ADSs, each representing one ordinary share, at a purchase price of $ 9.93 per ADS. The PIPE Warrants will become exercisable for a three year period beginning in February 2024. 8. Share-Based Compensation 2017 Equity Incentive Plan Under the Company’s historical shareholder and subscription agreements, the Company was authorized to issue restricted shares, restricted share units, as well as options, as incentives to its employees, non-employees and members of its board of directors. To the extent such incentives were in the form of share options, the options were granted pursuant to the terms of the 2017 Equity Incentive Plan, or the 2017 Plan. In July 2019, the Company’s board of directors adopted the 2017 Plan. The 2017 Plan provided for the grant of Enterprise Management Incentive, or EMI, options, to its UK employees, for the grant of options to its U.S. employees and non-employees of the Company. The 2017 Plan was administered by the board of directors. Options granted under the 2017 Plan, typically vest over a three or four-year service period with 33.3 % and 25 % respectively, of the award vesting on the first anniversary of the commencement date and the balance vesting monthly over the remaining years. Options granted under the 2017 Plan generally expire 10 years from the date of grant. Restricted share units granted under the 2017 Plan typically vest over a four-year service period with 25 % of the award vesting on the first anniversary of the commencement date and quarterly thereafter. The options granted on June 30, 2020 were subject to 25 % vesting upon the earlier occurrence of (i) the one year anniversary of the date of grant, or (ii) the date of the listing of the Company's ordinary shares on any stock exchange, followed by straight line vesting for three years for the remaining 75 % of the allocation until vested in full. The restricted share units granted on June 30, 2020 were subject to 25 % vesting upon the earlier of (i) the one year anniversary of the date of grant, or (ii) the first day following the six-month anniversary of the listing of the Company's ordinary shares on any stock exchange on which the closing price of the shares is 20 % higher than the listing price for at least five consecutive trading days. As of December 31, 2023, the Company was authorized to issue a total of 1,437,252 ordinary shares underlying outstanding options granted under the 2017 Plan prior to the IPO. 2020 Employee Share Purchase Plan The Company’s 2020 Employee Share Purchase Plan, or the ESPP, was adopted by the Board in September 2020 and approved by shareholders in September 2020 and became effective upon the effectiveness of the Company’s Registration Statement on Form F-1 in connection with the IPO. The ESPP initially reserved and authorized the issuance of up to a total of 340,053 ordinary shares to participating employees. The ESPP provides that the number of shares reserved and available for issuance will automatically increase each January 1, beginning on January 1, 2022 and each January 1 thereafter through termination of the 2020 Plan, by the lesser of (i) 1 % of the outstanding number of ordinary shares on the immediately preceding December 31, (ii) 510,080 ordinary shares or (iii) such lesser number of ordinary shares as determined by the plan F-18 Table of Contents administrator. The number of shares reserved under the ESPP is subject to change in the event of a share split, share dividend or other change in our capitalization. On October 1, 2021, the Company launched the SIP and the ESPP, through which employees can purchase shares at a discounted price. At the end of six months , shares will automatically be purchased at the lower of the opening and closing price of the shares for the saving period minus a 15 % discount. 2020 Share Option Plan In September 2020, the Company’s board of directors adopted, and the Company’s shareholders approved, the 2020 Share Option and Incentive Plan, or the 2020 Plan, which became effective upon the effectiveness of the Company’s Registration Statement on Form F-1 in connection with the IPO. The 2020 Plan allows the compensation and leadership development committee to make equity-based and cash-based incentive awards to the Company’s officers, employees, directors and other key persons (including consultants). Options granted under the 2020 Plan generally expire 10 years from the date of grant and typically vest over a 4 year service period with 25 % of the options vesting on the first anniversary of the commencement date and the balance vesting monthly over the remaining years. The Company initially reserved 2,074,325 of its ordinary shares for the issuance of awards under the 2020 Plan. The 2020 Plan provides that the number of shares reserved and available