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Item 8. Financial Statements and Supplementary Data

2023-02-23 compared with 2022-02-24 · 184 added, 151 removed, 366 unchanged (48% of the section changed)

5 unchanged sentences

STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY

STATEMENTS OF CASH FLOWS

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We have audited the accompanying balance sheets of Edgewise Therapeutics, Inc.

(the Company) as of December 31, 2021 and 2020, the related statements of operations and comprehensive loss, convertible preferred stock and stockholders’ equity (deficit), and cash flows for the years then ended, and the related notes (collectively, the financial statements).

(the Company) as of December 31, 2022 and 2021, the related statements of operations and comprehensive loss, convertible preferred stock and stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively, the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with U.S.

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Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

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BALANCE SHEETS

(In thousands, except for share and per-share amounts)

(In thousands, except share and per share data)

Current assets

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Total current assets

Property and equipment

accumulated depreciation

Total property and equipment

Property and equipment, net

Operating lease right-of-use asset

Other non-current assets

Liabilities, convertible preferred stock, and stockholders' equity (deficit)

Liabilities and stockholders' equity

Current liabilities

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Accrued other expenses

Operating lease liability, current portion

Total current liabilities

Operating lease liability, net of current portion

Other long term liabilities

1 unchanged sentence

Commitments and contingencies (see note 5)

Convertible preferred stock

Series A preferred stock, $ .0001 par value, no shares and 15,500,000 shares authorized, no shares and 8,187,100 shares issued and outstanding with an aggregate liquidation preference of $ 0 and $ 15,500 as of December 31, 2021 and December 31, 2020, respectively

Series B-1 preferred stock, $ .0001 par value, no shares and 14,934,484 shares authorized, no shares and 7,888,392 issued and outstanding with an aggregate liquidation preference of $ 0 and $ 25,075 as of December 31, 2021 and December 31, 2020, respectively

Series B-2 preferred stock, $ .0001 par value, no shares and 12,358,305 shares authorized, no shares and 6,527,654 shares issued and outstanding with an aggregate liquidation preference of $ 0 and $ 25,075 as of December 31, 2021 and December 31, 2020, respectively

Series C preferred stock, $ .0001 par value, no shares and 24,525,629 shares authorized, no shares and 12,954,423 shares issued and outstanding with aggregate liquidation preference of $ 0 and $ 95,000 as of December 31, 2021 and December 31, 2020, respectively

Total convertible preferred stock

Stockholders' equity (deficit)

Stockholders' equity:

Preferred stock, $ .0001 par value per share;

200,000,000 shares and no shares authorized as of December 31, 2021 and December 31, 2020, respectively;

no shares issued and outstanding as of December 31, 2021 and December 31, 2020, respectively

200,000,000 shares authorized and no shares issued or outstanding as of December 31, 2022 and December 31, 2021

Common stock, $ .0001 par value per share;

1,000,000,000 shares and 88,000,000 shares authorized, 49,500,308 shares and 1,009,479 shares issued and outstanding as of December 31, 2021 and December 31, 2020, respectively

1,000,000,000 shares authorized as of December 31, 2022 and December 31, 2021;

63,257,376 shares and 49,500,308 shares issued and outstanding as of December 31, 2022 and December 31, 2021, respectively

Additional paid-in capital

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Accumulated deficit

Total stockholders' equity (deficit)

Total liabilities, convertible preferred stock and stockholders' equity (deficit)

Total stockholders' equity

Total liabilities and stockholders' equity

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

1 unchanged sentence

STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except for share and per-share amounts)

(In thousands, except share and per share data)

Year ended December 31,

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EDGEWISE THERAPEUTICS, INC.

STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY

(In thousands, except share data)

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Balance as of December 31, 2020

Issuance of Series B-2 preferred stock, net of offering costs of $ 19

Issuance of Series C preferred

stock, net of offering costs

Exercise of stock options

Stock-based compensation

Balance as of December 31, 2020

Convertible preferred stock converted into shares of common stock

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( 12,954,423 )

Initial public offering of common stock, net of $ 16.3 million in issuance costs

Initial public offering of common stock, net of offering costs

Exercise of stock options

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Stock-based compensation

Other comprehensive income

Other comprehensive loss

Balance as of December 31, 2021

Issuance of common stock, net of offering costs

Exercise of stock options

Purchase of common stock under employee stock purchase plan

Stock-based compensation

Other comprehensive loss

Balance as of December 31, 2022

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

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Stock-based compensation

Amortization (accretion) of premium (discount) on marketable securities, net

Amortization of right-of-use asset

Changes in assets and liabilities:

Prepaid expenses, other assets and other long-term liabilities

Prepaid expenses and other assets

Accounts payable

Accrued compensation

Accrued other expenses

Accrued other expenses and other liabilities

Lease liability

Net cash used in operating activities

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Cash flows from financing activities

Proceeds from issuance of common stock, net of underwriting discounts and commissions and offering costs

Proceeds from initial public offering of common stock, net of underwriting discounts and commissions and offering costs

Proceeds from issuance of Series B-2 convertible preferred stock

Proceeds from issuance of Series C convertible preferred stock

Payment of preferred stock issuance costs

Exercise of stock options

Payment of deferred offering costs

Proceeds from Employee Stock Purchase Plan

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Cash and cash equivalents at end of period

Supplemental disclosures of non-cash financing activities:

Supplemental disclosures of non-cash investing and financing activities:

Right-of-use asset obtained in exchange for new operating lease liability, net of reimbursed tenant improvements

Property and equipment purchases included in accounts payable and accrued other expenses

Conversion of convertible preferred stock upon closing of initial public offering

Deferred offering costs included in accounts payable and accrued other

Preferred stock issuance costs included in accrued other expenses

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

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The Company’s lead product candidate, EDG-5506, is an orally administered small molecule designed to address the root cause of dystrophinopathies including Duchenne muscular dystrophy (DMD) and Becker muscular dystrophy (BMD).

