Eledon Pharmaceuticals, Inc. 10-K

Item 9A. Controls and Procedures. Evaluation of 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. Disclosure controls and procedures include, without limitation, controls and procedures 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 accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. 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, at the reasonable assurance level, as of December 31, 2021. Internal Control Over Financial Reporting Management’s Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Our internal control 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. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Our management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2021. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO Framework”) in its 2013 Internal Control—Integrated Framework. Management believes that the COSO Framework is a suitable framework for its evaluation of financial reporting because it is free from bias, permits reasonably consistent qualitative and quantitative measurements of our internal control over financial reporting, is sufficiently complete so that those relevant factors that would alter a conclusion about the effectiveness of our internal control over financial reporting are not omitted and is relevant to an evaluation of internal control over financial reporting. Based on this assessment, our management has concluded that as of December 31, 2021, our internal control over financial reporting is effective. As a non-accelerated filer, we are not required to provide an attestation report on our internal control over financial reporting issued by the Company’s independent registered accounting firm. Changes in Internal Control over Financial Reporting There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) during the quarter ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information. None. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspection. Not applicable. 56 PART III Item 10. 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 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. A copy of the code is available on the Corporate Governance section of our website, which is located at http://ir.eledon.com/corporate-governance/governance-overview . We intend to disclose on our website any amendments to, or waivers from, the code of business conduct and ethics that are required to be disclosed pursuant to the disclosure requirements of Item 5.05 of Form 8-K within four business days following the date of the amendment or waiver. Item 11. Executive Compensation. 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”. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The information required by this Item 12 is incorporated herein by reference to information in our 2022 Proxy Statement, including under headings “Security Ownership of Certain Beneficial Owners and Management” and “Securities Authorized for Issuance Under Equity Compensation Plans”. Item 13. Certain Relationships and Related Transactions, and Director Independence. The information required by this Item 13 is incorporated herein by reference to information in our 2022 Proxy Statement, including under headings “Board of Directors and Corporate Governance—Related Person Transactions,” “Board of Directors and Corporate Governance,” and “Board of Directors and Corporate Governance—Committees of the Board of Directors”. Item 14. Principal Accountant Fees and Services. 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”. 57 PART IV Item 15. Exhibits, Financial Statement Schedules. (a) The following documents are filed as part of this Annual Report on Form 10-K: (1) Financial Statements: The Report of Independent Registered Public Accounting Firm, our consolidated financial statements and accompanying notes are set forth beginning on page F-1 immediately following the signature page of this Annual Report on Form 10-K. (2) Financial Statement Schedules: The financial statement schedules are omitted as they are either not applicable or the information required is presented in the financial statements and notes thereto under Part II, Item 8. Financial Statements and Supplementary Data . (3) Exhibits: Exhibit Number Exhibit Description Incorporated by Reference Filed Form File No. Exhibit Filing Date Herewith 1.1 Open Market Sales Agreement by and between the Registrant and Jefferies, LLC dated March 30, 2021 10-K 001-36620 1.1 March 31, 2021 2.1 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. 8-K 001-36620 2.1 September 15, 2020 3.1 Restated Certificate of Incorporation of Novus Therapeutics, Inc., a Delaware corporation, dated September 22, 2014 8-K 001-36620 3.1 September 26, 2014 3.2 Certificate of Amendment to Certificate of Incorporation of Novus Therapeutics, Inc. (effecting, among other things a reverse stock-split), filed with the Secretary of the State of Delaware on May 9, 2017 8-K 001-36620 3.1 May 15, 2017 3.3 Certificate of Amendment to Certificate of Incorporation of Novus Therapeutics, Inc. (effecting, among other things a change in the corporation’s name to “Novus Therapeutics, Inc.”), filed with the Secretary of the State of Delaware on May 9, 2017 8-K 001-36620 3.2 May 15, 2017 3.4 Certificate of Amendment to the Restated Certificate of Incorporation of Novus Therapeutics, Inc., (effecting, among other things a reverse stock-split) effective as of October 5, 2020 8-K 001-36620 3.1 October 6, 2020 3.5 Certificate of Amendment to the Restated Certificate of Incorporation of Novus Therapeutics, Inc., (effecting, among other things a change in the corporation’s name to “Eledon Pharmaceuticals, Inc.”) effective as of January 5, 2021 8-K 001-36620 3.1 January 5, 2021 58 Exhibit Number Exhibit Description Incorporated by Reference Filed Form File No. Exhibit Filing Date Herewith 3.6 Amended and Restated Bylaws of Eledon Pharmaceuticals, Inc. 8-K 001-36620 3.2 January 5, 2021 3.7 Certificate of Designations of Series X Convertible Preferred Stock 8-K 001-36620 3.1 February 19, 2020 3.8 Certificate of Designations of Series X 1 Convertible Preferred Stock 8-K 001-36620 3.1 September 15, 2020 4.1 Form of Common Stock Certificate 8-A/A 001-36620 4.1 June 23, 2017 4.2 Form of Warrant 8-K 001-36620 4.1 May 2, 2019 4.3 Form of Placement Agent Warrant 8-K 001-36620 4.2 May 2, 2019 4.4 Form of Common Stock Purchase Warrant 8-K 001-36620 4.1 January 16, 2020 4.5 Description of Securities 10-K 001-36620 4.5 March 31, 2021 10.1 * Form of Indemnification Agreement 8-K 001-36620 10.1 September 15, 2020 10.2 Lease Agreement, dated as of September 2, 2015, by and between The Irvine Company LLC and Otic Pharma, Inc. 10-Q 001-36620 10.2 August 9, 2017 10.3 First Amendment to Lease Agreement, dated April 19, 2018, by and between The Irvine Company LLC and Novus Therapeutics, Inc. 10-Q 001-36620 10.1 August 7, 2018 10.4 * Tokai Pharmaceuticals, Inc. 2007 Stock Incentive Plan 10-K 001-36620 10.11 April 2, 2018 10.5 * Tokai Pharmaceuticals, Inc. 2014 Stock Incentive Plan 10-Q 001-36620 10.2 August 7, 2018 10.6 * Novus Therapeutics, Inc., 2014 Employee Stock Purchase Plan 10-Q 001-36620 10.3 August 7, 2018 10.7 * Executive Employment Agreement, dated September 9, 2020, between Novus Therapeutics, Inc. and David-Alexandre C. Gros, M.D. 10-K 001-36620 10.8 March 31, 2021 10.8 * Executive Employment Agreement, dated March 1, 2021, between Eledon Pharmaceuticals, Inc. and Jon Kuwahara 10-K 001-36620 10.9 March 31, 2021 10.9 * Executive Employment Agreement, dated March 15, 2021, between Eledon Pharmaceuticals, Inc. and Paul Little 10-K 001-36620 10.10 March 31, 2021 10.10 * Novus Therapeutics, Inc., 2020 Long Term Incentive Plan 10-K 001-36620 10.11 March 31, 2021 59 Exhibit Number Exhibit Description Incorporated by Reference Filed Form File No. Exhibit Filing Date Herewith 10.1 1 Series X1 Exchange Agreement, dated as of January 11, 2022, by and among Eledon Pharmaceuticals, Inc. and the Stockholders named therein 8-K 001-36620 10.12 January 13, 2022 X 10.12* Performance Stock Option Agreement, dated February 1, 2022, between Eledon Pharmaceuticals, Inc. and David-Alexandre C. Gros, M.D. 10.13 Second Amendment to Lease Agreement, dated May 3, 2021, by and between Newport Gateway Office LLC and Eledon Pharmaceuticals, Inc. X 10.14 Sublease Agreement, dated as of November 4, 2021, by and between Corporate Technologies, Inc. and Eledon Pharmaceuticals, Inc. X 21.1 Subsidiaries of the Registrant 10-K 001-36620 21.1 March 17, 2020 23.1 Consent of KMJ Corbin & Company LLP, independent registered public accounting firm X 31.1 Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 X 31.2 Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 X 32.1 # Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 X 32.2 # Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 X 101.INS INLINE XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document 101.SCH INLINE XBRL Taxonomy Extension Schema Document 101.CAL INLINE XBRL Taxonomy Extension Calculation Linkbase Document 60 Exhibit Number Exhibit Description Incorporated by Reference Filed Form File No. Exhibit Filing Date Herewith 101.DEF INLINE XBRL Taxonomy Extension Definition Linkbase Document 101.LAB INLINE XBRL Taxonomy Extension Label Linkbase Document 101.PRE INLINE XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File – the cover page interactive date file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document * Indicates a management contract or compensatory plan # 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. Item 