What changed in this filing

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Item 9A. Controls and Procedures

2022-02-24 compared with 2021-02-25 · 406 added, 468 removed, 536 unchanged (62% of the section changed)

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Disclosure Controls and Procedures

We maintain “disclosure controls and procedures,” as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our principal executive and our principal financial officers, as appropriate, to allow timely decisions regarding required disclosure.

We maintain “disclosure controls and procedures,”

as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our principal executive and our principal financial officers, as appropriate, to allow timely decisions regarding required disclosure.

With respect to the year ended December 31, 2021, under the supervision and with the participation of our management, we conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures.

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Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of consolidated financial statements for external purposes in accordance with U.S.

generally accepted accounting principles (“GAAP”).

Internal control over financial reporting is a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

Pertain to the maintenance of records that accurately and fairly reflect in reasonable detail the transactions and dispositions of the assets of our company;

and expenditures are being made only in accordance with authorizations of our management and directors;

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors;

Provide reasonable assurances regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material adverse effect on our financial statements.

Management assessed our internal control over financial reporting as of December 31, 2021, the end of our fiscal year.

Management based its assessment on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework).

Management’s assessment included evaluation of elements such as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and our overall control environment.

Management based its assessment on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework).

Based on this assessment, management has concluded that our internal controls over financial reporting were effective as of December 31, 2021 and provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with GAAP.

We reviewed the results of management’s assessment with the Audit Committee of our Board of Directors.

Internal control over financial reporting has inherent limitations.

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Attestation Report of the Registered Public Accounting Firm

This Annual Report does not include an attestation report of our in dependent registered public accounting firm regarding internal control over financial reporting.

Our report was not subject to attestation by our independent registered public accounting firm pursuant to the rules of the Securities and Exchange Commission for “emerging growth companies” that permit us to provide only management’s report in this report.

This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting.

Our report was not subject to attestation by our independent registered public accounting firm pursuant to the rules of the Securities and Exchange Commission for “emerging growth companies”

that permit us to provide only management’s report in this report.

Changes in Internal Control over Financial Reporting

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Not applicable.

Disclosure Regarding Foreign Jurisdictions That Prevent Inspections.

Not applicable.

We will file a definitive Proxy Statement for our 2021 Annual Meeting of Stockholders, or the Proxy Statement, with the SEC, pursuant to Regulation 14A, not later than 120 days after the end of our fiscal year.

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Only those sections of the 2021 Proxy Statement that specifically address the items set forth herein are incorporated by reference.

Directors, Executive Officers and Corporate Governance.

The information required by this Item 10 will be included in our Proxy Statement under the captions “Information Regarding the Board of Directors and Corporate Governance,” “Election of Directors,” “Executive Officers” and “Section 16(a) Beneficial Ownership Reporting Compliance” and is incorporated herein by reference.

Executive Compensation.

The information required by this Item 11 will be included in our Proxy Statement under the captions “Executive Compensation” and “Director Compensation” and is incorporated herein by reference.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required by this Item 12 will be included in our Proxy Statement under the captions “Security Ownership of Certain Beneficial Owners and Management” and “Securities Authorized for Issuance under Equity Compensation Plans” and is incorporated herein by reference.

Directors, Executive Of ficers and Corporate Governance.

The information required by this Item 10 will be included in our Proxy Statement under the captions “Information Regarding the Board of Directors and Corporate Governance,”

“Election of Directors,”

“Executive Officers”

and “Section 16(a) Beneficial Ownership Reporting Compliance”

and is incorporated herein by reference.

Executiv e Compensation.

The information required by this Item 11 will be included in our Proxy Statement under the captions “Executive Compensation”

and “Director Compensation”

and is incorporated herein by reference.

Security Ownership of Certain Beneficial Ow ners and Management and Related Stockholder Matters.

The information required by this Item 12 will be included in our Proxy Statement under the captions “Security Ownership of Certain Beneficial Owners and Management”

and “Securities Authorized for Issuance under Equity Compensation Plans”

and is incorporated herein by reference.

Certain Relationships and Related Transactions, and Director Independence.

The information required by this Item 13 will be included in our Proxy Statement under the captions “Transactions with Related Persons” and “Independence of the Board of Directors” and is incorporated herein by reference.

Principal Accounting Fees and Services.

The information required by this Item 14 will be included in our Proxy Statement under the caption “Ratification of Selection of Independent Registered Public Accounting Firm” and is incorporated herein by reference.

Exhibits, Financial Statement Schedules.

The information required by this Item 13 will be included in our Proxy Statement under the captions “Transactions with Related Persons”

and “Independence of the Board of Directors”

and is incorporated herein by reference.

Principal Accou nting Fees and Services.

The information required by this Item 14 will be included in our Proxy Statement under the caption “Ratification of Selection of Independent Registered Public Accounting Firm”

and is incorporated herein by reference.

Exhibits, Financ ial Statement Schedules.

(a)(1) Financial Statements

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(incorporated by reference to Exhibit 10.11 to Current Report on Form 8-K filed on April 2, 2019 (File No.

Offer Letter, effective April 1, 2019, by and between Cyclerion Therapeutics, Inc.

and William Huyett (incorporated by reference to Exhibit 10.13 to Current Report on Form 8-K filed on April 2, 2019 (File No.

Cyclerion Therapeutics, Inc.

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Amended and Restated 2010 Employee, Director and Consultant Equity Incentive Plan and forms of agreement thereunder (incorporated by reference to Exhibit 4.5 to Registration Statement on Form S-8 filed on March 29, 2019 (File No.

Form of Cyclerion Therapeutics, Inc.

Executive Severance Agreement (incorporated by reference to Exhibit 10.5 to Form 10 filed on January 28, 2019 (File No.

Cyclerion Therapeutics, Inc.

Executive Severance Plan (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on September 25, 2019 (File No.

Non-Employee Director Compensation Plan (effective June 1, 2019) (incorporated by reference to Exhibit 10.7 on Form 10-Q filed on August 12, 2019 (File No.

Lease, dated April 1, 2019, by and between BMR-Rogers Street LLC and Cyclerion Therapeutics, Inc.

(incorporated by reference to Exhibit 10.14 to Current Report on Form 8-K filed on April 2, 2019 (File No.

First Amendment to and Partial Termination of Lease Agreement Lease, dated April 1, 2019, by and between BMR-Rogers Street LLC and Cyclerion Therapeutics, Inc.

(incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on March 5, 2020 (File No.

Open Market Sale Agreement SM , dated September 3, 2020, by and between Cyclerion Therapeutics, Inc.

and Jefferies LLC (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed on September 3, 2020).

License Agreement, dated as of June 3, 2021, by and between Cyclerion Therapeutics, Inc.

and Akebia Therapeutics, Inc (incorporated by reference to Exhibit 10.2 of the Company's Form 10-Q filed on July 30, 2021).

Common Stock Purchase Agreement, dated as of June 3, 2021, by and between Cyclerion Therapeutics, Inc.

and the Investors named therein (incorporated by reference to Exhibit 10.1 to Registration Statement on Form S-3 filed on June 16, 2021 (File No.

333-257145)).

List of Subsidiaries

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Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

XBRL Instance Document

XBRL Taxonomy Extension Schema Document

XBRL Taxonomy Extension Calculation Linkbase Document

XBRL Taxonomy Extension Definition Linkbase Document

XBRL Taxonomy Extension Label Linkbase Document

XBRL Taxonomy Extension Presentation Linkbase Document

Inline XBRL Instance Document

Inline XBRL Taxonomy Extension Schema Document

Inline XBRL Taxonomy Extension Calculation Linkbase Document

Inline XBRL Taxonomy Extension Definition Linkbase Document

Inline XBRL Taxonomy Extension Label Linkbase Document

Inline XBRL Taxonomy Extension Presentation Linkbase Document

Cover Page Interactive Data File

+ Indicates a management contract or compensatory plan.

* Certain portions of this exhibit (indicated by asterisks) have been omitted because they are not material and are the type that the Registrant treats as private or confidential.

Form 10-K Summary.

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CYCLERION THERAPEUTICS, INC.

/s/ Peter Hecht

Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on February 24, 2022.

/s/ Peter Hecht

Chief Executive Officer (Principal Executive Officer)

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Principal Accounting Officer)

/s/ KEVIN CHURCHWELL

Kevin Churchwell

/s/ Errol De Souza

Errol De Souza

/s/ George Conrades

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Michael Mendelsohn

Index to Consolidated and Combined Financial Statements of Cyclerion Therapeutics, Inc.

Report of Independent Registered Public Accounting Firm

Index to Consolidated Financial Statements of Cyclerion Therapeutics, Inc.

Report of Independent Registered Public Accounting Firm - PCAOB ID:

Consolidated Balance Sheets as of December 31, 2021 and 2020

Consolidated and Combined Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2020 and 2019

Consolidated and Combined Statement of Stockholders’ Equity (Deficit) for the Years Ended December 31, 2020 and 2019

Consolidated and Combined Statements of Cash Flows for the Years Ended December 31, 2020 and 2019

Notes to the Consolidated and Combined Financial Statements

Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2021 and 2020

Consolidated Statement of Stockholders’

Equity for the Years Ended December 31, 2021 and 2020

Consolidated Statements of Cash Flows for the Years Ended December 31, 2021 and 2020

Notes to the Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

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Opinion on the Financial Statements

We have audited the accompanying consolidated and combined balance sheets of Cyclerion Therapeutics, Inc.

(the Company) as of December 31, 2020 and 2019, the related consolidated and combined statements of operations and comprehensive loss, shareholders' equity (deficit) and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated and combined financial statements”).

In our opinion, the consolidated and combined financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with U.S.

We have audited the accompanying consolidated balance sheets of Cyclerion Therapeutics, Inc (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive loss , shareholders' equity and cash flows for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”).

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

generally accepted accounting principles.

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

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

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

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/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2018.

Boston, Massachusetts

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Cash and cash equivalents

Accounts receivable

Related party accounts receivable

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Operating lease right-of-use asset

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES AND STOCKHOLDERS’

Current liabilities:

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Operating lease liabilities, net of current portion

Commitments and contingencies

Commitments and contingencies (Note 7)

Stockholders' equity

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Total liabilities and stockholders' equity

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

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

Cyclerion Therapeutics, Inc.

Consolidated and Combined Statements of Operations and Comprehensive Loss

Consolidated Statements of Operations and Comprehensive Loss

(In thousands except per share data)

Year Ended December 31,

Revenue from license agreement

Revenue from development agreement

Revenue from grants

Revenue from related party

Total revenues

Cost and expenses:

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General and administrative

Gain on lease modification, net

Loss/ (Gain) on lease modification and termination

Total cost and expenses

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Sublease termination income, net

Interest and other income, net

Gain on extinguishment of debt

Interest and other (expenses) income, net

Net loss per share:

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Other comprehensive loss:

Foreign currency translation adjustment loss

Total other comprehensive loss

Foreign currency translation adjustment (loss) gain

Comprehensive loss

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

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

Cyclerion Therapeutics, Inc.

Consolidated and Combined Statements of Stockholders’ Equity (Deficit)

Consolidated Statement s of Stockholders’

(In thousands except share data)

comprehensive

Stockholders’

Balance at December 31, 2019

Net transfers from Ironwood

Ironwood allocation - share-based compensation

Separation-related adjustment

Reclassification of net parent company investment

Distribution of common stock by Ironwood upon separation

Issuance of common stock – 2019 private placement, net of fees

Issuance of common stock - 2020 private placement

Issuance of common stock upon exercise of stock options, RSUs and employee stock purchase plan

Issuance of common stock awards

Share-based compensation expense related to issuance of stock options and RSUs to employees and employee stock purchase plan

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Balance at December 31, 2020

Issuance of common stock - 2020 private placement

Issuance of common stock - 2021 equity private placement

Issuance of common stock - ATM

Issuance of common stock upon exercise of stock options, RSUs and employee stock purchase plan

Share-based compensation expense related to issuance of stock options and RSUs to employees and employee stock purchase plan

Share‑based compensation expense related to issuance of stock options and RSUs to non-employees

Foreign currency translation adjustment

Balance at December 31, 2021

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

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

Cyclerion Therapeutics, Inc.

Consolidated and Combined Statements of Cash Flows

Consolidated Statements of Cash Flows

(In thousands)

Year Ended December 31,

CASH FLOWS FROM OPERATING ACTIVITIES:

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Net loss on disposal of property and equipment

Gain on lease modification

(Gain) / loss on lease modification and termination

Sublease termination income, net

Gain on extinguishment of debt

Share-based compensation expense

Changes in operating assets and liabilities:

Accounts receivable

Related party accounts receivable

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Accrued research and development costs

Operating lease liabilities

Accrued expenses and other current liabilities

Operating lease liabilities

Net cash (used in) operating activities

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Proceeds from sale of property and equipment

Net cash provided by (used in) investing activities

Net cash provided by investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from 2020 private placement

Gross proceeds from 2019 private placement

Costs associated with 2019 private placement

Proceeds from equity private placement and ATM

Proceeds from exercises of stock options and ESPP

Proceeds from short-term note payable

Transfers from Ironwood

Net cash provided by financing activities

Effect of exchange rate changes on cash, cash equivalents and restricted cash

Net (decrease) increase in cash, cash equivalents and restricted cash

Net decrease in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash, beginning of period

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Cash paid for initial direct costs of lease modification

Non-cash investing activities

Fixed asset purchases in accounts payable and accrued expenses

Reconciliation of cash, cash equivalents and restricted cash to the consolidated balance sheets

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Total cash, cash equivalents and restricted cash

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

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

Cyclerion Therapeutics, Inc.