The Company is currently studying EDG-5506 in Phase 2 trials, which are being held in the U.S.

and certain countries in Europe.

In addition, the Company has identified EDG-7500, for the potential treatment of hypertrophic cardiomyopathy (HCM) and is conducting nonclinical studies to support advancing the compound into a Phase 1 clinical trial in late 2023.

The Company is using its proprietary drug discovery platform to develop a pipeline of precision medicine product candidates that target key muscle proteins and modulators to address a broad array of genetically defined muscle disorders.

Initial Public Offering and Reverse Stock Split

Initial Public Offering

On March 30, 2021, the Company completed its initial public offering (IPO) in which it issued and sold 12,650,000 shares of common stock at a price of $ 16.00 per share, including 1,650,000 shares sold pursuant to the underwriters’ full exercise of their option to purchase additional shares.

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In addition, in connection with the IPO, all shares of convertible preferred stock outstanding at the time of the IPO converted into 35,557,569 shares of common stock.

On March 19, 2021, the Company amended its certificate of incorporation to effect a 1-for- 1.8932 reverse stock split of its issued and outstanding common and convertible preferred stock.

The accompanying financial statements and related notes give retroactive effect to the reverse stock split for all periods presented.

Risks and Uncertainties

In March 2020, the World Health Organization declared the novel coronavirus disease (COVID-19) outbreak a pandemic.

The Company cannot at this time predict the specific extent, duration, or full impact that the COVID-19 outbreak will have on its financial condition and operations.

Disruptions caused by the COVID-19 pandemic, including the effects of the stay-at-home orders and work-from-home policies, have impacted productivity, have resulted in increased operational expenses, certain adjustments to the operations of the Company’s clinical trial, the suspension of enrollment of new patients at the Company’s clinical trial site, and delays in certain supply chain activities and collecting and analyzing data from patients in the Company’s clinical trial, and may further disrupt the business and delay the development programs and regulatory timelines, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on the Company’s ability to conduct business in the ordinary course as well as the spread, severity and potential resurgence of COVID-19, the impact of new COVID-19 variants, and vaccination deployment efforts.

As a result, research and development expenses and general and administrative expenses may vary significantly if there is an increased impact from COVID-19 on the costs and timing associated with the conduct of the clinical trial and other related business activities.

The Board of Directors of the Company discusses with management macroeconomic and geopolitical developments, including COVID-19, the Russia-Ukraine conflict and inflation and the impact on the Company’s personnel, cybersecurity and sanctions so that the Company can be prepared to react to new developments as they arise.

The Board of Directors and the management of the Company are carefully monitoring these developments and the resulting economic impact on its financial condition and results of operations.

Disruptions caused by the COVID-19 pandemic impacted our productivity, resulted in increased operational expenses, certain adjustments to the operations of our clinical trial, delays in the enrollment of new patients at our clinical trial site, and delays in certain supply chain activities and collecting and analyzing data from patients in our clinical trial.

Recently, President Biden announced that the administration intends to end the COVID-19 national and public health emergencies on May 11, 2023.

The full impact of the termination of the public health emergencies on FDA and other regulatory policies and operations are unclear .

Liquidity and Capital Resources

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The Company’s ability to fund ongoing operations is highly dependent upon raising additional capital through the issuance of equity securities and issuing debt or other financing vehicles.

The Company filed:

(i) on April 1, 2022, a shelf registration statement on Form S-3 with the U.S.

Securities and Exchange Commission (SEC) that became effective on May 5, 2022 and allows us to undertake various equity and debt offerings up to $ 400,000,000 ;

and (ii) on May 5, 2022 a prospectus supplement to the shelf registration statement that covers the offering, issuance and sale of up to $ 125 million of our common stock from time to time through an “at-the-market” program under the Securities Act of 1933, as amended (Securities Act).

As of December 31, 2022, the Company has not sold any shares under the “at the market” program.

On September 16, 2022, the Company closed an underwritten public offering of 13,372,093 shares of common stock at a public offering price of $ 10.32 per share (collectively with the underwriters’ option, the “September 2022

The underwriters exercised in full their option to purchase 1,744,186 additional shares of common stock.

The aggregate gross proceeds from the September 2022 Offering were $ 138.0 million, and the net proceeds were $ 129.2 million after deducting underwriting discounts and commissions of $ 8.3 million and offering expenses of $ 0.5 million.

The Company’s ability to secure capital is dependent upon success in developing its technology and product candidates.

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The issuance of additional equity or debt securities will likely result in substantial dilution to the Company’s stockholders.

