What changed in this filing

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Item 9A. Controls and Procedures

2022-03-24 compared with 2021-03-31 · 234 added, 309 removed, 791 unchanged (41% of the section changed)

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Evaluation of Disclosure Controls and Procedures

As of December 31, 2020, our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures.

As of the end of the period covered by this Annual Report on Form 10-K, our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures.

The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.

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Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost benefit relationship of possible controls and procedures.

Based on this evaluation, management concluded that our disclosure controls and procedures were effective in alerting them in a timely manner to material information required to be disclosed in our periodic reports filed with the SEC.

Based on this evaluation, management concluded that our disclosure controls and procedures were effective, at the reasonable assurance level, as of December 31, 2021.

Internal Control Over Financial Reporting

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Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act.

Our internal control system is designed to provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation of published financial statements.

Our internal control system is designed to provide reasonable assurance to our management and Board regarding the preparation and fair presentation of published financial statements.

All internal control systems, no matter how well designed, have inherent limitations.

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Other Information.

On March 30, 2021, the Company entered into an Open Market Sale Agreement (the “Sale Agreement”) with Jefferies LLC (“Jefferies”) to sell shares of the Company’s common stock, par value $0.001 per share, having aggregate sales proceeds of up to $75,000,000, from time to time, through an “at the market” equity offering program under which Jefferies will act as sales agent.

Under the Sale Agreement, the Company will set the parameters for the sale of shares, including the number of shares to be issued, the time period during which sales are requested to be made, limitation on the number of shares that may be sold in any one trading day and any minimum price below which sales may not be made.

Subject to the terms and conditions of the Sale Agreement, Jefferies may sell the shares by methods deemed to be an “at the market offering” as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended, including sales made directly on The Nasdaq Capital Market or on any other existing trading market for the common stock.

The Company and Jefferies may each terminate the Sale Agreement at any time as set forth in the Sale Agreement.

Under the terms of the Sale Agreement, the Company may also sell shares to Jefferies acting as principal for Jefferies’ own account.

The compensation to Jefferies for sales of the Company’s common stock will be an amount equal to 3.0% of the gross proceeds of any shares of common stock sold under the Sale Agreement.

The Company has no obligation to sell any shares under the Sale Agreement, and may at any time suspend solicitation and offers under the Sale Agreement.

The shares will be issued pursuant to a shelf registration statement on Form S-3 to be filed with the SEC.

No sales may be made under the registration statement until it has been declared effective by the SEC.

The foregoing description of the Sale Agreement is not complete and is qualified in its entirety by reference to the full text of such agreement, a copy of which is filed herewith as Exhibit 1.1 to this Annual Report on Form 10-K and is incorporated herein by reference.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspection.

Not applicable.

Directors, Executive Officers and Corporate Governance.

The information required by this Item 10 is incorporated herein by reference to information in our proxy statement for our 2021 Annual Meeting of Stockholders (the “2021 Proxy Statement”), which we expect to be filed with the SEC within 120 days of the end of our fiscal year ended December 31, 2020, including under headings “Board of Directors and Corporate Governance—Election of Directors,” “Executive Officers and Executive Compensation—Executive Officers,” “Board of Directors and Corporate Governance—Code of Business Conduct and Ethics,” “Board of Directors and Corporate Governance—Director Nomination Process” and “Board of Directors and Corporate Governance—Committees of the Board of Directors”.

The information required by this Item 10 is incorporated herein by reference to information in our proxy statement for our 2022 Annual Meeting of Stockholders (the “2022 Proxy Statement”), which we expect to be filed with the SEC within 120 days of the end of our fiscal year ended December 31, 2021, including under headings “Board of Directors and Corporate Governance—Election of Directors,” “Executive Officers and Executive Compensation—Executive Officers,” “Board of Directors and Corporate Governance—Director Nomination Process” and “Board of Directors and Corporate Governance—Committees of the Board of Directors”.

We have adopted a written code of business conduct and ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.

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Executive Compensation.

The information required by this Item 11 is incorporated herein by reference to information in our 2021 Proxy Statement, including under headings “Executive Compensation,” “Director Compensation,” “Board of Directors and Corporate Governance—Compensation Committee Interlocks and Insider Participation,” “Board of Directors and Corporate Governance—Oversight of Risk”.

The information required by this Item 11 is incorporated herein by reference to information in our 2022 Proxy Statement, including under headings “Executive Compensation,” “Director Compensation,” and “Board of Directors and Corporate Governance—Compensation Committee Interlocks and Insider Participation”.

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

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Principal Accountant Fees and Services.

The information required by this Item 14 is incorporated herein by reference to information in our 2021 Proxy Statement, including under headings “Proposal No.

The information required by this Item 14 is incorporated herein by reference to information in our 2022 Proxy Statement, including under headings “Matters to be Voted—on Proposal No.

2—Ratification of the Appointment of Independent Registered Public Accounting Firm”.

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Open Market Sales Agreement by and between the Registrant and Jefferies, LLC dated March 30, 2021

March 31, 2021

Agreement and Plan of Merger, dated September 14, 2020, by and among Novus Therapeutics, Inc., Nautilus Merger Sub 1, Inc., Nautilus Merger Sub 2, LLC and Anelixis Therapeutics, Inc.

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Description of Securities

March 31, 2021

Form of Indemnification Agreement

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and David-Alexandre C.

March 31, 2021

Executive Employment Agreement, dated March 1, 2021, between Eledon Pharmaceuticals, Inc.

and Jon Kuwahara

March 31, 2021

Executive Employment Agreement, dated March 15, 2021, between Eledon Pharmaceuticals, Inc.

and Paul Little

March 31, 2021

Novus Therapeutics, Inc., 2020 Long Term Incentive Plan

Letter from Ernst & Young LLP, dated July 11, 2019

July 12, 2019

Subsidiaries of the Registrant

March 31, 2021

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Incorporated by Reference

Series X1 Exchange Agreement, dated as of January 11, 2022, by and among Eledon Pharmaceuticals, Inc.

and the Stockholders named therein

January 13, 2022

Performance Stock Option Agreement, dated February 1, 2022, between Eledon Pharmaceuticals, Inc.

and David-Alexandre C.

Second Amendment to Lease Agreement, dated May 3, 2021, by and between Newport Gateway Office LLC and Eledon Pharmaceuticals, Inc.

Sublease Agreement, dated as of November 4, 2021, by and between Corporate Technologies, Inc.

and Eledon Pharmaceuticals, Inc.

Subsidiaries of the Registrant

March 17, 2020

Consent of KMJ Corbin & Company LLP, independent registered public accounting firm

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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

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INLINE XBRL Taxonomy Extension Schema Document

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Exhibit Description

Incorporated by Reference

INLINE XBRL Taxonomy Extension Definition Linkbase Document

INLINE XBRL Taxonomy Extension Label Linkbase Document

INLINE XBRL Taxonomy Extension Presentation Linkbase Document

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Indicates a management contract or compensatory plan

Schedules to and certain portions of these exhibits have been omitted pursuant to Item 601 (b)(2) of Regulation S-K.

The omitted information is not material and may cause competitive harm to the Registrant if publicly disclosed.

These certifications are not deemed filed by the SEC and are not to be incorporated by reference in any filing we make under the Securities Act of 1933 or the Securities Exchange Act of 1934, irrespective of any general incorporation language in any filings.

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Chief Financial Officer

(Principal Financial Officer)

(Principal Financial and Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.

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March 24, 2022

(Principal Financial Officer)

Senior Vice President Finance & Administration

March 30, 2021

(Principal Accounting Officer)

(Principal Financial and Accounting Officer)

Chairman of the Board of Directors

March 24, 2022

/s/ Jan Hillson, M.D.

March 24, 2022

Jan Hillson, M.D.

March 24, 2022

/s/ Walter Ogier

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (KMJ Corbin & Company LLP PCAOB ID#:

Consolidated Balance Sheets as of December 31, 2021 and 2020

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

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which it relates.

Anelixis Therapeutics, Inc.

Business Combination

Critical Audit Matter Description

As described in Notes 1, 2, 4, 7 and 10 to the consolidated financial statements, on September 14, 2020, the Company acquired Anelixis Therapeutics, Inc.

(“Anelixis”) pursuant to a merger agreement.

The Company issued to the stockholders of Anelixis 175,488 shares of common stock and 140,026 shares of Series X 1 Non-Voting Convertible Preferred Stock (“Preferred Stock”).

In addition, the Company assumed outstanding Anelixis stock options and warrants and replaced them with the Company’s warrants and stock options.

The Company applied the acquisition method of accounting to the acquired assets and assumed liabilities of Anelixis.

The allocation of the purchase price included an identified intangible asset that consisted of in-process research and development (“IPR&D”) with an estimated fair value of $32.4 million related to

Anelixis’ clinical development program of AT-1501.

The estimated fair value of the IPR&D was determined by management based on an external valuation specialists’ analysis of replacement costs to recreate AT-1501 in its current clinical stage.