16. Form 10-K Summary. None. 61 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Eledon Pharmaceuticals, Inc. Date: March 24, 2022 By: /s/ David-Alexandre C. Gros, M.D. David-Alexandre C. Gros, M.D. Chief Executive Of ficer and Director (Principal Executive Office r) Date: March 24, 2022 By: /s/ Paul Little Paul Little Chief 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. Name Title Date /s/ David-Alexandre C. Gros, M.D. Chief Executive Officer and Director March 24, 2022 David-Alexandre C. Gros, M.D. ( Principal Executive Officer) /s/ Paul Little Chief Financial Officer March 24, 2022 Paul Little (Principal Financial and Accounting Officer) /s/ Keith A. Katkin Chairman of the Board of Directors March 24, 2022 Keith A. Katkin /s/ Jan Hillson, M.D. Director March 24, 2022 Jan Hillson, M.D. /s/ Gary A. Lyons Director March 24, 2022 Gary A. Lyons /s/ John S. McBride Director March 24, 2022 John S. McBride /s/ Walter Ogier Director March 24, 2022 Walter Ogier /s/ June Lee, M.D. Director March 24, 2022 June Lee, M.D. /s/ Steven Perrin President, Director March 24, 2022 Steven Perrin 62 ELEDON PHARMACEUTICALS, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm (KMJ Corbin & Company LLP PCAOB ID#: 170 ) F-2 Consolidated Balance Sheets as of December 31, 2021 and 2020 F-4 Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2021 and 2020 F-5 Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2021 and 2020 F-6 Consolidated Statements of Cash Flows for the Years Ended December 31, 2021 and 2020 F-7 Notes to Consolidated Financial Statements F-8 F-1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Eledon Pharmaceuticals, Inc. Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Eledon Pharmaceuticals, Inc. (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive loss, stockholders’ equity and cash flows for the each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (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 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. F-2 How the Critical Audit Matter Was Addressed in the Audit 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 We have served as the Company's auditor since 2019. Irvine, California March 24, 2022 F-3 ELEDON PHARMACEUTICALS, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share data) December 31, 2021 2020 ASSETS Current assets: Cash and cash equivalents $ 84,833 $ 114,195 Prepaid expenses and other current assets 3,513 1,435 Total current assets 88,346 115,630 Operating lease asset, net 768 138 Goodwill 48,648 48,648 In-process research and development 32,386 32,386 Other assets 400 383 Total assets $ 170,548 $ 197,185 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 1,813 $ 1,366 Current operating lease liability 369 144 Accrued expenses and other liabilities 2,219 973 Total current liabilities 4,401 2,483 Deferred tax liability 1,752 4,106 Non-current operating lease liability 400 — Total liabilities 6,553 6,589 Commitments and contingencies (Note 5) Stockholders’ equity: Series X 1 non-voting convertible preferred stock, $ 0.001 par value, 515,000 shares authorized; 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 authorized; 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 December 31, 2021 and 2020; 14,306,788 and 15,160,397 shares issued and outstanding at December 31, 2021 and 2020, respectively 14 15 Additional paid-in capital 278,880 270,974 Accumulated deficit ( 114,899 ) ( 80,393 ) Total stockholders’ equity 163,995 190,596 Total liabilities and stockholders’ equity $ 170,548 $ 197,185 See accompanying notes to consolidated financial statements. F-4 ELEDON PHARMACEUTICALS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (In thousands, except share and per share data) Year Ended December 31, 2021 2020 Operating expenses Research and development $ 23,735 $ 6,131 General and administrative 13,132 10,052 Restructuring expense — 2,282 Total operating expenses 36,867 18,465 Loss from operations ( 36,867 ) ( 18,465 ) Other income, net 7 79 Warrant inducement expense — ( 4,829 ) Loss before income tax benefit ( 36,860 ) ( 23,215 ) Income tax benefit 2,354 404 Net loss and comprehensive loss $ ( 34,506 ) $ ( 22,811 ) Net loss per share, basic and diluted $ ( 2.33 ) $ ( 15.72 ) Weighted-average common shares outstanding, basic and diluted 14,819,582 1,451,432 See accompanying notes to consolidated financial statements. F-5 ELEDON PHARMACEUTICALS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In thousands, except share data) Series X 1 Non-Voting Convertible Preferred Stock Series X Non-Voting Convertible Preferred Stock Common Stock Additional Paid-In Accumulated Shares Amount Shares Amount Shares Amount Capital Deficit Total Balance as of December 31, 2020 108,070 $ — — $ — 15,160,397 $ 15 $ 270,974 $ ( 80,393 ) $ 190,596 Cancellation of common stock in connection with exchange for preferred stock — — 6,204 — ( 344,666 ) — — — — Cancellation of common stock in connection with exchange for warrants — — — — ( 509,117 ) ( 1 ) 1 — — Stock-based compensation — — — — — — 7,904 — 7,904 Stock options exercised — — — — 174 — 1 — 1 Net loss and other comprehensive loss — — — — — — — ( 34,506 ) ( 34,506 ) Balance as of December 31, 2021 108,070 $ — 6,204 $ — 14,306,788 $ 14 $ 278,880 $ ( 114,899 ) $ 163,995 Balance as of December 31, 2019 — $ — — $ — 720,408 $ 1 $ 67,046 $ ( 57,582 ) $ 9,465 Issuance of common stock in connection with PIPE transaction, net of issuance costs — — — — 1,004,111 1 8,549 — 8,550 Issuance of common stock in connection with exercise of warrants, net of issuance costs — — — — 421,772 — 5,380 — 5,380 Issuance of common stock in connection with conversion of Series X preferred stock — — ( 3,796 ) — 210,888 — — — — Issuance of common stock in connection with conversion of Series X 1 preferred stock ( 231,068 ) — — — 12,837,056 13 ( 13 ) — — Issuance of common stock in connection with vesting of restricted stock units — — — — 3,056 — — — — Issuance of preferred stock in connection with acquisition — — — — 175,488 — 1,194 — 1,194 Cancellation of common stock in connection with exchange for preferred stock — — 3,796 — ( 210,889 ) — — — — Cancellation of common stock in connection with reverse split — — — — ( 1,493 ) — ( 25 ) — ( 25 ) Issuance of preferred stock in connection with acquisition 140,026 — — — — — 69,723 — 69,723 Issuance of preferred stock in connection with PIPE transaction, net of issuance costs 199,112 — — — — — 95,226 — 95,226 Fair value of options assumed in acquisition — — — — — — 2,950 — 2,950 Fair value of warrants assumed in acquisition — — — — — — 12,944 — 12,944 Warrant inducement expense — — — — — — 4,829 — 4,829 Stock-based compensation — — — — — — 3,171 — 3,171 Net loss and other comprehensive loss — — — — — — — ( 22,811 ) ( 22,811 ) Balance as of December 31, 2020 108,070 $ — — $ — 15,160,397 $ 15 $ 270,974 $ ( 80,393 ) $ 190,596 See accompanying notes to consolidated financial statements. F-6 ELEDON PHARMACEUTICALS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year Ended December 31, 2021 2020 Operating activities Net loss $ ( 34,506 ) $ ( 22,811 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization — 5 Amortization of operating lease asset 195 178 Warrant inducement expense — 4,829 Stock-based compensation 7,904 3,171 Deferred income taxes ( 2,354 ) ( 404 ) Changes in operating assets and liabilities: Prepaid expenses and other assets ( 2,095 ) 39 Accounts payable and accrued expenses 2,143 ( 39 ) Operating lease liability ( 200 ) ( 180 ) Net cash used in operating activities ( 28,913 ) ( 15,212 ) Investing activities Cash and cash equivalents received from acquisition — 11,035 Net cash provided by investing activities — 11,035 Financing activities Proceeds from issuance of common stock, net — 9,000 Proceeds from issuance of non-voting preferred stock in connection with PIPE transaction, net — 95,226 Proceeds from exercise of warrants, net — 5,380 Proceeds from exercise of stock options 1 — Payment of offering costs in connection with PIPE transaction ( 450 ) — Cash paid for cancellation of common stock in connection with reverse split — ( 25 ) Net cash (used in) provided by financing activities ( 449 ) 109,581 Net change in cash and cash equivalents ( 29,362 ) 105,404 Cash and cash equivalents at beginning of year 114,195 8,791 Cash and cash equivalents at end of year $ 84,833 $ 114,195 Supplemental disclosure of non-cash investing and financing activities Increase in operating lease asset and liability due to new and modified operating leases $ 825 $ — Common stock exchange for warrants $ 1 $ — Conversion of Series X 1 non-voting convertible preferred stock into common stock $ — $ 13 Issuance of common stock in acquisition $ — $ 1,194 Issuance of Series X non-voting convertible preferred stock in acquisition $ — $ 69,723 Fair value of options assumed in acquisition $ — $ 2,950 Fair value of warrants assumed in acquisition $ — $ 12,944 Accrued offering costs $ — $ 450 See accompanying notes to consolidated financial statements. F-7 ELEDON PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Description of Business Eledon Pharmaceuticals, Inc. (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”). 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. 