Notes to the Consolidated and Combined Financial Statements

Notes to the Consolidated Financial Statements

Nature of Business

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Cyclerion Therapeutics, Inc.

(“Cyclerion”, the “Company” or “we”) is a clinical-stage biopharmaceutical company on a mission to develop treatments for serious CNS diseases through the discovery, development and commercialization of innovative medicines.

Our lead asset, CY6463 (previously known as IW-6463), is a pioneering, CNS-penetrant, soluble guanylate cyclase (sGC) stimulator that is currently in clinical development for Mitochondrial Encephalomyopathy, Lactic Acidosis and Stroke-like episodes (MELAS) and Alzheimer's disease with vascular pathology (ADv).

sGC stimulators are small molecules that act synergistically with nitric oxide (NO) as positive allosteric modulators on sGC to boost production of cyclic guanosine monophosphate, or cGMP.

cGMP is a key second messenger that, when produced by sGC, regulates diverse and critical biological functions in the CNS including neuronal function, neuroinflammation, cellular bioenergetics, and blood flow and vascular dynamics.

(“Cyclerion”, the “Company”

or “we”) is a clinical-stage biopharmaceutical company on a mission to develop treatments that restore cognitive function.

Our lead asset, CY6463, is a pioneering, central nervous system (CNS) penetrant, soluble guanylate cyclase (sGC) stimulator that is currently in clinical development for Alzheimer's disease with vascular pathology (ADv), cognitive impairment associated with schizophrenia (CIAS), and Mitochondrial Encephalomyopathy, Lactic Acidosis and Stroke-like episodes (MELAS).

sGC stimulators are small molecules that act synergistically with nitric oxide (NO) as positive allosteric modulators of sGC to boost production of cyclic guanosine monophosphate (cGMP).

Cyclerion GmbH, a wholly owned subsidiary, was incorporated in Zug, Switzerland on May 3, 2019.

Cyclerion GmbH is an operational entity with one employee who is the Company’s Chief Scientific Officer.

The functional currency is the Swiss franc.

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Company Overview

The Company’s mission is to develop treatments for serious CNS diseases.

Its priorities are advancing its ongoing CY6463 clinical programs and seeking the out-licensing of praliciguat and other non-CNS assets.

CNS programs.

The Company’s mission is to develop treatments that restore cognitive function.

Its priorities are advancing its ongoing CY6463 clinical programs and next generation compound, CY3018.

CY6463 is an orally administered CNS-penetrant sGC stimulator that is being developed as a symptomatic and potentially disease-modifying therapy for serious CNS diseases.

Nitric oxide-sGC-cGMP is a fundamental CNS signaling network, but it has not yet been leveraged for its full therapeutic potential.

CY6463 enhances the brain’s natural ability to produce cGMP, an important second messenger in the CNS, by stimulating sGC, a key node in the NO-sGC-cGMP pathway.

NO-sGC-cGMP is a fundamental CNS signaling network, but it has not yet been leveraged for its full therapeutic potential.

CY6463 enhances the brain’s natural ability to produce cGMP, an important second messenger in the CNS, by stimulating sGC, a key node in the NO-sGC-cGMP pathway.

This pathway is critical to basic CNS functions and deficient NO-sGC-cGMP signaling is believed to play an important role in the pathogenesis of neurodegenerative diseases.

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We believe that these results, together with nonclinical data, support continued development of CY6463 as a potential new medicine for serious CNS diseases.

We have initiated our CY6463 Phase 2 clinical trial in adult participants with MELAS.

In the coming months, we will use the findings of the translational pharmacology study, in addition to observations from the first-in-human Phase 1 study, to inform further clinical development activities, including the initiation of a planned Phase

2 clinical trial in ADv in mid- 2021 , as well as explore other potential indications.

The ADv study will be supported in part by a grant from the Alzheimer’s Association’s Part the Cloud-Gates Partnership Grant Program, which provides Cyclerion with $2 million of funding over two years.

Our next generation CNS program is focused on discovery of new sGC stimulators with, for example, greater CSF-to-plasma exposure and/or potentially differentiated patterns of CNS engagement relative to CY6463.

Differentiated sGC stimulators will expand the potential of sGC stimulation for the treatment of disorders of the CNS.

We have initiated exploratory clinical trials with CY6463 ADv, CIAS, and MELAS.

Our next generation CNS asset, CY3018, is a differentiated CNS-penetrant sGC stimulator with greater CSF-to-plasma exposure relative to CY6463.

CY3018 is intended to expand the potential of sGC stimulation for the treatment of disorders of the CNS.

Non-CNS assets.

We have other assets that are outside of our current strategic focus.

These non-core assets are not being internally developed at this time and are available for licensing to a third-party partner.

Praliciguat is an orally administered, once-daily systemic sGC stimulator that was evaluated in two Phase 2 proof-of-concept studies for adult participants with diabetic nephropathy (DN) and heart failure with preserved ejection fraction (HFpEF).

We released topline results from these studies in October 2019.

These non-core assets are not being internally developed at this time.

Praliciguat is an orally administered, once-daily systemic sGC stimulator.

On June 3, 2021, we entered into a License Agreement with Akebia relating to the exclusive worldwide license to Akebia of our rights to the development, manufacture, medical affairs and commercialization of pharmaceutical products containing the pharmaceutical compound praliciguat and other related products and forms thereof enumerated in such agreement.

Olinciguat is an orally administered, once-daily, vascular sGC stimulator that was evaluated in a Phase 2 study of participants with sickle cell disease.

We released topline results from this study in October 2020.

We also have discovery and pre-clinical phase compounds with targeted sGC stimulators.

Olinciguat is available for licensing to a third party partner.

The Separation

On April 1, 2019, Ironwood Pharmaceuticals, Inc.

(“Ironwood”) completed the previously announced separation of its sGC business, and certain other assets and liabilities, into a separate, independent publicly traded company by way of a pro-rata distribution of all of the outstanding shares of common stock of Cyclerion Therapeutics, Inc.

through a dividend distribution of one share of the Company’s common stock, with no par value per share, for every 10 shares of Ironwood common stock held by Ironwood stockholders as of the close of business on March 19, 2019, the record date for the Distribution (the entire transaction being the “Separation”).

As a result of the Separation, the Company became an independent public company and commenced regular way trading under the symbol “CYCN” on the Nasdaq Global Select Market on April 2, 2019.

In connection with the Separation, on March 30, 2019, the Company entered into certain agreements with Ironwood to provide a framework for the Company’s relationship with Ironwood following the Separation, including, among others, the Separation Agreement, Tax Matters Agreement, and Employee Matters Agreement (“EMA”).

In addition, in connection with the Separation, on April 1, 2019, the Company entered into a Development Agreement, an Ironwood Transition Services Agreement, a Cyclerion Transition Services Agreement and an Intellectual Property License Agreement with Ironwood.

All services provided to and from the Company under the Transition Services Agreements were completed as of March 31, 2020 and the agreements were terminated.

Ironwood and the Company have agreed that the Development Agreement will not be renewed beyond its initial term which ends on March 31, 2021.

On April 2, 2019, the Company issued 11,817,165 shares in a private placement (the “2019 Equity Placement’’) of common stock to accredited investors for gross proceeds of $175 million (net proceeds of approximately $165 million).

On April 1, 2019, Ironwood completed the separation of its sGC business, and certain other assets and liabilities, into a separate, independent publicly traded company by way of a pro-rata distribution of all of the outstanding shares of common stock of Cyclerion Therapeutics, Inc.

As a result of the Separation, the Company became an independent public company and commenced trading under the symbol “CYCN”

on the Nasdaq Global Select Market on April 2, 2019.

2020 Equity Private Placement

On July 29, 2020, the Company entered into a Common Stock Purchase Agreement (the “2020 Equity Private Placement”) with two investors for a private placement of 6,062,500 shares of the Company’s common stock, at a purchase price of $4.00 per share for total gross proceeds of approximately $24.3 million.

On July 29, 2020, the Company entered into a Common Stock Purchase Agreement (the “2020 Equity Private Placement”) for the private placement of 6,062,500 shares of the Company’s common stock, for total gross proceeds of approximately $ 24.3 million.

The closing of the 2020 Equity Private Placement occurred on July 29, 2020.

The Company did not use a placement agent or broker in connection with the 2020 Equity Private Placement and incurred no commissions and no material direct transaction fees.

The Company did not utilize the services of a placement agent or broker and accordingly incurred no material related transaction fees, or commissions.

2021 Equity Private Placement

On June 3, 2021, the Company entered into a Common Stock Purchase Agreement (the “June 2021 Equity Private Placement”) for the private placement of 5,735,988 shares of the Company’s common stock, for total gross proceeds of approximately $ 18 million.

The closing of the June 2021 Equity Private Placement occurred on June 7, 2021.

The Company did not utilize the services of a placement agent or broker and accordingly incurred no material related transaction fees or commissions.

At-the-Market Offering

On July 24, 2020, the Company filed a Registration Statement on Form S-3 (the “Shelf”) with the Securities and Exchange Commission (the “SEC”) in relation to the registration of common stock, preferred stock, debt securities, warrants and units of any combination thereof for an aggregate initial offering price not to exceed $150.0 million.

On July 24, 2020, the Company filed a Registration Statement on Form S-3 with the Securities and Exchange Commission (the “SEC”) in relation to the registration of common stock, preferred stock, debt securities, warrants and units of any combination thereof for an aggregate initial offering price not to exceed $ 150.0 million.

The Shelf was declared effective as of July 31, 2020.

On September 3, 2020, the Company entered into a Sales Agreement (the “Sales Agreement”) with Jefferies LLC (“Jefferies”) with respect to an at-the-market offering (the “ATM Offering”) under the Shelf.

Under the ATM Offering, the Company may offer and sell, from time to time at its sole discretion, shares of its common stock, having an aggregate offering price of up to $ 50.0 million through Jefferies as its sales agent.

The Company will pay to Jefferies cash commissions of 3.0 percent of the gross proceeds of sales of common stock under the Sales Agreement.

As of December 31, 2020, no shares have been issued or sold under the ATM Offering.

During the year ended December 31, 2021 , the Company sold 3,353,059 shares of its common stock for net proceeds of $ 12.5 million under the ATM Offering, after deducting commissions paid to Jefferies of approximately $ 0.4 million.

Basis of Presentation

The Company did not operate as a separate, stand-alone entity for the full period covered by the annual consolidated and combined financial statements.

The Company’s consolidated balance sheets as of December 31, 2020 and 2019, statement of operations and comprehensive loss for the year ended December 31, 2020 and the statement of cash flows for the year ended December 31, 2020 consist of the consolidated balances of Cyclerion as prepared on a stand-alone basis.

The Company’s consolidated and combined statement of operations and comprehensive loss for the year ended December 31, 2019 as well as our statement of cash flows for the year ended December 31, 2019 have been prepared on a “carve out” basis for the periods and dates prior to the Separation on April 1, 2019.

The consolidated and combined financial statements reflect the historical results of the operations, financial position and cash flows of Cyclerion, in conformity with United States generally accepted accounting principles (“U.S.

The accompanying consolidated and combined financial statements reflect the consolidated and combined financial position and consolidated and combined results of operations of the Company as an independent, publicly-traded company for the period after the Separation on April 1, 2019.

The consolidated and combined financial statements also reflect the financial position and results of operations of the Company as a combined reporting entity of Ironwood for periods prior to the Separation.

For periods prior to the Separation, the consolidated and combined financial statements of Cyclerion reflect the assets, liabilities, and expenses directly attributable to Cyclerion, as well as allocations of certain corporate level assets, liabilities and expenses, deemed necessary to fairly present the financial position, results of operations and cash flows of Cyclerion, as discussed further below.

As such, these allocations may not be indicative of the actual amounts that would have been recorded had Cyclerion operated as an independent, publicly traded company for the years presented.

During the year ended December 31, 2019, the Company recorded approximately $7.8 million in Separation-related adjustments in its consolidated and combined statements of stockholders’ equity (deficit).

The Separation-related adjustments primarily related to differences between assets and liabilities transferred to Cyclerion as a result of the Separation and assets and liabilities reported in the Company’s combined balance sheets as of March 31, 2019.

Prior to the Separation, Cyclerion was dependent upon Ironwood for all of its working capital and financing requirements, as Ironwood used a centralized approach to cash management and financing its operations.

