What changed in this filing

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Item 9A. Controls and Procedures

2023-03-14 compared with 2022-03-25 · 198 added, 320 removed, 503 unchanged (51% of the section changed)

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Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the fiscal year ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended December 31, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

OTHER INFORMATION

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PRINCIPAL ACCOUNTING FEES AND SERVICES

Our independent accounting firm is PricewaterhouseCoopers LLP , Philadelphia, Pennsylvania, USA , PCAOB Auditor ID:

The information required by Item 14 of Form 10-K is incorporated by reference to the information contained in our definitive proxy statement for the 2023 annual meeting of stockholders.

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+ Certain confidential portions (indicated by brackets and asterisks) have been omitted from this exhibit

** Furnished herewith.

This certification will not be deemed “filed”

for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section.

Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, except to the extent specifically incorporated by reference into such filing.

Agreement and Plan of Merger, dated as of December 17, 2019, by and among Zafgen, Inc., Chondrial Therapeutics, Inc., Chondrial Therapeutics Holdings, LLC, and Zordich Merger Sub, Inc.

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2020 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on September 29, 2020).

Amended and Restated 2006 Stock Option Plan and forms of award agreements thereunder (incorporated by reference to Exhibit 10.1 of the Registrant’s Registration Statement on Form S-1 filed on June 18, 2014) .

2014 Stock Option and Incentive Plan and forms of award agreements thereunder (incorporated by reference to Exhibit 10.2 of the Registrant’s Registration Statement on Form S-1 filed on June 18, 2014) .

Equity Distribution Agreement by and between the Company and Piper Sandler & Co.

(incorporated by reference to Exhibit 1.2 of the Company’s Registration Statement on Form S-3 filed on August 14, 2020).

Larimar Therapeutics, Inc.

Form of Stock Option Grant Notice and Award Agreement under its 2020 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on September 29, 2020).

Restricted Stock Award Agreement for Company Employees under the Larimar Therapeutics, Inc.

2020 Equity Incentive Plan.

Non-Qualified Stock Option Grant Notice and Award Agreement.

Registration Rights Agreement, dated as of June 1, 2020, by and among the Company and certain Investors (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on June 2, 2020).

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Employment Agreement, dated June 1, 2020, by and between the Company and Michael Celano (incorporated by reference to Exhibit 10.4 of the Company’s Current Report on Form 8-K filed on June 2, 2020).

Employment Agreement, dated February 7, 2023, by and between the Company and Gopi Shankar.

License Agreement, by and between the Company and Wake Forest University Health Sciences, effective as of November 30, 2016.

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First Amendment to License Agreement, by and between the Company, the Trustee of Indiana University and Indiana University Research and Technology Corporation, effective as of August 16, 2019 (incorporated by reference to Exhibit 10.10 of the Company’s Quarterly Report on Form 10-Q filed on August 14, 2020).

Second Amendment to License Agreement, by and between the Company and The Trustees of Indiana University, effective as of May 28, 2020 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on August 11, 2022).

Third Amendment to License Agreement, by and between the Company and The Trustees of Indiana University, effective as of June 9, 2022 (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed on August 11, 2022).

Notice of Substitute Option Grant between the Company and a certain Optionee (incorporated by reference to Exhibit 4.5 of the Company’s Registration Statement on Form S-8 filed on June 26, 2020).

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(incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed on May 10, 2021).

Second Amendment to Master Services Agreement, dated as of September 20, 2022, by and between the Company and KBI Biopharma, Inc.

Subsidiaries of Larimar Therapeutics, Inc.

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Section 1350 certification of the Principal Executive Officer and Principal Financial Officer, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

XBRL Instance Document

XBRL Taxonomy Extension Schema Document

XBRL Taxonomy Extension Calculation Linkbase Document

XBRL Taxonomy Extension Definition Linkbase Document

XBRL Taxonomy Extension Label Linkbase Document

XBRL Taxonomy Extension Presentation Linkbase Document

Inline XBRL Instance Document

Inline XBRL Taxonomy Extension Schema Document

Inline XBRL Taxonomy Extension Calculation Linkbase Document

Inline XBRL Taxonomy Extension Definition Linkbase Document

Inline XBRL Taxonomy Extension Label Linkbase Document

Inline XBRL Taxonomy Extension Presentation Linkbase Document

Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

Form 10-K Summary

Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the Unincorporated Community of Bala Cynwyd , Commonwealth of Pennsylvania, on the 25 th day of March 2022.

Pursuant to the requirements of Section 13 or 15(d) 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.

LARIMAR THERAPEUTICS, INC.

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President and Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.

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

/s/ Carole Ben-Maimon

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March 14, 2023

/s/ Thomas O.

March 25, 2022

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID 238 )

Consolidated Balance Sheets as of December 31, 2022 and 2021

Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2022 and 2021

Consolidated Statements of Changes in Stockholders Equity (Deficit) for the years ended December 31, 2021 and 2020

Consolidated Statements of Changes in Stockholders Equity for the years ended December 31, 2022 and 2021

Consolidated Statements of Cash Flows for the years ended December 31, 2022 and 2021

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

and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations and comprehensive loss, of changes in stockholders’

equity (deficit) and of cash flows for the years then ended including the related notes (collectively referred to as the “consolidated financial statements”).

and its subsidiary (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of operations and comprehensive loss, of changes in stockholders' equity and of cash flows for the years then ended, including the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

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We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB.

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

Those standards require that we plan and perform the audits 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.

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Accrued Research and Development Expenses

As described in Notes 2 and 7 to the consolidated financial statements, the Company recognizes external research and development costs based on an evaluation of the progress to completion of specific tasks using information provided to the Company by its service providers.

As described in Notes 2 and 6 to the consolidated financial statements, the Company recognizes external research and development costs based on an evaluation of the progress to completion of specific tasks using information provided to the Company by its key service providers.

Within accrued expenses, total accrued research and development expenses amounted to $5.9 million as of December 31, 2022.

As disclosed, management’s process involves reviewing open contracts and purchase orders, communicating with personnel and outside vendors to identify services that have been performed, and estimating the level of service performed and the associated costs incurred for the services when invoices or other notification of actual costs have not been received.

subjectivity and effort in performing procedures and evaluating management’s estimates of the level of service performed and the associated costs incurred for the services when invoices or other notification of actual costs have not yet been received.

level of service performed and the associated costs incurred for the services when invoices or other notification of actual costs have not been received.

The principal considerations for our determination that performing procedures relating to accrued research and development expenses is a critical audit matter are the significant judgment by management in developing the estimates of accrued research and development expenses, which in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating management’s estimates of the level of service performed and the associated costs incurred for the services when invoices or other notification of actual costs have not yet been received.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

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March 14, 2023

We have served as the Company's auditor since 2020.

PART I-FINANCIA L INFORMATION

Financi al Statements

We have served as the Company’s auditor since 2020.

LARIMAR THERAPEUTICS, INC.

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Cash and cash equivalents

Marketable debt securities

Marketable securities

Prepaid expenses and other current assets

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Accumulated deficit

Accumulated other comprehensive gain

Accumulated other comprehensive loss

Total stockholders’

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Weighted average common shares outstanding, basic and diluted

Comprehensive income (loss):

Comprehensive loss:

Other comprehensive loss:

Unrealized gain (loss) on marketable debt securities

Total other comprehensive income (loss)

Unrealized loss on marketable securities

Total other comprehensive loss

Total comprehensive loss

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STOCKHOLDERS’

EQUITY (DEFICIT)

(In thousands, except share data)

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Balances as of December 31, 2021

Issuance of Common Stock.

Issuance of Common Stock, net

Stock-based compensation expense

Unrealized loss on marketable debt securities

Unrealized loss on marketable securities

Balances as of December 31, 2022

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Stockholders’

Equity (Deficit)

Balances as of December 31, 2020

Capital contributions from related party

Merger with Zafgen Inc.