Should additional capital not be available to the Company in the near term, or not be available on acceptable terms, the Company may be unable to realize value from the Company’s assets or discharge liabilities in the normal course of business, which may, among other alternatives, cause the Company to delay, substantially reduce, or discontinue operational activities to conserve

cash balances, which could have a material adverse effect on the Company’s ability to achieve its intended business objectives.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business.

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

Cash equivalents as of December 31, 2021 primarily consist of money market accounts and cash equivalents and as of December 31, 2020 primarily consist of money market accounts and commercial paper.

Cash equivalents as of December 31, 2022 and 2021 primarily consist of money market funds and cash.

Concentrations of Credit Risk

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Depreciation of property and equipment is computed using the straight-line method over the estimated useful life of the related asset, which is generally three to five years , and in the case of leasehold improvements, the shorter of the estimated useful lives of the assets or the term of the lease.

Depreciation expense was $ 0.3 million and $ 0.2 million for the years ended December 31, 2021 and 2020, respectively.

The Company accounts for its leases under Accounting Standards Codification (ASC) Topic 842, Leases (ASC 842).

At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present in the arrangement.

Leases with a term greater than 12 months are recognized on the balance sheet as Right-of-Use (ROU) assets and current and non-current lease liabilities, as applicable.

The Company has elected not to recognize on the balance sheet leases with terms of 12 months or less.

The Company typically only includes an initial lease term in its assessment of a lease arrangement.

Options to renew a lease are not included in the Company’s assessment unless there is reasonable certainty that the Company will renew.

The Company monitors its material leases on a quarterly basis.

Operating lease liabilities and their corresponding ROU assets are recorded based on the present value of future lease payments over the expected remaining lease term.

Lease cost for operating leases is recognized on a straight-line basis over the lease term as an operating expense.

Certain adjustments to the ROU asset may be required for items such as lease prepayments or incentives received.

The interest rate implicit in lease contracts is typically not readily determinable.

As a result, the Company utilizes its incremental borrowing rate, which reflects the fixed rate at which the Company could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, in a similar economic environment.

For all asset classes of its leases, the Company has elected to account for the lease and non-lease components together for existing classes of underlying asset.

Costs determined to be variable and not based on an index or rate are not include in the measurement of the lease liability.

Impairment of Long-Lived Assets

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If impairment is recognized, the carrying value of the impaired asset is reduced to its fair value.

There were no impairment charges or long-lived assets disposed of during the years ended December 31, 2021 and 2020, respectively.

There were no impairment charges or long-lived assets disposed of during the years ended December 31, 2022 and 2021.

Deferred income taxes are provided on temporary differences between financial statement and income tax reporting.

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Deferred tax assets are reduced by a valuation allowance if such deferred tax assets are deemed more likely than not that some or all of the deferred tax assets will not be realized.

Historically, the Company has not recognized these potential benefits in its financial statements and has fully reserved for such net deferred tax assets, as it believes it is more likely than not that the full benefit of these net deferred tax assets will not be realized before expiration.

Deferred tax liabilities are recognized for temporary differences that will be taxable in future years.

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The Company is required to disclose information on all assets and liabilities reported at fair value that enables an assessment of the inputs used in determining the reported fair values.

The Financial Accounting Standards Board (FASB) Accounting Standard Codification (ASC) Topic 820, Fair Value Measurements and Disclosures (ASC 820), establishes a hierarchy of inputs used when available.

The Financial Accounting Standards Board (FASB) ASC Topic 820, Fair Value Measurements and Disclosures (ASC 820), establishes a hierarchy of inputs used when available.

Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company.

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The Company considers its available-for-sale portfolio as available for use in current operations.

Accordingly, the Company classifies its investments as short-term marketable securities, even though the stated maturity date may be one year or more beyond the current balance sheet date.

Unrealized gains and losses, net of any related tax effects, are excluded from earnings and are included in other

comprehensive income and reported as a separate component of stockholders’ equity (deficit) until realized.

Accordingly, the Company may classify its investments as short-term marketable securities, even though the stated maturity date may be one year or more beyond the current balance sheet date.

Unrealized gains and losses, net of any related tax effects, are excluded from earnings and are included in other comprehensive loss and reported as a separate component of stockholders’ equity until realized.

Interest income, realized gains and losses, and declines in value judged to be other than temporary, if any, on available-for-sale securities are included in other income, net.

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In accordance with the Company’s investment policy, management invests in money market funds, corporate bonds, commercial paper, asset-backed securities and government securities.

The Company has not experienced any losses on its deposits of cash, cash equivalents, and marketable securities since inception.

The Company has not experienced any realized losses on its deposits of cash, cash equivalents, and marketable securities since inception.

The following tables summarize the Company’s financial assets measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):

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Money market funds

Commercial paper

Marketable securities, available for sale:

2 unchanged sentences

Commercial paper

government treasury and agency securities

Supranational and sovereign government securities

Total financial assets

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During the years ended December 31, 2022 and 2021, there were no transfers of financial assets between Level 1 and Level 2.

As of December 31, 2021, the remaining contractual maturities of $ 184.8 million of marketable securities were less than one year and $ 80.9 million were one to three years.