There were no cash amounts specifically attributable to Cyclerion for the historical periods presented;

therefore, there is no cash reflected for historical periods in the consolidated and combined financial statements.

Accordingly, cash and cash equivalents, debt or related interest expense have not been allocated to Cyclerion in the historical financial statements.

Financing transactions related to Cyclerion are accounted for as a component of net parent investment in the historical combined balance sheets and as a financing activity on the accompanying combined statements of cash flows.

Prior to the Separation, Cyclerion’s combined financial statements included an allocation of expenses related to certain Ironwood corporate functions, including senior management, legal, human resources, finance, information technology and quality assurance.

These expenses were allocated to Cyclerion based on direct usage or benefit where identifiable, with the remainder allocated pro-rata based on project related costs, headcount or other measures.

These allocations may not be indicative of the actual expense that would have been incurred had Cyclerion operated as an independent, publicly traded company for the periods presented.

Prior to the Separation, the combined balance sheets of Cyclerion included assets and liabilities that were allocated principally on a specific identification basis and net parent investment was shown in lieu of stockholders’ equity.

As a result of the Separation, the Company’s net parent investment balance was reclassified to paid-in capital.

The consolidated financial statements and the related disclosures have been prepared in accordance with U.S.

generally accepted accounting principles .

In the opinion of management, the consolidated financial statements reflect all normal recurring adjustments considered necessary for a fair presentation of the Company’s financial position and the results of its operations for the fiscal years presented.

The consolidated financial statements include the financial statements of the Company and its wholly owned subsidiaries, Cyclerion GmbH, and Cyclerion Securities Corporation.

All significant intercompany accounts and transactions have been eliminated in the preparation of the accompanying consolidated financial statements.

Going Concern

At each reporting period, the Company evaluates whether there are conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued.

The Company’s evaluation entails analyzing prospective operating budgets and forecasts for expectations of the Company’s cash needs and comparing those needs to the current cash and cash equivalent balances.

The Company is required to make certain additional disclosures if it concludes substantial doubt exists and it is not alleviated by the Company’s plans or when its plans alleviate substantial doubt about the Company’s ability to continue as a going concern.

The Company has experienced negative operating cash flows for all historical periods presented and the Company expects these losses to continue into the foreseeable future as the Company continues the development and clinical testing of its product candidate CY6463, and its discovery research programs.

On April 2, 2019, the Company received gross proceeds of $175 million (net proceeds of approximately $165 million) from the 2019 Equity Private Placement.

On July 29, 2020, the Company received proceeds of approximately $24.3 million from the 2020 Equity Private Placement.

After considering the Company’s current research and development plans and the timing expectations related to the progress of its programs, and after considering its existing cash and cash equivalents as of December 31, 2020, the Company did not identify conditions or events that would raise substantial doubt about the Company’s ability to continue as a going concern within one year from the date these financial statements were issued.

Through December 31, 2021, the Company had raised an aggregate of $ 219.8 million (in net proceeds) from equity private placements and the ATM Offering.

After considering the Company’s current research and development plans and the timing expectations related to the progress of its programs, and after considering its existing cash and cash equivalents of $ 54.0 million as of December 31, 2021 , the Company did not identify conditions or events that would raise substantial doubt about the Company’s ability to continue as a going concern within one year from the date these financial statements were issued.

Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying consolidated and combined financial statements include the accounts of Cyclerion Therapeutics, Inc.

The accompanying consolidated financial statements include the accounts of Cyclerion Therapeutics, Inc.

and its wholly owned subsidiaries, Cyclerion GmbH and Cyclerion Securities Corporation.

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Use of Estimates

The preparation of consolidated and combined financial statements in accordance with U.S.

GAAP requires the Company’s management to make estimates and judgments that may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated and combined financial statements, and the amounts of expenses during the reported periods.

On an ongoing basis, the Company’s

management evaluates its estimates, judgments and methodologies.

Significant estimates and assumptions in the consolidated and combined financial statements include those related to allocations of expenses, assets and liabilities from Ironwood’s historical financial statements for the periods prior to the S eparation , impairment of long-lived assets, income taxes, including the valuation allowance for deferred tax assets, research and development expenses, contingencies and share-based compensation.

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

GAAP requires the Company’s management to make estimates and judgments that may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the amounts of expenses during the reported periods.

On an ongoing basis, the Company’s management evaluates its estimates, judgments and methodologies.

Significant estimates and assumptions in the consolidated financial statements include those related to revenue, impairment of long-lived assets, valuation procedures for right-of-use

("ROU") assets and operating lease liabilities, income taxes, including the valuation allowance for deferred tax assets, research and development expenses, contingencies, share-based compensation, and going concern.

The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

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Changes in estimates are reflected in reported results in the period in which they become known.

Cash and Cash Equivalents

Cash and Cash Equivalents including Restricted Cash

The Company considers all highly liquid investment instruments with a remaining maturity when purchased of three months or less to be cash equivalents.

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The carrying amount of cash equivalents approximates fair value.

There were no cash amounts specifically attributable to Cyclerion for the historical periods presented;

therefore, there is no cash reflected in the combined financial statements.

Restricted Cash

The Company is contingently liable under an unused letter of credit with a bank, related to the Company’s facility lease, in the amount of approximately $3.8 million and approximately $7.7 million as of December 31, 2020 and 2019, respectively.

The Company records the collateral used to secure the letter of credit as restricted cash.

As of December 31, 2021, T he Company did not have any restricted cash balances.

As of December 31, 2020, the Company was contingently liable under an unused letter of credit with a bank, related to the Company's facility lease, in the amount of approximately $ 3.8 million.

The Company recorded the collateral used to secure the letter of credit as restricted cash.

The full amount of restricted cash was recorded as a component of non-current assets at December 31, 2020 .

The amount of restricted cash in current assets and non-current assets was approximately $2.7 million and $5.0 million, respectively, at December 31, 2019.

Property and Equipment

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Property and equipment that is no longer required for the business is considered disposed of when it ceases to be used.

Disposals are either sold or retired and the net book value is removed from the consolidated balance

sheet and a corresponding gain or loss on the sale or disposal is recognized as a component of operating expenses in the consolidated and combined statements of operations and comprehensive loss.

Disposals are either sold or retired and the net book value is removed from the consolidated balance sheet and a corresponding gain or loss on the sale or disposal is recognized as a component of operating expenses in the consolidated statements of operations and comprehensive loss.

Fair Value of Investment Instruments

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.

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 first two are considered observable and the last is 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 and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

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 and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

Foreign Currency Translation Adjustment

The functional currency of the Company’s foreign subsidiary is its local currency, the Swiss franc.

The assets and liabilities of the Company’s foreign subsidiary are translated into U.S.

The functional currency of the Company’s foreign subsidiary is its local currency, the Swiss franc.

The assets and liabilities of the Company’s foreign subsidiary are translated into U.S.

dollars at exchange rates in effect at the balance sheet date.

Income and expense items are translated at the average exchange rates prevailing during the period.

The cumulative translation effect for the Company’s foreign subsidiary is included as a foreign currency translation adjustment in the consolidated and combined statements of stockholders’ equity (deficit) and as a component of comprehensive loss in the consolidated and combined statements of operations and comprehensive loss.

The Company’s intercompany accounts are typically denominated in the functional currency of the foreign subsidiary.

Gains and losses resulting from the remeasurement of intercompany balances are recorded in the consolidated statements of operations.

Related Party Accounts Receivable

The cumulative translation effect for the Company’s foreign subsidiary is included as a foreign currency translation adjustment in the consolidated statements of stockholders’

equity and as a component of comprehensive loss in the consolidated statements of operations and comprehensive loss.

The Company’s intercompany accounts are typically denominated in the functional currency of the foreign subsidiary.

Gains and losses resulting from the re-measurement of intercompany balances are recorded in the consolidated statements of operations.

Accounts Receivable

The Company makes judgments as to its ability to collect outstanding receivables and provides an allowance for receivables when collection becomes doubtful.

Provisions are made based upon a specific review of all significant outstanding invoices.

The Company’s receivables primarily relate to amounts earned under a Development Agreement with Ironwood.

The Company believes that credit risks associated with Ironwood are not significant.

The Company’s receivables primarily relate to amounts earned under a development agreement with Ironwood, licensing agreement, and supply agreement.

The Company believes that credit risks associated with these agreements are not significant.

To date, the Company has not had significant write-offs of bad debt and the Company did not have an allowance for doubtful accounts as of December 31, 2021 or 2020 .

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The Company regularly reviews the carrying amount of its long-lived assets to determine whether indicators of impairment may exist, which warrant adjustments to carrying values or estimated useful lives.

If indications of impairment exist, projected future undiscounted cash flows associated with the asset are compared to the carrying amount to determine whether the asset’s value is recoverable.

If the carrying value of the asset exceeds such projected undiscounted cash flows, the asset will be written down to its estimated fair value.

There were no significant impairments of long-lived assets for the years ended December 31, 2021 or 2020 .

Effective January 1, 2019, the Company adopted Accounting Standards Codification (“ASC”) Topic 842, Leases (“ASC 842”) using the optional transition method.

The adoption of ASC 842 represents a change in accounting principle that aims to increase transparency and comparability among organizations by requiring the recognition of right-of-use assets and lease liabilities on the balance sheet for both operating and finance leases.

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The reported results for the years ended December 31, 2021 and 2020 reflect the application of ASC 842 guidance.

The recognition of right-of-use (“ROU”) assets and lease liabilities related to the Company’s operating leases under ASC 842 has had a material impact on the Company’s consolidated and combined financial statements.

The recognition of right-of-use assets and lease liabilities related to the Company’s operating leases under ASC 842 has had a material impact on the Company’s consolidated financial statements.

As part of the ASC 842 adoption, the Company has used certain practical expedients outlined in the guidance.

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An entity need not reassess initial direct costs for any existing leases.

The Company has a property lease for its headquarters location at 301 Binney Street, Cambridge, MA (the “Head Lease”).

The Company determines if an arrangement is a lease at the inception of the contract.

The asset component of the Company’s operating leases is recorded as operating lease right-of-use (“ROU”) assets, and the liability component is recorded as current portion of operating lease liabilities and operating lease liabilities, net of current portion, in the Company’s consolidated balance sheets.

The Company had a property lease for its headquarters location at 301 Binney Street, Cambridge, MA (the “Head Lease”).

The Company determined if the arrangement was a lease at the inception of the contract.

The asset component of the Company’s operating leases was recorded as operating lease right-of-use assets, and the liability component was recorded as current portion of operating lease liabilities and operating lease liabilities, net of current portion, in the Company’s consolidated balance sheets.

ROU assets and operating lease liabilities are recognized based on the present value of lease payments over the lease term at the commencement date.

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Operating lease right-of-use assets are adjusted for incentives received.

Lease cost is recognized on a straight-line basis over the lease term, and includes amounts related to short-term leases.

Variable lease costs that do not depend on an index or rate are recognized as incurred.

ROU assets and operating lease liabilities are remeasured upon certain modifications to leases using the present value of remaining lease payments and estimated incremental borrowing rate upon lease modification.

The difference between the remeasured ROU assets and the operating lease liabilities are recognized as a gain or loss in operating expenses.

The Company reviews any changes to its lease agreements for potential modifications and/or indicators of impairment of the respective ROU asset.

On October 18, 2019, the Company entered into an agreement to sublease 15,700 rentable square feet of its Head Lease to a subtenant (the “Sublease Agreement”).

Sublease income is recognized on straight-line basis over the term of the sublease agreement and is recorded net of the related rent expense from the Head Lease within interest and other income, net in the consolidated and combined statements of operations and comprehensive loss.

In sublease agreements that contain non-monetary consideration, the Company estimates the fair market value of the non-monetary consideration received using market data and recognizes it on a straight-line basis over the sublease term.

Variable lease consideration that does not depend on an index or rate is allocated to a non-lease component and is recognized over time in accordance with the pattern of transfer.

Lease cost was recognized on a straight-line basis over the lease term, and included amounts related to short-term leases.

Variable lease costs that do not depend on an index or rate were recognized as incurred.

ROU assets and operating lease liabilities were remeasured upon certain modifications to leases using the present value of remaining lease payments and estimated incremental borrowing rate upon lease modification.

The difference between the remeasured ROU assets and the operating lease liabilities were recognized as a gain or loss in operating expenses.

The Company reviewed any changes to its lease agreements for potential modifications and/or indicators of impairment of the respective ROU asset.

On October 18, 2019, the Company entered into an agreement to sublease 15,700 rentable square feet of its Head Lease to a subtenant (the “Sublease Agreement”).

Sublease income was recognized on straight-line basis over the term of the sublease agreement and was recorded net of the related rent expense from the Head Lease within interest and other income, net in the consolidated statements of operations and comprehensive loss.

In sublease agreements that contain non-monetary consideration, the Company estimated the fair market value of the non-monetary consideration received using market data and recognized it on a straight-line basis over the sublease term.