Given that the accounting for the transaction required management to make significant judgments in (1) assessing whether the acquisition should be accounted for as a business combination or asset acquisition, (2) determining the accounting acquirer, and (3) estimating the fair value of the acquired IPR&D intangible asset, auditing the transaction was challenging and complex as it required a high degree of auditor judgment and an increased extent of effort, including the need to involve a valuation specialist.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the accounting for the transaction included the following, among others, obtaining an understanding of management’s assessment of the accounting treatment for the transaction through inspection of the merger agreement and evaluation of the Company’s analysis which considered the significant terms of the merger agreement and the relevant accounting guidance.

To test the estimated fair value of the acquired IPR&D intangible asset, we evaluated the reasonableness of the valuation methodology, with the assistance of a valuation specialist, and tested the completeness and accuracy of the underlying data used by management to develop the assumptions.

In addition, we assessed the appropriateness of management’s disclosures of the Anelixis business combination.

Accounting and Presentation of Series X 1 Non-Voting Convertible Preferred Stock

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Stock-Based Compensation

Critical Audit Matter Description

As described in Notes 2, 7 and 10 to the consolidated financial statements, on September 14, 2020, the Company sold 199,112 shares of Preferred Stock for gross proceeds of $99.1 million and issued 140,026 shares of Preferred Stock in connection with the acquisition of Anelixis.

The Preferred Stock was contingently convertible upon shareholder approval of the conversion of the Preferred Stock into 55.5556 shares of common stock and was redeemable if there was no shareholder approval.

Auditing management’s accounting for the Preferred Stock and its appropriate classification was challenging due to the complex nature of the relevant accounting guidance, as well as the extent of management’s judgements in the application of the guidance.

Management determined that the Preferred Stock was neither mandatorily redeemable nor did it require settlement into a variable number of shares of common stock.

Management also evaluated the embedded conversion features for bifurcation as embedded derivative instruments.

This evaluation included determining if the economic characteristics and risks of the embedded conversion features were clearly and closely related to the economic characteristics of the Preferred Stock.

Based on its terms, the Company determined that the Preferred Stock was akin to an equity-like host.

As a result, the Company concluded that the embedded conversion features were clearly and closely related to the Preferred Stock.

Management also analyzed the conversion provision and determined there was no beneficial conversion feature.

In addition, management classified the Preferred Stock outside of stockholders’ equity for the period prior to the shareholder approval of the conversion to common stock because the approval was outside of the control of the Company.

As described in Notes 2 and 8 to the consolidated financial statements, the Company grants employees and directors various stock-based awards, including stock options.

In addition, the Company modified certain stock options during the year in connection with employee terminations.

Management performed the valuation of the stock option awards on the dates of grant and modified stock option awards on the dates of modification using the Black-Scholes option pricing model.

Auditing management’s valuation of the granted and modified stock options required significant auditor judgment and subjectivity as estimates underlying the determination of the estimated fair values were based on significant assumptions used in the Black-Scholes option pricing model.

In addition, the accounting for the modified stock options was challenging due to the complex nature of the relevant accounting guidance.

How the Critical Audit Matter Was Addressed in the Audit

We obtained an understanding of management’s assessment of the accounting treatment of the transaction through inspection of the Certificate of Designations of the Preferred Stock and evaluation of the Company’s analysis of the significant terms of the Preferred Stock, the related accounting guidance and its conclusions.

Our audit procedures related to the accounting for the transaction included, among others, the following:

we evaluated management’s conclusions regarding the classification and valuation of the Preferred Stock, tested the Company’s determination of the fair value of the Preferred Stock, and assessed the appropriateness of management’s disclosures of the Preferred Stock and related transactions.

Our audit procedures included, among others, reading the relevant Board of Directors minutes and granted and modified stock option agreements for accuracy and completeness of the granted and modified stock option terms.

We evaluated the significant assumptions made by management to calculate the estimated fair value of the granted and modified stock options, which included the expected option term and an independent recalculation of the expected volatility based upon actual historical stock price movements of a group of comparable industry companies over a period equal to the expected stock option terms.

We developed an independent estimate of the fair value for the granted and modified stock options and compared our estimate of fair value to the fair value determined by management.

/s/ KMJ Corbin & Company LLP

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Total current assets

Property and equipment, net

Operating lease asset, net

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Current operating lease liability

Accrued severance

Accrued expenses and other liabilities

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515,000 shares authorized;

108,070 and no shares issued and

outstanding at December 31, 2020 and 2019, respectively

Series X preferred stock, $0.001 par value, 10,000 shares authorized;

issued and outstanding at December 31, 2020 and 2019

108,070 shares issued and outstanding at

December 31, 2021 and 2020

Series X non-voting convertible preferred stock, $ 0.001 par value, 10,000 shares

6,204 and no shares issued and outstanding at December 31, 2021

and 2020, respectively

Common stock, $ 0.001 par value, 200,000,000 shares authorized at

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Restructuring expense

Goodwill impairment

Total operating expenses

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Income tax benefit

Net loss and other comprehensive loss

Net loss and comprehensive loss

Net loss per share, basic and diluted

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Preferred Stock

Series X Preferred Stock

Series X Non-Voting Convertible Preferred Stock

Balance as of December 31, 2020

Cancellation of common stock in connection with exchange for

preferred stock

Cancellation of common stock in connection with exchange for warrants

Stock-based compensation

Stock options exercised

Net loss and other comprehensive loss

Balance as of December 31, 2021

Balance as of December 31, 2019

Issuance of common stock in connection with PIPE transaction, net of

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issuance costs

Issuance of common stock in connection with conversion of Series X preferred stock

Issuance of common stock in connection with conversion of Series X 1 preferred stock

Issuance of common stock in connection with conversion of Series X

preferred stock

Issuance of common stock in connection with conversion of Series X 1

preferred stock

Issuance of common stock in connection with vesting of restricted stock units

Issuance of common stock in connection with acquisition

Cancellation of common stock in connection with exchange for preferred stock

Issuance of preferred stock in connection with acquisition

Cancellation of common stock in connection with exchange for

preferred stock

Cancellation of common stock in connection with reverse split

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Balance as of December 31, 2020

Balance as of December 31, 2018

Issuance of common stock at-the-market, net of issuance costs

Issuance of common stock and warrants in registered direct offering, net of

issuance costs

Issuance of common stock in connection with vesting of restricted stock units

Cancellation of common stock

Stock-based compensation

Net loss and other comprehensive loss

Balance as of December 31, 2019

See accompanying notes to consolidated financial statements.

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Amortization of operating lease asset

Goodwill impairment

Warrant inducement expense

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Proceeds from issuance of common stock, net

Proceeds from issuance of non-voting preferred stock in connection with PIPE transaction, net

Proceeds from issuance of non-voting preferred stock in connection with PIPE

transaction, net

Proceeds from exercise of warrants, net

Proceeds from exercise of stock options

Payment of offering costs in connection with PIPE transaction

Cash paid for cancellation of common stock in connection with reverse split

Net cash provided by financing activities

Net cash (used in) provided by financing activities

Net change in cash and cash equivalents

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Supplemental disclosure of non-cash investing and financing activities

Conversion of Series X 1 preferred stock into common stock

Increase in operating lease asset and liability due to new and modified operating leases

Common stock exchange for warrants

Conversion of Series X 1 non-voting convertible preferred stock into common stock

Issuance of common stock in acquisition

Issuance of non-voting convertible preferred stock in acquisition

Issuance of Series X non-voting convertible preferred stock in acquisition

Fair value of options assumed in acquisition

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(formerly Novus Therapeutics, Inc.) is a clinical stage biopharmaceutical company focused on developing life-changing, targeted medicines for persons living with an autoimmune disease, requiring an organ or cell-based transplant, or living with amyotrophic lateral sclerosis (“ALS”).

We believe that this approach has the potential to allow us to:

develop more precise therapies with a resulting potential for both increased efficacy and safety;

identify patients and indications more likely to respond to our treatment approaches;

and pursue multiple indications for product candidates.

Unless otherwise indicated, references to the terms “Eledon,” “our,” “us,” “we”, or the “Company” refer to Eledon Pharmaceuticals, Inc.

and its wholly owned subsidiaries, on a consolidated basis.

On September 14, 2020, Novus Therapeutics, Inc.

(“Novus”) acquired Anelixis Therapeutics, Inc.

The Company’s lead compound in development is tegoprubart, an anti-CD40L antibody with high affinity for CD40 ligand, a well-validated biological target with broad therapeutic potential.

On September 14, 2020 , Eledon acquired Anelixis Therapeutics, Inc.

(“Anelixis”), a privately held clinical stage biotechnology company developing a next generation anti-CD40L antibody as a potential treatment for organ and cellular transplantation, autoimmune diseases, and neurodegenerative diseases (see Note 10).

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The Company has continued to maintain its corporate headquarters in Southern California and has research and development facilities in the Boston, Massachusetts area.

In 2017, Otic Pharma, Ltd.