As of December 31, 2022, the remaining contractual maturities of $ 315.0 million of marketable securities were less than one year and $ 16.3 million were one to two years .

The Company periodically reviews its portfolio of debt securities to determine if any investment is impaired due to credit loss or other potential valuation concerns.

For debt securities where the fair value of the

investment is less than the amortized cost basis, the Company has assessed at the individual security level for various quantitative factors including, but not limited to, the nature of the investments, changes in credit ratings, interest rate fluctuations, industry analyst reports, and the severity of impairment.

For debt securities where the fair value of the investment is less than the amortized cost basis, the Company has assessed at the individual security level for various quantitative factors including, but not limited to, the nature of the investments, changes in credit ratings, interest rate fluctuations, industry analyst reports, and the severity of impairment.

Unrealized losses on marketable securities at December 31, 2022 were primarily due to changes in interest rates, including market credit spreads, and not due to increased credit risks associated with specific securities.

Comprehensive Income (Loss)

Comprehensive income (loss) is defined as the change in equity during a period from transactions and other events and/or circumstances from non-owner sources.

The Company’s only element of other comprehensive income (loss) was net unrealized gain (loss) on marketable securities.

Comprehensive Loss

Comprehensive loss is defined as the change in equity during a period from transactions and other events and/or circumstances from non-owner sources.

The Company’s only element of other comprehensive loss was net unrealized loss on marketable securities.

Stock-Based Compensation

1 unchanged sentence

The Company has elected to recognize forfeitures as they occur.

For restricted stock unit awards, the fair value is based on the closing price of the Company's common stock on the date of grant.

The fair value of stock options is determined using the Black-Scholes option-pricing model.

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In determining the exercise prices for options granted, the Company considered the fair value of the common stock as of the grant date.

The fair value of the common stock has been determined based upon a variety of factors, including the Company’s financial position, historical performance and operating results, the Company’s stage of development, the progress of the Company’s research and development programs, the prices at which the Company sold its convertible preferred stock, the superior rights, preferences and privileges of the Company’s convertible preferred stock relative to its common stock, external market conditions affecting the biotechnology industry, the lack of marketability of the Company’s common stock and the prospects of a liquidity event and the analysis of IPO and market performance of similar companies as well as recently completed mergers and acquisitions of peer companies.

Significant changes to the key assumptions underlying the factors used could result in different fair values of common stock at each valuation date.

The fair value of the common stock had previously been determined based upon a variety of factors, including the Company’s financial position, historical performance and operating results, the Company’s stage of development, the progress of the Company’s research and development programs, the prices at which the Company sold its convertible preferred stock, the superior rights, preferences and privileges of the Company’s convertible preferred stock relative to its common stock, external market conditions affecting the biotechnology industry, the lack of marketability of the Company’s common stock and the prospects of a liquidity event and the analysis of IPO and market performance of similar companies as well as recently completed mergers and acquisitions of peer companies.

Following the completion of the Company’s IPO, the fair value of its common stock is determined based on the closing price of its common stock on the date of grant.

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The financial terms of these contracts vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided under such contracts.

In accruing service fees, the Company estimates the time period over which services will be performed and the level of effort to be

expended in each period.

In accruing service fees, the Company estimates the time period over which services will be performed and the level of effort to be expended in each period.

If the actual timing of the performance of services or the level of effort varies from the estimate, the Company adjusts the accrual or the amount of prepaid expenses accordingly.

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Under the JOBS Act, emerging growth companies can take advantage of an extended transition period for complying with new or revised accounting standards, delaying the adoption of these accounting standards until they would apply to private companies.

The Company has elected to use this extended transition period for complying with certain new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it is (1) no longer an emerging growth company or (2) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act.

earlier of the date that it is (1) no longer an emerging growth company or (2) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act.

As a result, these financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

Recently Issued Accounting Standards Not Yet Adopted

In February 2016, the FASB issued ASU No.

2016-02, Leases (ASC Topic 842) .

The new guidance maintains two classifications of leases:

finance leases, which replace capital leases, and operating leases.

Lessees will need to recognize a right-of-use asset and a lease liability on the statement of financial position for those leases previously classified as operating leases under the old guidance.

The initial liability will be equal to the present value of lease payments.

The asset will be based on the liability, subject to adjustment, such as for direct costs.

The accounting standard will be effective for the Company beginning January 1, 2022.

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued Accounting Standards Update (ASU) 2016-02, Leases (Topic 842) (ASU 2016-02), which requires the lessee to recognize a ROU asset and a lease liability for operating leases, initially measured at the present value of lease payments, in its consolidated balance sheet.

The Company adopted ASU 2016-02 effective January 1, 2022, using the alternative modified transition method, which applies ASU 2016-02 as of the adoption date and therefore, the Company has not applied the standard to the comparative periods presented in the Company's financial statements.

The Company elected the “package of practical expedients,” which permits the Company to not reassess its prior conclusions about lease identification, lease classification and initial direct costs.

The Company also elected the hindsight practical expedient to determine the lease term, the practical expedient to not separate lease and non-lease components and the policy election to not recognize ROU assets or lease liabilities for short-term leases.

The adoption of ASC 842 did not have a material effect on the Company’s balance sheet as of January 1, 2022 due to the terms related to the Company’s existing leases.