Variable lease consideration that did not depend on an index or rate was allocated to a non-lease component and was recognized over time in accordance with the pattern of transfer.

No modification or impairment was deemed to have occurred by entering into the sublease agreement because the Company was not released, either fully or in part, from its obligations under the Head Lease.

See Note 8, Leases .

On February 28, 2020 the Company entered into an amendment to its Head Lease (the “Lease Amendment”).

The Lease Amendment provided for the partial termination of the Company's rights and obligations with respect to a portion of the leased premises of approximately 40,000 rentable square feet.

The Company will continue to lease approximately 74,000 rentable square feet under terms of the amended lease.

The Lease Amendment was determined to be a lease modification that qualified as a change of accounting on the existing lease and not a separate contract.

The Company continued to lease approximately 74,000 rentable square feet under terms of the amended lease.

The Lease Amendment was determined to be a lease modification that qualified as a change of accounting on the existing lease

and not a separate contract.

As such, the ROU assets and operating lease liabilities were remeasured using an incremental borrowing rate at the date of modification and the Company recorded a gain of approximately $ 2.1 million as a component of operating expenses for the year ended December 31, 2020.

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See Note 8, Leases .

On September 15, 2020, the Company entered into an amendment to its Head Lease (the “Second Lease Amendment”).

The Second Lease Amendment provided for the partial termination of the Company's rights and obligations with respect to a portion of the leased premises of approximately 17,000 rentable square feet (the “Surrender Space”).

The Surrender Space includes the 15,700 rentable square feet being subleased by the Company to a subtenant.

The Company will continue to lease approximately 57,000 rentable square feet under terms of the amended lease.

On September 15, 2020, the Company entered into an amendment to its Head Lease (the “Second Lease Amendment”).

The Surrender Space included the 15,700 rentable square feet being subleased by the Company to a subtenant.

The Company continued to lease approximately 57,000 rentable square feet under terms of the amended lease.

The Second Lease Amendment was determined to be a lease modification that qualified as a change of accounting on the existing lease and not a separate contract.

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See Note 8, Leases .

On September 15, 2020, concurrent with the execution of the Second Lease Amendment, the Company entered into an agreement with its subtenant to terminate the Sublease Agreement of approximately 15,700 rentable square feet (“the Sublease Termination Agreement”).

Under the terms of the Sublease Termination Agreement, the former subtenant is obligated to provide licensed rooms and services to the Company free of charge through the original sublease term.

Upon termination of the sublease, the Company recognized sublease termination income of approximately $3.1 million related to the prepaid rooms and services, and wrote off the remaining indirect costs from the sublease of approximately $0.2 million, in the consolidated and combined statements of operations and comprehensive loss for the year ended December 31, 2020 .

Upon termination of the sublease, the Company recognized sublease termination income of approximately $ 3.1 million related to the prepaid rooms and services, and wrote off the remaining indirect costs from the sublease of approximately $ 0.2 million, in the consolidated statements of operations and comprehensive loss for the year ended December 31, 2020.

See Note 8, Leases .

On April 30, 2021, the Company entered into a Termination Agreement (the "Termination Agreement") for its Head Lease as initially amended on February 28, 2020, and further amended on September 15, 2020.

Pursuant to the Termination Agreement, the Company surrendered the leased space of approximately 57,000 square feet to the building’s landlord.

The Company did not pay any termination fees with the Termination Agreement.

As a result of the termination of the Head Lease, the related right-of-use asset was written off, the lease liability was derecognized, and the $ 3.8 million security deposit was returned to the Company and recorded as part of our cash balance.

In total, the Company recognized a loss on the termination of the Head Lease of $ 0.9 million for the year ended December 31, 2021.

The loss is included in “General and administrative”

expenses on our consolidated statement of operations and comprehensive loss.

Paycheck Protection Program Loan

On April 21, 2020, the Company received loan proceeds in the amount of approximately $3.5 million pursuant to a promissory note agreement (the “Promissory Note”) with a bank under the Paycheck Protection Program (“PPP”).

The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business.

The Promissory Note has an original loan maturity of April 20, 2022, a stated interest rate of 1.0% per annum, and has payments of principal and interest that are due monthly after an initial six-month deferral period where interest accrues, but no payments are due.

The Promissory Note provides for customary events of default, including, among others, those relating to failure to make payment when due and breaches of representations.

The Company may prepay the principal of the Promissory Note at any time without incurring any prepayment charges.

The loan is subject to all the terms and conditions applicable under the PPP and is subject to review by the Small Business Association (the “SBA”) for compliance with program requirements, including the Company’s certification that the current economic uncertainty made the PPP loan request necessary to support ongoing operations.

On April 21, 2020, the Company received loan proceeds in the amount of approximately $ 3.5 million pursuant to a promissory note agreement with a bank under the Paycheck Protection Program.

The Paycheck Protection Program, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business.

The Promissory Note had an original loan maturity of April 20, 2022, a stated interest rate of 1.0% per annum, and had payments of principal and interest that were due monthly after an initial six-month deferral period where interest accrued, but no payments were due.

The Promissory Note provided for customary events of default, including, among others, those relating to failure to make payment when due and breaches of representations.

The loan was subject to all the terms and conditions applicable under the PPP and was subject to review by the SBA for compliance with program requirements, including the Company’s certification that the economic uncertainty, at the time, made the PPP loan request necessary to support ongoing operations.

On October 2, 2020, the SBA issued procedural guidance with respect to PPP loans and changes in ownership and the Company believes that it is compliant with respect to the 2020 Equity Private Placement and the ATM Offering.

In June 2020, the Payroll Protection Program Flexibility Act (“PPPFA”) was signed into law adjusting certain key terms of loans issued under the PPP.

In June 2020, the Payroll Protection Program Flexibility Act was signed into law adjusting certain key terms of loans issued under the PPP.

In accordance with the PPPFA, the initial deferral period may be extended from six to up to ten months and the loan maturity may be extended from two to five years.

The PPPFA also provided for certain other changes, including the extent to which the loan may be forgiven.

The loan’s principal and accrued interest are forgivable to the extent that the proceeds are used for eligible purposes, subject to certain limitations, and that the Company maintains its payroll levels over a twenty-four-week

period following the loan date.

The loan forgiveness amount may be reduced if the Company terminates employees or reduces salaries during the twenty-four-week period.

The loan’s principal and accrued interest were forgivable to the extent that the proceeds were used for eligible purposes, subject to certain limitations, and that the Company maintained its payroll levels over a twenty-four-week period following the loan date.

The loan forgiveness amount may have been reduced if the Company

terminated employees or reduced salaries during the twenty-four-week period.

PPP loans are subject to audit and the SBA has indicated that companies that received over $2 million in proceeds should expect an audit.

The Company believes that it has used the proceeds for eligible purposes consistent with the provisions of the PPPFA.

However, there can be no assurance that any portion of the loan will be forgiven and that we will not have to repay the loan in full.

As the legal form of the Promissory Note is a debt obligation, the Company is accounting for it as debt under Accounting Standards Codification (ASC) 470, Debt and recorded a short-term liability of $3.5 million in the consolidated balance sheets upon receipt of the loan proceeds.

The Company is accruing interest over the term of the loan and is not imputing additional interest at a market rate because the guidance on imputing interest in ASC 835-30, Interest excludes transactions where interest rates are prescribed by a government agency.

A de minimis amount of interest expense has been recognized within interest and other income, net in the consolidated statements of operations and comprehensive loss for the year ended December 31, 2020.

A de minimis amount of interest expense has been accrued within accrued expenses and other current liabilities on the consolidated balance sheets as of December 31, 2020.

If any amount of the loan is ultimately forgiven, income from the extinguishment of debt would be recognized as a gain on loan extinguishment in the consolidated statement of operations and comprehensive loss.

As the legal form of the Promissory Note is a debt obligation, the Company accounted for it as debt under Accounting Standards Codification (ASC) 470, Debt and recorded a short-term liability of $ 3.5 million in the consolidated balance sheets upon receipt of the loan proceeds.

The Company accrued interest over the term of the loan and did not record additional interest at a market rate because the guidance on imputing interest in ASC 835-30, Interest excludes transactions where interest rates are prescribed by a government agency.

Approximately $ 0.1 million of interest expense has been recognized within interest and other income, net in the consolidated statements of operations and comprehensive loss for the year ended December 31, 2021.

In August 2021, the Company applied with the SBA for forgiveness of the PPP loan and was notified on November 4, 2021 that the SBA has approved our application to forgive the entire amount of the loan and accrued interest.

The Company recorded a gain on extinguishment of debt of $ 3.6 million representing the principal and accrued interest for the PPP Loan.

Upon executing a revenue generating arrangement, the Company assesses whether it is probable the Company will collect consideration in exchange for the good or service it transfers to the customer.

To determine revenue recognition for arrangements that the Company determines are within the scope of ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), it performs the following five steps:

(i) identify the contract(s) with a customer;

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The assumptions that are used to determine the stand-alone selling price may include forecasted revenues, development timelines, reimbursement rates for personnel costs, discount rates and probabilities of technical and regulatory success.

The Company generates revenue from a Development Agreement with Ironwood, pursuant to which the Company provides certain research and development services with respect to certain of Ironwood’s products and product candidates.

Such research and development activities are governed by a joint steering committee composed of representatives of both companies.

Services performed are invoiced at a mutually agreed upon rate and the initial term of the agreement is two years from the date of Separation and automatically renews for one year unless either party notifies the other at least six months prior to the expiration.

Ironwood and the Company have agreed that the Development Agreement will not be renewed beyond its initial term which ends on March 31, 2021.

The Company derives revenue from (1) license agreement and (2) supply agreement which are fully described in Note 14, License Agreement .

The Company generated revenue from a Development Agreement with Ironwood, pursuant to which the Company provided certain research and development services with respect to certain of Ironwood’s products and product candidates.

Such research and development activities were governed by a joint steering committee composed of representatives of both companies.

Services performed were invoiced at a mutually agreed upon rate and the initial term of the agreement was two years from the date of Separation and automatically renewed for one year unless either party notified the other at least six months prior to the expiration.

Ironwood and the Company agreed that the Development Agreement would not be renewed beyond its initial term which ended on March 31, 2021.

The Company generates revenue from research and development grants under contracts with third parties that do not create customer-vendor relationships.

The Company’s research and development grants are non-exchange transactions and are not within the scope of ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”).

Contribution revenue earned from activities performed pursuant to research and development grants is reported as grant revenue in the Company’s consolidated statements of operations.

Revenue from these grants is recognized as the Company incurs qualifying expenses as stipulated by the terms of the respective grant.

Cash received from grants in advance of incurring qualifying expenses is recorded as deferred revenue.

The Company records revenue and a corresponding receivable when qualifying costs are incurred before receiving payment from the grants.

Research and Development Costs

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If actual timing of performance or the level of effort varies from the estimate, the Company will adjust the amounts recorded accordingly.

The Company has not experienced any material differences between accrued or prepaid costs and actual costs since inception.

Company has not experienced any material differences between accrued or prepaid costs and actual costs since inception.

Research and development expenses are comprised of costs incurred in performing research and development activities, which may include salary, benefits and other employee-related expenses;

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The Company expenses general and administrative costs to operations as incurred.

General and administrative expense consists of compensation, share-based compensation, benefits and other employee-related expenses for personnel in the Company’s administrative, finance, legal, information technology, business development and human resource functions.

Other costs include the legal costs of pursuing patent protection of the Company’s intellectual property, general and administrative related facility costs, insurance costs and professional fees for accounting and legal services.

The Company is primarily subject to U.S.

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Accordingly, the Company provides a valuation allowance, if necessary, to reduce deferred tax assets to amounts that are realizable.

The tax positions taken or expected to be taken in the course of preparing the Company tax returns are required to be evaluated to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority.

The tax positions taken or expected to be taken in the course of preparing the Company tax returns are required to be evaluated to determine whether the tax positions are “more-likely-than-not”

of being sustained by the applicable tax authority.

Tax positions not deemed to meet a more-likely-than-not threshold would be recorded as a tax expense in the current year.

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There were no uncertain tax positions that require accrual or disclosure in the consolidated financial statements as of December 31, 2021, and 2020.

The Company’s policy is to recognize interest and penalties related to income tax, if any, in income tax expense.

As of December 31, 2021, and 2020 , the Company has no accruals for interest or penalties related to income tax matters.

Patent fees and patent related costs in connection with filing and prosecuting patent applications are expensed as incurred and are classified as general and administrative expenses in the accompanying consolidated financial statements.

The Company incurred and recorded as operating expense legal and other fees related to patents of approximately $1.4 million and $1.7 million for the years ended December 31, 2021 and 2020, respectively.

These costs were charged to general and administrative expenses as incurred.

Interest and Other Income, Net

For the year ended December 31, 2020, interest and other income, net consisted of $0.3 million of interest income related to interest generated from our cash and cash equivalents balances and $0.3 million of net sublease income, net of a de minimis amount of interest expense related to the PPP loan.