(“Otic”) consummated a reverse merger with Tokai Pharmaceuticals, Inc.

(“Tokai”), pursuant to which, among other things, Tokai purchased from Otic and its stockholders all of the common and preferred shares of Otic in exchange for the issuance of a certain number of shares of common stock of Tokai (the “Reverse Merger”).

Following the Reverse Merger, Tokai changed its name to Novus Therapeutics, Inc.

Summary of Significant Accounting Policies

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If the Company issues debt securities to raise additional funding, it would incur additional debt service obligations, it could become subject to additional restrictions limiting its ability to operate its business, and it may be required to further encumber its assets.

A t the time of issuance of the consolidated financial statements for the year ended December 31, 2020 , the Company’s management performed an analysis and concluded that the Company ha d sufficient cash resources to meet its anticipated cash needs through at least the next 12 months from the date of issuance of the accompanying consolidated financial statements.

At the time of issuance of the consolidated financial statements for the year ended December 31, 2021, the Company’s management performed an analysis and concluded that the Company had sufficient cash resources to meet its anticipated cash needs through at least the next 12 months from the date of issuance of the accompanying consolidated financial statements.

September 2020 Stock Purchase Agreement

On September 14, 2020, Eledon entered into a Stock Purchase Agreement (the “ Purchase Agreement ”) with certain institutional and accredited investors (the “ Investors ”).

Pursuant to the Purchase Agreement, Eledon agreed to sell an aggregate of approximately 199,112 shares of Series X 1 non-voting Preferred Stock (“Series X 1 Preferred Stock”) for an aggregate purchase price of approximately $99.1 million (collectively, the “ Financing ”).

Eledon had commitments for an additional $9.0 million in equity financing that was contingent upon the satisfaction of certain incremental closing conditions, including stockholder approval of the issuance of the Company’s common stock upon the conversion of the Company’s Series X 1 Preferred Stock and the effective registration of its common stock.

Subject to stockholder approval, each share of Series X 1 Preferred Stock was convertible into 55.5556 shares of common stock, as described within this document.

Pursuant to the Purchase Agreement, Eledon agreed to sell an aggregate of approximately 199,112 shares of Series X 1 non-voting Convertible Preferred Stock (“Series X 1 Preferred Stock”) for an aggregate purchase price of approximately $ 99.1 million (collectively, the “ Financing ”).

E ach share of Series X 1 Preferred Stock is convertible into 55.5556 shares of common stock.

The preferences, rights and limitations applicable to the Series X 1 Preferred Stock are set forth in the Certificate of Designation, as filed with the SEC.

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The Investors have acquired the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends have been affixed to the securities issued in this transaction.

On December 18, 2020, the Company held a special meeting of stockholders (the “Special Meeting”).

At the Special Meeting, the Company’s stockholders approved the issuance of the Company’s common stock, upon conversion of the Company’s Series X 1 Preferred Stock, par value $0.001 per share, issued in September 2020.

On December 23, 2020, the Company sold 1,004,111 shares of its common stock for gross proceeds of $9.0 million that was contingent upon the satisfaction of certain incremental closing conditions, as described above.

Nasdaq Matters

On August 8, 2019, the Company received written notice (the “Notification Letter”) from The Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that it was not in compliance with the minimum bid price requirements set forth in Nasdaq Listing Rule 5550(a)(2) for continued listing on The Nasdaq Capital Market.

Nasdaq Listing Rule 5550(a)(2) requires listed securities maintain a minimum closing bid price of $1.00 per share, and Nasdaq Listing Rule 5810(c)(3)(A) provides that a failure to meet the minimum closing bid price requirement exists if the deficiency continues for a period of 30 consecutive business days.

Based on the closing bid price of the Company’s common stock for the 30 consecutive business days prior to the date of the Notification Letter, the Company did not meet the minimum closing bid price requirement.

On October 19, 2020, the Company received written notice from Nasdaq notifying the Company that the closing bid price of the Company’s common stock had been at $1.00 per share or greater for a period of ten consecutive trading days.

Accordingly, the Company has regained compliance with Listing Rule 5550(a)(2) and this matter is now closed.

On December 23, 2020, the Company sold 1,004,111 shares of its common stock for gross proceeds of $ 9.0 million as part of the September 2020 Purchase Agreement.

Reverse Stock Split

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Cash equivalents are held for the purpose of meeting short-term liquidity requirements, rather than for investment purposes.

The Company had $9.2 million and $0 cash equivalents at December 31, 2020 and 2019, respectively.

The Company had $ 9.2 million in cash equivalents at December 31, 2021 and 2020.

Fair Value Measurements

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There have been no transfers of assets for liabilities between these fair value measurement classifications during the periods presented.

The Company had no financial instruments, assets or liabilities measured at fair value on a recurring basis at December 31, 2020 and 2019.

The Company had no financial instruments, assets or liabilities measured at fair value on a recurring basis as of December 31, 2021 and 2020.

Concentration of Credit Risk and Other Risks and Uncertainties

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Goodwill represents the difference between the consideration transferred and the fair value of the net assets acquired under the acquisition method of accounting.

Goodwill is not amortized but is evaluated for impairment as of October 1 of each year or if indicators of impairment exist that would, more likely than not, reduce the fair value from its carrying amount.

Goodwill is not amortized but is evaluated for impairment as of December 31 of each year or if indicators of impairment exist that would, more likely than not, reduce the fair value from its carrying amount.

The Company performs its goodwill impairment analysis at the reporting unit level, which aligns with the Company’s reporting structure and availability of discrete financial information.

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The resulting cash flows are discounted using a weighted average cost of capital.

Operating mechanisms and requirements to ensure that growth and efficiency assumptions will ultimately be

realized are also considered in the evaluation, including timing and probability of regulatory approvals for Company products to be commercialized.

Operating mechanisms and requirements to ensure that growth and efficiency assumptions will ultimately be realized are also considered in the evaluation, including timing and probability of regulatory approvals for Company products to be commercialized.

The Company’s market capitalization is also considered as a part of its analysis.

The Company’s annual evaluation for impairment of goodwill consists of one reporting unit.

In accordance with the Company’s policy, the Company completed its annual evaluation for impairment as of October 1, 2020 using the qualitative assessment and determined that no impairment existed.

However, since the acquisition of Anelixis was only 16 days prior to the goodwill impairment test date, the Company did not expect, and did not observe, any indicators of impairment of goodwill at September 30, 2020 and deemed it appropriate to update its analysis as of December 31, 2020 to ensure that the status had not changed over the three month period.

It was determined that no impairment existed as of December 31, 2020 .

Due to declining market conditions in 2019, the Company performed an additional goodwill impairment test as of December 31, 2019 and determined that the fair value of its goodwill was below its carrying value.

As a result, the Company recognized $1.9 million of goodwill impairment which was included in the consolidated statement of operations for the year ended December 31, 2019.

No impairment was recorded for the year ended December 31, 2020.

In accordance with the Company’s policy, the Company completed its annual evaluation for impairment as of December 31, 2021 using the qualitative assessment and determined that no impairment existed.

Long-Lived Assets

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In-Process Research and Development

The fair value of IPR&D acquired through a business combination is capitalized as an indefinite-lived intangible asset until the completion or abandonment of the related research and development activities.

The fair value of in-process research and development (“IPR&D”) acquired through a business combination is capitalized as an indefinite-lived intangible asset until the completion or abandonment of the related research and development activities.

When the related research and development is completed, the asset will be assigned a useful life and amortized.

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These contracts may be terminated by the Company upon written notice and the Company is generally only liable for actual effort expended by the organizations to the date of termination, although in certain instances the Company may be further responsible for termination fees and penalties.

The Company estimates its research and development expenses and the related accrual as of each balance sheet date based on the

facts and circumstances known to the Company at that time.

The Company estimates its research and development expenses and the related accrual as of each balance sheet date based on the facts and circumstances known to the Company at that time.

There have been no material adjustments to the Company’s prior period accrued estimates for clinical trial activities through December 31, 2021.

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The expected volatility assumption was based on historical volatilities of a group of comparable industry companies whose share prices are publicly available.

The peer group was developed based on companies in the pharmaceutical industry.

The peer group was developed based on companies in the

pharmaceutical industry.

The expected term of stock options represents the weighted-average period that the stock options are expected to be outstanding.

Because the Company does not have historical exercise behavior, the Company determined the expected life assumption using the simplified method for stock options granted to employees, which is an average of the options ordinary vesting period and the contractual term.

For stock options granted to the board of directors, the Company determined the expected life assumption using the simplified method as the starting point with an average period of twelve (12) months added to take into account for the extended range of time of 12 to 18 months vested stock options granted to board of directors may be exercised upon termination.

For stock options granted to the Company’s board of directors (the “ Board ”) , the Company determined the expected life assumption using the simplified method as the starting point with an average period of twelve (12) months added to take into account for the extended range of time of 12 to 18 months vested stock options granted to Board members may be exercised upon termination .

The expected dividend assumption was based on the Company’s history and expectation of dividend payouts.