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). Following the acquisition of Anelixis, Novus changed its name to Eledon Pharmaceuticals, Inc. The Company has continued to maintain its corporate headquarters in Southern California and has research and development facilities in the Boston, Massachusetts area. Note 2. Summary of Significant Accounting Policies Basis of Presentation and Principles of Consolidation The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). Eledon, a Delaware corporation, owns 100 % of the issued and outstanding common stock or other ownership interest in Anelixis Therapeutics, LLC, a Delaware corporation, and Otic Pharma , Ltd., a private limited company organized under the laws of the State of Israel (“Otic”) . Otic owns 100 % of the issued and outstanding common stock or other ownership interest in its U.S. subsidiary, Otic Pharma, Inc. The functional currency of the Company’s foreign subsidiary is the U.S. Dollar; however, certain expenses, assets and liabilities are transacted at the local currency. These transactions are translated from the local currency into U.S. Dollars at exchange rates during or at the end of the reporting period. The activities of the Company’s foreign subsidiary are not significant to the consolidated financial statements. All significant intercompany accounts and transactions among the entities have been eliminated in consolidation. Liquidity and Financial Condition The Company has experienced recurring net losses and negative cash flows from operating activities since its inception. The Company recorded a net loss of $ 34.5 million and used $ 28.9 million of cash in operating activities for the year ended December 31, 2021. As of December 31, 2021, the Company had cash and cash equivalents of $ 84.8 million, working capital of $ 83.9 million and an accumulated deficit of $ 114.9 million. Due to continuing research and development activities, the Company expects to continue to incur net losses into the foreseeable future. In order to continue these activities, the Company will need to raise additional funds through public or private debt and equity financings or strategic collaboration and licensing arrangements. The Company’s ability to raise additional capital in the equity and debt markets is dependent on a number of factors, including, but not limited to, the market demand for the Company’s common stock, which itself is subject to a number of development and business risks and uncertainties, as well as the uncertainty that the Company would be able to raise such additional capital at a price or on terms that are favorable to the Company. If the Company issues equity or convertible debt securities to raise additional funding, its existing stockholders may experience dilution, it may incur significant financing costs, and the new equity or convertible debt securities may have rights, preferences and privileges senior to those of its existing stockholders. 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. 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. F-8 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 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. The Financing was exempt from registration pursuant to Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder, as a transaction by an issuer not involving a public offering. 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 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 On October 5, 2020, Eledon effected a reverse stock-split of its issued and outstanding common stock and options for common stock at a ratio of one-for-eighteen . The Company filed an Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware effecting the reverse stock-split. The accompanying consolidated financial statements and notes, as well as other share and per-share data herein, give retroactive effect to the reverse stock-split for all periods presented. Use of Estimates The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make informed estimates and assumptions that affect the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in the Company’s consolidated financial statements and accompanying notes. The most significant estimates in the Company’s consolidated financial statements relate to stock-based compensation, accruals for liabilities, fair value of assets acquired and liabilities assumed in a business combination, impairment of long-lived assets, including goodwill, and other matters that affect the consolidated financial statements and related disclosures. Actual results could differ materially from those estimates under different assumptions or conditions and the differences may be material to the consolidated financial statements. Cash and Cash Equivalents Cash represents cash deposits held at financial institutions. The Company considers all liquid investments purchased with an original maturity of three months or less and that can be liquidated without prior notice or penalty to be cash equivalents. The carrying value of cash equivalents approximates their fair value due to the short-term maturities of these instruments. Cash equivalents are held for the purpose of meeting short-term liquidity requirements, rather than for investment purposes. The Company had $ 9.2 million in cash equivalents at December 31, 2021 and 2020. Fair Value Measurements Financial assets and liabilities are recorded at fair value. The Company measures the fair value of certain of its financial instruments on a recurring basis. A fair value hierarchy is used to rank the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories: Level 1—Quoted prices (unadjusted) in active markets for identical assets and liabilities. Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as unadjusted quoted prices for similar assets and liabilities, unadjusted quoted prices in the markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. F-9 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 as of December 31, 2021 and 2020. Concentration of Credit Risk and Other Risks and Uncertainties As of December 31, 2021 and 2020, all of the Company’s long-lived assets were located in the United States. Financial instruments that are subject to concentration of credit risk consist primarily of cash equivalents. The Company’s policy is to invest cash in institutional money market funds to limit the amount of credit exposure. At times, the Company maintains cash equivalents in short‑term money market funds and it has not experienced any losses on its cash equivalents. The Company’s products will require approval from the U.S. Food and Drug Administration (“FDA”) and foreign regulatory agencies before commercial sales can commence. There can be no assurance that its products will receive any of these required approvals. The denial or delay of such approvals may impact the Company’s business in the future. In addition, after the approval by the FDA, there is still an ongoing risk of adverse events that did not appear during the product approval process. The Company is subject to risks common to companies in the pharmaceutical industry, including, but not limited to, new technological innovations, clinical development risk, establishment of appropriate commercial partnerships, protection of proprietary technology, compliance with government and environmental regulations, uncertainty of market acceptance of products, product liability, the volatility of its stock price and the need to obtain additional financing. Our facilities and equipment, including those of our suppliers and vendors, may be affected by natural or man-made disasters. Our administrative office is based in Irvine, California and we manage all our research and development activities through third parties that are located throughout the world. We have taken precautions to safeguard our facilities, equipment and systems, including insurance, health and safety protocols, and off-site storage of computer data. However, our facilities and systems, as well as those of our third-party suppliers and vendors, may be vulnerable to earthquakes, fire, storm, health emergencies, including the ongoing COVID-19 pandemic, power loss, telecommunications failures, physical and software break-ins, software viruses and similar events which could cause substantial delays in our operations, damage or destroy our equipment or inventory, and cause us to incur additional expenses and delay research and development activities. In addition, the insurance coverage we maintain may not be adequate to cover our losses in any circumstance and may not continue to be available to use on acceptable terms, or at all. Business Combinations Accounting for acquisitions requires extensive use of estimates and judgment to measure the fair value of the identifiable tangible and intangible assets acquired, including in-process research and development (“IPR&D”) and liabilities assumed. Additionally, the Company must determine whether an acquired entity is considered a business or a set of net assets because the excess of the purchase price over the fair value of net assets acquired can only be recognized as goodwill in a business combination. The Company accounted for the acquisition of Anelixis as a business combination under the acquisition method of accounting. Consideration paid to acquire Anelixis was measured at fair value and included the exchange of Anelixis’ common stock. The allocation of the purchase price resulted in recognition of intangible assets related to goodwill and IPR&D. Acquired IPR&D is recognized at fair value and initially characterized as an indefinite-lived intangible asset, irrespective of whether the acquired IPR&D has an alternative future use. The operating activity for Anelixis, the acquiree for accounting purposes, was immediately integrated with Eledon post-acquisition, therefore it is not practical to segregate results of operations