For the year ended December 31, 2021, interest and other income, net consisted of a de minimis amount of interest income related to interest generated from our cash and cash equivalents balances and a de minimis amount

of interest expense related to the PPP loan.

For the year ended December 31, 2020 , interest and other income, net consisted of $ 0.3 million of interest income related to interest generated from our cash and cash equivalents balances and $ 0.3 million of net sublease income.

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New Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies that are adopted by the Company as of the specified effective date.

Except as discussed elsewhere in the notes to the consolidated and combined financial statements, the Company did not adopt any new accounting pronouncements during the years ended December 31, 2020 and 2019, that had a material effect on its consolidated and combined financial statements.

In June 2016, the FASB issued ASU No.

2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”).

ASU 2016-13 will change how companies account for credit losses for most financial assets and certain other instruments.

For trade receivables, loans and held-to-maturity debt securities, companies will be required to recognize an allowance for credit losses rather than reducing the carrying value of the asset.

Subsequent to the issuance of ASU 2016-13, the FASB issued ASU No.

2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments (“ASU 2019-04”), ASU No.

2019-05, Financial Instruments—Credit Losses (Topic 326):

Targeted Transition Relief (“ASU 2019-05”) to provide additional guidance on the adoption of ASU 2016-13, ASU No.

2019-10, Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) (“ASU 2019-10”), ASU No.

2019-11, Codification Improvements to Topic 326, Financial Instruments-Credit Losses (“ASU 2019-11”) and ASU No.

2020-02, Financial Instruments—Credit Losses (Topic 326) and Leases (Topic 842)("ASU 2020-02") .

ASU 2019-04 added Topic 326, Financial Instruments—Credit Losses, and made several amendments to the codification and also modified the accounting for available-for-sale debt securities.

ASU 2019-05 provides targeted transition relief by providing an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis.

ASU 2019-10 aligned the effective dates of certain major updates not yet effective to conform to the FASB’s new philosophy of staggering major updates between large public companies and all other entities.

ASU 2019-11’s major provisions included additional clarifications and practical expedients related to expected recoveries for purchased assets with credit deterioration, troubled debt restructuring, accrued interest receivables, and other areas when adopting ASU 2016-13.

ASU 2020-02 provided amendments to the Topic 326 including a new section related to credit losses measured at amortized cost and a clarification to Topic 842 and is effective when adopting other areas of Financial Instruments-Credit Losses Topic 326.

As a public business entity that qualifies as a smaller reporting company, ASU 2016-13, ASU 2019-04 and ASU 2019-05 are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

Early adoption is permitted.

The Company is currently evaluating the potential impact that the adoption of these ASUs will have on the Company’s financial position and results of operations.

In August 2018, the FASB issued ASU No.

2018-13, Fair Value Measurement (“ASU 2018-13”):

Disclosure Framework—Changes to the Disclosure Requirement for Fair Value Measurement (“ASU 2018-13”) which amends the disclosure requirements for fair value measurements.

The amendments in ASU 2018-13 are effective for fiscal years beginning after December 15, 2019, with early adoption permitted.

The Company adopted ASU 2018-13 in the first quarter of 2020 and the adoption of standard did not will have a material impact on the Company’s financial position or results of operations.

In August 2018, the FASB issued ASU No.

2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (“ASU 2018-15”).

ASU 2018-15 requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in ASC 350-40, Intangibles—Goodwill and Other—Internal Use Software (ASC 350-40), to determine which implementation costs to capitalize as assets or expense as incurred.

The internal-use software guidance in ASC 350-40 requires that certain costs incurred during the application development stage be capitalized and other costs incurred during the preliminary project and post-implementation stages be expensed as they are incurred.

A customer’s accounting for the hosting component of the arrangement is not affected by this guidance.

The amendments in ASU 2018-15 are effective for fiscal years beginning after December 15, 2019, with early adoption permitted.

The Company adopted ASU 2018-15 in the first quarter of 2020 and the adoption of this standard did not have a material impact on the Company’s financial position or results of operations.

No other accounting standards known by the Company to be applicable to it that have been issued by the FASB or other standard-setting bodies and that do not require adoption until a future date are expected to have a material impact on the Company’s consolidated and combined financial statements upon adoption.

Except as discussed elsewhere in the notes to the consolidated financial statements, the Company did not adopt any new accounting pronouncements during the years ended December 31, 2021 and 2020, that had a material effect on its consolidated financial statements.

In June 2016 the FASB issued ASU 2016-13, Financial Instruments-Credit Losses.

This standard requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.

As a smaller reporting company, ASU 2016-13 will become effective for the Company for fiscal years beginning after December 15, 2022, and early adoption is permitted.

The Company is currently evaluating the impact that ASU 2016-13 will have on its financial statements and related disclosures.

In May 2021 the FASB issued Accounting Standards Update No.

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

Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options, a consensus of the Emerging Issues Task Force (EITF) , which amends the FASB Accounting Standards Codification (ASC or the “Codification”) to provide explicit guidance, and, thus, reduce diversity in practice, on accounting by issuers for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after the modification or exchange.

This amendment provides that for an entity that presents earnings per share (EPS) in accordance with Topic 260, the effects of a modification or an exchange of a freestanding equity-classified written call option that is recognized as a dividend should be an adjustment to net income (or net loss) in the basic EPS calculation.

The amended guidance becomes mandatorily effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years, and should be applied prospectively to modifications or exchanges occurring on or after the effective date.

The Company is currently evaluating the impact that ASU 2021-04 will have on its financial statements and related disclosures.

Related Party Transactions

Relationship with Ironwood

Prior to April 1, 2019, the Company was managed and operated in the normal course of business under Ironwood.

Ironwood became a related party when Mark Currie, Ironwood’s former Chief Scientific Officer and the Company’s President, joined Ironwood’s board in April 2019 following the Separation.

Certain shared costs were allocated to the Company and reflected as expenses in the Company’s stand-alone combined financial statements for periods prior to the Separation.

The expenses reflected in the combined financial statements for periods prior to the Separation may not be indicative of expenses that will be incurred by the Company in the future.

Corporate costs

Ironwood incurred significant corporate costs for services provided to Cyclerion.

These costs included expenses for information systems, accounting, other financial services (such as treasury, audit and purchasing), human resources, legal, facilities and Separation-related costs.

A portion of these costs benefited Cyclerion and have been allocated to Cyclerion using a pro-rata method based on project related costs, headcount, or other measures that management believes are consistent and reasonable.

The corporate costs allocated to Cyclerion, prior to the Separation, and included in the combined statements of operations for the year ended December 31, 2019 was approximately $6.8 million and was included in general and administrative expenses.

Cash Management and Financing

Cyclerion participated in Ironwood’s centralized cash management and financing programs prior to the Separation.

Disbursements were made through centralized accounts payable systems operated by Ironwood.

Cash receipts were transferred to centralized accounts, also maintained by Ironwood.

As cash is disbursed and received by Ironwood, it was accounted for by Cyclerion through net parent investment.

All obligations were financed by Ironwood and financing decisions were determined by central Ironwood treasury operations until the Separation.

Other Transactions with Ironwood

As part of the Separation from Ironwood, the Company entered into Transition Services Agreements and a Development Agreement with Ironwood.

Under the Transition Services Agreements, the Company provides certain services to Ironwood, and Ironwood provides certain services to the Company, each related to corporate functions such as finance, procurement, facilities and development for a period of up to two years from the date of the Separation, unless earlier terminated or extended by mutual agreement.

These services are charged to and from Ironwood and are recorded as part of operating expenses.

All services provided to and from the Company under the Transition Services Agreements were completed as of March 31, 2020 and the agreements were terminated.

The net charge to operating expenses for the Transition Services Agreements was de minimis and $0.2 million for the years ended December 31, 2020 and 2019, respectively.

Under the Development Agreement, the Company provides certain research and development services to Ironwood at mutually agreed upon rates and the amounts earned are recorded as revenue from related party.

Such research and development activities are governed by a joint steering committee composed of representatives of both Ironwood and the Company.

Ironwood and the Company have agreed that the Development Agreement will not be renewed beyond its initial term which ends on March 31, 2021.

The Company recorded approximately $2.3 million

and $ 4.5 million in revenue from related party for services provided under the Development Agreement for the years ended December 31, 2020 and 2019 , respectively .

In accordance with the Separation Agreement, there were certain other transactions and adjustments post-Separation between the Company and Ironwood.

For the year ended December 31, 2020, the Company recorded approximately $0.7 million in general and administrative expense for the reimbursement of certain expenses to Ironwood in accordance with the Separation Agreement.

During the year ended December 31, 2019, Cyclerion paid Ironwood approximately $1.3 million associated with tenant improvement reimbursement provisions.

The total amount due from Ironwood at December 31, 2020 and 2019 was approximately $0.1 million and $1.5 million, respectively, primarily from the Development Agreement, and is reflected as related party accounts receivable.

There was no amount due to Ironwood at December 31, 2020 and approximately$0.1 million due to Ironwood at December 31, 2019.

Peter Hecht, Ironwood’s former Chief Executive Officer and the Chief Executive Officer and board member of Cyclerion, donated 2.5 million of his shares of Ironwood common stock to American Endowment Foundation for the creation of a donor advised fund that divested these shares to invest $34.0 million in Cyclerion as part of the financing transaction completed by Cyclerion on April 2, 2019.

Mark Currie has invested $4.0 million in Cyclerion as part of this financing.

Currie and certain other investors have funded a portion of their investment through sales of Ironwood common stock.

Development Agreement with Ironwood

As part of the Separation from Ironwood, the Company entered into a Development Agreement with Ironwood.

Under the Development Agreement, the Company provided certain research and development services to Ironwood at mutually agreed upon rates and the amounts earned are recorded as revenue from related party for the year ended December 31, 2020.

Such research and development activities were governed by a joint steering

committee composed of representatives of both Ironwood and the Company.

Ironwood and the Company have agreed not to renew the Development Agreement beyond the end of its initial term on March 31, 2021.

These transactions under the Development Agreement were considered related party transactions due to Mark Currie’s role as President of the Company through December 31, 2020, and board member of Ironwood.

In January 2021, Mark Currie’s role transitioned from President of the Company to a senior advisor on a consulting basis.

Therefore, effective January 2021, transactions under the Development Agreement are no longer accounted for as related party transactions.

The Company recorded approximately $ 2.3 million for the year ended December 31, 2020.

Other Related Party Transactions

During the years ended December 31, 2020 and 2019, the Company recorded approximately $1.5 million and $0.2 million, respectively, of research and development costs to a related party which it engaged to provide research and development transaction support services.

The entity became a related party when Mark Currie, the Company’s President through December 31, 2020, joined its board in January 2020.

There was approximately $0.3 million and a de minimis amount due to the related party for the years ended December 31, 2020 and 2019, respectively.

During the year ended December 31, 2020, the Company recorded approximately $ 1.5 million of research and development costs to a related party which it engaged to provide research and development transaction support services.

The entity became a related party when Mark Currie, the Company’s President through December 31, 2020, joined its board in January 2020.

There was approximately $ 0.3 million due to the related party for the year ended December 31, 2020.

In January 2021, Mark Currie’s role transitioned from President of the Company to a senior advisor on a consulting basis.

Therefore, effective January 2021, transactions under this agreement are no longer accounted for as related party transactions.

Fair Value of Financial Instruments

The Company’s cash equivalents are generally classified within Level 1 of the fair value hierarchy.

The following tables present information about the Company’s financial assets measured at fair value on a recurring basis as of December 31, 2020 and 2019 and indicate the level of the fair value hierarchy used to determine such fair values (in thousands):

Fair Value Measurements as of December 31, 2020 Using:

The Company’s cash equivalents are generally classified within Level 1 of the fair value hierarchy.

The following tables present information about the Company’s financial assets measured at fair value on a recurring basis and indicate the level of the fair value hierarchy used to determine such fair values as of December 31, 2021 and December 31, 2020 (in thousands):

Fair Value Measurements as of December 31, 2021:

Cash equivalents:

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Cash equivalents

Fair Value Measurements as of December 31, 2019 Using:

Fair Value Measurements as of December 31, 2020:

Cash equivalents:

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Cash equivalents

During the year ended December 31, 2021 and 2020, there were no transfers between levels.

The fair value of the Company's cash equivalents, consisting of money market funds, is based on quoted market prices in active markets with no valuation adjustment.

The Company believes the carrying amounts of its prepaid expenses and other current assets, restricted cash, accounts payable, and accrued expenses approximate their fair value due to the short-term nature of these amounts.

Property and Equipment

Property and equipment, net consisted of the following (in thousands):

Laboratory equipment

Construction in progress

Computer and office equipment

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Property and equipment, net

As of December 31, 2020, and 2019, the Company’s property and equipment was primarily located in Cambridge, Massachusetts.

Depreciation and amortization expense of the Company’s property and equipment was approximately $2.3 million and $2.7 million for the years ended December 31, 2020 and 2019, respectively.