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The Company recognizes forfeitures on an actual basis and as such did not estimate forfeitures to calculate stock - based compensation.

Restricted Stock Units (“RSU”) and Performance-Based Restricted Stock Units (“PRSU”) are measured and recognized based on the quoted market price of our common stock on the date of grant.

In March 2020, the board of directors approved an increase of 28,816 shares issuable under the 2014 Stock Incentive Plan (the “2014 Plan”) and 7,204 shares issuable under the 2014 Employee Stock Purchase Plan (the “ESPP”).

Restricted Stock Units (“RSU”) and Performance-Based Stock Units (“PRSU”) are measured and recognized based on the quoted market price of our common stock on the date of grant.

In March 2020, the Board approved an increase of 28,816 shares issuable under the 2014 Stock Incentive Plan (the “2014 Plan”) and 7,204 shares issuable under the 2014 Employee Stock Purchase Plan (the “ESPP”).

On December 18, 2020, the Company held the Special Meeting, whereby the Company’s stockholders approved the 2020 Long Term Incentive Plan (the “2020 Plan”).

The aggregate number of shares of stock available for issuance under the 2020 Plan will initially be 4,860,000 shares of Common Stock, which represents approximately 15% of the total issued and outstanding shares of the Company’s common stock as of the record date of the Special Meeting (calculated on an as-converted basis and without regard to the potential application of beneficial ownership conversion limitations on the Preferred Stock) and may be increased by the number of shares under the 2014 Plan that expire, terminate or are otherwise

surrendered, cancelled, forfeited or repurchased by the Company .

Based on projected utilization rates, the Board of Directors currently intends that the initial shares under the 2020 Plan will be sufficient to fund the Company’s equity compensation needs for approximately 3 years .

The aggregate number of shares of stock available for issuance under the 2020 Plan will initially be 4,860,000 shares of Common Stock, which represented approximately 15 % of the total issued and outstanding shares of the Company’s common stock as of the record date of the Special Meeting (calculated on an as-converted basis and without regard to the potential application of beneficial ownership conversion limitations on the Preferred Stock) and may be increased by the number of shares under the 2014 Plan that expire, terminate or are otherwise surrendered, cancelled, forfeited or repurchased by the Company .

Based on projected utilization rates, the Board currently intends that the initial shares under the 2020 Plan will be sufficient to fund the Company’s equity compensation needs for approximately three years from the date of the Special Meeting.

The 2014 Plan was closed to new grants following the approval of the 2020 Plan, and therefore, there were no shares reserved for issuance under the 2014 Plan as of December 31, 2021.

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For additional information, see Note 6.

Income Taxes in the notes to the consolidated financial statements.

Income Taxes.

Reclassifications

Certain reclassifications of prior period amounts have been made to conform to the current period presentation.

Recently Adopted Accounting Pronouncements

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Accrued compensation and related expenses

Accrued severance

Accrued clinical

Accrued professional services

Accrued vacation

Accrued costs associated with PIPE financing

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Balance as of January 1, 2020

Balance as of December 31, 2019

Acquisition of Anelixis

Balance as of December 31, 2020

The Company performed a goodwill impairment test as of December 31, 2019 and determined that the fair value of its goodwill was below its carrying value.

As a result, the Company recognized $1.9 million of goodwill impairment.

No impairment was recorded for the year ended December 31, 2020.

Goodwill acquired

Balance as of December 31, 2021

Commitments and Contingencies

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The Company leases office space under various operating leases.

Total rent expense for all operating leases in the consolidated statements of operations and comprehensive loss was approximately $207,000 and $188,000 for the years ended December 31, 2020 and 2019, respectively.

The Company has an operating lease for 5,197 square feet of office space in Irvine, California, that expires on September 30, 2021 , as amended.

Additionally, the Company has operating leases for four serviced office spaces in Burlington, Massachusetts that expire on June 30, 2021 .

The Burlington, Massachusetts office leases are considered short-term leases and are not recorded on the consolidated balance sheet.

Total rent expense for all operating leases in the consolidated statements of operations and comprehensive loss was approximately $ 0.3 million and $ 0.2 million for the years ended December 31, 2021 and 2020, respectively.

The Company has an operating lease for approximately 5,197 square feet of office space in Irvine, California, which was set to expire on September 30, 2021 .

On May 3, 2021, the Company extended the term of the lease through December 31, 2022 , by amending the office lease effective October 1, 2021 .

On November 4, 2021, the Company entered into an operating lease for approximately 6,138 square feet of office space in Burlington, Massachusetts, that expires on November 20, 2024 .

The Company determines if a contract contains a lease at inception.

Our office leases have a remaining term ranging from nine months to one year and do not include options to extend the leases for additional periods.

Our office leases have remaining terms ranging from one year to three years and do not include options to extend the leases for additional periods.

Operating lease assets and liabilities are recognized at the lease commencement date.

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As we have no outstanding debt nor committed credit facilities, secured or otherwise, we estimate this rate based on prevailing financial market conditions, comparable company and credit analysis, and management’s judgment.

Our Irvine lease contains rent escalations over the lease term.

Our leases contain rent escalations over the lease term.

We recognize expense for these leases on a straight-line basis over the lease term.

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These are amortized through the right-of-use asset as reductions of expense over the lease term.

Our lease agreement does not contain any material residual value guarantees or material restrictive covenants.

Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

While we do not currently have any lease agreement with lease and non-lease components, we elected to account for lease and non-lease components as separate components.

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The components of lease expense were as follows:

Ended December 31, 2020

Operating lease cost (a)

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Other information related to leases was as follows (in thousands, except lease term and discount rate):

Ended December 31, 2020

Supplemental Cash Flows Information

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Present value of lease liabilities

Less current portion

Future payments under short term leases with an initial term of 12 months or less total approximately $33,000 for 2021.

Less current portion of operating lease liability

Non-current operating lease liability

Grants and Licenses

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In May 2015, Anelixis executed a License Agreement (the “Agreement”), which is an exclusive patent rights agreement with ALS Therapy Development Foundation, Inc.

(“ ALSTDI”) for certain patents and “know-how” of ALSTDI.

(“ ALS TDI”) for certain patents and “know-how” of ALS TDI.

This agreement continues until the licensee terminates the agreement with ninety days written notice.

The Agreement requires license fees payable to ALSTDI, subject to the achievement of certain milestones and other conditions.

The Agreement requires license fees payable to ALS TDI, subject to the achievement of certain milestones and other conditions.

The first and second milestones of the Agreement are the dosing of the first subjects in a first toxicity study in non-human primates and the dosing of the first patient in a Phase I Clinical Trial, respectively.

Both of these milestones were achieved as of December 31, 2018 and 2017.

The fee due for the achievement of these milestones was $1,000,000 each.

During 2018 and 2017, Anelixis issued $1,000,000 worth of its common stock in lieu of making a cash payment.

The fee due for the achievement of these milestones was $ 1.0 million each.

During 2018 and 2017, Anelixis issued $ 1.0 million worth of its common stock in lieu of making a cash payment.

There were no milestones achieved during 2021 and 2020.

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In the event that the Company develops a second licensed product, the Company is obligated to pay up to $ 2.5 million in additional milestone payments.

In addition to the milestone payments, the Company is required to pay ALSTDI an amended annual license maintenance fee of $100,000 beginning on the earlier of January 1, 2022, the Company’s first sublicense, or change in control, as defined in the Agreement.

Furthermore, the Company shall pay ALSTDI fees based on reaching certain levels of annual net sales of any product produced with the patent rights.

In addition to the milestone payments, the Company is required to pay ALS TDI an amended annual license maintenance fee of $ 0.1 million beginning on the earlier of January 1, 2022, the Company’s first sublicense, or change in control, as defined in the Agreement.

Furthermore, the Company shall pay ALS TDI fees based on reaching certain levels of annual net sales of any product produced with the patent rights.

A royalty in the low single digits will be due on aggregate net sales.

Upon the first calendar year of reaching $500 million in aggregate net sales, the Company shall pay ALS TDI a one-time milestone payment of $15,000,000.

Upon the first calendar year of reaching $1 billion in aggregate net sales, the Company is obligated to pay ALSTDI a one-time milestone payment of $30,000,000.

Upon the first calendar year of reaching $ 500.0 million in aggregate net sales, the Company shall pay ALS TDI a one-time milestone payment of $ 15.0 million.

Upon the first calendar year of reaching $ 1.0 billion in aggregate net sales, the Company is obligated to pay ALS TDI a one-time milestone payment of $ 30.0 million.

Israeli Innovation Authority Grant

From 2012 through 2015, the Company received grants in the amount of approximately $537,000 from the Israeli Innovation Authority (previously the Office of Chief Scientist) of the Israeli Ministry of Economy and Industry designated for investments in research and development.

From 2012 through 2015, the Company received grants in the amount of approximately $ 0.5 million from the Israeli Innovation Authority (previously the Office of Chief Scientist) of the Israeli Ministry of Economy and Industry designated for investments in research and development.