Private Placement, net of transaction costs

Issuance of Common Stock to placement agent for advisory fees in lieu of cash and other issuances of common stock

Issuance of Common Stock, net

Stock-based compensation expense

Unrealized gain on marketable debt securities

Unrealized loss on marketable securities

Balances as of December 31, 2021

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Gain on disposal of fixed asset

Non-cash lease expense

Depreciation expense

Amortization of premium (discount) on marketable securities

Amortization of discount on marketable securities

Changes in operating assets and liabilities:

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Accrued expenses

Right-of-use assets

Operating lease liabilities

Net cash used in operating activities:

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Purchase of property and equipment

Purchase of marketable debt securities

Maturities and sales of marketable debt securities

Cash, cash equivalents, and restricted cash acquired in connection with the Merger

Merger transaction costs

Net cash provided by investing activities

Purchase of marketable securities

Maturities and sales of marketable securities

Net cash provided by (used in) investing activities

Cash flows from financing activities:

Capital contribution from related party

Proceeds from sale of common stock and prefunded warrants, net of issuance costs

Proceeds from sale of common stock, net of issuance costs

Net cash provided by financing activities

Net increase in cash, cash equivalents and restricted cash

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

Cash, cash equivalents and restricted cash at beginning of period

Cash, cash equivalents and restricted cash at end of period

Supplemental disclosure of non-cash investing and financing activities:

Fair value of net assets acquired in the Merger, including $ 1.0 million of marketable debt securities and excluding cash acquired

Property and equipment included in accounts payable and accrued expenses

Leased assets obtained in exchange for new operating lease liabilities

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

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NOTES TO CONSOLID ATED FINANCIAL STATEMENTS

Description of Business and Organization

Larimar Therapeutics, Inc., together with its subsidiaries (the “Company”

Description of Business and Basis of Presentation

Larimar Therapeutics, Inc., together with its subsidiary (the “Company”

or “Larimar”), is a clinical-stage biotechnology company focused on developing treatments for patients suffering from complex rare diseases using its novel cell penetrating peptide technology platform.

Larimar's lead product candidate, CTI-1601, is a subcutaneously administered, recombinant fusion protein intended to deliver human frataxin ("FXN") an essential protein, to the mitochondria of patients with Friedreich’s ataxia.

Friedreich’s ataxia is a rare, progressive and fatal disease in which patients are unable to produce sufficient FXN due to a genetic abnormality.

In May 2021, Larimar reported positive topline data from its Phase 1 Friedreich’s ataxia, ("FA") program after completing dosing of the single ascending dose, ("SAD"), trial in December 2020 and of the multiple ascending dose, ("MAD"), trial in March 2021.

Data from these trials demonstrate proof-of-concept by showing that daily subcutaneous injections of CTI-1601 for up to 13 days resulted in dose-dependent increases in FXN levels from baseline compared to placebo in all evaluated tissues (buccal cells, skin, and platelets).

FXN levels achieved in peripheral tissues (buccal cells) following daily 50 mg and 100 mg subcutaneous injections of CTI-1601 were at or in excess of FXN levels that would be expected in phenotypically normal heterozygous carriers.

There were no serious adverse events, ("SAEs"), associated with either the MAD or SAD trials.

To support extended dosing of patients with CTI-1601, we conducted a 26-week NHP toxicology study in 2021.

In May 2021 we notified the FDA of certain mortalities which occurred at the highest dose levels in the then-ongoing study.

On May 25, 2021 the FDA placed a clinical hold on the CTI-1601 clinical program.

In the clinical hold letter, the FDA stated that it needed to review a full study report from the then-ongoing NHP study and that we may not initiate additional interventional clinical trials until we have submitted such report and received notification from the FDA that additional clinical trials may commence.

At the time of the FDA clinical hold, we had no interventional clinical trials with patients enrolled or enrolling and as of the date of this report, do not have interventional clinical trials with patients enrolled or enrolling.

The Company submitted a complete response to the clinical hold in January 2022.

In February 2022, the Company received feedback from the FDA following its submission of the complete response.

The FDA stated that it was maintaining its clinical hold at this time and requested additional information.

The Company is evaluating how best to respond to their request.

The Company does not know when, or if, the clinical hold will be lifted.

FA is a rare, progressive and fatal disease in which patients are unable to produce sufficient FXN due to a genetic abnormality.

In May 2021, Larimar reported positive top-line data from its Phase 1 FA program after completing dosing of the single ascending dose ("SAD") trial in December 2020 and of the multiple ascending dose ("MAD") trial in March 2021.

Also in May 2021, the United States Food and Drug Administration ("FDA") placed a clinical hold on the Company's CTI-1601 clinical program after the Company notified the agency of mortalities at the highest dose levels of the 26-week non-human primate toxicology study that was designed to support extended dosing of patients with CTI-1601.

At the time the hold was placed, Larimar had no interventional clinical trials with patients enrolling or enrolled.

In February 2022, in response to the complete response the Company submitted, the FDA stated that it was maintaining the clinical hold and that additional data were needed to resolve the clinical hold.

The Company subsequently submitted a request to the FDA for a Type C meeting, which was granted and was held in July 2022.

The Company submitted a complete response to the FDA incorporating additional information requested by the FDA at the meeting as well as information on a proposed dose exploration study in August 2022.

In September 2022, following the Type C meeting and the submission of the Company's complete response, the FDA allowed the 25 mg cohort of a Phase 2, four-week, placebo-controlled, dose exploration trial of CTI-1601 in FA patients to proceed.

In connection with this decision, the FDA lifted its full clinical hold on the CTI-1601 clinical development program and imposed a partial hold.

The dose exploration trial is designed to further characterize CTI-1601’s safety, PD and PK profiles to provide information about the preferred long-term dose and dose regimen.

The Company has since initiated the 25 mg cohort of the Phase 2 dose exploration trial.

Initiation of the second cohort and/or other clinical trials is contingent on the FDA’s agreement based on its review of the trial's 25 mg cohort data and on review by the trial’s independent data monitoring committee.

The Company anticipates that it will provide an update that will outline the next steps for the clinical trial in the second quarter of 2023 and anticipates reporting top-line data in the second half of 2023.

The Company is subject to risks and uncertainties common to pre-commercial companies in the biotechnology industry, including, but not limited to, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with governmental regulations, failure to secure regulatory approval for its drug candidates or any other product candidates and the ability to secure additional capital to fund its operations.

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These efforts require significant amounts of additional capital, adequate personnel, and infrastructure and extensive compliance-reporting capabilities.

Even if our drug development efforts are successful, it is uncertain when, if ever, we will realize significant revenue from product sales.

In March 2020, the World Health Organization ("WHO"), declared the outbreak of COVID-19, a novel strain of Coronavirus, a global pandemic.

The pandemic resulted in the temporary stoppage of the Company’s CTI-1601 Phase 1 clinical trials in patients with Friedreich’s ataxia in March 2020.

In July 2020, the Company resumed these clinical trials, and has since completed both of the Company's SAD and MAD clinical trials.

Since being discovered, new variants of COVID-19 have emerged.

In November 2021, the Omicron variant was identified in South Africa, and has been deemed a variant of concern by the WHO.

In addition to the Omicron variant, the WHO has deemed four other variants to be variants of concern:

the Alpha variant, the Beta variant, the Gamma variant, and the Delta variant.

All of the aforementioned variants have at least one of the following characteristics resulting in the WHO deeming them variants of concern:

an increase in transmissibility or detrimental change in COVID-19 epidemiology,

an increase in virulence or change in clinical disease presentation, or a decrease in effectiveness of public health and social measures or available diagnostics, vaccines, or therapeutics.

Vaccines manufactured by Moderna, Pfizer and Johnson & Johnson were introduced late in the fourth quarter of 2020 and became widely available by the end of the first quarter of 2021.