The Company has ceased using its current laboratory and office space for meaningful business activities as part of its plan to exit the facilities in early 2021.

As such, the Company sold or disposed substantially all of its laboratory and office equipment during the year ended December 31, 2020.

The Company recorded a total net loss on disposal of property and equipment of approximately $0.2 million for the year ended December 31, 2020, which includes a loss related to computer and office equipment of approximately $1.0 million and a gain related to the sale of laboratory equipment of approximately $0.8 million.

The Company recorded a loss on disposal of property and equipment of approximately $0.8 million for the year ended December 31, 2019 which primarily related to leasehold improvements.Net loss on disposal of property and equipment is recognized as a component of operating expenses in the consolidated and combined statements of operations and comprehensive loss for the years ended December 31, 2020 and 2019.

Fixed asset purchases included in accounts payable and accrued expenses was approximately $0.8 million on December 31, 2019, respectively.

As of December 31, 2021, and 2020, the Company’s property and equipment was primarily located in Cambridge, Massachusetts.

Depreciation and amortization expense of the Company’s property and equipment was approximately $ 0.5 million and $ 2.3 million for the years ended December 31, 2021 and 2020, respectively.

During the year ended December 31, 2021, the Company recorded a non-cash loss of $ 6.3 million, on the disposal of leasehold improvements as a result of its Head Lease (as defined below) termination (see Note 8 to the Consolidated Financial Statements).

The non-cash loss on the disposal of leasehold improvements was recognized as a component of operating expenses in the consolidated statements of operations and comprehensive loss for the year ended December 31, 2021 .

Accrued Expenses and Other Current Liabilities

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Accrued incentive compensation

Salaries and related

Accrued vacation

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Other Funding Commitments

The Company enters into contracts in the normal course of business with clinical research organizations for clinical research and other third parties for preclinical research studies and testing and other services and products for operating purposes.

These contracts are generally cancellable, with notice, at the Company’s option and do not have any significant cancellation penalties.

In the normal course of business, the Company enters into contracts with clinical research organizations and other third parties for clinical and preclinical research studies and other services and products for operating purposes.

These contracts are generally cancellable, with notice, at the Company’s option and do not have any significant cancellation penalties.

On September 6, 2018, Cyclerion was incorporated in Massachusetts and its officers and directors are indemnified for certain events or occurrences while they are serving in such capacity.

Prior to the Separation, the Company’s officers and directors were similarly indemnified under Delaware law.

The Company enters into certain agreements with other parties in the ordinary course of business that contain indemnification provisions.

These typically include agreements with directors and officers, business partners, contractors, clinical sites and customers.

Under these provisions, the Company generally indemnifies and holds harmless the indemnified party for losses suffered or incurred by the indemnified party as a result of the Company’s activities.

These typically include agreements with directors and officers, business

partners, contractors, clinical sites and customers.

Under these provisions, the Company generally indemnifies and holds harmless the indemnified party for losses suffered or incurred by the indemnified party as a result of the Company’s activities.

These indemnification provisions generally survive termination of the underlying agreements.

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ASU 2016-02 also requires certain qualitative and quantitative disclosures designed to give financial statement users information on the amount, timing, and uncertainty of cash flows arising from leases.

On April 1, 2019, the Company entered into the Head Lease, a direct operating lease for its existing premises located at 301 Binney Street, Cambridge, MA consisting of approximately 114,000 rentable square feet of office and laboratory space on the first and second floors.

The Head Lease is for a term of 123 months with two five-year extension options and certain expansion rights.

The Head Lease includes a letter of credit of $7.7 million posted with the landlord as a security deposit, which is collateralized by a money market account recorded as restricted cash on the Company’s consolidated balance sheets as of December 31, 2019.

Cyclerion has also entered into customary non-disturbance arrangements with the building landlord’s mortgagee and with the property ground lessor recognizing Cyclerion’s leasehold interest in this property.

The Head Lease provides for annual base rent of approximately $11.0 million in the first year, which increases on a yearly basis by 3.0% (subject to an abatement of base rent of approximately $2.7 million in the first year of the lease).

The Company is obligated to pay the landlord for certain costs, taxes and operating expenses related to the premises, subject to certain exclusions;

however, the Company has concluded that these payments are not in-substance fixed payments and therefore are not included in the calculation of the related lease liability and asset under ASC 842.

Additionally, the Company has made the policy election to adopt the practical expedient to not separate lease components from non-lease components for the right-to-use asset class of office and laboratory space.

This policy election results in the Company accounting for the lease component, the use of the premises, and the non-lease components, which include a property management fee, as a single lease component.

The Company recorded the liability associated with the Head Lease at the present value of the lease payments not yet paid, discounted using the discount rate for the Head Lease established at the commencement date.

As the Head Lease does not provide an implicit rate, the Company had to estimate the incremental borrowing rate, or IBR, as of the commencement date.

The IBR is defined under ASC 842 as the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term for an amount equal to the lease payments in a similar economic environment.

The Company determined its IBR to be 10.9 %, which was used to discount the remaining lease payments over the remaining lease term and recorded a lease liability of $ 71.3 million on April 1, 2019.

This lease liability will be amortized over the remaining lease term in an amount equal to the difference between the cash rent paid and the monthly interest calculated on the remaining lease liability.

The Company had a tenant improvement allowance from the landlord of approximately $2.3 million for certain permitted costs related to the buildout of the premises.

The Company is deemed to be the owner of these tenant improvements during the lease term.

These $2.3 million of improvements are included in the Company’s property, plant and equipment balances in its consolidated balance sheets as of December 31, 2019 and are depreciated over the shorter of their useful life or the related lease term.

The Company received the payment for the tenant allowance in the third quarter of 2019.

On April 1, 2019, the Company recorded a right-of-use asset in the amount $71.3 million.

The right-of-use asset is being amortized over the remaining lease term in an amount equal to the difference between the calculated straight-line expense of the total lease payments less the monthly interest calculated on the remaining lease liability.

On April 1, 2019, the Company entered into the Head Lease ("the Head Lease"), a direct operating lease for its former headquarters located at 301 Binney Street, Cambridge, MA consisting of approximately 114,000 rentable square feet of office and laboratory space on the first and second floors.

The Head Lease had a term of 123 months with two five-year extension options and certain expansion rights.

The Head Lease also included a letter of credit of $ 7.7 million, posted with the landlord as a security deposit, which was collateralized by a money market account recorded as restricted cash on the Company’s consolidated balance sheets.

The Company had also entered into customary non-disturbance arrangements with the building landlord’s mortgagee and with the property ground lessor recognizing Company's leasehold interest in this property.

On February 28, 2020 the Company entered into an amendment to its Head Lease.

The Lease Amendment provides for the partial termination of the Company’s rights and obligations with respect to a portion of the leased premises of approximately 40,000 rentable square feet.

The Company will continue to lease approximately 74,000 square feet including the area covered by the subleased premise, discussed below.

The Company reduced its remaining lease payments through June 2029 by approximately $41.9 million.

In connection with the Lease Amendment, the Company paid $6.3 million for a termination fee and $0.2 million for other initial direct costs, which will be deferred and recognized over the remaining lease term.

The Company’s security deposit was reduced by approximately $2.7 million to approximately $5.0 million.

The Lease Amendment partially terminated the Company’s rights and obligations with respect to an approximately 40,000 rentable square feet.

The Company continued to lease the remaining space of approximately 74,000 square feet including the area covered by the subleased premise, discussed below.

In connection with this Lease Amendment, the Company reduced its remaining lease payments through June 2029 by approximately $ 41.9 million and paid a $ 6.3 million termination fee and $ 0.2 million related to other initial direct costs, which were deferred and recognized over the remaining lease term.

The Company’s security deposit was also reduced by approximately $ 2.7 million to approximately $ 5.0 million.

The Lease Amendment was determined to be a lease modification that qualified as a change of accounting on the existing lease and not a separate contract.

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On September 15, 2020 the Company entered into the Second Lease Amendment to its Head Lease.

The Second Lease Amendment provides for the partial termination of the Company’s rights and obligations with respect to a portion of the leased premises of approximately 17,000 rentable square feet.

The Surrender Space includes 15,700 rentable square feet being subleased by the Company to a subtenant.

The Company will continue to lease approximately 57,000 square feet of space.

The Second Lease Amendment provided for the partial termination of the Company’s rights and obligations with respect to a portion of the leased premises of approximately 17,000 rentable square feet.

The Surrender Space included 15,700 rentable square feet being subleased by the Company to a subtenant.

The Company continued to lease approximately 57,000 square feet of space.

The Company reduced its remaining lease payments through June 2029 by approximately $ 16.9 million.

The Company paid no termination or other initial direct costs related to the execution of the Second Lease Amendment.

The Company’s security deposit was reduced by approximately $1.2 million to approximately $3.8 million, which is classified as restricted cash on the Company’s consolidated balance sheet as of December 31, 2020.

The Company’s security deposit was reduced by approximately $ 1.2 million to approximately $ 3.8 million, which is classified as restricted cash on the Company’s consolidated balance sheet as of December 31, 2020.

The Second Lease Amendment was determined to be a lease modification that qualified as a change of accounting on the existing lease and not a separate contract.

As such, the ROU assets and operating lease liabilities were remeasured using an incremental borrowing rate at the date of modification of 6.1 %, which resulted in a reduction of the ROU asset of $ 5.9 million and a reduction in the operating lease liabilities of $ 5.5 million.

The Company recorded the resulting loss of approximately $0.4 million as a component of operating expenses in the consolidated statement of operations and comprehensive loss for the year ended December 31, 2020.

T he Company had an operating lease right-of-use asset of approximately $ 43.4 million and $ 68.1 million related to the amended Head Lease recorded in its consolidated balance sheets as of December 31, 2020 and 2019 , respectively.

The Company ha d current operating lease liabilities of approximately $ 3.3 million and $ 3.4 million, and noncurrent operating lease liabilities of approximately $ 38.9 million and $ 70.5 million, related to the amended Head Lease recorded in its consolidated balance sheets as of December 31, 2020 and 2019 , respectively.

Lease cost is recognized on a straight-line basis over the lease term.

Company recorded the resulting loss of approximately $ 0.4 million as a component of operating expenses in the consolidated statement of operations and comprehensive loss for the year ended December 31, 2020.

Pursuant to the Termination Agreement, the Company surrendered the leased space of approximately 57,000 square feet to the building’s landlord.

The Company did not pay any termination fees in connection with the Termination Agreement.

In total, the Company recognized a loss on the termination of the Head Lease of $ 0.9 million for the year ended December 31, 2021.

The loss is included in “General and administrative”

expenses on our consolidated statement of operations and comprehensive loss.

The Company had an operating lease ROU asset of approximately $ 43.4 million related to the amended Head Lease recorded in its consolidated balance sheets as of December 31, 2020.

The Company had current and non-current operating lease liabilities of approximately $ 3.3 million, and $ 38.9 million, respectively, related to the amended Head Lease recorded in its consolidated balance sheets as of December 31, 2020.

Lease cost was recognized on a straight-line basis over the lease term.

For the years ended December 31, 2021 and 2020, the Company recognized a total of approximately $ 2.4 million and $ 8.6 million, respectively, of total lease costs.

Variable lease costs not subject to an index or rate are recognized as incurred.

Variable lease costs not subject to an index or rate were recognized as incurred.

For the years ended December 31, 2021 and 2020, the Company recognized a total of approximately $ 0.7 million and $ 2.2 million, respectively, of variable lease costs related to the Head Lease, as amended.

In May 2021, the Company signed a membership agreement to lease space with WeWork at 501 Boylston Street, Boston, Massachusetts.

The lease commenced on August 1, 2021 and was accounted for as a short term lease.

The Company recorded $ 0.1 million in lease expense associated with the membership agreement during the year ended December 31, 2021.

Supplemental cash flow information related to leases for the periods reported is as follows:

Year Ended December 31,

Year Ended December 31, 2019

Right-of-use assets obtained in exchange for new

operating lease upon lease commencement (in

Decrease in right-of-use assets related to lease

modifications

Decrease in operating lease liabilities due to lease

modifications

Cash paid for amounts included in the measurement

of lease liabilities (in thousands)

Cash received for tenant improvements included in the measurement of lease liabilities (in thousands)

Weighted-average remaining lease term of operating

leases (in years)

Decrease in right-of-use assets related to lease modifications and termination (in thousands)

Decrease in operating lease liabilities due to lease modifications and termination (in thousands)

Cash paid for amounts included in the measurement of lease liabilities (in thousands)

Weighted-average remaining lease term of operating leases (in years)

Weighted-average discount rate of operating leases

Future minimum lease payments under non-cancelable operating leases under ASC 842 as of December 31, 2020 are as follows (in thousands):

2026 and thereafter

Total future minimum lease payments (receipts)

present value adjustment

Operating lease liabilities at December 31, 2020

current portion of operating lease liabilities

Operating lease liabilities, net of current portion

On March 31, 2019, the Company entered into a short-term sublease of approximately 24,000 rentable square feet with Ironwood to provide temporary working space for a portion of its workforce while the buildout of the Company’s new premises was being completed.