The grants are linked to the U.S.

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therefore, no liability was recorded for the repayment in the accompanying consolidated financial statements.

Otodyne License Agreement

In November 2015, the Company entered into an exclusive license agreement with Scientific Development and Research, Inc.

and Otodyne, Inc.

(collectively, the “Licensors”) granting it exclusive worldwide rights to develop and commercialize OP0201, a potential first-in-class treatment option for patients at risk for or with otitis media (middle ear inflammation with or without infection), which is often caused by ETD.

Under the terms of the agreement, the Company is obligated to use commercially reasonable efforts to seek approval for and commercialize at least one product for otitis media in the U.S.

and key European markets (France, Germany, Italy, Spain, and the United Kingdom).

The Company is responsible for prosecuting, maintaining, and enforcing all intellectual property and will be the sole owner of improvements.

Under the agreement with the Licensors, the Company paid license fees totaling $750,000 and issued 9,780 common shares to the Licensors, which was expensed to research and development during the year ended December 31, 2015.

In December 2015, the Licensors completed transfer of all technology, including the active IND application to the Company.

The Company is obligated to pay up to $42.1 million in development and regulatory milestones if OP0201 is approved for three indications in the United States, two in Europe, and two in Japan.

The Company is also obligated to pay up to $36.0 million in sales based milestones, beginning with sales exceeding $1.0 billion in a calendar year.

The Company is also obligated to pay a tiered royalty for a period up to eight years, on a country-by-country basis.

The royalty ranges from a low-single to mid-single percentage of net sales.

The Company made a $300,000 milestone payment in March 2019 related to the first patient enrolled in a phase 2 study, which is included in research and development expenses in 2019.

There were no other milestones achieved during the years ended December 31, 2020 or 2019.

Legal Matters

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On February 18, 2020, the court held a hearing on defendants’ motion to dismiss.

The court also ordered the parties to confer and notify it by March 10, 2020, if they reached an agreement to settle the case.

The court also ordered the parties to confer and notify it

by March 10, 2020, if they reached an agreement to settle the case.

On March 10, 2020, pursuant to the court’s order, the parties advised the court they did not agree on a settlement.

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On February 18, 2021, the United States Court of Appeals for the First Circuit granted the motion, enter judgment dismissing the appeal, and issued the mandate.

Indemnification

Indemnifications

In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnification.

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There have been no contingent liabilities requiring accrual at December 31, 2021 and 2020.

Loss before income taxes are as follows (in thousands):

L oss before income taxes are as follows (in thousands):

Losses before income taxes:

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Statutory Federal income tax rate

State income taxes, net of Federal tax benefits

Change in warrant fair market value

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Section 382 limitation on net operating losses and credits

State rate differential

Change in valuation allowance

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The deferred income tax assets have been offset by a valuation allowance, as realization is dependent on future earnings, if any, the timing and amount of which are uncertain.

The net valuation allowance decreased by $5.1 million.

The net valuation allowance increased by $ 6.4 million from December 31, 2020 to December 31, 2021.

The net valuation allowance decreased by $ 5.1 million from December 31, 2019 to December 31, 2020.

The Company’s accounting for deferred taxes involves the evaluation of a number of factors concerning the realizability of its net deferred tax assets.

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As of December 31, 2021 and 2020, the Company also has state net operating loss carryforwards of $ 15.0 million and $ 6.2 million, respectively.

The federal net operating loss carryforwards incurred before 2018 begin expiring in 2035 if not utilized.

Both the federal and state net operating loss carryforwards incurred before 2018 begin expiring in 2035 if not utilized.

The federal net operating losses incurred since 2018 of $ 46.1 million do not expire.

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As of December 31, 2021 and 2020, the Company had Israeli net operating losses of $ 7.9 million and $ 7.9 million, respectively, which carryforward indefinitely.

As of December 31, 2020 and 2019, the Company had federal research and development tax credit carryforwards of approximately $966,000 and $764,000, respectively.

As of December 31, 2021 and 2020, the Company had federal research and development tax credit carryforwards of approximately $ 1.9 million and $ 1.0 million, respectively.

If not utilized, the carryforwards will begin expiring in 2036 .

As of December 31, 2020 and 2019, the Company has state research and development credit carryforwards or approximately $562,000 and $264,000, respectively, which will begin expiring in 2030 if not utilized.

As of December 31, 2021 and 2020, the Company has state research and development credit carryforwards or approximately $ 1.1 million and $ 0.6 million, respectively, which will begin expiring in 2030 if not utilized .

Pursuant to Internal Revenue Code (“IRC) Sections 382 and 383, annual use of the Company’s net operating loss and research and development credit carryforwards may be limited in the event a cumulative change in ownership of more than 50 % occurs within a three-year period.

As part of the equity raise and acquisition, the Company had an IRC Section 382/383 ownership change during 2020.

The Company has removed $ 10.6 million of deferred tax assets related to NOL and R&D credit carryforwards due to the Section 382 limitations.

The Company’s ability to use its remaining net operating loss and tax credit carryforwards may be further limited if the Company experiences additional Section 382 ownership change in connection with future changes in the Company’s stock ownership .

The Company has not completed an IRC Section 382/383 analysis regarding the limitation of net operating loss and research and development credit carryforwards.

Due to the existence of the valuation allowance, future changes in the Company’s unrecognized tax benefits will not impact the Company’s effective tax rate.

The Company’s ability to use its remaining net operating loss and tax credit carryforwards may be further limited if the Company experiences a Section 382 ownership change in connection with future changes in our stock ownership.

In the United States, the Company files income tax returns in the U.S.

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Stockholders’ Equity

Equity Distribution Agreement

On July 23, 2018, the Company filed a prospectus and prospectus supplement (the “2018 Prospectus”) under which the Company may offer and sell, from time to time, pursuant to an equity distribution agreement with Piper Jaffray & Co., up to $9.8 million in shares of its common stock.

During the year ended December 31, 2019, 1,401 shares were sold under the 2018 Prospectus for gross proceeds of approximately $110,000.

No shares were sold during the year ended December 31, 2020.

2019 Equity Offering

On April 30, 2019, the Company agreed to sell in a registered direct offering, an aggregate 191,617 shares of its common stock to certain investors for gross proceeds of approximately $10.7 million under its effective shelf registration statement on Form S-3 (File No.

In a concurrent private placement, the Company also agreed to issue to such investors Series A warrants to purchase up to 191,617 shares of its common stock at an exercise price of $72.00 with a term of eighteen months and Series B warrants to purchase up 191,617 shares of its common stock at an exercise price of $72.00 with a term of five years.

The Series B warrants become exercisable only upon the exercise of the Series A warrants.

In addition, the Company agreed to issue placement agent warrants to purchase up to 9,580 shares of common stock representing 5.0% of the aggregate number of shares of common stock sold in this offering.

The placement agent warrants have substantially the same terms as the Series A Warrants, except that the placement agent warrants will have an exercise price equal to $69.66 and will expire on April 30, 2024.

We refer to the registered direct offering and the concurrent private placement collectively as the “2019 Equity Offering”.

All the warrants issued in connection with the 2019 Equity Offering contained put options that allow the holders of the warrants the right to receive, for each warrant share that would have been issuable upon an exercise immediately prior to the occurrence of an effective change in control event defined as a fundamental transaction, the number of shares of common stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration receivable as a result of such fundamental transaction by a holder of the number of shares of common stock for which this warrant is exercisable immediately prior to such fundamental transaction.

The Company evaluated the embedded put option contained in the warrants under the guidance of Accounting Standards Codification (“ASC”) 815, Derivatives and Hedging , and concluded that the requirements for contingent exercise provisions as well as the settlement provision for scope exception in ASC 815-10-15-74 has been met.

Accordingly, the put options contained in the warrants were not bi-furcated and accounted for as freestanding derivative instruments.

Warrant Exercise Transactions

aggregate of 383,234 shares of the Company’s common stock at a reduced exercise price of $ 12.87 per share, plus an additional $ 2.25 per share for the issuance of the private placement warrants for gross proceeds (before placement agent fees and expenses) to the Company of approximately $ 5.8 million (the “Exercise Transaction”).

Under the Exercise Agreements, the Company also agreed to issue to the Holders new warrants to purchase up to 383,235 shares of the Company’s common stock at an exercise price of $12.96 per share, with an exercise period of five and a half years (the “Private Placement Warrants”).

The Private Placement Warrants transaction subsequently closed and the Private Placement Warrants were issued on January 14, 2020 with respect to the Warrants exercised on January 10, 2020 and on or about January 17, 2020, with respect to the Warrants exercised on January 15, 2020.

In addition, the Company agreed to issue to the placement agent warrants to purchase up to 19,162 shares of common stock, representing 5.0% of the aggregate number of shares of common stock issued in the Exercise Transaction.

The placement agent warrants have substantially the same terms as the Private Placement Warrants issued to the Holders, except that the placement agent warrants have an exercise price equal to $18.90.