While the vaccines have proven effective in reducing the severity and mortality of COVID-19, including the variants that have evolved to date, the overall vaccination rate has not reached the level required for herd immunity in some areas of the country.

Further, additional doses of vaccines may be required and individuals may refuse or fail to receive one or more such doses.

The incidence of variants of COVID-19 has been increasing, particularly among unvaccinated individuals, and the Omicron variant has proven to be more easily spread than earlier variants.

The low vaccination rate, the spread of the variants and the evolution of additional mutations against which the current vaccines may prove ineffective could again result in major disruptions to businesses and markets worldwide.

Furthermore, the incidence of "breakthrough" infections even among vaccinated individuals have been increasing, resulting in the need for booster doses which could make COVID-19 a long-term infectious disease concern.

The Company’s business, results of operations, financial condition and cash flows could be materially and adversely affected.

Specifically, the Company could experience additional delays in future clinical trial timelines as a result of additional travel and hospital restrictions related to the COVID-19 pandemic and the efforts to mitigate it which may be imposed or could experience supply shortages or manufacturer shutdowns impacting the manufacture of drug substance or drug product, which could also impact clinical trial timelines.

The financial statements do not reflect any adjustments as a result of the pandemic.

Merger with Zafgen

On December 17, 2019, Zafgen, Inc.

(“Zafgen”), Chondrial Therapeutics Inc.

(“Chondrial”), Zordich Merger Sub, Inc.

(“Merger Sub”) and Chondrial Holdings, LLC (“Holdings”), the sole stockholder of Chondrial, entered into an Agreement and Plan of Merger, as amended on March 9, 2020 (the “Merger Agreement”), pursuant to which Merger Sub merged with and into Chondrial, with Chondrial surviving as a wholly owned subsidiary of the Company and the surviving corporation of the merger (the “Merger”).

The transaction was accounted for as a reverse acquisition in accordance with accounting principles generally accepted in the United States of America ("GAAP").

Under this method of accounting, Chondrial was deemed to be the accounting acquirer for financial reporting purposes.

This determination was primarily based on the facts that, immediately following the Merger:

(1) former shareholders of Chondrial owned a substantial majority of the voting rights of the combined company;

(2) the majority of the board of directors of the combined company was composed of directors designated by Chondrial under the terms of the Merger Agreement;

and (3) existing members of Chondrial management constituted the management of the combined company.

Because Chondrial has been determined to be the accounting acquirer in the Merger, but not the legal acquirer, the Merger is deemed a reverse acquisition under the guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, Business Combinations .

As a result, the historical financial statements of Chondrial are the historical financial statements of the combined company.

As the Merger has been accounted for as an asset acquisition, goodwill has not been recorded within the consolidated balance sheet.

The Merger was completed on May 28, 2020 pursuant to the terms of the Merger Agreement.

In addition, immediately prior to the closing of the Merger, Zafgen effected a 1-for-12 reverse stock split (the “Reverse Stock Split”) of Zafgen’s common stock, par value $ 0.001 per share (the “Zafgen Common Stock”).

At the effective time of the Merger (the “Effective Time”), each share of Chondrial’s common stock, par value $ 0.001 per share (“Chondrial Common Stock”), outstanding immediately prior to the Effective Time was converted into the right to receive shares of Zafgen Common Stock based on an exchange ratio set forth in the Merger Agreement.

At the Effective Time following the Reverse Stock Split, the exchange ratio was determined to be 60,912.5005 shares of Zafgen Common Stock for each share of Chondrial Common Stock (the “Exchange Ratio”).

At the closing of the Merger on May 28, 2020, Zafgen issued an aggregate of 6,091,250 shares of its common stock to Holdings (the “Merger Shares”), based on the Exchange Ratio after giving effect to the Reverse Stock Split described below.

Holdings subsequently distributed the Merger Shares to its members.

In addition, all outstanding options exercisable for common units of Holdings became options exercisable for the shares of common stock of Zafgen based on the conversion factor discussed within the Merger Agreement.

In connection with the Merger, Zafgen changed its name to Larimar Therapeutics, Inc.

Following the closing of the Merger, Chondrial Therapeutics, Inc.

became a wholly owned subsidiary of the Company.

In December 2020, Chondrial Therapeutics was legally merged into Larimar Therapeutics, Inc.

As used herein, the words “the Company”

refers to, for periods following the Merger, Larimar, together with its subsidiaries, and for periods prior to the Merger, Chondrial Therapeutics Inc., and its direct and indirect subsidiaries, as applicable.

Even if the Company's drug development efforts are successful, it is uncertain when, if ever, it will realize significant revenue from product sales.

The COVID-19 pandemic that began late in 2019 caused a four-month temporary stoppage of the Company’s trials with patients with FA in early 2020.

Both of the Company’s SAD and MAD clinical trials were subsequently completed in 2021.

While COVID-19 has had no significant impact to date on the Company’s 25 mg cohort of its dose exploration study, the risk of a resurgence of future vaccine resistant variants of COVID-19 and or other infectious diseases remains.

In the future, the COVID-19 pandemic and responsive measures thereto may result in negative impacts on the Company, including possible delays in our clinical and regulatory activities.

The Company cannot be certain what the overall impact of the COVID-19 pandemic will be on its business and it has the potential to materially adversely affect its business, financial condition, results of operations, and prospects.

Basis of Presentation

The consolidated financial statements include the accounts of Larimar and its wholly owned subsidiaries.

The consolidated financial statements include the accounts of Larimar and its wholly owned subsidiary.

All intercompany balances and transactions have been eliminated.

The accompanying consolidated financial statements have been prepared in conformity with GAAP.

Unless otherwise noted, all references to common stock share and per share amounts have also been adjusted to reflect the Exchange Ratio.

Reverse Stock Split

On May 28, 2020, immediately prior to the closing of the Merger, Zafgen effected the Reverse Stock Split.

Accordingly, all share and per share amounts for all periods presented in the accompanying consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect the Reverse Stock Split.

No fractional shares were issued in connection with the Reverse Stock Split.

Going Concern

Liquidity and Capital Resources

The Company’s consolidated financial statements have been presented on the basis that it will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

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The Company expects to continue to generate operating losses for the foreseeable future.

As of December 31, 2021, the Company had approximately $ 70.1 million of cash and cash equivalents available for use to fund its operations and capital requirements.

The Company has funded its operations to date primarily with proceeds from sales of common stock, prefunded warrants for the purchase of common stock and, prior to the merger with Zafgen described above, contributions from Holdings.

In June 2020, the Company completed the Merger and acquired $ 42.9 million of cash, cash equivalents, restricted cash and marketable debt securities that were held by Zafgen immediately prior to the Merger.

The Company also raised $ 75.4 million, net of offering costs, through a private offering of common stock and prefunded warrants to purchase shares of common stock in connection with and immediately after the closing of the Merger in June 2020.

In August 2020, the Company entered into an Equity Distribution Agreement (the “ATM Agreement”) with an investment bank in connection with the establishment of an “at-the-market”

offering program under which the Company could sell up to an aggregate of $ 50,000,000 of shares of its common stock from time to time through this investment bank as sales agent.

In July 2021, the Company sold 2,342,720 shares pursuant to the ATM Agreement for gross proceeds of $ 20.5 million.

As of March 23, 2022, $ 29.2 million of additional shares of common stock remained available for sale by the Company under the ATM Agreement.

See Note 8 for a further discussion of the ATM Agreement.

As of December 31, 2022, the Company had approximately $ 118.4 million of cash, cash equivalents and marketable securities available for use to fund its operations and capital requirements.

The Company has funded its operations to date primarily with proceeds from sales of common stock and proceeds from the sale of prefunded warrants for the purchase of common stock.

In accordance with Accounting Standards Update (“ASU”) No.