related specifically to Anelixis since the date of acquisition. During the measurement period, which extends no later than one year from the acquisition date, the Company may record certain adjustments to the carrying value of the assets acquired and liabilities assumed with the corresponding offset to goodwill. After the measurement period, all adjustments are recorded in the consolidated statements of operations as operating expenses or income. F-10 Reportable Segments Operating segments under GAAP are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the Chief Operating Decision Maker (“CODM”), or decision-making group, in deciding how to allocate resources and in assessing performance. The CODM is the Company’s Chief Executive Officer and the Company has determined that it operates in one business segment, which is the development of products for therapeutic medicines selectively targeting critical pathways associated with the underlying molecular pathogenesis for patients with severe inflammation and autoimmune diseases. Goodwill 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 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. The Company performs its annual impairment analysis by either comparing the reporting unit’s estimated fair value to its carrying amount or doing a qualitative assessment of a reporting unit’s fair value from the last quantitative assessment to determine if there is potential impairment. The Company may do a qualitative assessment when the results of the previous quantitative test indicated the reporting unit’s estimated fair value was significantly in excess of the carrying value of its net assets and it does not believe there have been significant changes in the reporting unit’s operations that would significantly decrease its estimated fair value or significantly increase its net assets. If a quantitative assessment is performed the evaluation includes management estimates of cash flow projections based on internal future projections and/or use of a market approach by looking at market values of comparable companies . Key assumptions for these projections include revenue growth, future gross and operating margin growth, and its weighted cost of capital and terminal growth rates. The revenue and margin growth is based on increased sales of new products as the Company maintains investments in research and development. Additional assumed value creators may include increased efficiencies from capital spending. 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. 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 December 31, 2021 using the qualitative assessment and determined that no impairment existed. Long-Lived Assets Property and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets. Additions, major renewals and improvements are capitalized and repair and maintenance costs are charged to expense as incurred. Leasehold improvements are amortized over the remaining life of the initial lease term or the estimated useful lives of the assets, whichever is shorter. The Company reviews property and equipment for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. An impairment loss would be recognized when estimated future undiscounted cash flows relating to the asset are less than its carrying amount. An impairment loss is measured as the amount by which the carrying amount of an asset exceeds its fair value. Significant management judgment is required in the forecast of future operating results that are used in the preparation of expected cash flows. No impairments of long-lived assets have been identified during the years presented. In-Process Research and Development 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. F-11 The fair value of an IPR&D intangible asset is determined using the replacement cost method. This method involves arriving at an asset’s value by reference to the present-day cost, in an arms-length transaction, of replacing that asset with a similar asset in a similar condition. Research and Development Expenses Research and development expenses include personnel and facility-related expenses, outside contracted services including clinical trial costs, manufacturing and process development costs, research costs and other consulting services and non-cash stock-based compensation. Research and development costs are expensed as incurred. Amounts due under contracts with third parties may be either fixed fee or fee for service, and may include upfront payments, monthly payments and payments upon the completion of milestones or receipt of deliverables. Non-refundable advance payments under agreements are capitalized and expensed as the related goods are delivered or services are performed. The Company’s contracts with third parties to perform various clinical trial activities in the on-going development of potential products. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows to its vendors. Payments under the contracts depend on factors such as the achievement of certain events, successful enrollment of patients, and completion of portions of the clinical trial or similar conditions. The Company’s accrual for clinical trials is based on estimates of the services received and efforts expended pursuant to contracts with clinical trial centers and clinical research organizations. 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. There have been no material adjustments to the Company’s prior period accrued estimates for clinical trial activities through December 31, 2021. Net Loss Per Share Basic net loss per common share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period, without consideration for potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares and potentially dilutive securities outstanding for the period determined using the treasury-stock and if-converted methods. For purposes of the diluted net loss per share calculation, preferred stock, and stock options and warrants are considered to be potentially dilutive securities and are excluded from the calculation of diluted net loss per share because their effect would be anti-dilutive. Therefore, basic and diluted net loss per share was the same for the periods presented due to the Company’s net loss position. Year Ended December 31, 2021 2020 (In thousands, except share and per share data) Net loss $ ( 34,506 ) $ ( 22,811 ) Net loss per share, basic and diluted $ ( 2.33 ) $ ( 15.72 ) Weighted-average number of common shares 14,819,582 1,451,432 The computation of diluted earnings per share excludes stock options, warrants, and restricted stock units that are anti-dilutive. For the year ended December 31, 2021, common share equivalents of 1,087,174 shares were anti-dilutive. For the year ended December 31, 2020, common share equivalents of 632,543 shares were anti-dilutive. Stock-Based Compensation For stock options granted to employees and directors, the Company recognizes compensation expense for all stock-based awards based on the grant-date estimated fair value. The fair value of stock options is determined using the Black-Scholes option pricing model, using assumptions which are subjective and require significant judgment and estimation by management. The risk-free rate assumption was based on observed yields from governmental zero-coupon bonds with an equivalent term. 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 F-12 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 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. The Company has not paid and does not expect to pay dividends at any time in the foreseeable future. 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 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 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. The number of shares reserved for issuance under the 2020 Plan and ESPP was 4,077,417 and 24,077 shares, respectively, as of December 31, 2021. Stock-based compensation expense related to stock options granted to nonemployees is recognized based on the estimated fair value of the stock options on their grant date, determined using the Black-Scholes option pricing model. The awards generally vest over the period the Company expects to receive services from the nonemployees. Similar to stock options granted to employees, the fair value of stock options granted to nonemployees, is determined using the Black-Scholes option pricing model, involves assumptions that are subjective and require significant judgment and estimation by management. The risk-free rate assumption was based on observed yields from governmental zero-coupon bonds with an equivalent term. 