A warrant inducement expense of $4.8 million was recorded which was determined using the Black-Scholes option pricing model and was calculated as the difference between the fair value of the Warrants prior to, and immediately after, the reduction in the exercise price on the date of repricing in addition to the fair value of the Private Placement Warrants issued.

For the year ended December 31, 2020, the Holders exercised approximately 64,171 Private Placement Warrants in a cashless exchange for 28,553 shares of the Company’s common stock.

Additionally, approximately 9,985 private placement warrants were exercised for 9,985 shares of the Company’s common stock for gross proceeds of $188,773.

As of December 31, 2020, 337,822 warrants were exercisable into common stock.

The shares of common stock underlying the registered direct and private placement warrants are registered for offer and sale under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to the Company’s effective registration statements on Forms S-1.

The following table shows the warrant activity:

Rollforward of Warrant Activity

Registered direct warrants, series A

Registered direct warrants, series B

Registered direct warrants, placement agent

Private placement warrants

Private placement warrants, placement agent

Balance as of December 31, 2019

Cancelled/Expired

Balance as of December 31, 2020

Anelixis Acquisition

On September 14, 2020, the Company acquired Anelixis, after which Anelixis became a wholly-owned subsidiary of the Company.

Under the terms of the acquisition, the Company issued to the stockholders of Anelixis 175,488 shares of Company common stock and 140,026 shares of Series X 1 Preferred Stock.

In addition to the common stock and preferred stock issued in connection with the acquisition of Anelixis, certain outstanding warrants issued by Anelixis were not settled upon completion of the acquisition, and instead were assumed and then replaced with Company warrants.

As part of the acquisition, the Company assumed and replaced options for the purchase of 1,346,398 shares of common stock with an estimated total fair value of approximately $6.0 million and 55,583.875 warrants for Series X 1 Preferred Stock with an estimated fair value of approximately $12.9 million.

The estimated fair value of the assumed and replaced options and warrants attributed to pre-merger services were approximately $3.0 million and $12.9 million, respectively, and is included in other consideration amounts transferred and added to goodwill (see Note 10).

On December 18, 2020, at the Special Meeting, the Company’s stockholders approved the issuance of the Company’s common stock, upon conversion of the Company’s Series X 1 Preferred Stock, par value $ 0.001 per share, issued in September 2020.

As such , the shares of Series X 1 Preferred Stock underlying the assumed and replaced warrants in connection with the Anelixis acquisition were converted into shares of Eledon common stock.

As of December 31, 2020, 55,853.875 warrants were exercisable into Series X 1 Preferred Stock.

The shares of Series X 1 Preferred Stock underlying the assumed and replaced warrants in connection with the Anelixis acquisition are expected to be converted into shares of Eledon common stock in the second fiscal quarter of 2021.

The following table shows the warrant activity:

Rollforward of Warrant Activity

Warrants assumed and

replaced in acquisition

Balance as of December 31, 2019

Assumed and replaced

Cancelled/Expired

Balance as of December 31, 2020

2020 Common Stock Exchange Agreement

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and Biotechnology Value Trading Fund OS, L.P.

(the “Exchanging Stockholders”), pursuant to which the Exchanging Stockholders exchanged (the “Exchange”) 210,888 shares of the Company’s common stock for 3,796 shares of newly designated Series X Convertible Preferred Stock (the “Series X Preferred Stock”).

The Company agreed to reimburse the Exchanging Stockholders for their expenses in connection with the Exchange up to a total of $25,000, which was recorded as operating expense in the Company’s condensed consolidated statements of operations and comprehensive loss.

(the “Exchanging Stockholders”), pursuant to which the Exchanging Stockholders exchanged (the “Exchange”) 210,888 shares of the Company’s common stock for 3,796 shares of newly designated Series X non-voting Convertible Preferred Stock (the “Series X Preferred Stock”).

The Company agreed to reimburse the Exchanging Stockholders for their expenses in connection with the Exchange up to a total of $ 25,000 , which was recorded as operating expense in the Company’s consolidated statements of operations and comprehensive loss.

The Exchange was completed on February 19, 2020.

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The number of shares so designated shall be 10,000 and Series X Preferred Stock shall have a par value of $ 0.001 per share.

Each share of Series X Preferred Stock will be convertible into 55.5556 shares of common stock at the option of the holder at any time;

subject to certain limitations, including, that the holder will be prohibited from converting Series X Preferred Stock into common stock if, as a result of such conversion, the holder, together with its affiliates, would beneficially own a number of shares of common stock above a conversion blocker, which is initially set at 9.99% of the total common stock then issued and outstanding immediately following the conversion of such shares of Series X Preferred Stock.

Each share of Series X Preferred Stock will be convertible into 55.5556 shares of common stock at the option of the holder at any time subject to certain limitations, including, that the holder will be prohibited from converting Series X Preferred Stock into common stock if, as a result of such conversion, the holder, together with its affiliates, would beneficially own a number of shares of common stock above a conversion blocker, which is initially set at 9.99 % of the total common stock then issued and outstanding immediately following the conversion of such shares of Series X Preferred Stock.

In the event of the Company’s liquidation, dissolution or winding up, holders of Series X Preferred Stock will participate pari passu with any distribution of proceeds to holders of common stock.

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The Company evaluated the embedded optional conversion feature in accordance with the guidance under ASC 815, Derivatives and Hedging , and determined it is exempt from derivative accounting as the embedded feature is deemed to be indexed to the Company’s own stock and classified in stockholder’s equity if freestanding.

Further, because the conversion ratio is fixed and equal to the ratio of the original exchange of 55.5556 common stock to each share of Series X Preferred Stock, the Company concluded that there is no intrinsic value to the beneficial conversion feature.

Further, because the conversion ratio is fixed and equal to the ratio of the original exchange of 55.5556

common stock to each share of Series X Preferred Stock, the Company concluded that there is no intrinsic value to the beneficial conversion feature.

Each share of Series X Preferred Stock contains redemption put features that allow the holders of the Series X Preferred Stock the right to receive, in lieu of the right to receive conversion shares, for each conversion share that would have been issuable upon such conversion immediately prior to the occurrence of an effective change in control (“Fundamental Transaction”), the same kind and amount of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of one share of common stock .

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On June 1, 2020 and June 10, 2020, the Exchanging Stockholders converted a total of 3,285 shares of Series X Preferred Stock into 182,500 shares of common stock.

On December 18, 2020, at the Special Meeting, the Company’s stockholders approved the issuance of the Company’s common stock, upon conversion of the Company’s remaining 511 shares of Series X Preferred Stock, par value $0.001 per share.

As of December 31, 2020, no shares of Series X Preferred Stock remain outstanding.

September 2020 Anelixis Acquisition

On September 14, 2020, the Company acquired Anelixis, after which Anelixis became a wholly owned subsidiary of the Company.

Under the terms of the acquisition, the Company issued to the stockholders of Anelixis 175,488 shares of Company common stock and 140,026 shares of Series X 1 Preferred Stock.

As part of the acquisition, the Company assumed and replaced options for the purchase of 1,346,398 shares of common stock with an estimated total fair value of approximately $ 6.0 million and 55,583.875 warrants for Series X 1 Preferred Stock with an estimated fair value of approximately $ 12.9 million.

The estimated fair value of the assumed and replaced options and warrants attributed to pre-merger services were approximately $ 3.0 million and $ 12.9 million, respectively, and is included in other consideration amounts transferred and added to goodwill (see Note 10).

As such, the shares of Series X 1 Preferred Stock underlying the assumed and replaced warrants in connection with the Anelixis acquisition were converted into shares of Eledon common stock.

September 2020 Stock Purchase Agreement

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The Company records shares of preferred stock at their respective fair values on the dates of issuance, net of issuance costs.

Holders of Series X 1 Preferred Stock do not have voting rights and are entitled to receive dividends on shares of X 1 Preferred Stock on an as-if converted to common stock basis equal to dividends actually paid on shares of common stock.

Holders of Series X 1 Preferred Stock do not have voting rights and are entitled to receive dividends on shares of Series X 1 Preferred Stock on an as-if converted to common stock basis equal to dividends actually paid on shares of common stock.

The shares of Series X 1 Preferred Stock shall automatically be converted into shares of common stock equal to the conversion ratio of 55.5556 upon stockholder approval of the conversion of the Series X 1 Preferred Stock into shares of common stock in accordance with the listing rules of the Nasdaq Stock Market ;

subject to certain limitations, including, that the holder will be prohibited from converting Series X 1 Preferred Stock into common stock if, as a result of such conversion, the holder, together with its affiliates, would beneficially own a number of shares of common stock above a conversion blocker, which is

initially set at 9.99 % of the total common stock then issued and outstanding immediately following the conversion of such shares of Series X 1 Preferred Stock.

The Company applied the guidance in ASC 480-10-S99-3A, SEC Staff Announcement:

Classification and Measurement of Redeemable Securities, and classified the Series X 1 Preferred Stock outside of stockholders’ equity for the period prior to the shareholder approval of the conversion to common stock because the Series X 1 Preferred Stock will be redeemable at the option of the holders for cash equal to the closing price of the common stock on the last trading day prior to the holder’s redemption request, if there was no shareholder approval.