2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, the Company has evaluated whether there are certain conditions

and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued.

As of the issuance date of these consolidated financial statements, the Company expects its cash and cash equivalents will be sufficient to fund its forecasted operating expenses and capital expenditure requirements, for at least the next twelve months from the issuance of these financial statements.

If the timing of our clinical assumptions were delayed or if there were other forecasted assumption changes that negatively impact our operating plan, the Company could reduce expenditures in order to further extend cash resources.

2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, the Company has evaluated whether there are certain conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued.

As of the issuance date of these consolidated financial statements, the Company expects its cash, cash equivalents and marketable securities will be sufficient to fund its forecasted operating expenses and capital expenditure requirements, for at least twelve months from the issuance of these financial statements.

If the timing of the Company's clinical assumptions are delayed or if there are other forecasted assumption changes that negatively impact its operating plan, the Company could reduce expenditures in order to further extend cash resources.

The Company has not yet commercialized any products and does not expect to generate revenue from the commercial sale of any products for several years, if at all.

The Company expects that its research and development and general and administrative expenses will continue to increase and, as a result, will need additional capital to fund its future operating and capital requirements.

Management is currently evaluating different strategies to obtain the required funding for future operations.

Until the Company can generate substantial revenue, if ever, the Company expects to seek additional funding through a combination of public or private equity offerings, debt financings, collaborations and licensing arrangements or other sources.

The incurrence of indebtedness would result in increased fixed payment obligations and the Company may be required to agree to certain restrictive covenants, such as limitations on its ability to incur additional debt, limitations on its ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact the Company's ability to conduct our business.

Any additional fundraising efforts may divert the Company's management from their day-to-day activities, which may adversely affect its ability to develop and commercialize our product candidates.

There can be no assurance that the Company will be able to raise sufficient additional capital on acceptable terms or at all.

If such additional financing is not available on satisfactory terms, or is not available in sufficient amounts, or the Company does not have sufficient authorized shares, the Company may be required to delay, limit, or eliminate the development of business opportunities and its ability to achieve its business objectives, its competitiveness, and its business, financial condition, and results of operations will be materially adversely affected.

The Company expects that its research and development and general and administrative expenses will continue to increase and, as a result, that it will need additional capital to fund its future operating and capital requirements.

Until the Company can generate substantial revenue, if ever, management continuously evaluates different strategies to obtain the required funding for future operations.

These strategies include seeking additional funding through a combination of public or private equity offerings, debt financings, collaborations and licensing arrangements or other sources.

The incurrence of indebtedness would result in increased fixed payment obligations and the Company may be required to agree to certain restrictive covenants, such as limitations on its ability to incur additional debt, limitations on its ability to acquire, sell or license intellectual property rights, minimum required cash balances and other operating restrictions that could adversely impact the Company's ability to conduct its business.

Any additional fundraising efforts may divert the Company's management from their day-to-day activities, which may adversely affect its ability to develop and commercialize its product candidates.

There can be no assurance that the Company will be able to raise sufficient additional capital on acceptable terms, if at all.

If such additional financing is not available on satisfactory terms, or is not available in sufficient amounts, or if the Company does not have sufficient authorized shares, the Company may be required to delay, limit, or eliminate the development of business opportunities and its ability to achieve its business objectives, its competitiveness, and its business, financial condition, and results of operations will be materially adversely affected.

The Company could also be required to seek funds through arrangements with collaborative partners or otherwise at an earlier stage than otherwise would be desirable and it may be required to relinquish rights to some of its technologies or product candidates or otherwise agree to terms unfavorable to it, any of which may have a material adverse effect on the Company's business, operating results and prospects.

In addition, geopolitical unrest including the potential impact of the Russian invasion of Ukraine, the possibility that the conflict could expand beyond eastern Europe, the impact of the COVID-19 pandemic and/or other health crises on the global financial markets may reduce the Company's ability to access capital, which could negatively affect its liquidity and ability to continue as a going concern.

If the Company is unable to obtain funding when needed and/or on acceptable terms, the Company may be required to significantly curtail, delay or discontinue one or more of its research and development programs, the manufacture of clinical and commercial supplies, product portfolio expansion or pre commercialization efforts, which could adversely affect its business prospects, or the Company may be unable to continue operations.

In addition, geopolitical unrest, global uncertainty, the impact of another COVID-19 pandemic and/or the potential impact of other health crises on the global financial markets may reduce the Company's ability to access capital, which could negatively affect its liquidity and ability to continue as a going concern.

If the Company is unable to obtain sufficient funding when needed and/or on acceptable terms, the Company may be required to significantly curtail, delay or discontinue one or more of its research and development programs, the manufacture of clinical and commercial supplies, product portfolio expansion or pre commercialization efforts, which could adversely affect its business prospects, or the Company may be unable to continue operations.

Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period.

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period.

Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, the accrual of research and development expense, the recording as prepaid expense of payments made in advance of the actual provision of goods or services, valuation of stock-based awards and valuation of leases.

Due to inherent uncertainty involved in making estimates, actual results reported in future periods may be affected by changes in these estimates.

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Concentrations of Credit Risk and Significant Suppliers

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents and marketable debt securities.

The Company generally maintains cash balances in various

operating accounts at financial institutions that management believes to be of high credit quality in amounts that may exceed federally insured limits.

The Company has not experienced losses related to its cash, cash equivalents and marketable debt securities.

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents and marketable securities.

Cash balances may be held in financial institutions which may exceed federally insured limits.

The Company has not experienced realized losses related to its cash, cash equivalents and marketable securities.

The Company is highly dependent on third-party manufacturers to supply products for research and development activities in its programs, to scale and optimize their manufacturing processes and, ultimately, to provide commercial supply.

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The Company considers all highly liquid investments with maturities of three months or less at the date of purchase to be cash equivalents.

Cash equivalents consisted of commercial paper, corporate bonds and money market funds as of December 31, 2021 and 2020 .

Marketable debt securities

Marketable debt securities consist of debt investments with original maturities greater than ninety days.

The Company classifies its marketable debt securities as available-for-sale.

Cash equivalents consisted of money market funds as of December 31, 2022 and commercial paper and corporate bonds as of December 31, 2021 .

Marketable securities

Marketable securities consist of debt investments with original maturities greater than ninety days.

The Company classifies its marketable securities as available-for-sale.

Accordingly, these investments are recorded at fair value, which is based on quoted market prices.

When the fair value is below the amortized cost the amount of the expected credit loss is estimated.

The credit-related impairment amount is recognized in net income;

The credit-related impairment amount, if any, would be recognized in net income;

the remaining impairment amount and unrealized gains are reported as a component of accumulated other comprehensive income in stockholders’

Credit losses are recognized through the use of an allowance for credit losses account and subsequent improvements in expected credit losses are recognized as a reversal of the allowance account.

If the Company has the intent to sell the security or if it is more likely than not that the Company will be required to sell the security prior to recovery of its amortized cost basis, the allowance for credit loss is written off and the excess of the amortized cost basis of the asset over its fair value is recorded in net income.

Credit losses, if any, are recognized through the use of an allowance for credit losses account and subsequent improvements in expected credit losses are recognized as a reversal of the allowance account.

If the Company has the intent to sell the security or if it is more likely than not that the Company would be required to sell the security prior to recovery of its amortized cost basis, the allowance for credit loss would be written off and the excess of the amortized cost basis of the asset over its fair value is recorded in net income.

Property and Equipment

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Expenditures for repairs and maintenance of assets are charged to expense as incurred.

Upon retirement or sale, the cost and related accumulated depreciation of assets disposed of are removed from the accounts and any resulting gain or loss is included in loss from operations.

retirement or sale, the cost and related accumulated depreciation of assets disposed of are removed from the accounts and any resulting gain or loss is included in loss from operations.

Impairment of Long-Lived Assets

Long-lived assets consist of property and equipment, net¸

and net operating lease assets.

and right-of-use assets.