The sublease was for an initial one-month term with several one-month extension options.

The Company subleased the space for approximately 1.5 months, vacating the space and terminating the sublease in mid-May 2019.

The Company incurred approximately $0.2 million in rent expense related to the sublease, which is included in the total lease cost of $9.3 million, for the year ended December 31, 2019.

On October 18, 2019, the Company entered into an agreement with a third party to sublease 15,700 rentable square feet of its lease premises under the Head Lease.

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The agreements requiring the former subtenant to provide licensed rooms and services to the Company free of charge through the original sublease term survived the sublease termination.

The Company expects to receive the benefit of the licensed rooms and services beginning in the third quarter of 2021.

The Company gained access to the licensed rooms and services beginning in the third quarter of 2021.

The letter of credit security deposit related to the sublease was released.

The Company determined that the Sublease Termination Agreement constitutes a non-monetary exchange under ASC 845 Nonmonetary Transactions (“ASC 845”) where, in return for the free rooms and the services, the Company agreed to terminate its rights and obligations under the sublease agreement.

The Company determined that the Sublease Termination Agreement constituted a non-monetary exchange under ASC 845 Nonmonetary Transactions (“ASC 845”) where, in return for the free rooms and the services, the Company agreed to terminate its rights and obligations under the sublease agreement.

In accordance with ASC 845, the Company determined that the accounting for the transaction should be based on the fair value of assets or services involved.

The Company estimated the fair value of the rooms and services to be approximately $ 1.5 million and $ 2.9 million, respectively.

Accordingly, prepaid rooms and services of $4.4 million were recorded upon the sublease termination, of which $1.6 million is recorded in other current assets and $2.8 million is recorded in other assets in the consolidated balance sheets as of December 31, 2020.

Accordingly, prepaid rooms and services of $ 4.4 million were recorded upon the sublease termination, of which $ 1.6 million was recorded in other current assets and $ 2.8 million was recorded in other assets in the consolidated balance sheets as of December 31, 2020.

Termination fee income of $ 3.1 million was recognized related to the rooms and services, after considering the rent receivable balance of $ 1.3 million outstanding from the subtenant.

The remaining unamortized direct costs of $ 0.2 million were written off.

The effects of the Sublease Termination Agreement are recorded within sublease termination income, net in the consolidated and combined statements of operations and comprehensive loss.

The effects of the Sublease Termination Agreement were recorded within sublease termination income, net in the consolidated statements of operations and comprehensive loss.

Total gross sublease income of approximately $ 1.5 million, and net sublease income of approximately $ 0.3 million was recorded in interest and other income, net in the consolidated statements of operations and comprehensive loss for year ended December 31, 2020.

The Company determined that the licensed rooms represent a lease under ASC 842.

Once the Company obtains control of the rooms, the prepaid rooms balance will be reclassified from other assets to a ROU asset, and the related lease expense will be recorded on a straight-line basis over the lease term.

The Company determined that the licensed services represent a non-lease component, which will be recognized separately from the lease component for this asset class.

The expense related to the licensed services will be recognized on a straight-line basis over the period the services are received.

Both the lease expense and services expense will be recognized as a component of research and development costs in the consolidated and combined statements of operations and comprehensive loss.

For the years ended December 31, 2020 and 2019, gross sublease income of $1.5 million and $0.4 million, respectively, and net sublease income of approximately $0.3 million and $0.1 million, respectively, was recorded in interest and other income, net in the consolidated and combined statements of operations and comprehensive loss.

The Company obtained control of the rooms in the third quarter of 2021 and the prepaid rooms balance of approximately $ 1.4 million was reclassified from other assets to a ROU asset.

The related lease expense is recognized on a straight-line basis over the lease term of 8.88 years.

The Company recorded $ 0.1 million of lease expense during the year ended December 31, 2021.

The Company determined that the licensed services represent a non-lease component, which is recognized separately from the lease component for this asset class.

The expense related to the licensed services is recognized on a straight-line basis over the period the services are received.

The Company recorded $ 0.2 million for the year ended December 31, 2021.

Both the lease expense and services expense are recognized as a component of research and development costs in the consolidated statements of operations and comprehensive loss.

Share-based Compensation Plans

Prior to the Separation, share-based compensation expense was allocated to Cyclerion using a combined specific identification and pro-rata method based on internal project related costs and headcount that management believed were consistent and reasonable.

In connection with the Separation, Cyclerion adopted its own share-based compensation plans.

Specifically, Cyclerion adopted the 2019 Employee Stock Purchase Plan (“2019 ESPP”) and the 2019 Equity Incentive Plan (“2019 Equity Plan”).

In 2019, Cyclerion adopted share-based compensation plans.

Specifically, Cyclerion adopted the 2019 Employee Stock Purchase Plan (“2019 ESPP”) and the 2019 Equity Incentive Plan (“2019 Equity Plan”).

Under the 2019 ESPP, eligible employees may use payroll deductions to purchase shares of stock in offerings under the plan, and thereby acquire an interest in the future of the Company.

Under the 2019 Equity Plan, new post-Separation awards, including stock options and restricted stock units (“RSUs”), may be granted to employees of the Company.

Cyclerion also mirrored two of Ironwood’s existing plans, the Amended and Restated 2005 Stock Incentive Plan (“2005 Equity Plan”) and the Amended and Restated 2010 Employee, Director and Consultant Equity Incentive Plan (“2010 Equity Plan).

The 2019 Equity Plan provides for stock options and restricted stock units (“RSUs”).

These mirror plans were adopted to facilitate the exchange of Ironwood equity awards for Cyclerion equity awards upon the Separation as part of the equity conversion.

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For employees that were ultimately employed by Cyclerion, unvested Ironwood options and RSUs were converted to unvested Cyclerion options and RSUs.

The conversion of equity awards resulting from the Separation impacted approximately 143 employees and was treated as a Type 1 modification under ASC Topic 718, Share-Based Payments, as the awards are expected to vest under the original terms.

Incremental compensation expense was measured as the excess, if any, of the fair value of the modified award over the fair value of the original award immediately before its terms were modified.

The fair value of RSUs and restricted stock awards was measured using the fair value stock price immediately before and immediately after the modification date which resulted in no incremental compensation expense.

The fair value of stock options was measured using the Black-Scholes option pricing method using the appropriate valuation assumptions immediately before and immediately after the modification date.

As a result of the modification, Cyclerion recognized a one-time incremental expense of approximately $0.3 million for the vested stock options and will recognize an incremental expense of approximately $7.5 million for the unvested stock options over their remaining vesting period.

The following table provides share-based compensation reflected in the Company’s consolidated and combined statements of operations and comprehensive loss for the years ended December 31, 2020 and 2019 (in thousands):

The following table provides share-based compensation reflected in the Company’s consolidated statements of operations and comprehensive loss for the years ended December 31, 2021 and 2020 (in thousands):

Research and development

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Stock Options

Stock options granted under the Company’s equity plans generally have a ten-year term and vest over a period of four years, provided the individual continues to serve at the Company through the vesting dates.

Options granted under all equity plans are exercisable at a price per share not less than the fair market value of the underlying common stock on the date of grant.

The estimated fair value of options, including the effect of estimated forfeitures, is recognized over the requisite service period, which is typically the vesting period of each option.

A summary of stock option activity for the year s ended December 31, 2020 and 2019 is as follows:

Outstanding as of December 31, 2018

Aggregate impact of conversion related to

Cancelled or forfeited

A summary of stock option activity for the year ended December 31, 2021 is as follows:

Outstanding as of December 31, 2020

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Exercisable at December 31, 2021

During the years ended December 31, 2020 and 2019, the Company granted stock options to purchase an aggregate of 1,382,846 shares and 1,687,029, respectively, at weighted average grant date fair values per option share of $1.97 and $4.97, respectively.

The total grant date fair value of options granted during the years ended December 31, 2020 and 2019 was $2.7 million and $8.4 million, respectively.

As of December 31, 2020, the unrecognized share-based compensation expense, net of estimated forfeitures, related to all unvested stock options held by Cyclerion’s employees is $14.6 million and the weighted average period over which that expense is expected to be recognized is 2.72 years.

During the years ended December 31, 2021 and 2020, the Company granted stock options to purchase an aggregate of 1,176,250 shares and 1,382,846 shares, respectively, at weighted average grant fair values per option share of $ 2.17 and $ 1.97 , respectively.

The total grant fair value of options granted during the years ended December 31, 2021 and 2020 was $ 2.6 million and $ 2.7 million, respectively.

The total intrinsic value of options exercised for the years ended December 31, 2021 and 2020 was $ 0.1 million and $ 0.1 million, respectively.

As of December 31, 2021, the unrecognized share-based compensation expense, net of estimated forfeitures, related to all unvested time-based stock options held by the Company’s employees is $ 8.1 million and the weighted average period over which that expense is expected to be recognized is 3.29 years.

The weighted-average Black-Scholes assumptions used in estimating the fair value of the stock options granted by Cyclerion following the Separation during the years ended December 31, 2021 and 2020 were as follows:

December 31, 2020

December 31, 2019

Year ended December 31,

Weighted average risk-free interest rate

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For the years ended December 31, 2021 and 2020, expected volatility was estimated using an average of the historical volatility of the common stock of a group of similar companies that were publicly traded.

The Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of its own stock price becomes available.

Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of its own stock price becomes available.

The Company has granted to certain employees performance based options to purchase shares of common stock.

These options are subject to performance based milestone vesting.

During the years ended December 31, 2020 and 2019 there were no shares that vested as a result of performance milestone achievements.

The Company recorded no share-based compensation expense related to these performance-based options for the years ended December 31, 2020 and 2019.

During the year ended December 31, 2021 , 50,000 shares vested as a result of performance milestone achievements and no shares vested during the year ended December 31, 2020.

The Company recorded a de minimis and no share-based compensation expense related to these performance-based options for the years ended December 31, 2021, and 2020, respectively.

Market-based Stock Options

The Company has granted to certain employees performance‑based options to purchase shares of common stock.

These options are subject to performance‑based milestone vesting.

During the years ended December 31, 2020 and 2019 there were no shares that vested as a result of performance milestone achievements.

The Company recorded no share-based compensation expense related to these performance-based options for the years ended December 31, 2020 and 2019.

The Company also has granted to certain employees stock options containing market conditions that vest upon the achievement of specified price targets of the Company’s share price for a period through December 31, 2024.

Vesting is measured based upon the average closing price of the Company’s share price for any thirty consecutive trading days, subject to certain service requirements.

Stock compensation cost is expensed on a straight-line basis over the derived service period for each stock price target within the award, ranging from approximately 4.0 to 4.6 years.

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The Company does not reverse expense recognized if the share price target(s) are ultimately not achieved but expense is reversed when a stock award recipient has a break in service prior to the completion of the derived service period.

For the years ended December 31, 2020 and 2019, the Company recorded $0.1 million and a de minimis amount of share-based compensation expense, respectively related to these stock options containing market conditions.

As of December 31, 2021, there was $ 0.2 million of unrecognized compensation costs related to stock options containing market conditions, which is expected to be recognized over a weighted-average period of 2.17 years.

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Outstanding as of December 31, 2021

Cancelled or forfeited

Outstanding as of December 31, 2020

Exercisable at December 31, 2021

The fair value of stock options containing market conditions is estimated using Monte Carlo simulations.

No stock options containing market conditions were granted during the year ended December 31, 2020.

The range of assumptions used to determine the fair value of awards granted during the year ended December 31, 2019 were as follows:

December 31, 2019

Weighted average risk-free interest rate

Expected dividend yield

Derived service period (in years)

Expected stock price volatility

No stock options containing market conditions were granted during the years ended December 31, 2021 and 2020.

Restricted Stock Units

The RSUs generally vest 25 % per year on the approximate anniversary of the date of grant until fully vested, provided the employee remains continuously employed with the Company through each vesting date.

Shares of the Company’s common stock are delivered to the employee upon vesting, subject to payment of applicable

withholding taxes.

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

Shares of the Company’s common stock are delivered to the employee upon vesting, subject to payment of applicable withholding taxes.

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

Compensation expense, including the effect of estimated forfeitures, is recognized over the applicable service period.

A summary of RSU activity for the years ended December 31, 2020 and 2019 is as follows:

A summary of RSU activity for the years ended December 31, 2021 is as follows:

Weighted Average

Unvested as of December 31, 2020

Aggregate impact of conversion related to

Unvested as of December 31, 2021

Unvested as of December 31, 2020

As of December 31, 2020, the unrecognized share-based compensation expense, net of estimated forfeitures, related to all unvested restricted stock units by the Company’s employees is $2.4 million and the weighted-average period over which that expense is expected to be recognized is 1.85 years.