The Company analyzed the conversion provision related to the Series X 1 Preferred Stock and determined there was not a contingent beneficial conversion feature (“BCF”) that would be recognized when the contingency of stockholder approval is resolved.

On December 18, 2020, the Company held a Special Meeting.

At the Special Meeting, the Company’s stockholders approved the issuance of the Company’s common stock, upon conversion of the Company’s Series X 1 Preferred Stock, par

value $ 0.001 per share, issued in September 2020.

Classification and Measurement of Redeemable Securities, and classified the Series X 1 Preferred Stock outside of stockholders’ equity for the period prior to the stockholder approval of the conversion to common stock because the Series X 1 Preferred Stock would have been redeemable at the option of the holders for cash equal to the closing price of the common stock on the last trading day prior to the holder’s redemption request, if there was no stockholder approval.

As a result, 231,068 shares of Series X 1 Preferred Stock were converted into 12,837,056 shares of the Company’s common stock.

As of December 31, 2020, 108,070 shares of Series X 1 Preferred Stock remain outstanding.

On December 23, 2020, the Company sold 1,004,111 shares of its common stock for gross proceeds of $ 9.0 million that was contingent upon the satisfaction of certain incremental closing conditions, as described above.

Exchange Agreements

2020 Warrant Exercise Transactions

On January 10, 2020 and January 15, 2020, the Company entered into warrant exercise agreements (the “Exercise Agreements”) with the holders (the “Holders”) of its Series A Warrants and Series B Warrants (collectively, the “Warrants”), pursuant to which the Holders agreed to exercise in cash their Warrants to purchase an aggregate of 383,235 shares of the Company’s common stock at a reduced exercise price of $ 12.87 per share, plus an additional $ 2.25 per share for the issuance of the private placement warrants for gross proceeds (before placement agent fees and expenses) to the Company of approximately $ 5.8 million (the “Exercise Transaction”).

Under the Exercise Agreements, the Company also agreed to issue to the Holders new warrants to purchase up to 383,235 shares of the Company’s common stock at an exercise price of $ 12.96 per share, with an exercise period of five and a half years (the “Private Placement Warrants”).

The Private Placement Warrants transaction subsequently closed and the Private Placement Warrants were issued on January 14, 2020, with respect to the Warrants exercised on January 10, 2020 and on or about January 17, 2020, with respect to the Warrants exercised on January 15, 2020.

In addition, the Company agreed to issue to the placement agent warrants to purchase up to 19,162 shares of common stock, representing 5.0 % of the aggregate number of shares of common stock issued in the Exercise Transaction.

A warrant inducement expense of $ 4.8 million was recorded which was determined using the Black-Scholes option pricing model and was calculated as the difference between the fair value of the Warrants prior to, and immediately after, the reduction in the exercise price on the date of repricing in addition to the fair value of the Private Placement Warrants issued.

For the year ended December 31, 2020, the Holders exercised approximately 64,171 Private Placement Warrants in a cashless exchange for 28,553 shares of the Company’s common stock.

Additionally, approximately 9,985 private placement warrants were exercised for 9,985 shares of the Company’s common stock for gross proceeds of $ 188,773 .

December 2020 Exchange Agreements

On December 31, 2020, the Company entered into an exchange agreement (the “Series X Exchange Agreement”) with Biotechnology Value Fund, L.P., Biotechnology Value Fund II, L.P., Biotechnology Value Trading Fund OS, L.P.

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(collectively, the “BVF Exchanging Stockholders”) and Cormorant Global Healthcare Master Fund, LP (together with the BVF Exchanging Stockholders, the “Series X Exchanging Stockholders”), pursuant to which the Series X Exchanging Stockholders exchanged (the “Series X Exchange”) 344,666 shares of the Company’s common stock for 6,203.98 shares of Series X Convertible Preferred Stock.

In addition, on December 31, 2020 the Company entered into an exchange agreement (the “Warrant Exchange Agreement,” and together with the Series X Exchange Agreement, the “Exchange Agreements”) with the BVF Exchanging Stockholders, pursuant to which the BVF Exchanging Stockholders exchanged (the “Warrant Exchange,” and together with the Series X Exchange, “the Exchanges”) 509,117 shares of the Common Stock for one or more pre-funded warrants to purchase an aggregate of 509,117 shares of the Common Stock at a nominal exercise price (the “Warrants”).

The Company recorded the shares of Series X Convertible Preferred Stock and Warrants issuable as preferred stock and warrant subscriptions at December 31, 2020 since the physical settlement of the Exchanges was made on January 5, 2021, whereby the transfer agent recorded the exchange of common stock for the issuance of preferred stock and warrants.

Following the Exchanges, the Company will have 14,306,614 shares of Common Stock outstanding and 6,203.98 shares of Series X Preferred Stock outstanding, which are convertible into 344,663 shares of Common Stock (after rounding for fractional shares).

Stockholders, pursuant to which the BVF Exchanging Stockholders exchanged (the “Warrant Exchange,” and together with the Series X Exchange, “the Exchanges”) 509,117 shares of the Common Stock for one or more pre-funded warrants to purchase an aggregate of 509,117 shares of the Common Stock at a nominal exercise price (the “Warrants”).

The Company recorded the shares of Series X Preferred Stock and Warrants issuable as preferred stock and warrant subscriptions at December 31, 2020, since the physical settlement of the Exchanges was made on January 5, 2021, whereby the transfer agent recorded the exchange of common stock for the issuance of preferred stock and warrants.

September 2021 Warrant Exchange Agreement

On September 21, 2021, the Company issued warrants exercisable for 298,692 shares of common stock in exchange for warrants exercisable for 5,376.456 shares of Series X 1 Preferred Stock previously issued as part of the Anelixis merger.

These Series X 1 Preferred Stock warrants were replaced by Eledon for the outstanding warrants issued by Anelixis that were not settled upon completion of the merger.

Common Stock Warrants

As of December 31, 2021, 1,145,631 warrants were exercisable into common stock (after rounding for fractional shares and subject to beneficial ownership conversion blockers) .

The following table shows the warrants to purchase common stock activity:

Rollforward of Warrant Activity

Registered direct warrants, placement agent

Private placement warrants

Private placement warrants, placement agent

Warrants exchanged for common stock

Warrants exchanged for Series X 1 preferred stock

Balance as of December 31, 2020

Cancelled/Expired

Balance as of December 31, 2021

Series X 1 Preferred Stock Warrants

As of December 31, 2021, 50,207.419 warrants were exercisable into Series X 1 Preferred Stock which are convertible into 2,789,301 shares of common stock (after rounding for fractional shares and subject to beneficial ownership conversion blockers).

The following table shows the warrants to purchase Series X 1 Convertible Preferred Stock activity:

Rollforward of Series X 1 Convertible Preferred Warrant Activity

Warrants assumed and

replaced in acquisition

Balance as of December 31, 2020

Assumed and replaced

Cancelled/Expired

Balance as of December 31, 2021

2021 Equity Distribution Agreement

On March 31, 2021, the Company filed a prospectus and prospectus supplement (the “2021 Prospectus”) under which the Company may offer and sell, from time to time, pursuant to an equity distribution agreement with Jeffries LLC, up to $ 75.0 million in shares of its common stock.

During the year ended December 31, 2021, no shares were sold under the 2021 Prospectus.

Stock-Based Compensation

Stock Option Plans

The Company has three stock compensation plans, the 2020 Stock Incentive Plan (the “2020 Plan”), the 2014 Stock Incentive Plan (the “2014 Plan”) and the 2007 Stock Incentive Plan (the “2007 Plan”).

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As of December 31, 2021, there were 782,583 options outstanding and 4,077,417 shares available to issue under the 2020 Plan.

Stock Option and PRSU Activity

As of December 31, 2021, a total of 4,077,417 stock awards were available for grant under the 2020 Plan.

The 2014 Plan was closed to new grants following the approval of the 2020 Plan, and therefore, there were no shares reserved for issuance under the 2014 Plan as of December 31, 2021.

The following table shows the stock option activity, as follows:

The following table summarizes all option activity under the 2007 Plan, 2014 Plan, 2020 Plan and inducement grants:

Under Options

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Outstanding as of January 1, 2020

Options Assumed

Forfeited / Canceled

Outstanding as of December 31, 2020

Options assumed in connection with acquisition

Forfeited / Canceled

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Options exercisable as of December 31, 2021

The following table shows the PRSU activity, as follows:

As of December 31, 2021, the range of exercise prices was between $ 4.73 and $ 2,147 for options outstanding.

Intrinsic value is calculated as the difference between the exercise price of the underlying options and the fair value of the common stock for the options that had exercise prices that were lower than the fair value per share of the common stock on the date of exercise.

There was no aggregate intrinsic value of options exercised during the year ended December 31, 2021.