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 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 on stock options granted to nonemployees, the Company determined the contractual term is the appropriate period for expected life on stock options granted to nonemployees. The expected dividend assumption was based on the Company’s history and expectation of dividend payouts. The Company has not paid and does not expect to pay dividends at any time in the foreseeable future. The Company recognizes forfeitures on an actual basis and as such did not estimate forfeitures to calculate stock-based compensation. Income Taxes Significant judgment is required in determining the Company’s provision for income taxes, deferred tax assets and liabilities and the valuation allowance recorded against net deferred tax assets. We assess the likelihood that deferred tax assets will be recovered as deductions from future taxable income. The evaluation of the need for a valuation allowance is performed on a jurisdiction-by-jurisdiction basis and includes a review of all available positive and negative evidence. Factors reviewed include projections of pre-tax book income for the foreseeable future, determination of cumulative pre-tax book income after permanent differences, earnings history, and reliability of forecasting. We have provided a valuation allowance on our deferred tax assets as of December 31, 2021 and 2020 because we believe it is more likely than not that a majority of our deferred tax assets will not be realized as of this date. F-13 The Company evaluates the accounting for uncertainty in income tax recognized in its consolidated financial statements and determines whether it is more likely than not that a tax position will be sustained upon examination by the appropriate taxing authorities before any part of the benefit is recorded in its consolidated financial statements. For those tax positions where it is “not more likely than not” that a tax benefit will be sustained, no tax benefit is recognized. Where applicable, associated interest and penalties are also recorded. The Company has not accrued any liabilities for any such uncertain tax positions as of December 31, 2021 and 2020. The Company is subject to U.S. federal and state tax authority examinations for all the years since inception due to net operating loss and tax credit carryforwards. The net operating losses and tax credits are subject to adjustment until the statute closes on the year the attributes are ultimately utilized. The Company’s income tax returns are based on calculations and assumptions that are subject to examination by the Internal Revenue Service and other tax authorities. In addition, the calculation of the Company’s tax liabilities involves dealing with uncertainties in the application of complex tax regulations. The Company recognizes liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50 % likely of being realized upon settlement. While the Company believes it has appropriate support for the positions taken on its tax returns, the Company regularly assesses the potential outcomes of examinations by tax authorities in determining the adequacy of its provision for income taxes. The Company continually assesses the likelihood and amount of potential revisions and adjusts the income tax provision, income taxes payable and deferred taxes in the period in which the facts that give rise to a revision become known. For additional information, see Note 6. Income Taxes. Reclassifications Certain reclassifications of prior period amounts have been made to conform to the current period presentation. Recently Adopted Accounting Pronouncements No new accounting pronouncement issued or effective during the fiscal period had or is expected to have a material impact on the Company’s consolidated financial statements or disclosures. Note 3. Prepaid Expenses, Other Assets, Accrued Expenses and Other Liabilities Prepaid expenses and other current assets consisted of the following as of December 31, 2021 and 2020 (in thousands): December 31, 2021 2020 Prepaid insurance $ 1,344 $ 1,157 Prepaid clinical 2,039 89 Prepaid other 96 41 Insurance receivable — 110 Other current assets 34 38 Total prepaid expenses and other current assets $ 3,513 $ 1,435 Accrued expenses and other liabilities consisted of the following as of December 31, 2021 and 2020 (in thousands): December 31, 2021 2020 Accrued compensation and related expenses $ 1,411 $ 98 Accrued severance 104 12 Accrued clinical 454 258 Accrued professional services 167 9 Accrued costs associated with PIPE financing - 450 Accrued other 83 146 Total accrued expenses and other liabilities $ 2,219 $ 973 F-14 Note 4. Goodwill On September 14, 2020, the Company acquired Anelixis (see Note 10). The changes in the carrying amount of goodwill consisted of the following for the years ended December 31, 2021 and 2020 (in thousands): Total Balance as of January 1, 2020 $ — Acquisition of Anelixis 48,648 Balance as of December 31, 2020 48,648 Goodwill acquired — Balance as of December 31, 2021 $ 48,648 Note 5. Commitments and Contingencies Operating Leases 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 $ 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 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. Operating lease liabilities represent the present value of lease payments not yet paid. Operating lease assets represent our right to use an underlying asset and are based upon the operating lease liabilities as adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of operating lease assets. To determine the present value of lease payments not yet paid, we estimate incremental secured borrowing rates corresponding to the maturities of the leases. 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 leases contain rent escalations over the lease term. We recognize expense for these leases on a straight-line basis over the lease term. Additionally, tenant incentives used to fund leasehold improvements are recognized when earned and reduce our right-of-use asset related to the lease. These are amortized through the right-of-use asset as reductions of expense over the lease term. 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. We have elected the short-term lease recognition exemption for all applicable classes of underlying assets. Short-term disclosures include only those leases with a term greater than one month and 12 months or less, and expense is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less, that do not include an option to purchase the underlying asset that we are reasonably certain to exercise, are not recorded on the consolidated balance sheet. F-15 The components of lease expense were as follows: Year Ended December 31, 2021 2020 Operating lease cost (a) $ 283 $ 195 (a) Includes variable operating lease expenses, which are immaterial. Other information related to leases was as follows (in thousands, except lease term and discount rate): Year Ended December 31, 2021 2020 Supplemental Cash Flows Information Cash paid for amounts included in the measurement of lease liability: Operating cash flows from operating lease $ 208 $ 188 Operating lease asset obtained in exchange for lease liability: Operating lease $ 825 $ — Remaining lease term Operating lease 2.41 years 0.75 years Discount rate Operating lease 3.00 % 3.25 % Future payments under noncancelable operating leases having initial or remaining terms of one year or more are as follows for the succeeding fiscal year and thereafter (in thousands): Year Ended December 31, 2021 2022 $ 387 2023 212 2024 200 Total minimum lease payments 799 Less imputed interest ( 30 ) Present value of lease liabilities 769 Less current portion of operating lease liability ( 369 ) Non-current operating lease liability $ 400 Grants and Licenses ALS Therapy Development Foundation, Inc. License Agreement In May 2015, Anelixis executed a License Agreement (the “Agreement”), which is an exclusive patent rights agreement with ALS Therapy Development Foundation, Inc. (“ 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 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 $ 1.0 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. The Agreement was amended and restated in February 2020, and a first amendment to the restated license agreement was executed in September 2020. As amended in September 2020, the remaining milestone payments for a first licensed product total $ 6.0 million. 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. F-16 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 $ 500.0 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 $ 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. dollar and bear annual interest of LIBOR. The grants are to be repaid as royalties from sales of the products developed by the Company from their investments in research and development. Because the Company has not yet earned revenues related to these investments and cannot estimate potential royalties, no liabilities related to these grants have been recorded as of each period presented. Repayment of the grant is contingent upon the successful completion of the Company’s research and development programs and generating sales. The Company has no obligation to repay these grants, if the research and development program fails, is unsuccessful or aborted or if no sales are generated. The Company had not yet generated sales as of December 31, 2021; therefore, no liability was recorded for the repayment in the accompanying consolidated financial statements. Legal Matters The Company is involved in various lawsuits and claims arising in the ordinary course of business, including actions with respect to intellectual property, employment, and contractual matters. In connection with these matters, the Company assesses, on a regular basis, the probability and range of possible loss based on the developments in these matters. A liability is recorded in the financial statements if it is believed to be probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Because litigation is inherently unpredictable and unfavorable results could occur, assessing contingencies is highly subjective and requires judgments about future events. The Company regularly reviews outstanding legal matters to determine the adequacy of the liabilities accrued and related disclosures. The amount of ultimate loss may differ from these estimates. Each matter presents its own unique circumstances, and prior litigation does not necessarily provide a reliable basis on which