for issuance under the plan will automatically increase each January 1, beginning on January 1, 2022, by up to 4 % of the outstanding number of ordinary shares on the immediately preceding December 31, or such lesser number of shares as determined by our compensation and leadership development committee. This number is subject to adjustment in the event of a sub-division, consolidation, share dividend or other change in our capitalization. The total number of ordinary shares that may be issued under the 2020 Plan is 3,755,119 shares as of December 31, 2023 , of which 183,933 shares remained available for future grant. The options granted in 2023 under the 2020 Plan to employees generally expire 10 years from the date of grant. There are three potential vesting terms for the 2023 grants including: (i) 25 % per year over four year service period, (ii) four year service period with 25 % of the vesting on the first anniversary of the commencement date and the balance vesting monthly over the remaining years; and (iii) monthly vesting over four year service period. During the years ended December 31, 2023, 2022 and 2021 , the Company granted options to purchase 2,560,916 , 2,120,783 and 1,043,702 ordinary shares to employees and non-employees, respectively. 2022 Inducement Option Award During 2022, the Company granted a non-qualified share option to purchase up to 600,000 ordinary shares as an inducement grant to our chief executive officer. The non-qualified share option has a 10 year term and one-fourth vested on August 1, 2023 and the remaining three-fourths will vest in equal monthly installments over the following 36 months. The non-qualified share option has other terms that mirror those of non-qualified share options granted under the Company’s 2020 Plan and the Company’s standard form of non-qualified share option agreement. Restricted Share Units A summary of the changes in the Company’s unvested restricted share units during the years ended December 31, 2023 and 2022 are as follows: Number of Shares Weighted Average Grant Date Fair Value Unvested and Outstanding as of December 31, 2022 271,135 $ 12.23 Granted 175,750 10.85 Vested ( 96,177 ) 11.48 Forfeited ( 30,505 ) 11.26 Unvested and Outstanding as of December 31, 2023 320,203 $ 11.79 F-19 Table of Contents As of December 31, 2023 and 2022, there was $ 3.0 million and $ 2.6 million of unrecognized compensation cost related to unvested restricted share units, respectively, which is expected to be recognized over a weighted-average period of 2.6 years and 3.0 years, respectively. The exercise price of restricted share units is at a nominal value less than £ 0.01 per share. Share Options The following table summarizes the Company’s share options activity for the years ended December 31, 2023 and 2022: Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value (in thousands) Outstanding as of December 31, 2022 5,092,732 $ 13.55 8.38 $ 13,013 Granted 2,560,916 $ 10.08 Exercised ( 166,801 ) $ 0.01 Cancelled or forfeited ( 517,519 ) $ 18.85 Outstanding as of December 31, 2023 6,969,328 $ 13.14 7.73 $ 14,070 Exercisable as of December 31, 2023 3,553,227 $ 12.93 6.78 $ 12,341 Unvested as of December 31, 2023 3,416,101 $ 13.35 8.72 $ 1,729 The aggregate intrinsic value of options exercised during the years ended December 31, 2023, and 2022 was $ 1.4 million and $ 5.5 million, respectively. The aggregate intrinsic value of share options is calculated as the difference between the exercise price of the share options and the fair value of the Company’s ordinary shares for those share options that had exercise prices lower than the fair value of the Company’s ordinary shares. The weighted average grant-date fair value of share options granted was $ 7.70 and $ 10.00 per share during the years ended December 31, 2023 and 2022. As of December 31, 2023 and 2022, there was $ 29.7 million and $ 30.4 million of unrecognized compensation cost related to unvested share options, which is expected to be recognized over a weighted-average period of 2.5 years and 2.8 years, respectively. Share Option Valuation The weighted-average assumptions used in the Black-Scholes option pricing model to determine the fair value of the share options granted to employees and directors during the years ended December 31, 2023, 2022 and 2021 were as follows: Year Ended December 31, 2023 2022 2021 Expected option life (years) 5.70 years 5.95 years 5.73 years Expected volatility 87.33 % 80.76 % 67.36 % Risk-free interest rate 3.63 % 2.26 % 0.95 % Expected dividend yield — % — % — % Fair value of underlying ordinary shares $ 10.32 $ 14.06 $ 35.21 F-20 Table of Contents Share-based Compensation Expense Share-based compensation expense recorded as research and development and general and administrative