Accounting Standards Not Yet Adopted

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

Measurement of Credit Losses on Financial Statements (Topic 326) (ASU 2016-13), which intends to improve financial reporting by requiring earlier recognition of credit losses on certain financial assets, such as available-for-sale debt securities.

Subsequent to the issuance of ASU 2016-13, the FASB issued several additional ASU’s to clarify implementation guidance, provide narrow-scope improvements and provide additional disclosure guidance.

The Company estimates that there will be no material effect on the financial statements upon adoption.

NOTE 3 CONVERTIBLE PREFERRED STOCK AND COMMON STOCK

NOTE 3 PREFERRED STOCK AND COMMON STOCK

The Company is authorized to issue two classes of stock designated as common stock and preferred stock.

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The holder of each share of common stock is entitled to one vote.

The Company had no convertible preferred stock outstanding as of December 31, 2021.

The Company’s convertible preferred stock was classified in the December 31, 2020 balance sheet as temporary equity in the accompanying balance sheets given that the number of members on the Company’s Board of Directors and the voting interests held by convertible preferred stockholders which could cause certain events to occur that were outside of the Company’s control whereby the Company could be obligated to redeem the convertible preferred stock.

The Company did not adjust the carrying values of the convertible preferred stock to the respective liquidation preferences of such shares as the instruments were not redeemable, and the Company believed it was not probable that the instruments would have become redeemable as of the December 31, 2020 balance sheet date.

As of December 31, 2020, the rights and preferences of the convertible preferred stock were as follows:

Each holder of convertible preferred stock is entitled to non-cumulative dividends at an annual rate of 8.0 % of the original issue price of such series of convertible preferred stock.

Such dividends are payable only when, and if declared by the Company’s Board of Directors.

As of December 31, 2020, the Company’s Board of Directors has not declared any dividends.

Liquidation preference

In the event of a liquidation event, the holders of shares of convertible preferred stock then outstanding would be entitled to be paid out of the proceeds of such liquidation event prior to the holders of common stock.

The entitled amount per share would be equal to the sum of the applicable original issue price for such share of convertible preferred stock, plus any declared but unpaid dividends on each such share of convertible preferred stock.

If upon such liquidation event, the assets of the Company legally available for distribution to the holders of convertible preferred stock are insufficient to permit the payment to such holders of the full amounts specified, then the entire assets of the Company legally available for distribution whould be distributed with equal priority and pro rata among the holders of convertible preferred stock in proportion to the full amounts they would otherwise be entitled to receive pursuant to the Company’s certificate of incorporation.

The convertible preferred stock was subject to automatic redemption in the consolidation or merger of the Company or sale of all or substantially all of the Company’s assets in which the stockholders of the Company immediately prior to the transaction hold less than 50% of the outstanding securities of the surviving entity.

Proceeds available for distribution from such transaction would be distributed consistent with a liquidation event.

In the event of any liquidation event, the holders of shares of Series C convertible preferred stock then outstanding would be entitled to be paid on a pro rata basis out of the proceeds of such liquidation event before payment would be made to the holders of Series A or Series B convertible preferred stock.

After the payment in full of all amounts due to the holders of Series C convertible preferred stock, the holders of shares of Series A and Series B convertible preferred stock then outstanding would be entitled to be paid on a pari passu basis out of the remaining proceeds before any payment shall be made to the holders of the Company’s common stock.

Upon completion of distribution of the Series A, Series B and Series C convertible preferred stock liquidation preference, all of the remaining proceeds of such liquidation event would be distributed pro rata among the holders of common stock and the holders of Series A and Series B convertible preferred stock on an as-converted to common stock basis at the then effective applicable conversion rate for such series of convertible preferred stock.

The Company’s convertible preferred stock had conversion rights which entitled the holders to convert their preferred shares into common stock.

The conversion rate would be determined by dividing the original issue price of the series of convertible preferred stock by the applicable conversion price at the time of conversion (which is initially the original issue price) for such series of convertible preferred stock.

Each share of convertible preferred stock would automatically convert into common stock (i) upon the election of certain holders of Series A, Series B and Series C convertible preferred stock or (ii) upon the completion of a firm underwritten public offering of the Company’s common stock for which the public offering price per share was not less than $ 8.80 and pursuant to which the Company received gross proceeds of at least $ 70.0 million, prior to deductions for underwriting discounts, commissions and expenses.

The holder of each share of convertible preferred stock was entitled to one vote for each share of common stock into which it would convert.

Series B-1 Convertible Preferred Stock

On August 27, 2019, the Company sold an aggregate of 7,888,392 shares of Series B-1 convertible preferred stock at a price of $ 3.178 per share for aggregate gross proceeds of approximately $ 25.1 million to the Company.

Series B-2 Convertible Preferred Stock

The Company’s Series B-1 and Series B-2 Convertible Preferred Stock Agreement contained a provision for a closing of 6,527,654 shares of Series B-2 convertible preferred stock at $ 3.841 per share, or $ 25.1 million.

Such issuance and sale of the Company’s Series B-2 convertible preferred stock was to occur within 120 days of delivery of notice by the Company to its investors upon the earliest of the following on or before August 27, 2021:

(i) the Company filed an Investigational New Drug (IND) for a Type II Myosin Inhibitor with the U.S.