to predict the outcome, or range of outcomes, in any individual proceeding. Because of the uncertainties related to the occurrence, amount, and range of loss on any pending litigation or claim, the Company does not consider a liability probable and is currently unable to predict their ultimate outcome, and, with respect to any pending litigation or claim where no liability has been accrued, to make a meaningful estimate of the reasonably possible loss or range of loss that could result from an unfavorable outcome. In the event that opposing litigants in outstanding litigation proceedings or claims ultimately succeed at trial and any subsequent appeals on their claims, any potential loss or charges in excess of any established accruals, individually or in the aggregate, could have a material adverse effect on the Company’s business, financial condition, results of operations, and/or cash flows in the period in which the unfavorable outcome occurs or becomes probable, and potentially in future periods. Legal Proceedings On September 22, 2014, Tokai, the legal predecessor of the Company, completed the initial public offering of its common stock (the “IPO”). On July 25, 2017, a purported stockholder of Tokai filed a lawsuit in the U.S. District Court for the District of Massachusetts, entitled Peter B. Angelos v. Tokai Pharmaceuticals, Inc., et al., No. 1:17-cv-11365-MLW. The lawsuit was filed against Tokai, Jodie P. Morrison, Lee H. Kalowski, Seth L. Harrison, Timothy J. Barberich, David A. Kessler, Joseph A. Yanchik, III, and the underwriters of the IPO. The lawsuit alleges that Tokai made false and misleading statements and omissions about its clinical trials for galeterone, in violation of the Securities Act of 1933 and the Securities Exchange Act of 1934. The lawsuit seeks, among other things, unspecified compensatory damages, interest, costs, and attorneys’ fees. On September 7, 2018, plaintiff filed an amended complaint. Defendants moved to dismiss the amended complaint on October 15, 2018. Plaintiff opposed defendants’ motion on November 19, 2018, defendants filed a reply in support of their motion on December 17, 2018, and plaintiff filed a sur-reply in support of his opposition on January 8, 2019. 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 F-17 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. On July 15, 2020, plaintiff filed a Notice of Supplemental Authority, and on July 21, 2020, defendants filed a response. On October 9, 2020, the court entered an order granting defendants’ motion to dismiss and dismissing the action in its entirety. Judgment was entered on October 14, 2020. On November 12, 2020, plaintiff filed a notice of appeal. On February 17, 2021, the parties submitted a stipulated motion to dismiss the appeal, following a settlement payment to plaintiff by the Company’s insurance carrier of an immaterial amount. 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. 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. The Company’s exposure under these agreements is unknown because it involves future claims that may be made against the Company but have not yet been made. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations. However, the Company may record charges in the future because of these indemnification obligations. No amounts associated with such indemnifications have been recorded to date. Contingencies From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of business activities. The Company accrues a liability for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. There have been no contingent liabilities requiring accrual at December 31, 2021 and 2020. Note 6. Income Taxes L oss before income taxes are as follows (in thousands): Year Ended December 31, 2021 2020 Losses before income taxes: U.S. $ ( 37,055 ) $ ( 23,408 ) Non-U.S. 195 193 Total $ ( 36,860 ) $ ( 23,215 ) The provision (benefit) for income taxes are as follows (in thousands): Year Ended December 31, 2021 2020 Current: Federal $ — $ — State — — Foreign — — — — Deferred: Federal ( 2,746 ) ( 404 ) State 392 — Foreign — — ( 2,354 ) ( 404 ) Provision (benefit) for income taxes $ ( 2,354 ) $ ( 404 ) F-18 The Company is subject to income taxes under U.S. tax laws. The Company is subject to an Israeli corporate tax rate of 23 % in 2020 and thereafter. The Company was subject to a blended U.S. tax rate (federal as well as state corporate tax) of 21 % in 2021 and 2020. Significant judgment is required in determining the Company’s provision for income taxes, deferred tax assets and liabilities and the valuation allowance recorded against net deferred tax assets. Deferred tax assets and liabilities are determined using the enacted tax rates in effect for the years in which those tax assets are expected to be realized. A valuation allowance is established when it is more likely than not the future realization of all or some of the deferred tax assets will not be achieved. The evaluation of the need for a valuation allowance is performed on a jurisdiction-by-jurisdiction basis, and includes a review of all available positive and negative evidence. Factors reviewed include projections of pre-tax book income for the foreseeable future, determination of cumulative pre-tax book income after permanent differences, earnings history, and reliability of forecasting. Based on its review, the Company concluded that it was more likely than not that they would not realize the benefit of a portion of its deferred tax assets in the future. This conclusion was based on historical and projected operating performance, as well as the Company’s expectation that its operations will not generate sufficient taxable income in future periods to realize the tax benefits associated with the deferred tax assets within the statutory carryover periods. Therefore, the Company has a valuation allowance on its deferred tax assets as of December 31, 2021. The Company will continue to assess the need for a valuation allowance on its deferred tax assets by evaluating both positive and negative evidence that may exist. Any adjustment to the net deferred tax asset valuation allowance would be recorded in the statement of operations for the period that the adjustment is determined to be required. A reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate is as follows: Year Ended December 31, 2021 2020 Statutory Federal income tax rate $ ( 7,741 ) $ ( 4,875 ) State income taxes, net of Federal tax benefits ( 445 ) — Tax credits ( 651 ) ( 215 ) Change in warrant fair market value — 1,014 Stock-based compensation 651 252 Goodwill impairment — — Permanent items 2 627 Section 382 limitation on net operating losses and credits — 10,562 State rate differential 235 — NOL true-up ( 991 ) — Other 146 89 Change in valuation allowance 6,440 ( 7,858 ) Total provision (benefit) for income taxes $ ( 2,354 ) $ ( 404 ) F-19 Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2021 and 2020 consisted of the following (in thousands): Year Ended December 31, 2021 2020 Net operating loss carryforwards $ 12,531 $ 5,151 Research and development tax credits 1,356 705 Accruals and reserves 296 14 Stock compensation 1,867 802 Depreciation and amortization 1,713 1,905 Lease liability 171 30 Total deferred tax assets 17,934 8,607 Right-of-use asset ( 171 ) ( 29 ) Acquired IPR&D ( 7,192 ) ( 6,801 ) Total deferred tax liabilities ( 7,363 ) ( 6,830 ) Less: valuation allowance ( 12,323 ) ( 5,883 ) Net deferred tax liabilities $ ( 1,752 ) $ ( 4,106 ) The following table reconciles the beginning and ending amounts of unrecognized tax benefits for the years presented (in thousands): Year Ended December 31, 2021 2020 Gross unrecognized tax benefits at the beginning of the year $ 764 $ 548 Additions from tax positions taken in the current year 712 233 Additions from tax positions taken in prior years — 531 Reductions from tax positions taken in prior years ( 7 ) ( 548 ) Tax settlements — — Gross unrecognized tax benefits at the end of the year $ 1,469 $ 764 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 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. The Company primarily considered such factors as its history of operating losses, the nature of the Company’s deferred tax assets, and the timing, likelihood, and amount, if any, of future taxable income during the periods in which those temporary differences and carryforwards become deductible. At present, the Company does not believe that it is more likely than not that the deferred tax assets will be realized; accordingly, a valuation allowance has been established. As of December 31, 2021 and 2020, the Company had federal net operating loss carryforwards of approximately $ 46.9 million and $ 14.4 million, respectively, available to reduce future taxable income. 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. 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. The state net operating losses begin to expire in 2035 . 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, 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, 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 . F-20 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. 