Restricted Stock Awards

Any of the Company’s non-employee directors who served as non-employee directors of Ironwood received shares of the Company’s unvested restricted stock in respect of any outstanding unvested awards of Ironwood restricted stock they held.

Such restricted stock awards were subject to the vesting schedule set forth in the original Ironwood restricted stock award.

On April 1, 2019, the Company made grants of 21,942 shares of its restricted stock at a weighted average grant date fair value of $14.81 to its non-employee directors who did not hold Ironwood restricted stock prior to the distribution.

Such restricted stock awards have an equivalent value to the shares of the Company’s restricted stock granted to its non-employee directors who held Ironwood restricted stock prior to the distribution, and have been pro-rated to reflect each non-employee director’s period of service with the Company from the date of the distribution to the anticipated date of the first annual grant.

These restricted stock awards fully vested on May 30, 2019.

The Company did not grant any restricted stock awards during the year ended December 31, 2020.

As of December 31, 2021, the unrecognized share-based compensation expense, net of estimated forfeitures, related to all unvested restricted stock units by the Company’s employees is $ 0.7 million and the weighted-average period over which that expense is expected to be recognized is 1.13 years.

Loss per share

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

Prior to April 1, 2019, there were no Cyclerion shares outstanding, as such, the shares outstanding immediately after the distribution and the private placement were used to calculate the basic and diluted net loss per share for the year ended December 31, 2019.

Basic and diluted earnings per share are calculated as follows:

Basic and diluted net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the period as follows:

Net loss (in thousands)

Weighted average shares used in calculating

net loss per share — basic and diluted

(in thousands)

Net loss per share — basic and diluted

For the year ended December 31, 2020 8,026,356 shares of common stock related to stock options and 294,913 shares of common stock related to RSUs were excluded from the calculation of diluted net loss per share since the inclusion of such shares would be anti-dilutive.

There was no provision for income taxes for the years ended December 31, 2020, and 2019, due to the Company’s operating losses and a full valuation allowance on deferred tax assets.

Weighted average shares used in calculating net loss per share —

basic and diluted (in thousands)

Net loss per share —

basic and diluted

We exclude shares of common stock related to stock options and RSUs from the calculation of diluted net loss per share since the inclusion of such shares would be anti-dilutive.

The following table sets forth potential shares that were considered anti-dilutive for the years ended December 31, 2021 and 2020:

Stock Options

There was no provision for income taxes for the years ended December 31, 2021, and 2020, due to the Company’s operating losses and a full valuation allowance on deferred tax assets.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

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Permanent differences

Separation-related adjustments

PPP loan forgiveness

Change in valuation allowance

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State credits begin to expire in 2022 and continue through 2034 .

The Company’s ability to use its operating loss carryforwards and tax credits to offset future taxable income could be subject to restrictions under Section 382 of the U.S.

Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”).

The Company’s ability to use its operating loss carryforwards and tax credits to offset future taxable income could be subject to restrictions under Section 382 of the U.S.

Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”).

These potential restrictions may limit the future use of the operating loss carryforwards and tax credits if certain ownership changes described in the Internal Revenue Code occur.

Changes in stock ownership may occur that would create these limitations on the Company’s use of the operating loss carryforwards and tax credits.

In such a situation, the Company may be required to pay income taxes, even though significant operating loss carryforwards and tax credits exist.

The Company has not as yet conducted a study of its research and development credit carry forwards.

This study may result in an adjustment to the Company’s research and development credit carryforwards;

however, until

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

A full valuation allowance has been provided against the Company’s research and development credits, and if an adjustment is required, this adjustment would be offset by an adjustment to the valuation allowance.

This study may result in an adjustment to the Company’s research and development credit carryforwards;

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

Thus, there would be no impact to the consolidated balance sheets or statements of operations if an adjustment were required.

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There are no current federal or state income tax audits in progress.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was enacted and signed into law.

The CARES Act is an emergency economic stimulus package in response to the COVID-19 pandemic, which among other things contains numerous income tax provisions, some of which are effective retroactively for fiscal years ended before the date of enactment.

The CARES Act includes certain tax relief provisions, including modifications to the NOL rules, including a provision to carryback losses from 2018 – 2020 tax years, temporary changes to business interest expense disallowance rules (IRC §163(j)), qualified improvement property, payroll tax delays/ credits, and several other tax and non-tax benefits.

The CARES Act includes certain tax relief provisions, including modifications to the NOL rules, including a provision to carryback losses from 2018 –

2021 tax years, temporary changes to business interest expense disallowance rules (IRC §163(j)), qualified improvement property, payroll tax delays/ credits, and several other tax and non-tax benefits.

These tax provisions should have no significant income tax ramifications for Cyclerion, but the Company will continue to monitor any changes and guidance in order to consider potential opportunities.

The CARES Act also created a program called the Paycheck Protection Program (“PPP”) to be administered by the Small Business Administration (“SBA”).

The CARES Act also created a program called the Paycheck Protection Program to be administered by the SBA.

Cyclerion received $ 3.5 million of loan proceeds on April 21, 2020 under the PPP, as fully described in Note 2, Summary of Significant Accounting Policies .

Defined Contribution Plan

Prior to the Separation, Ironwood maintained a defined contribution 401(k) Savings Plan in the form of a qualified 401(k) plan for the benefit of substantially all of its employees, which included Ironwood employees who became Cyclerion employees.

Compensation expense related to the 401(k) match was allocated to Cyclerion using a pro-rata method based on project-related costs and headcount that management believes are consistent and reasonable.

Subsequent to the Separation, Cyclerion adopted a defined contribution 401(k) Savings Plan similar to the plan in place at Ironwood.

In 2019, Cyclerion adopted a defined contribution 401(k) Savings Plan similar to the plan in place at Ironwood.

The plan assets under the Ironwood defined contribution 401(k) Savings Plan were transferred to the Cyclerion plan.

Subject to certain IRS limits, eligible employees may elect to contribute from 1% to 100% of their compensation.

Subject to certain IRS limits, eligible employees may elect to contribute from 1 % to 100 % of their

compensation.

Cyclerion contributions to the plan are at the sole discretion of the board of directors.

Currently, Cyclerion provides a matching contribution of 75% of the employee’s contributions, up to $6,000 annually.

Included in compensation expense for employees that are directly attributable to Cyclerion is approximately $0.5 million and $0.6 million for years ended December 31, 2020 and 2019, respectively.

Currently, Cyclerion provides a matching contribution of 75 % of the employee’s contributions, up to $ 6,000 annually.

Included in compensation expense is approximately $ 0.3 million and $ 0.5 million related to the defined contribution 401(k) Savings Plan for the years ended December 31, 2021 and 2020 , respectively.

Workforce Reduction

2020 Workforce Reduction

On November 5, 2020, the Company began a reduction of its current workforce by approximately forty-eight (48) full-time employees in order to align its resources with its current priorities of focusing on the MELAS study, the planned ADv study and further characterization of CY6463 novel pharmacology.

The Company estimates total costs related to the workforce reduction to be approximately $5.0 million including approximately $0.1 million in stock-based compensation from the modification of certain share-based equity awards.

The Company reduced its workforce by approximately thirty-one (31) employees in the fourth quarter of 20 20 and recorded approximately $ 4.1 million of severance and benefits costs in accordance with ASC Topic 420, Exit or Disposal Cost Obligations, or ASC 420 , including a de minimis amount of stock-based compensation expense , for the year ended December 31, 2020.

The workforce reduction is expected to be completed by the end of the first quarter of 2021.

On November 5, 2020, the Company began a reduction of its current workforce by forty-eight (48) full-time employees to align its resources with its current priorities of focusing on the MELAS study, the planned ADv study and further characterization of CY6463 novel pharmacology.

The Company recorded total costs related to the 2020 Workforce Reduction were approximately $ 5.0 million including approximately $ 0.1 million in stock-based compensation from the modification of certain share-based equity awards.

The Company reduced its workforce by thirty-one (31) employees in the fourth quarter of 2020 and recorded approximately $ 4.1 million of severance and benefits costs in accordance with ASC Topic 420, Exit or Disposal Cost Obligations, or ASC 420, including a de minimis amount of stock-based compensation expense, for the year ended December 31, 2020.

The workforce reduction was completed by the end of the first quarter of 2021.

The following table summarizes the accrued liabilities activity recorded in connection with the reduction in workforce for the year ended December 31, 2021 (in thousands):

2020 workforce reduction

2019 Workforce Reduction

On October 30, 2019, the Company began a reduction of its current workforce by approximately thirty (30) full-time employees in order to align its resources with its ongoing clinical and preclinical programs, innovation strategy and partnering efforts.

The workforce reduction was substantially completed during the year ended December 31, 2019, in which the Company recorded approximately $2.8 million of severance and benefits costs in accordance with ASC 420.

The Company recorded approximately $0.2 million of severance and benefits costs and a de minimis amount of adjustments during the year ended December 31, 2020.

The following table summarizes the accrued liabilities activity recorded in connection with the reduction in workforce for the years ended December 31, 2020 and 2019 (in thousands):

December 31, 2018

2019 workforce reduction

License Agreement

Akebia License Agreement

On June 3, 2021, the Company and Akebia entered into a License Agreement (the “License Agreement”) relating to the exclusive worldwide license by the Company to Akebia of our rights to the development, manufacture, medical affairs and commercialization of pharmaceutical products containing the pharmaceutical compound known as praliciguat and other related products and forms thereof enumerated in the License Agreement (collectively, the “Products”).

Pursuant to the License Agreement, Akebia will be responsible for all future research, development, regulatory, and commercialization activities for the Products.

Akebia paid a $ 3.0 million up-front payment to the Company upon signing of the License Agreement and the Company is eligible to receive additional milestone cash payments of up to $ 12.0 million in the next 18 months.

Further milestone cash payments by Akebia are scheduled in the License Agreement based on the initiation of phase 3 clinical trials in the U.S.

for Products for first and second indication, for FDA approvals, for approvals in certain other major markets, and for certain sales milestones.

In addition to these cash milestone payments, Akebia will pay the Company tiered royalty payments on net sales in certain major markets at percentages ranging from the mid-single digits to the high-teens, subject to certain reductions and offsets.

Pursuant to the License Agreement, the Company determined the License Agreement represents a service arrangement under the scope of ASC 606.

Given the reversion of the rights under the License Agreement represents a penalty in substance for a termination by Akebia, the contract term would be the stated term of the License Agreement.

The Company determined that the grant of license to our patents and trademarks, know how transfer, the assignment of regulatory submissions and trademarks and additional knowledge transfer assistance obligations represent a single promise and performance obligation to be transferred to Akebia over time due to the nature of the promises in the contract.

The provision of development materials on hand was identified as a separate performance obligation.

However, it is immaterial in the context of the contract as the development materials are low value and do not have an alternative use to the Company.

The consideration related to sales-based milestone payments, including royalties, will be recognized when the related sales occur as these amounts have been determined to relate predominantly to the license.

The Company will re-evaluate the probability of achievement of the milestones and any related constraints each reporting period.

Akebia Supply Agreement

On August 3, 2021, the Company and Akebia entered into a Supply Agreement (the “Supply Agreement”) relating to the manufacturing by the Company of the Initial Supply of the Drug Product and placebo ("Initial Supply") for Akebia's use pursuant to the License Agreement.

Akebia will pay the Company for the manufacturing costs at mutually agreed upon rates.

The Company determined the Supply Agreement has stand-alone value under the scope of ASC 606 and should not be combined with the License Agreement.

Given that the Supply Agreement can be terminated at any time without cause with 30 days notice, the Company deemed the Supply Agreement to be a month-to-month contract.

The manufacturing of the Initial Supply by the Company represents a single performance obligation and consideration related to the manufacturing costs will be recognized over time as costs are incurred based on an input method.

The Company recorded $ 0.3 million amount as revenue from the Supply Agreement for the year ended December 31, 2021.

Grant Revenue

In August 2021, the Company was approved to receive funding from the PTC Grant for the Phase 2 study of CNS sGC stimulation in AD with vascular features.

The granting period is July 1, 2021, to December 31, 2022, and the Company will receive an award of up to $ 2 million.

The Company determined that this transaction is non-reciprocal as there is not considered to be a commensurate value exchanged with the Alzheimer's Association as the funding provider.

Where commensurate value is not exchanged for goods and services provided, a recipient assesses whether the grant is conditional or unconditional.

The Company considered all conditions and barriers associated with this grant and determined the grant is conditional and revenue will be recognized upon achieving certain milestones and incurring internal costs specifically covered by this grant.

Under ASC 958-605, revenues will be recognized as the Company incurs expenses related to the PTC Grant.

The Company incurred approximately $ 0.6 million of allowable expenses and recognized a corresponding amount of grant revenue for the year ended December 31, 2021.

Subsequent Events

The Company has evaluated all events and transactions that occurred after the balance sheet date through the date the consolidated financial statements were issued and determined that there were no such events requiring recognition or disclosure in the consolidated financial statements.

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

What changed 10-K

Item 9A. Controls and Procedures