Long-lived assets to be held and used are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable.

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The expected term of the Company’s stock options has been determined utilizing the “simplified”

method for awards that qualify as “plain-vanilla”

method for awards that qualify as

“plain-vanilla”

The risk-free interest rate is determined by reference to the U.S.

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equity that result from transactions and economic events other than those with stockholders.

For the years ended December 31, 2021 and 2020 , the Company’s only element of other comprehensive income (loss) was unrealized gain (loss) on marketable securities.

For the years ended December 31, 2022 and 2021 , the Company’s only element of other comprehensive loss was unrealized loss on marketable securities.

Net Loss Per Share

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The Company excluded 3,071,528 and 2,523,305 options to purchase common stock, outstanding as of December 31, 2022 and 2021 respectively, from the computation of diluted net loss per share for the twelve months ended December 31, 2022 and 2021 , respectively, because they had an anti-dilutive impact due to the net loss incurred for the periods.

Prior to the Merger the Company did not have options to purchase common stock or unvested restricted common stock to exclude from the calculation of earnings per share as all outstanding options were for common

units of Holdings that upon the Merger converted into options exercisable for the shares of common stock of the Company.

Reclassification

Certain prior period amounts have been reclassified to conform to the current period presentation, the effect of which was not material on an annual or interim basis to the Company’s consolidated financial statements.

Recently Issued and Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments .

The FASB subsequently issued amendments to ASU 2016-13.

This standard requires entities to estimate an expected lifetime credit loss on financial assets ranging from short-term trade accounts receivable to long-term financings and report credit losses using an expected losses model rather than the incurred losses model that was previously used, and establishes additional disclosures related to credit risks.

For available-for-sale debt securities with unrealized losses, the standard now requires allowances to be recorded instead of reducing the amortized cost of the investment.

This standard limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and requires the reversal of previously recognized credit losses if fair value increases.

The Company adopted the standard on January 1, 2020 .

The adoption of this standard did not have a material impact on the Company’s consolidated financial statements or related disclosures.

In August 2018, the FASB issued ASU No.

2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement .

This standard modifies certain disclosure requirements on fair value measurements.

This standard became effective and was adopted by the Company on January 1, 2020 .

The adoption of this standard did not have a material impact on the Company’s disclosures.

Merger Accounting

On May 28, 2020, the Company completed its merger with Zafgen.

Based on the Exchange Ratio, immediately following the Merger, former Zafgen stockholders, Zafgen option holders and other persons holding securities or other rights directly or indirectly convertible, exercisable or exchangeable for Zafgen Common Stock (collectively, the “Zafgen Securityholders”) owned approximately 34 % of the outstanding capital stock of the combined company, and Holdings, the former Chondrial stockholder, owned approximately 66 % of the outstanding capital stock of the combined company.

At the closing of the Merger, all shares of Chondrial Common Stock were exchanged for an aggregate of 6,091,250 shares of Zafgen Common Stock, after giving effect to the Reverse Stock Split.

In addition, pursuant to the terms of the Merger Agreement, the Company assumed all outstanding stock options to purchase shares of Zafgen common stock at the closing of the Merger.

At the closing of the Merger, such stock options became options to purchase an aggregate of 328,770 shares of the Company’s common stock after giving effect to the Reverse Stock Split.

The total purchase price paid in the Merger was allocated to the tangible and intangible assets acquired and liabilities assumed of Zafgen based on their fair values as of the completion of the Merger.

Transaction costs primarily included bank fees and professional fees associated with legal counsel, auditors and printers.

The following summarizes the purchase price paid in the Merger (in thousands, except share and per share amounts):

Number of shares of the combined organization owned by Zafgen stockholders (1)

Multiplied by the fair value per share of Zafgen common stock (2)

Fair value of consideration issued in effect of the Merger

Transaction costs

Purchase price:

(1) The number of shares of 3,124,337 represents the historical 37,492,044 shares of Zafgen common stock outstanding immediately prior to the closing of the Merger, adjusted for the Reverse Stock Split.

(2) Based on the last reported sale price of Zafgen common stock on the Nasdaq Global Market on May 28, 2020, the closing date of the Merger, and after giving effect to the Reverse Stock Split.

The allocation of the purchase price for the Merger was based on estimates of the fair value of the net assets acquired, which was then adjusted for the difference between the purchase price and the fair value of the assets acquired.

The following summarizes the allocation of the purchase price to the net tangible and intangible assets acquired (in thousands):

Cash and cash equivalents

Marketable debt securities

Other current and noncurrent assets

Property and equipment, net

Restricted cash

Right-of-use asset

Current liabilities

Lease liability, net of current portion

Purchase price

Fair Value Measurements and Marketable Debt Securities

From time to time, new accounting guidance is issued by the FASB or other standard setting bodies that is adopted by us as of the effective date or, in some cases where early adoption is permitted, in advance of the effective date.

We have assessed the recently issued guidance that is not yet effective and believe the new guidance will not have a material impact on the consolidated results of operations, cash flows or financial position.

Fair Value Measurements and Cash Equivalents/Marketable Securities

Fair Value Measurements

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For accounts payable and accrued liabilities, the carrying amounts of these financial instruments as of December 31, 2022 and 2021 were considered representative of their fair values due to their short term to maturity.

The following tables summarize the Company’s cash equivalents and marketable debt securities as of December 31, 2021 and 2020:

The following tables summarize the Company’s cash equivalents and marketable securities as of December 31, 2022 and 2021:

(in thousands)

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Cash equivalents:

Money market funds

Commercial paper

Corporate bonds

Money market funds invested in government securities

Total cash equivalents

Marketable securities:

U.S Government and agency securities

Total marketable securities

Total cash equivalents and marketable securities

December 31, 2021

Cash equivalents:

Money market funds

Money market funds invested in government securities

Commercial paper

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Total cash equivalents

The accrued interest receivable related to the Company’s investments was $ 0.1 million as of December 31, 2022 and is included in prepaid expenses and other current assets on the consolidated balance sheet.

There was no accrued interest receivable at December 31, 2021.

The Company classifies its money market funds which are valued based on quoted market prices in active markets with no valuation adjustment, as Level 1 assets within the fair value hierarchy.

The Company classifies its investments in U.S.

government and agency securities, corporate commercial paper, and corporate debt securities as Level 2 assets within the fair value hierarchy.

The fair values of these investments are estimated by taking into consideration valuations obtained from third-party pricing services.

The pricing services utilize industry standard valuation models, including both income- and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value.

These inputs include reported trades of and broker/dealer quotes on the same or similar securities, issuer credit spreads, benchmark securities, prepayment/default projections based on historical data and other observable inputs.

As of December 31, 2022, the unrealized loss for available-for-sale investments were non-credit related, and the Company does not intend to sell the investments that were in an unrealized loss position, nor will it be required to sell those investments before recovery of their amortized cost basis, which may be maturity.

As of December 31, 2022 and 2021 , no allowances for credit losses for the Company’s investments were recorded.

During the twelve months ended December 31, 2022 and 2021 , the Company did no t recognize any impairment losses related to investments.

As of December 31, 2022, the Company's cash equivalents and marketable securities consisted of a U.S.

government money market fund and U.S.

government agency securities, all held in our name in a separate custody account with U.S.

government money market fund has same-day liquidity access and the U.S.

government and agency securities all have maturities of 90 days or less.

Marketable Securities

U.S Government securities

Commercial paper

Total marketable debt securities

Total cash equivalents and marketable debt securities

Marketable Debt Securities

The following tables summarize the Company’s marketable debt securities as of December 31, 2020 .

There were no marketable debt securities as of December 31, 2021:

The following tables summarize the Company’s marketable securities as of December 31, 2022 .