Food and Drug Administration (FDA) and had not received communication from the FDA within 35 days after such filing that prevents the IND from becoming ineffective;

(ii) the first dosing of a human subject in one of the United Kingdom, France, Germany, Italy, Spain, Canada, Belgium, Netherlands, Luxembourg, Finland, Australia, New Zealand and Japan with a Type II Myosin inhibitor;

and (iii) holders of a majority of the Series B-1 convertible preferred stock approved the closing of the second tranche of Series B-2 convertible preferred stock.

The Company performed an assessment of the Series B-2 convertible preferred stock purchase agreement in accordance with the authoritative guidance and concluded that the mandatory closing did not meet the definition of a freestanding financial instrument as it was not legally detachable or separately exercisable.

If Series B-1 convertible preferred stockholders did not participate in this closing, every 5.282 shares of Series A and Series B-1 convertible preferred stock held would have automatically converted into one share of common stock.

In July 2020, the closing of Series B-2 convertible preferred stock was triggered upon the filing and related acceptance of the Company’s IND by the FDA.

The closing of the Series B-2 convertible preferred stock issuance occurred on August 12, 2020 with all Series B-1 stockholders participating.

Series C Convertible Preferred Stock

On December 3, 2020, the Company sold an aggregate of 12,954,423 shares of Series C convertible preferred stock at a price of $ 7.333 per share for aggregate gross proceeds of approximately $ 95.0 million to the Company.

The Company had no convertible preferred stock outstanding as of December 31, 2022 and 2021.

Immediately prior to the completion of the IPO in March 2021, all outstanding shares of the Company’s convertible preferred stock were automatically converted into 35,557,569 shares of common stock.

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The 2021 Plan provides for the grant of incentive stock options, within the meaning of Section 422 of the Internal Revenue Code, to the Company’s employees and any of its parent and subsidiary corporations’ employees, and for the grant of nonstatutory stock options, restricted stock, restricted stock units, stock appreciation rights, performance units, and performance shares to its employees, directors, and consultants and its subsidiary corporations’ employees and consultants.

The vesting of stock options is stated in each individual grant agreement, which is generally four years .

Options granted expire 10 years after the date of grant.

A total of 5,040,000 shares of the Company’s common stock were initially reserved for issuance pursuant to the 2021 Plan.

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The number of shares available for issuance under the 2021 Plan increases annually on the first day of each fiscal year beginning with the Company’s 2022 fiscal year, equal to the least of (1) 5,040,000 shares, (2) five percent ( 5 %) of the outstanding shares of its common stock as of the last day of the immediately preceding fiscal year;

or (c) such other amount as the Company’s Board of Directors may determine.

or (3) such other amount as the Company’s Board of Directors may determine.

As of December 31, 2022, there were 1,829,377 shares available for future issuance under the 2021 Plan.

Option activity for the year ended December 31, 2021 is as follows:

Stock Options

Stock option activity for the year ended December 31, 2022 is as follows:

Total Intrinsic

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Options exercisable as of December 31, 2022

The Company recognized $ 4.4 million and $ 0.3 million in stock-based compensation expense in connection with the equity incentive plan for the years ended December 31, 2021 and 2020, respectively.

As of December 31, 2021, there was unrecognized stock-based compensation cost of $ 25.2 million, which is expected to be recognized over a term of 3.4 years.

The aggregate intrinsic value of options exercised during the years ended December 31, 2021 and 2020 was $ 4.3 million and $ 58,000 respectively.

The vesting of stock options is stated in each individual grant agreement, which is generally four years .

As of December 31, 2022, there was unrecognized stock-based compensation cost of $ 40.3 million, which is expected to be recognized over weighted-average term of 3 years.

The aggregate intrinsic value of options exercised during the years ended December 31, 2022 and 2021 was $ 2.7 million and $ 4.3 million, respectively.

For options granted during the years ended December 31, 2022 and 2021, the weighted-average grant date fair value was $ 7.32 and $ 11.30 per share, respectively.

There were additional options issued outside of this plan as discussed under Founder Stock Options.

In previous years, there were additional options issued outside of this plan as discussed under Founder Stock Options.

Founder Stock Options

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There were no options exercised during the year ended December 31, 2022.

Compensation expense with respect to these options was $ 17,000 and $ 35,000 for the years ended December 31, 2021 and 2020, respectively.

As of December 31, 2022, there was no unrecognized stock-based compensation expense.

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81.72 % - 87.47 %

75.0 % - 76.4 %

Risk-free interest rate

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The dividend yield was zero as the Company has never declared or paid dividends and has no plans to do so in the foreseeable future.

Restricted Stock Units

A restricted stock unit (RSU) represents the right to receive one share of common stock upon vesting of the RSU.

During the year ended December 31, 2022, the Company issued RSUs with service conditions that vest over three years .

The fair value of each RSU is based on the closing price of the Company’s common stock on the date of grant.

RSU activity for the year ended December 31, 2022 is as follows:

Weighted Average Grant

Date Fair Value

Issued and unvested as of December 31, 2021

Issued and unvested as of December 31, 2022

As of December 31, 2022, there was unrecognized stock-based compensation cost of $ 1.7 million, which is expected to be recognized over a term of 2.3 years.