expenses is as follows (in thousands): Year Ended December 31, 2023 2022 2021 Research and development 8,910 7,358 4,569 General and administrative 8,367 5,765 4,070 Total stock based compensation expense $ 17,277 $ 13,123 $ 8,639 9. Income Taxes Income (loss) before provision for income taxes consisted of the following (in thousands): Year Ended December 31, 2023 2022 2021 United Kingdom ( 120,320 ) ( 92,841 ) ( 72,397 ) Foreign 2,636 1,744 854 Loss before provision for income taxes ( 117,684 ) ( 91,097 ) ( 71,543 ) The provision for income taxes for the years ended December 31, 2023, 2022 and 2021 was computed at the UK statutory income tax rate. The income tax provision for the years then ended comprised (in thousands): Year Ended December 31, 2023 2022 2021 Current income tax provision United Kingdom $ — $ — $ — Foreign 1,893 1,865 744 Total current expense: $ 1,893 $ 1,865 $ 744 Deferred income tax benefit: United Kingdom — — — Foreign ( 1,113 ) ( 1,457 ) ( 545 ) Total deferred income tax benefit: $ ( 1,113 ) $ ( 1,457 ) $ ( 545 ) Total provision for income taxes $ 780 $ 408 $ 199 F-21 Table of Contents A reconciliation of income tax expense computed at the statutory UK corporation tax rate to income taxes as reflected in the consolidated financial statements is as follows (in thousands): Year Ended December 31, 2023 2022 Corporation tax at UK statutory rate $ ( 27,656 ) $ ( 17,309 ) $ ( 13,592 ) Permanent differences 1 14 69 UK R&D tax credit 10,720 5,423 3,747 Change in valuation allowance 20,971 15,038 29,180 State income taxes 23 10 1 Deferred tax asset true-up 187 8 80 Return to provision ( 2,259 ) 1,580 ( 854 ) Equity compensation 33 ( 782 ) ( 8,302 ) Change in UK tax rate ( 1,258 ) ( 3,609 ) ( 10,147 ) Other 18 35 17 $ 780 $ 408 $ 199 Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2023, 2022 and 2021 consist of the following (in thousands): Year Ended December 31, 2023 2022 2021 Net operating loss carryforward $ 64,747 $ 44,227 $ 35,947 Reserves and accruals 564 695 169 Share-based compensation 14,159 9,332 6,232 Charitable contributions 36 33 — Total deferred tax assets 79,506 54,287 42,348 Valuation allowance $ ( 76,072 ) $ ( 51,909 ) $ ( 41,483 ) Depreciation ( 98 ) ( 154 ) ( 99 ) Total deferred tax liabilities ( 98 ) ( 154 ) ( 99 ) Net deferred tax assets $ 3,336 $ 2,224 $ 766 As of December 31, 2023, 2022 and 2021, the Company had UK net operating loss carryforwards of approximately $ 259.0 million, $ 176.9 million and $ 144.0 million, respectively, that can be carried forward indefinitely. Changes in the valuation allowance for deferred tax assets during the years ended December 31, 2023, 2022 and 2021 related primarily to the increases in net operating loss and were as follows (in thousands): Year Ended December 31, 2023 2022 2021 Valuation allowance at beginning of year $ 51,909 $ 41,483 $ 13,000 Increases recorded to income tax provision 20,971 15,038 29,180 Increases recorded to CTA 3,192 — — Decreases recorded to CTA — ( 4,612 ) ( 697 ) Valuation allowance at end of year $ 76,072 $ 51,909 $ 41,483 Future realization of the tax benefits of existing temporary differences and net operating loss carryforwards ultimately depends on the existence of sufficient taxable income within the carryforward period. As of December 31, 2023, 2022 and 2021, the Company performed an evaluation to determine whether a valuation allowance was needed. The Company considered all available evidence, both positive and negative, which included the results of operations for the current and F-22 Table of Contents preceding years. The Company determined that it was not possible to reasonably quantify future taxable income and determined that it is more likely than not that all of the deferred tax assets will not be realized. Accordingly, the Company maintained a full valuation allowance against its net UK deferred tax assets as of December 31, 2023, 2022 and 2021. The deferred tax asset recognized relates entirely to the US entity. The Company applies the authoritative guidance on accounting for and disclosure of uncertainty in tax positions, which requires the Company to determine whether a tax position of the Company is more likely than not to be sustained upon examination, including resolution of any related appeals of litigation processes, based on the technical merits of the position. For tax positions meeting the more likely than not threshold, the tax amount recognized in the financial statements is reduced by the largest benefit that has a greater than fifty percent likelihood of being realized upon the ultimate settlement with the relevant taxing authority. There were no material uncertain tax positions as of December 31, 2023, 2022 and 2021. The Company will recognize interest and penalties related to uncertain