There were no marketable securities as of December 31, 2021:

(in thousands)

December 31, 2022

U.S Government securities (due within 1 year)

Commercial paper (due within 1 year)

U.S Government and agency securities (due within 1 year)

Total marketable securities

Prepaid Expenses and Other Current Assets

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Other prepaid expenses and other assets

Total prepaid expenses and other assets

Fixed assets, net consisted of the following:

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Leasehold improvements

Total property, plant and equipment

Accumulated depreciation

Property, plant and equipment, net

Depreciation expense was $ 0.2 million for the years ended December 31, 2022 and 2021, respectively.

In addition, for the years ended December 31, 2022 and 2021 , there was $ 0.1 million of depreciation related to sublet assets recorded as other expense.

Accrued Expenses

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Accrued payroll and related expenses

Accrued professional fees

Accrued other

Total accrued expenses and other current liabilities

Stockholders’

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Common Stock and Prefunded warrants

As of December 31, 2021 , the Company’s Certificate of Incorporation, as amended and restated, authorized the Company to issue up to 115,000,000 shares of $ 0.001 par value common stock, of which 17,710,450 shares were issued and outstanding, and up to 5,000,000 shares of $ 0.001 par value undesignated preferred stock, of which no shares were issued or outstanding.

The voting, dividend and liquidation rights of the holders of the Company’s common stock are subject to and qualified by the rights, powers and preferences of the holders of the preferred stock.

Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders .

Common stockholders are entitled to receive dividends, as may be declared by the board of directors of the Company (the “Board”), if any.

No cash dividends have been declared or paid to date.

On May 28, 2020, the Company entered into a securities purchase agreement with certain accredited investors (the “Purchasers”) for the sale by the Company in a private placement of 6,105,359 shares of the Company’s common stock and prefunded warrants to purchase an aggregate of 628,403 shares of the Company’s common stock, for a price of $ 11.88 per share of the common stock and $ 11.87 per prefunded warrant.

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As partial compensation for these services, the Company issued MTS Health Partners 35,260 shares of common stock.

Equity Distribution Agreement

On August 14, 2020, the Company entered into the ATM Agreement with an investment bank, in connection with the establishment of an “at-the-market”

offering program under which the Company may sell up to an aggregate of $ 50,000,000 of shares of common stock (the “ATM Shares”) from time to time (the “Offering”).

As of December 31, 2022 , the Company’s Amended and Restated Certificate of Incorporation, authorized the Company to issue up to 115,000,000 shares of $ 0.001 par value common stock, of which 43,269,200 shares were issued and outstanding, and up to 5,000,000 shares of $ 0.001 par value undesignated preferred stock, of which no shares were issued or outstanding.

The voting, dividend and liquidation rights of the holders of the Company’s common stock are subject to and qualified by the rights, powers and preferences of the holders of the preferred stock.

Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders .

Common stockholders are entitled to receive dividends, as may be declared by the board of directors of the Company (the “Board”), if any.

No cash dividends have been declared or paid to date.

In July 2021, the Company sold 2,342,720 shares under an “at-the-market”

equity distribution agreement (the "Prior ATM Agreement") with Piper Sandler & Co.

for net proceeds of $ 19.9 million.

The Prior ATM Agreement was terminated in November 2022 in connection with the establishment of a new "at-the-market" offering program (see 2022 ATM Agreement below).

An aggregate of 2,354,244 shares of common stock were sold pursuant to the Prior ATM Agreement for net proceeds of $ 20.1 million.

In September 2022, the Company sold 25,558,750 shares of common stock in an underwritten public offering price of $ 3.15 per share and received net proceeds, net of underwriting discounts and commissions and offering costs of $ 75.2 million.

2022 ATM Agreement

On November 10, 2022, the Company entered into a sales agreement (the "ATM Agreement") with a Guggenheim Securities, LLC in connection with the establishment of an “at-the-market”

offering program under which the Company may sell up to an aggregate of $ 50.0 million of shares of common stock (the “ATM Shares”) from time to time.

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

Sales of the ATM Shares, if any, under the ATM Agreement may be made in transactions that are deemed to be “at-the-market offerings”

Sales of the ATM Shares, if any, under the ATM Agreement may be made in transactions that are deemed

to be “at-the-market offerings”

as defined in Rule 415 under the Securities Act.

The Company pays its investment bank a commission equal to 3.0 % of the gross proceeds of any ATM Shares sold through its investment bank under the ATM Agreement and reimburses investment bank for certain specified expenses.

The Agreement contains customary representations, warranties and agreements by the Company, indemnification obligations of the Company and its investment bank, other customary obligations of the parties and termination provisions.

The Company pays its investment bank a commission equal to 3.0 % of the gross proceeds of any ATM Shares sold through its investment bank under the ATM Agreement and reimburses the investment bank for certain specified expenses.

The ATM Agreement contains customary representations, warranties and agreements by the Company, indemnification obligations of the Company and its investment bank, other customary obligations of the parties and termination provisions.

The Company has no obligation to sell any of the ATM Shares and may at any time suspend offers under the ATM Agreement.

In July 2021, the Company sold 2,342,720 shares under the ATM Agreement for net proceeds of $ 19.9 million, after issuance costs.

As of December 31, 2021 , 2,354,244 shares have been sold under the ATM Agreement for net proceeds of $ 20.1 million, after issuance costs.

As of March 23, 2022, approximately $ 29.2 million of additional shares of common stock remained available for sale by the Company under the ATM Agreement.

Summary of Plans

Upon completion of the Merger with Zafgen, Zafgen’s 2014 Stock Option and Incentive Plan (the “2014 Plan”) and Zafgen’s 2006 Stock Option Plan (the “2006 Plan”

and together with the 2014 Plan the “Prior Plans”) were assumed by the Company.

As described below, the Company adopted a new equity incentive plan in July 2020 that was approved by the stockholders in September 2020.

These three plans are administered by the Board or, at the discretion of the Board, by a committee of the Board.

The ATM Shares will be offered and sold pursuant to the Company’s Registration Statement on Form S-3, filed by the Company on November 10, 2022 and effective as of November 21, 2022 (the “Registration Statement”), and the sales agreement prospectus that forms a part of such Registration Statement.

As of the date of this Annual Report on Form 10-K, no ATM Shares have been sold pursuant to the ATM Agreement.

2020 Equity Incentive Plan

The Board adopted the 2020 Equity Incentive Plan (the "2020 Plan") on July 16, 2020 and the stockholders of the Company approved the 2020 Plan on September 29, 2020.

The 2020 Plan replaces the 2014 Plan.

Option outstanding under the Prior Plans will remain outstanding, unchanged and subject to the terms of the Prior Plans and the respective award agreements, and no further awards will be made under the 2014 Plan.

The 2020 Plan replaced the predecessor plans (the "Prior Plans") that the Company assumed following its merger with Zafgen in May 2020.

Options outstanding under the Prior Plans will remain outstanding, unchanged, and subject to the terms of the Prior Plans and the respective award agreements, and no further awards will be made under the Prior Plans.

However, if any award previously granted under the Prior Plans, expires, terminates, is canceled, or is forfeited for any reason after the approval of the 2020 Plan, the shares subject to that award will be added to the 2020 Plan share pool so that they can be utilized for new grants under the 2020 Plan.

The 2020 Plan provides for the grant of incentive stock options (“ISOs”), nonstatutory stock options (”NSOs”), stock appreciation rights, restricted stock awards, restricted stock unit awards, and cash or other stock-based awards.

The 2020 Plan provides for the grant of incentive stock options (“ISOs”), nonstatutory stock options (“NSOs”), stock appreciation rights, restricted stock awards, restricted stock unit awards, and cash or other stock-based awards.

ISOs may be granted only to the Company’s employees, including the Company’s officers, and the employees of the Company’s affiliates.