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. Federal jurisdiction, California and Massachusetts. The Company’s tax years for 2017 and forward are subject to examination by the Federal and California tax authorities due to the carryforward of unutilized net operating losses and research and development credits. The Company’s policy is to recognize interest expense and penalties related to income tax matters as a component of income tax expense. There was no accrued interest and penalties associated with uncertain tax positions as of December 31, 2021 and 2020. The Company has not recorded any interest or penalties in 2021 or 2020. Note 7. Stockholders’ Equity 2020 Common Stock Exchange Agreement On February 13, 2020, the Company entered into an exchange agreement (the “Exchange Agreement”) with Biotechnology Value Fund, L.P., Biotechnology Value Fund II, L.P. 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 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. On February 13, 2020, in connection with the Exchange, the Company filed a Certificate of Designation setting forth the preferences, rights and limitations of the Series X Preferred Stock with the Secretary of State of the State of Delaware. 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. 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. Holders of Series X Preferred Stock are entitled to receive dividends on shares of Series X Preferred Stock equal (on an as-if-converted-to-common stock basis) to and in the same form as dividends actually paid on the common stock or other junior securities of the Company. Shares of Series X Preferred Stock will generally have no voting rights, except as required by law and except that the consent of a majority of the holders of the outstanding Series X Preferred Stock will be required to amend the terms of the Series X Preferred Stock. SEC Accounting Series Release No. 268 , Presentation in Financial Statements of “Redeemable Preferred Stocks” (“ASR 268”) requires equity instruments with redemption features that are not solely within the control of the issuer to be classified outside of permanent equity, often referred to as classification in “temporary equity”).The Company evaluated Series X Preferred Stock redemption features and concluded that there are no redemption features with the Series X Preferred Stock that are not solely within the control of the Company and permanent equity classification was appropriate. Series X Preferred Stock has two (2) separate and distinct embedded features. They are: (1) optional conversion by holder and (2) redemption put feature upon fundamental transaction. Each share of Series X Preferred Stock shall be convertible into 55.5556 shares of common stock, at the option of the holder, at any time after the date of issuance. 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 F-21 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 . The Company evaluated the redemption put feature contained in each Series X Preferred Stock under the guidance of ASC 815, Derivatives and Hedging , and concluded that the embedded redemption put feature do not meet the definition of a derivative, if freestanding, under ASC 815 as net settlement could not be achieved. Accordingly, the redemption put features contained in the Series X Preferred Stock were not bifurcated and accounted for as freestanding derivative instruments. 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. 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. 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. September 2020 Stock Purchase Agreement On September 14, 2020, Eledon entered into the Purchase Agreement with the Investors. Pursuant to the Purchase Agreement, Novus agreed to sell an aggregate of approximately 199,112 shares of Series X 1 Preferred Stock for an aggregate purchase price of approximately $ 99.1 million, or net proceeds of approximately $ 95.2 million after deducting offering costs, in 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 stockholders approval of the issuance of the Company’s common stock upon the conversion of the Company’s X 1 Preferred Stock and the effective registration of its common stock. Subject to stockholder approval, each share of Series X 1 Preferred Stock is convertible into 55.5556 shares of Common Stock, as described below. 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 . The Financing is exempt from registration pursuant to Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder, as a transaction by an issuer not involving a public offering. 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. 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 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 F-22 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 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. 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 was resolved. 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 a result, 231,068 shares of Series X 1 Preferred Stock were converted into 12,837,056 shares of the Company’s common stock. 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. 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. 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 . 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. , MSI BVF SPV, L.L.C. (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 F-23 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 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 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 Total Balance as of December 31, 2020 9,581 319,064 9,177 — — 337,822 Issued — — — 509,117 298,692 807,809 Exercised — — — — — — Cancelled/Expired — — — — — — Balance as of December 31, 2021 9,581 319,064 9,177 509,117 298,692 1,145,631 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 Total Balance as of December 31, 2020 55,583.875 55,583.875 Assumed and replaced — — Exercised — — Cancelled/Expired ( 5,376.456 ) ( 5,376.456 ) Balance as of December 31, 2021 50,207.419 50,207.419 F-24 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. Note 8. 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”). The 2020 Plan permits the Company to make grants of incentive stock options, non-statutory stock options, restricted stock, restricted stock units, stock appreciation rights and other stock-based awards to the Company’s employees, officers, directors, consultants and advisors; however, incentive stock options may only be granted to the Company’s employees. The number of shares initially reserved for issuance under the 2020 Plan was 4,860,000 shares of common 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. Options remain outstanding under the 2007, 2014 and the 2020 Plan. The number of shares subject to and the exercise prices applicable to these outstanding options were adjusted in connection with the one-for- eighteen reverse stock-split. As of December 31, 2021, there were 1,151 and 100,532 options outstanding under the 2007 Plan and 2014 Plan, respectively. Options granted under the 2007, 2014 and 2020 Plans generally expire ten years from the date of grant. The Company intends for the 2020 Plan to be its primary stock compensation plan in the future. As of December 31, 2021, there were 782,583 options outstanding and 4,077,417 shares available to issue under the 2020 Plan. 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 summarizes all option activity under the 2007 Plan, 2014 Plan, 2020 Plan and inducement grants: Shares Issuable Under Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value (In years) Outstanding as of January 1, 2020 91,403 $ 139.96 8.2 $ — Granted 2,191,462 9.15 Options Assumed 1,346,398 7.58 Forfeited / Canceled ( 7,784 ) 586.16 Outstanding as of December 31, 2020 3,621,479 10.63 8.9 $ — Granted 702,836 10.69 Exercised ( 174 ) 4.73 Forfeited / Canceled ( 110,164 ) 19.50 Outstanding as of December 31, 2021 4,213,977 $ 10.33 8.4 $ — Options vested and expected to vest as of December 31, 2021 4,132,506 $ 10.18 8.2 $ — Options exercisable as of December 31, 2021 1,871,327 $ 11.64 7.8 $ — 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. F-25 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: Year Ended December 31, 2021 2020 Expected stock price volatility 105% - 110% 74% - 87% Risk-free interest rate 1% 1% - 3% Expected life of option (in years) 6.25 - 6.75 6 Estimated dividend yield 0 % 0 % Restricted Stock Units The following table shows the RSU activity, as follows: Shares Issuable Under RSUs Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value (In years) Outstanding as of January 1, 2020 3,056 $ 66.96 9.2 $ — Granted — — RSUs Vested ( 3,056 ) 66.96 9.2 Forfeited / Canceled — — Outstanding as of December 31, 2020 — — — — Granted 20,000 5.07 9.8 RSUs Vested — — Forfeited / Canceled — — Outstanding as of December 31, 2021 20,000 $ 5.07 9.8 $ — RSUs vested and expected to vest as of December 31, 2021 20,000 $ 5.07 9.8 $ — RSUs exercisable as of December 31, 2021 — $ — $ — Stock-based Compensation Expense Total compensation expense related to all of the Company’s stock-based awards for the years ended December 31, 2021 and 2020 was comprised of the following (in thousands): Year Ended December 31, 2021 2020 Stock-based compensation classified as: Research and development expense $ 3,166 $ 1,254 General and administrative expense 4,738 1,917 Total stock-based compensation expense $ 7,904 $ 3,171 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 3,056 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. F-26 Note 9. 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 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 accepted the resignation of Gregory Flesher as the Company’s Chief Executive Officer and a member of the Board. Mr. Flesher’s resignation was effective as of the close of business on September 4, 2020. The resignation of Mr. Flesher was not the result of any dispute or disagreement with the Company on any matter relating to the Company’s operations, policies or practices. Concurrent with his resignation, Mr. 