tax positions in income tax expense when in a taxable income position. As of December 31, 2023, 2022 and 2021, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts have been recognized in the Company’s statements of operations and comprehensive loss. The Company and its subsidiaries file corporation tax returns in the U.K. and income tax returns in the U.S. To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the federal, state, or foreign tax authorities, if such tax attributes are utilized in a future period. During the second quarter of 2021, the Finance Act 2021 (the Act) was enacted in the U.K.. The Act increased the main corporation tax rate from 19% to 25% effective April 1, 2023 and enhanced the first-year capital allowance on qualifying new plant and machinery assets effective April 1, 2021. The effects on the Company’s existing deferred tax balances have been recorded and are offset by the valuation allowance maintained against the Company’s U.K. net deferred tax assets. 10. Net Loss Per Share Basic and diluted net loss per share attributable to ordinary shareholders was calculated as follows (in thousands, except share and per share amounts): Year Ended December 31, 2023 2022 2021 Numerator Net loss $ ( 118,464 ) $ ( 91,505 ) $ ( 71,742 ) Net loss attributable to ordinary shareholders - basic and diluted $ ( 118,464 ) $ ( 91,505 ) $ ( 71,742 ) Denominator Weighted-average number of ordinary shares used in net loss per share - basic and diluted 51,028,024 42,436,292 39,997,587 Net loss per share - basic and diluted $ ( 2.32 ) $ ( 2.16 ) $ ( 1.79 ) The Company’s potentially dilutive securities, which include unvested ordinary shares, unvested restricted share units, options granted and warrants have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share. Therefore, the weighted-average number of ordinary shares outstanding used to calculate both basic and diluted net loss per share attributable to ordinary shareholders is the same. The Company excluded the following potential ordinary shares, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share attributable to ordinary shareholders for the years ended December 31, 2023, 2022 and 2021 because including them would have had an anti-dilutive effect: F-23 Table of Contents Year Ended December 31, 2023 2022 2021 Unvested restricted share units 320,203 271,135 115,140 Vested restricted share units, for which shares are not in issue — 17,888 57,875 Share options 6,969,328 5,092,732 3,915,503 Warrants 16,170,972 — — 23,460,503 5,381,755 4,088,518 11. Right of use assets New York, USA In August 2022, the Company entered into a twelve month membership agreement with WeWork for rentable office space. The membership was cancellable with 90 days’ notice. This membership was accounted for as a short-term lease as the Company was not reasonably certain to extend the lease beyond twelve months and was therefore not recognized on the Company’s consolidated balance sheets. On October 31, 2023, the Company terminated the membership agreement with WeWork for rentable office space in New York, NY. The Company is not required to pay any membership fees, for any period, following the termination date. In September 2023, the Company entered into a lease agreement for office space located in New York, NY, that was undergoing construction to get the space ready for use. The required improvements were subsequently completed in October 2023 and the space was made available for use, resulting in the lease commencing on October 9, 2023. The stated lease term is three years . Lease payments will be made on a monthly basis and increase approximately 3.5 % each year over the lease term. The total commitment for lease payments over the stated term is $ 0.7 million. The lease agreement has a noncancellable lease term of 2 years due to a one-time termination option, which becomes effective following the two-year anniversary of the commencement date. If exercised, the Company would pay the landlord a termination fee equal to three months of the lease payments in effect at the time of termination. Soho, London, UK In July 2021, the Company entered into a two-year operating lease with Fora Space Limited commencing on September 1, 2021. The noncancellable term is 24 months and there was no option to extend the lease. The recurring residency fee per month is £ 136,200 , and the Company paid a refundable deposit of £ 136,200 at the execution of the agreement. Additionally, at the start of each calendar year, the monthly residency fee was subject to an automatic inflation linked increase of the previous years’ amount. In April 2023, the Company entered into a two-year operating lease with Fora Space Limited commencing on September 1, 2023. The noncancellable term is 24 months and there