2021 Employee Stock Purchase Plan

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ESPP participants will purchase shares of common stock at a price per share equal to 85 % of the lesser of (1) the fair market value per share of the common stock on the first trading day of the offering period or (2) the fair market value of the common stock on the purchase date.

Total stock-based compensation expense related to all equity plans was allocated as follows (in thousands):

Total stock-based compensation expense related to all equity plans, including Founder Stock Options was allocated as follows (in thousands):

Year ended December 31,

Research and development

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In addition, in the event the Company sublicenses the OSIF licensed patent rights, the Company is obligated to pay OSIF a specified portion of income received from sublicensing.

Total costs incurred for license fees and milestones achieved under the OSIF license agreement was $ 0.2 million and $ 0 for the years ended December 31, 2022 and 2021, respectively.

As of December 31, 2022, the Company has paid $ 0.5 million for license fees and milestones achieved in connection with the license agreement.

Lease Agreements

The Company leases office and lab space under lease agreements.

These leases expire in August 2022.

Rent expense was $ 110,000 and $ 77,000 for the years ended December 31, 2021 and 2020, respectively.

Future minimum rentals as of December 31, 2021 were $ 141,000 , all of which is to be paid within the next 12 months.

In January 2022, the Company entered into a lease agreement for additional office and laboratory space.

Please refer to Note 10 for further information.

In January 2022, we entered into a lease agreement for approximately 18,614 square feet of office and laboratory space in Boulder, Colorado (the New Boulder Lease) with aggregate base rent payments of approximately $ 3.3 million over the initial 8.2 -year term of the lease.

The Company has the option to extend the New Boulder Lease for two additional terms of five years each.

Further, the Company provided a standby letter of credit (LOC) of $ 0.8 million during the term of the lease as collateral for the Company’s obligations under the lease.

Provided there has been no event of default by the Company during the initial 36-month term, the Company will replace the initial LOC with a replacement LOC in the amount of $ 0.5 million.

The New Boulder Lease includes two tenant improvement allowances, which includes one for $ 1.0 million in construction costs to be fully reimbursed by the lessor (the First Allowance) and one for $ 2.0 million in construction costs to be repaid to the lessor as additional rent payments over the initial term of the lease (the Second Allowance).

During the year ended December 31, 2022, $ 1.0 million and $ 1.8 million was received by the lessor under the First Allowance and Second Allowance, respectively.

The receipt of $ 1.8 million under the Second Allowance resulted in an increase to operating lease liabilities and an increase to aggregate base rent payments totaling $ 2.2 million.

The Company is obligated to pay the lessor an amount not to exceed 5 % of the net rents from the property for operating costs.

Such amounts are not included in the measurement of the lease liability and are recognized as variable lease expense when they are incurred.

Variable lease expense under the New Boulder Lease was $ 0.1 million and $ 0 for the years ended December 31, 2022 and 2021, respectively.

The New Boulder Lease is classified as an operating lease.

The Company recorded a lease liability and ROU lease asset for the New Boulder Lease based on the present value of lease payments over the expected lease term, discounted using the Company’s incremental borrowing rate.

The option to extend the New Boulder Lease was not recognized as part of the Company’s lease liability and ROU lease asset, as such extensions are not reasonably certain to occur.

As of December 31, 2022, the weighted-average remaining lease term and the weighted-average discount rate for the New Boulder Lease was 7.3 years and 6 %, respectively.

Rent expense under the New Boulder Lease was $ 0.3 million and $ 0 for the years ended December 31, 2022 and 2021, respectively.

Future minimum lease payments under the New Boulder Lease as of December 31, 2022 are as follows (in thousands):

Year Ending December 31,

Total undiscounted future minimum lease payments

Total lease liability

The Company additionally leases office and lab space under lease agreements which expire in August 2023.

These leases were excluded from our lease liability and ROU asset calculations due to their short-term nature.

Future minimum lease payments under these short-term leases as of December 31, 2022 total $ 38,000 , all of which will be paid through the end of fiscal year 2023.

Total rent expense under these short term leases were $ 0.2 million and $ 0.1 million for the years ended December 31, 2022 and 2021, respectively.

As of December 31, 2021, future minimum lease payments totaled $ 141,000 , all of which were paid in 2022.

Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated.

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To date, the Company has not incurred any material costs as a result of such indemnifications.

The Company is

not aware of any claims under indemnification arrangements, and it has not accrued any liabilities related to such obligations in its financial statements as of December 31, 2021.

The Company is not aware of any claims under indemnification arrangements, and it has not accrued any liabilities related to such obligations in its financial statements as of December 31, 2022.

NOTE 6 INCOME TAXES

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Research and development credits

Disallowed compensation

Change in valuation allowance

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Federal net operating loss carryforward

Capitalized research expenses

State net operating loss carryforward

Federal R&D credit

Accrued expenses

Stock-based compensation

Accrued expenses

Lease liability

Property and equipment

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Net deferred tax asset (liability)

The Company has federal and state net operating loss carryforwards (NOLs) of approximately $ 69.4 million and $ 33.9 million as of December 31, 2021 and 2020, respectively.

The state NOLs and approximately $ 1.2 million of the federal NOLs as of December 31, 2021 and 2020 expire in 2037.