The following table presents the assumptions used in the Black-Scholes option pricing model to determine the fair value of stock options granted in the periods presented , as follows:

Expected stock price volatility

Risk-free interest rate

Expected life of option (in years)

Estimated dividend yield

Restricted Stock Units

The following table shows the RSU activity, as follows:

Exercise Price

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Outstanding as of December 31, 2021

PRSUs vested and expected to vest as of

RSUs vested and expected to vest as of

December 31, 2021

Options exercisable as of December 31, 2020

As of December 31, 2020, the range of exercise prices was between $0.96 and $2,147 for options outstanding.

There was no aggregate intrinsic value of options exercised during the years ended December 31, 2020 and 2019.

As of December 31, 2020, total unrecognized stock-based compensation expense related to non-vested equity awards was $17.1 million, which is expected to be recognized over an estimated weighted-average period of 2.7 years.

RSUs exercisable as of December 31, 2021

Stock-based Compensation Expense

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Total stock-based compensation expense

As of December 31, 2021, total unrecognized stock-based compensation expense related to non-vested equity awards was $ 15.9 million, which is expected to be recognized over an estimated weighted-average period of 2.3 years.

Stock-based compensation expense for the year ended December 31, 2021 included no stock-based compensation expense related to performance-based options granted during 2021.

During the year ended December 31, 2020, PRSUs awarded to employees totaling 3,059 shares vested and resulted in the recognition of $205,000 in stock-based compensation expense.

Valuation Assumptions

The following table presents the assumptions used in the Black-Scholes option pricing model to determine the fair value of stock options granted in the periods presented , as follows:

Expected stock price volatility

Risk-free interest rate

Expected life of option (in years)

Estimated dividend yield

During the year ended December 31, 2020, PRSUs awarded to employees totaling 3,056 shares vested and resulted in the recognition of $ 0.2 million in stock-based compensation expense.

No PRSUs were awarded for the year ended December, 31, 2021.

Restructuring Expense

On June 11, 2020, following the announcement regarding the topline results from the phase 2a clinical trial of OP0201, Eledon announced that its board of directors approved a plan to reduce the size of its workforce.

On June 11, 2020, following the announcement regarding the topline results from the phase 2a clinical trial of OP0201, Eledon announced that its Board approved a plan to reduce the size of its workforce.

The workforce reduction, which was completed in June 2020, was designed to reduce the Company’s operating expenses while it is conducting a review of development and strategic alternatives.

On September 3, 2020, the board of directors (the “Board”) of the Company accepted the resignation of Gregory Flesher as the Company’s Chief Executive Officer and a member of the Board.

On September 3, 2020, the Board accepted the resignation of Gregory Flesher as the Company’s Chief Executive Officer and a member of the Board.

Flesher’s resignation was effective as of the close of business on September 4, 2020.

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Flesher entered into a consulting agreement with the Company pursuant to which he will provide consulting and transition-support services as requested by the Company at an hourly rate consistent with his target compensation.

For the year ended December 31, 2020, Eledon incurred $2.3 million in expenses related to the workforce reduction and expects to pay these amounts in the next six months.

Total liability for restructuring expenses and their utilization are summarized as follows (in thousands):

Ended December 31,

Accrued restructuring charges at beginning of period

Accrued restructuring charges at end of period

For the year ended December 31, 2020, Eledon incurred and paid $ 2.3 million in expenses related to the workforce reduction.

Business Acquisition

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As a result, approximately 231,068 shares of Series X 1 Preferred Stock were converted into 12,837,056 shares of the Company’s common stock.

As of December 31, 2020, approximately 108,070 shares of Series X 1 Preferred Stock remain outstanding.

As of December 31, 2021 and 2020, approximately 108,070 shares of Series X 1 Preferred Stock remain outstanding.

On December 23, 2020, the Company sold 1,004,111 shares of its common stock for gross proceeds of $ 9.0 million that was contingent upon the satisfaction of certain incremental closing conditions, as described above.

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Purchase Price Allocation

The following is an allocation of the purchase price as of the September 14, 2020 acquisition closing date based upon a preliminary estimate of the fair value of the assets acquired and the liabilities assumed by the Company in the acquisition (in thousands):

The following is an allocation of the purchase price as of the September 14, 2020 acquisition closing date based upon the estimated fair value of the assets acquired and the liabilities assumed by the Company in the acquisition (in thousands):

Cash and cash equivalents

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Net assets acquired

Acquisition costs of approximately $2.9 million were included in general and administrative expenses in the Company’s consolidated statements of operations and comprehensive loss.

Acquisition costs of approximately $ 2.9 million were included in general and administrative expenses in the Company’s consolidated statements of operations and comprehensive loss for the year ended December 31, 2020.

Deferred Income Taxes

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Identifiable Intangible Assets

Through its acquisition of Anelixis, the Company acquired intangible assets that consisted of in-process research and development (“IPR&D”) with an estimated fair value of $32.4 million, related to its clinical development program of AT-

The estimated fair value of the IPR&D was determined by management based on an external valuation specialist ’ s analysis of replacement costs to recreate AT-1501 in its current clinical stage.

The replacement cost method contemplates the cost to recreate the utility of AT-1501 but in a form that is not a replica of AT-1501.

Through its acquisition of Anelixis, the Company acquired intangible assets that consisted of IPR&D with an estimated fair value of $ 32.4 million, related to its clinical development program of tegoprubart.

The estimated fair value of the IPR&D was determined by management based on an external valuation specialist’s analysis of replacement costs to recreate tegoprubart in its current clinical stage.

The replacement cost method contemplates the cost to recreate the utility of tegoprubart but in a form that is not a replica of tegoprubart.

In this method, the replacement cost is determined and reduced for depreciation of the asset.

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The following unaudited pro forma combined financial information is presented to illustrate the estimated effects of the Merger based on the historical financial statements and accounting records of Eledon and Anelixis after giving effect to the Merger and the Merger-related pro forma adjustments.

The unaudited pro forma combined statement of operations for the years ended December 31, 2020 and 2019 combine the historical statements of operations of Eledon and Anelixis, giving effect to the Merger as if it had occurred on January 1, 2019, the first day of the fiscal year ended December 31, 2019.

The unaudited pro forma combined statement of operations for the years ended December 31, 2020 combine the historical statements of operations of Eledon and Anelixis, giving effect to the Merger as if it had occurred on January 1, 2020, the first day of the fiscal year ended December 31, 2020.

The unaudited pro forma combined financial information has been presented for informational purposes only.

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The unaudited pro forma combined financial information also excludes certain other income and other expense items as part of the acquisition of Anelixis.

For the year ended December 31, 2020, a gain of approximately $655,000 due to the forgiveness of Anelixis debt was removed from pro forma other income.

Approximately $512,000 and $395,000 was excluded from pro forma other expenses for the years ended December 31, 2020 and 2019, respectively, for interest expenses related to notes that were converted into equity interest in the Company.

For the year ended December 31, 2020, a gain of approximately $ 0.7 million due to the forgiveness of Anelixis debt was removed from pro

forma other income.

Approximately $ 0.5 million ex cluded from pro forma other expenses for the years ended December 31, 2020, for interest expense related to notes that were converted into equity interest in the Company.

Operating expenses

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Restructuring expense

Goodwill impairment

Total operating expenses

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Any material subsequent events that occurred during this time have been properly recognized or disclosed in the consolidated financial statements and accompanying notes.

On March 15, 2021, the Company appointed Paul Little as the Company’s Chief Financial Officer.

In that role, Mr.

Little will also serve as the Company’s principal financial officer, replacing Jon Kuwahara in that role.

Kuwahara will continue to serve as the Company’s Senior Vice President of Finance and Administration and principal accounting officer.

The Company and Jefferies may each terminate the Sale Agreement at any time as set forth in the Sale Agreement.

Under the terms of the Sale Agreement, the Company may also sell shares to Jefferies acting as principal for Jefferies’ own account.

The compensation to Jefferies for sales of the Company’s common stock will be an amount equal to 3.0% of the gross proceeds of any shares of common stock sold under the Sale Agreement.

The Company has no obligation to sell any shares under the Sale Agreement, and may at any time suspend solicitation and offers under the Sale Agreement.

The shares will be issued pursuant to a shelf registration statement on Form S-3 to be filed with the SEC.

No sales may be made under the registration statement until it has been declared effective by the SEC.

On January 11, 2022, the Company entered into an exchange agreement (the “Series X 1 Exchange Agreement”) with the BVF Exchanging Stockholders, pursuant to which the BVF Exchanging Stockholders exchanged (the “Series X 1 Exchange”) 550,000 shares of the Company’s common stock, for 9,899.99 shares of Series X 1 Preferred Stock.

F ollowing the Series X 1 Exchange, the Company will have 13,756,788 shares of common stock outstanding and approximately 117,970 shares of Series X 1 Preferred Stock outstanding, which are convertible into 6,553,894 shares of common stock (after rounding for fractional shares and subject to beneficial ownership conversion blockers ).

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