is no option to extend the lease. The recurring residency fee per month is £ 130,000 , and the Company paid a refundable deposit of £ 156,000 at the execution of the agreement. Denmark Hill, London, UK In March 2022, the Company entered into an agreement for a lease with South London and Maudsley NHS Foundation Trust for land and buildings at 5 Windsor Walk, Maudsley Hospital, Denmark Hill, London, UK. The lease commenced on June 21, 2022 and has a contractual term of five years . The rent is £ 180,000 per year, with no deposit payable. The following table summarizes our costs included in our consolidated statements of operations and comprehensive loss related to right of use lease assets we have entered for the years ended December 31, 2023, 2022 and 2021 (in thousands): F-24 Table of Contents Year Ended December 31, 2023 2022 2021 Lease cost Operating lease cost $ 2,331 $ 2,263 $ 1,844 Short-term lease cost 279 256 86 $ 2,610 $ 2,519 $ 1,930 Other information: Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows used in operating leases $ 2,264 $ 2,219 $ 1,971 Right-of-use assets obtained in exchange for new operating lease liabilities 4,184 783 4,513 Weighted average remaining lease term (in years) 1.96 1.58 1.64 Weighted average discount rate 8.49 % 5.70 % 4.99 % The following table summarizes the future minimum lease payments due under operating leases as of December 31, 2023, (in thousands): December 31, 2024 2,506 December 31, 2025 1,822 December 31, 2026 229 December 31, 2027 95 Total future minimum lease payments $ 4,652 Less: imputed interest ( 359 ) Total $ 4,293 12. Commitments and Contingencies Legal Proceedings From time to time, the Company may be a party to litigation or subject to claims incident to the ordinary course of business. The Company was not a party to any material litigation and did not have material contingency reserves established for any liabilities as of December 31, 2023, 2022 or 2021. Indemnification In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnification. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations. However, the Company may record charges in the future as a result of these indemnification obligations. In accordance with its Articles of Association, the Company has indemnification obligations to its officers and directors for certain events or occurrences, subject to certain limits, while they are serving at the Company’s request in such capacity. There have been no claims to date, and the Company has director and officer insurance that may enable it to recover a portion of any amounts paid for future potential claims. 13. Subsequent Events During the first quarter quarter of 2024, through February 23, 2024, under our Sales Agreement with Cowen and Company, LLC, or Cowen, under which the Company may issue and sell its ADSs, each representing one ordinary share, we sold 2,154,798 ADSs, resulting in $ 22.4 million in net proceeds. On February 27, 2024, we received warrant exercise notices from an investor that participated in our August 2023 PIPE indicating its intention to exercise warrants for 901,050 ADSs. On February 28, 2024, we received the full exercise proceeds of $ 8.9 million for the notice to exercise warrants. The exercise of the warrants has not settled and the underlying ADSs have F-25 Table of Contents not yet been issued. The ADSs issuable upon exercise of these warrants are registered for resale pursuant to a resale registration statement on Form S-3 (File No. 333-274436) which was declared by the Securities and Exchange Commission (SEC) on September 18, 2023. F-26 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934 the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized. COMPASS Pathways plc Date: February 29, 2024 By: /s/ Kabir Nath Kabir Nath Chief Executive Officer (Principal Executive Officer) Pursuant to the requirements of the Securities Act of 1934, this Annual Report on Form 10-K has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Kabir Nath Chief Executive Officer (Principal Executive Officer) February 29, 2024 Kabir Nath /s/ Mary-Rose Hughes Interim Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) February 29, 2024 Mary-Rose Hughes /s/ George Goldsmith Chair of Board of Directors February 29, 2024 George Goldsmith /s/ David York Norton Lead Director February 29, 2024 David York Norton /s/ Annalisa Jenkins Director February 29, 2024 Annalisa Jenkins, MBBS /s/ Daphne Karydas Director February 29, 2024 Daphne Karydas /s/ Thomas Lönngren Director February 29, 2024 Thomas Lönngren Director Ekaterina Malievskaia /s/ Robert McQuade Director February 29, 2024 Robert McQuade /s/ Linda McGoldrick Director February 29, 2024 Linda McGoldrick /s/ Wayne Riley Director February 29, 2024 Wayne Riley, M.D., MPH, M.B.A. F-27