The remaining federal NOLs of approximately $ 68.2 million and $ 32.7 million as of December 31, 2021 and 2020 do not expire.

As of December 31, 2021 and 2020, a valuation allowance was recorded equal to 100 % of net deferred tax assets as the Company does not believe it is more likely than not that it will realize the recorded net deferred tax assets.

The increase in the recorded valuation allowance was $ 11.7 million and $ 4.5 million in 2021 and 2020, respectively.

The Company had federal research tax credit carryforwards of approximately $ 1.1 million and $ 0.4 million as of December 31, 2021 and 2020, respectively.

The Company has performed a formal research and development credit study with respect to these credits.

The federal credits will begin to expire in 2039, if unused.

For the period ended December 31, 2022, the Company has federal and state net operating loss carryforwards of $ 83.8 million and $ 86.4 million, respectively.

Approximately $ 1.2 million and $ 53.3 million of the Company's federal and state net operating loss carryforwards, respectively will begin to expire in 2037.

The remainder of the Company's federal and state net operating losses will carry forward indefinitely.

The Company also has $ 3.4 million of federal research and development tax credits carryforwards, which will begin to expire in 2039.

In accordance with Section 382 and Section 383, utilization of the NOL and tax credit carryforwards may subject to limitations based on prior or future ownership changes.

Also, after weighing all available and positive and negative evidence the Company determined a full valuation allowance was necessary, consistent with prior year.

The Company is subject to income tax in multiple jurisdictions, including federal and several states.

The Company has federal and state income tax returns that are open to examination from 2019 and 2018 forward, respectively.

In addition, the utilization of NOLs and tax credit carryforwards, from periods prior to those previously mentioned may also be audited by the taxing authorities once utilized.

As a result, the Company continuously monitors its current and prior filing positions in order to determine if any unrecognized tax positions need to be recorded.

The analysis involves considerable judgement and is based on the best information available.

For the period ended December 31, 2022, the Company is not aware of any positions which require an uncertain tax position liability.

Pursuant to Internal Revenue Code (IRC) Sections 382 and 383, the Company’s ability to use NOL and research tax credit carry forwards to offset future taxable income may be limited if the Company experiences a cumulative change in ownership of more than 50% within a three-year testing period.

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If ownership changes within the meaning of IRC Section 382 are identified as having occurred, the amount of NOL and research tax carryforwards available to offset future taxable income and income tax liabilities in future years may be significantly restricted or eliminated.

Further, deferred tax assets associated with such NOLs and research tax

credits could be significantly reduced upon realization of an ownership change within the meaning of IRC Section 382.

Further, deferred tax assets associated with such NOLs and research tax credits could be significantly reduced upon realization of an ownership change within the meaning of IRC Section 382.

NOTE 7 EMPLOYEE BENEFIT PLANS

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The Company’s contribution to the plan, as determined by the Company’s Board of Directors, was discretionary until September 2021 when the Company initiated a match with a maximum amount of 4 % of the participant’s compensation.

During the years ended December 31, 2021 and 2020, the Company made matching contributions of $ 47,000 and $ 0 respectively.

During the years ended December 31, 2022 and 2021, the Company made matching contributions of $ 0.4 million and $ 47,000 respectively.

NOTE 8 NET LOSS PER SHARE

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As the Company has reported a net loss for all periods presented, diluted net loss per common share is the same as basic net loss per common share for those periods.

The following table sets forth the computation of the basic and diluted net loss per share (in thousands, except share and per share amounts):

The following table sets forth the computation of the basic and diluted net loss per share (in thousands, except share and per share data):

Year Ended December 31,

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Options to purchase common stock

Unvested restricted stock units

Convertible preferred stock

NOTE 9 PROPERTY AND EQUIPMENT

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

As of December 31,

Laboratory equipment

Computers and software

Construction in process

Property and equipment - at cost

accumulated depreciation

Property and equipment - net

Depreciation expense was $ 0.4 million and $ 0.3 million for the years ended December 31, 2022 and 2021, respectively.

NOTE 10 ACCRUED OTHER EXPENSES

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Accrued research and development costs

Accrued IPO costs

Accrued license fees

Accrued other

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NOTE 11 SUBSEQUENT EVENTS

In January 2022 the Company entered into a lease agreement for approximately 18,614 square feet of office and laboratory space in Boulder, Colorado.

The new lease commences on or around September 1, 2022 and includes escalating rent payments and a 84-month term.

The lease agreement includes a tenant improvement allowance for $ 1.0 million of construction costs to be paid for by the landlord and up to an additional $ 2.0 million of tenant improvement allowance for which the Company will repay the landlord on an amortized straight-line basis over the initial term of the lease, commencing on the commencement date and continuing for the duration of the initial term at 6 % interest.

Future minimum lease payments are as follows (in thousands):

Year Ended December 31,

2027 and thereafter

Total future minimum lease payments

In February 2023, we signed an amendment to the lease agreement for the New Boulder Lease to occupy an additional 9,624 square feet of office and laboratory space (the Expansion Space).

The Expansion Space includes an improvement allowance in the amount of $ 0.5 million.

Rent payments will begin in December 2023.

Future minimum lease payments under the Expansion Space are as follows (in thousands):

Year Ending December 31,

Total future minimum principal payments

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data