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The maximum number of shares that may be issued in respect of any awards under the 2020 Plan is the sum of:

(i) 1,700,000 shares plus (ii) an annual increase on January 1, 2021 and each anniversary of such date thereafter through January 1, 2030, equal to the lesser of (A) 4 % of the shares issued and outstanding on the last day of the immediately preceding fiscal year, and (B) such smaller number of shares as determined by the Board (collectively, the “Plan Limit”).

(i) 1,700,000 shares plus (ii) an annual increase on January 1, 2021 and each anniversary of such date thereafter through January 1, 2030, equal to the lesser of (A) 4 % of the shares issued and outstanding on the last day of the immediately preceding fiscal year, or (B) such smaller number of shares as determined by the Board (collectively, the “Plan Limit”).

The maximum aggregate number of shares that may be issued under the 2020 Plan is 8,000,000 over the ten-year term of the 2020 Plan.

In 2021, options to purchase 56,966 shares issued under the Prior Plans were cancelled and became available for grant under the 2020 Plan.

During the twelve months ended December 31, 2022 and 2021 , respectively, options to purchase 148,623 and 56,966 shares issued under the Prior Plans were canceled and became available for grant under the 2020 Plan.

As of December 31, 2022 , 1,054,277 shares of common stock were available for grant under the 2020 Plan.

As permitted by the 2020 Plan, the Company added 708,418 shares available for grant under the 2020 Plan on January 1, 2022 increasing the maximum number of shares of the Company’s common stock that may be issued under the 2020 Plan to 1,701,837 shares.

2014 Stock Option and Incentive Plan and 2006 Stock Option Plan

In 2014, the Board and stockholders of Zafgen adopted the 2014 Plan.

The 2014 Plan provided for the grant of stock options, stock appreciation rights, restricted stock awards, restricted stock units, unrestricted stock awards, performance-share awards, cash-based awards and dividend equivalent rights to employees, members of the Board and consultants of the Company.

The number of shares initially reserved for issuance under the 2014 Plan was 180,685 shares of common stock.

As the 2020 Plan was adopted by the Company and approved by the Company’s stockholders, no further awards will be made under the Prior Plans.

2016 Equity and Incentive Plan

Under the 2016 Equity Plan adopted by Holdings on November 30, 2016, (the “2016 Equity Incentive Plan”), the Board of Managers of Holdings (the “Board of Managers”) or a committee thereof was authorized to issue 122,133 Common Units of Holdings or combination of Common Units, Common Unit options or profit interest units.

On March 23, 2018, the Board of Managers increased the number of Common Units reserved for grant and issuance pursuant to the 2016 Plan from 122,133 to 138,133 and on April 29, 2019 increased the number of Common Units reserved for grant and issuance pursuant to the 2016 Plan by an additional 101,500 to 239,633 .

The Company has recorded costs incurred as stock-based compensation with a corresponding capital contribution from Holdings.

From January 1, 2020 through the Merger date Holdings did not issue options to purchase Common Units to employees of the Company.

The Company assumed all of the outstanding and unexercised options to purchase units of Holdings upon consummation of the Merger.

Pursuant to the terms of the Merger Agreement, options to purchase 330,818 shares of the Company’s common stock at a weighted average exercise price of $ 12.14 per share were substituted for the 202,392 options to purchase Common Units, with a weighted average exercise price of $ 10.36 per Common Unit, that were outstanding immediately prior to the Merger.

The Company treated the conversion as a modification pursuant to ASC 718, Compensation—Stock Compensation, and calculated the pre- and post-modification value of the options.

The increase in fair value of the options was calculated to be $ 1.2 million.

As $ 0.7 million related to vested options the expense was recognized immediately on the Merger date, the remaining $ 0.5 million is recognized over the remaining vesting term with the original grant date fair value remaining of less than $ 0.1 million.

As permitted by the 2020 Plan, the Company added 1,730,768 and 708,418 shares available for grant to the 2020 Plan on January 1, 2023 and January 1, 2022, respectively, increasing the maximum number of shares of the Company’s common stock that may be issued under the 2020 Plan as of January 1, 2023 to 2,785,045 shares.

Stock Valuation

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2022 Option Grants

During the year ended December 31, 2021 , the Company granted options to purchase 626,750 shares of common stock to employees and directors under the 2020 Plan.

During the twelve months ended December 31, 2022 , the Company granted options to purchase 878,450 shares of common stock to employees and directors of the Company under the 2020 Plan.

The options have an exercise price equal to the closing stock price as of the grant date.

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The remaining 41,500 options were annual grants to the Company's directors and vest one year from the grant date.

The weighted-average grant date fair value of options granted during the twelve months ended December 31, 2022 was $ 5.21 .

January 2023 Option Grants

On January 18, 2022, the Company granted options to purchase 582,750 shares of common stock to employees under the 2020 Plan.

On January 31, 2023, the Company granted options to purchase 1,031,000 shares of common stock and 650,000 shares of restricted stock to employees under the 2020 Plan.

The options have an exercise price equal to the closing stock price as of the grant date, and vest over four years , with 25 % vesting on the first anniversary of the grant and the remainder vesting in equal monthly installments thereafter.

The shares of restricted stock which will vest annually over four years .

Stock-Based Compensation

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General and administrative

As of December 31, 2021 , total unrecognized compensation expense related to unvested stock options and restricted stock units was $ 14.6 million, which is expected to be recognized over a weighted average period of 2.66 years.

As of December 31, 2022 , total unrecognized compensation expense related to unvested stock options was $ 11.8 million, which is expected to be recognized over a weighted average period of 2.14 years.

Commitments and Contingencies

Intellectual Property Licenses

The Company is party to an exclusive License Agreement (the “WFUHS License”), dated November 30, 2016 with Wake Forest University Health Sciences (“WFUHS”) and an exclusive License Agreement (the “IU License”), dated November 30, 2016, as amended, with Indiana University (“IU”).

The Company is party to an exclusive License Agreement (the “WFUHS License”), dated November 30, 2016, as amended, with Wake Forest University Health Sciences (“WFUHS”) and an exclusive License Agreement (the “IU License”), dated November 30, 2016, as amended, with Indiana University (“IU”).

Such agreements provide for a transferable, worldwide license to certain patent rights regarding technology used by the Company with respect to the development of CTI-1601.

Both agreements continue from their effective date through the last to expire of the applicable agreement’s licensed patents unless earlier terminated by either party in accordance with their terms.

In partial consideration for the right and license granted under these agreements, the Company will pay each of WFUHS and IU a royalty of a low single digit percentage of net sales of licensed products depending on whether there is a valid patent covering such products.

As additional consideration for these agreements, the Company is obligated to pay each of WFUHS and IU certain milestone payments of up to $ 2.6 million in the aggregate upon the achievement of certain developmental milestones, commencing on the enrollment of the first patient in a Phase 1 clinical trial.

As additional consideration for these agreements, the Company is obligated to pay each of WFUHS and IU certain milestone payments of up to $ 2.6 million in the aggregate upon the achievement of certain developmental milestones, which commenced with the enrollment of the first patient in a Phase 1 clinical trial.

The Company enrolled the first patient in its SAD trial on December 11, 2019 and paid WFUHS and IU less than $ 0.1 million.

The Company will also pay each of WFUHS and IU sublicensing fees ranging from a high-single digit to a low double-digit percentage of sublicense consideration depending on the Company’s achievement of certain regulatory milestones as of the time of receipt of the sublicense consideration.

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In the event that the Company disputes the validity of any of the licensed patents, the royalty rate would be tripled during such dispute.

The Company is also obligated to pay to IU a minimum annual royalty of less than $ 0.1 million per annum starting in the 2020 calendar year for the term of the agreement.

The Company is also obligated to pay to IU a minimum annual royalty of less than $ 0.1 million per annum.

In the event that the Company is required to pay IU consideration, then the Company may deduct 20 % of such IU consideration on a dollar-for-dollar basis from the consideration due to WFUHS.