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 and paid $ 2.3 million in expenses related to the workforce reduction. Note 10. Business Acquisition On September 14, 2020 , the Company acquired Anelixis pursuant to that certain Agreement and Plan of Merger, dated September 14, 2020 (the “ Merger Agreement ”), by and among Eledon, Nautilus Merger Sub 1, Inc., a Delaware corporation and wholly owned subsidiary of Eledon (“ First Merger Sub ”), Nautilus Merger Sub 2, LLC, a Delaware limited liability company and wholly owned subsidiary of Eledon (“ Second Merger Sub ”), and Anelixis. Pursuant to the Merger Agreement, First Merger Sub merged with and into Anelixis, pursuant to which Anelixis was the surviving entity and became a wholly owned subsidiary of Eledon (the “ First Merger ”). Immediately following the First Merger, Anelixis merged with and into Second Merger Sub, pursuant to which Second Merger Sub was the surviving entity (the “ Second Merger, ” together with the First Merger, the “ Merger ”). The Merger is intended to qualify as a tax-free reorganization for U.S. federal income tax purposes . Under the terms of the Merger Agreement, at the closing of the Merger, Eledon issued to the stockholders of Anelixis 175,488 shares of the common stock of Eledon, par value $ 0.001 per share, and 140,026 shares of newly designated Series X 1 Preferred Stock. Subject to stockholder approval, each share of Series X 1 Preferred Stock was convertible into approximately 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. In addition to the common stock and preferred stock issued, certain outstanding warrants issued and equity awards granted by Anelixis were not settled upon completion of the merger, and instead were assumed and then replaced with Eledon warrants and equity awards. The amounts for the assumed and replaced warrants and equity awards attributed to pre-merger services are included in other consideration amounts transferred and added to goodwill. The Company determined that FASB Accounting Standards Codification Topic 805 (“ASC 805”), Business Combinations , is the authoritative guidance in accounting for this transaction and for determining whether Anelixis was a dormant, non-operating entity that would not meet the definition of a business under ASC 805. If Anelixis was not an operating entity, the acquisition would instead be considered a capital transaction and equivalent to the issuance of shares by Novus for the net monetary assets of Anelixis accompanied by a recapitalization. Conversely, if Anelixis was determined to be a business, the acquisition method of accounting would apply and the difference between the acquisition date fair value of the total consideration transferred and the aggregate values assigned to the assets acquired and liabilities assumed would be recorded as goodwill. The Company evaluated the terms of the Merger Agreement and the transaction under the applicable accounting guidance and determined that Anelixis satisfied the definition of a business under ASC 805 and as further clarified by ASU 2017-01. Based on this analysis, the Company accounted for the acquisition of Anelixis as a business combination under the acquisition method of accounting as it had determined that Anelixis’ assets acquired in the transaction included an input and a substantive process that together significantly contributed to the ability to create outputs. Additionally, the Company was determined to be both the legal and accounting acquirer as it had issued equity interests to acquire all of Anelixis’ equity interests. Goodwill generated from the acquisition was primarily attributable to the expected synergies from combining operations and expanding market potential, together with certain intangible assets that do not qualify for separate recognition. None of the approximately $ 48.6 million in goodwill is expected to be deductible for tax purposes. F-27 Concurrently and in connection with the execution of the Merger Agreement, the Company entered into the Purchase Agreement with certain institutional and accredited investors. Pursuant to the Stock Purchase Agreement, the Company agreed to sell an aggregate of approximately 199,112 shares of Series X 1 Preferred Stock for an aggregate purchase price of approximately $ 99.1 million in 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. The merger was a pre-requisite in order for the Financing to transpire; without the merger, those certain institutional and accredited investors would not have purchased the Company’s Series X 1 convertible preferred stock. On December 18, 2020, the Company held the Special Meeting, whereby 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 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, 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. Acquisition Consideration The following table summarizes the fair value of the purchase price consideration to acquire Anelixis (in thousands): Description Amount Fair value of purchase consideration: Common shares issued (1) $ 1,194 Preferred shares issued (2) 69,723 Options assumed (3) 2,950 Warrants assumed (3) 12,944 Total purchase consideration $ 86,811 (1) The fair value of common shares issued in the merger is based on 175,488 shares issued on the September 14, 2020, acquisition date at the closing price of the Company's common stock of $ 6.80 per share. (2) The fair value of preferred shares issued in the merger is based on the amount per share of Series X 1 preferred stock in the September 2020 Purchase Agreement. (3) The fair value of the options and warrants assumed and replaced in the merger is based on applying the Black-Scholes valuation method using appropriate inputs of volatility rates ranging from 82 % to 83 %, expected terms of 5.0 to 5.9 years and risk-free rates of 0.27 % to 0.45 %. Purchase Price Allocation 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): Description Amount Cash and cash equivalents $ 11,035 Prepaid expenses and other current assets 26 Other non-current assets 12 Accounts payable ( 580 ) Accrued expenses and other liabilities ( 206 ) Deferred tax liability ( 4,510 ) Net identifiable assets acquired 5,777 Goodwill 48,648 Identifiable intangible assets 32,386 Net assets acquired $ 86,811 F-28 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 The net deferred tax liability was based upon the difference between the estimated book basis and tax basis of net assets acquired and an estimate for the final pre-acquisition net operating losses of Anelixis. Identifiable Intangible Assets 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. In this context, depreciation has three components: (i) physical deterioration, (ii) functional obsolescence, and (iii) economic obsolescence. Goodwill Under the acquisition method of accounting, goodwill of approximately $ 48.6 million would be generated after accounting for Anelixis’ assets acquired, liabilities assumed, and intangible assets identified and valued. Pro Forma Information (Unaudited) 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 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. The unaudited pro forma combined financial information does not purport to represent the actual results of operations that Eledon and Anelixis would have achieved had the companies been combined during the periods presented in the unaudited pro forma combined financial statements and is not intended to project the future results of operations that the combined company may achieve after the Merger. The unaudited pro forma combined financial information does not reflect any potential cost savings that may be realized as a result of the Merger and also does not reflect any restructuring or integration-related costs to achieve those potential cost savings. Additionally, the unaudited pro forma combined financial information does not reflect any merger-related expenses incurred by the Company or pre-merger Anelixis , which totaled approximately $ 3.4 million and were removed from general and administrative expenses in the pro forma calculations below . 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 $ 0.7 million due to the forgiveness of Anelixis debt was removed from pro F-29 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. Year Ended December 31, 2020 Revenue $ 120 Operating expenses Research and development 9,489 General and administrative 8,317 Restructuring expense 2,282 Total operating expenses 20,088 Loss from operations ( 19,968 ) Other income (expense), net 79 Warrant inducement expense ( 4,829 ) Loss before provision for income taxes ( 24,718 ) Income tax benefit 404 Net loss and other comprehensive loss $ ( 24,314 ) Net loss per share, basic and diluted $ ( 15.44 ) Weighted-average shares outstanding, basic and diluted 1,574,657 Actual net loss and other comprehensive loss of Anelixis since September 14, 2020 that is included in our consolidated statement of operations for the year ended December 31, 2020, is approximately $ 2.5 million. Anelixis did not recognize any revenue in 2020 since its acquisition by the Company. Note 11. Subsequent Events The Company has evaluated events subsequent to December 31, 2021 through the filing date of this Annual Report on Form 10-K. Any material subsequent events that occurred during this time have been properly recognized or disclosed in the consolidated financial statements and accompanying notes. 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 ). F-30