In the event that the Company is required to pay WFUHS consideration, then the Company may deduct 60 % of such WFUHS consideration on a dollar-for-dollar basis from the consideration due to IU.

During the twelve months ended December 31, 2021 and 2020 , no milestones were achieved and no milestone expense was recognized.

In 2022, the Company initiated dosing of a phase 2 study.

Pursuant to the terms of both the WFUHS License and the IU License, the company recognized milestone expense of $ 0.3 million within research and development expenses.

Both agreements continue from their effective date through the last to expire of the licensed patents unless earlier terminated by either party in accordance with their terms.

On August 8, 2019, the Company entered into an operating lease for office space in Bala Cynwyd, Pennsylvania, effective as of December 15, 2019, for a period of three years and six months with an option to extend the lease for three additional years.

Due to required tenant improvements to be completed by the landlord, the Company did not take immediate possession of the leased property and the lease term commenced on February 15, 2020 .

In the quarter ended March 31, 2020, the Company recorded an operating lease right-of-use asset and operating lease liability of $ 0.4 million.

On May 28, 2020, as part of the Merger with Zafgen, the Company acquired a non-cancellable operating lease for approximately 17,705 square feet of office space (the “Premises”).

On May 28, 2020, the Company acquired a non-cancellable operating lease for approximately 17,705 square feet of office space (the “Premises”).

The lease expires on October 30, 2029 .

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right-of-use assets or lease liabilities.

Starting in 2021, the right-of-use asset is being amortized to other income (expense) over the remaining lease term as a result of the sublease agreement discussed below.

The right-of-use asset is being amortized to other income/(expense) over the remaining lease term as a result of the sublease described below.

On October 27, 2020, the Company entered into a sublease agreement (the “Sublease”) with Massachusetts Municipal Association, Inc.

(the “Subtenant”), whereby the Company sublet the entire Premises to the Subtenant.

The term of the Sublease commenced on December 4, 2020 and continues until October 30, 2029 .

The initial term of the Sublease commenced on December 4, 2020 and continues until October 30, 2029 .

In connection with the Sublease, the Company evaluated the need for impairment under ASC 360 and determined there was no impairment.

The Sublease provides for an initial annual base rent of $ 0.8 million, which increases annually up to a maximum annual base rent of $ 1.0 million.

The Sublease provided for an initial annual base rent of $ 0.8 million, which increases annually up to a maximum annual base rent of $ 1.0 million.

The Subtenant also is responsible for paying to the Company future increases in operating costs (commencing on January 1, 2022), future increases in annual tax costs (commencing July 1, 2021) and all utility costs (commencing March 1, 2021) attributable to the Premises during the term of the Sublease.

1 unchanged sentence

If there are no uncured events of default under the sublease, the amount of this security deposit decreases over time to $ 0.4 million on the sixth anniversary of the Sublease.

The Company records sublease income on the Sublease on a straight-line basis as a component of other income (expense).

On November 5, 2018, the Company entered into an operating lease for office and lab space in Philadelphia, Pennsylvania, effective as of January 1, 2019 , and expiring on December 31, 2020 with an option to extend the lease for each of the two additional years.

The Company records sublease income, lease expense and depreciation on the sublet assets on this sublease on a straight-line basis as a component of other income/(expense).

On August 4, 2020, the Company executed the first option to extend the lease for an additional year, expiring on December 31, 2021 .

On August 9, 2021, the Company executed the remaining option to extend the lease for an additional year, expiring on December 31, 2022 .

The Company determined this lease extension qualifies as a short-term lease and have applied the accounting policy election to not record the related right-of-use asset and lease liabilities.

Expense arising from operating leases was $ 0.3 million and $ 0.7 million during the twelve months ended December 31, 2021 and 2020, respectively.

On January 3, 2023, the Company entered into a one-year extension of this lease.

The Company has determined this lease extension qualifies as a short-term lease and have applied the accounting policy election to not record the related right-of-use asset and lease liabilities.

Expense arising from operating leases was $ 0.3 million during the twelve months ended December 31, 2022 and 2021, respectively.

For operating leases, the weighted-average remaining lease term for leases at December 31, 2022 and 2021 was 6.8 and 7.6 years, respectively.

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Deferred tax assets:

Capitalized R&D Expenses

Capitalized R&D - Acquired in Merger with Zafgen

Capitalized R&D - Section 174 Costs post 2021

Stock Based Compensation

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Net deferred tax assets / (liabilities)

Changes in the valuation allowance for deferred tax assets during the year ended December 31, 2021 related primarily to the increase in net operating loss carryforwards and tax credit carryforwards and a decrease other deferred tax assets associated with a reduction in the Company’s effective state rate.

The change in the valuation allowance during the year ended December 31, 2020 related primarily to deferred tax assets acquired as a result of the Merger with Zafgen, increase in net operating loss carryforwards, and tax credit carryforwards, Changes to the valuation allowance were as follows:

Changes in the valuation allowance for deferred tax assets during the year ended December 31, 2022 and 2021 related primarily to the increase in net operating loss carryforwards and tax credit carryforwards and a decrease other deferred tax assets associated with a reduction in the Company’s effective state rate.

Changes to the valuation allowance were as follows:

Years ended December 31,

Valuation allowance as of the beginning of the year

Increases acquired as a result of the Merger with Zafgen

Increases recorded to income tax provision

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Utilization of the pre-Merger net operating loss carryforwards attributable to Zafgen, of approximately $ 33.5 million, are subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986 due to ownership changes occurred during the tax year associated with the Merger.

In addition to the limitation of the

pre-Merger NOL’s of Zafgen, the net capitalized R&D deferred tax assets in the amount of $ 73.0 million is subject to the built-in loss rules under Section 382 and may not be realized if the underlying asset associated with the R&D is disposed within five years of the Merger, or May 28, 2025 .

In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more than 50% over a three-year period.

In addition to the limitation of the pre-Merger NOL’s of Zafgen, the net capitalized R&D deferred tax assets in the amount of $ 66.9 million is subject to the built-in loss rules under Section 382 and may not be realized if the underlying asset associated with the R&D is disposed within five years of the Merger, or May 28, 2025 .

In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain stockholders or public groups in the stock of a

corporation by more than 50% over a three-year period.

The ownership changes will limit the amount of pre-merger Zafgen carryforwards that can be utilized annually to offset future taxable income with an annual limitation of approximately $ 35 thousand per year.

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

The Tax Cuts and Jobs Act ("TCJA") requires taxpayers to capitalize and amortize research and experimental expenditures under IRC Section 174 for tax years beginning after December 31, 2021.

This rule became effective for the Company during the year ended December 31, 2022 and resulted in the capitalization of research and development costs of $ 20.2 million.

The Company will amortize these costs for tax purposes over five years if the research and development was performed in the U.S.

and over 15 years if the research and development was performed outside the U.S..

As of December 31, 2022 and 2021 , the Company’s net deferred tax asset balance before the valuation allowance was $ 130.8 million and $ 124.0 million, respectively, and was comprised principally of net operating loss carryforwards, capitalized research and development expenses and tax credit carryforwards.

During the years ended December 31, 2021 and 2020, gross deferred tax assets increased due to deferred tax assets acquired as a result of the Merger with Zafgen, additional net operating loss carryforwards, research and development tax credits generated.

During the years ended December 31, 2022 and 2021, gross deferred tax assets increased due to deferred tax assets acquired as a result of additional net operating loss carryforwards and research and development tax credits generated.

The Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets.

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Related Party Transactions

In November 2016, the Company entered into a consulting agreement with Mark Payne, M.D (the “Consulting Engagement”).

Payne was a director of Chondrial at that time, a full-time employee of IU and one of the inventors of the licensed IU intellectual property, and as such is entitled to a certain share of the revenues received by IU under the IU License.

Pursuant to the terms of his consulting agreement the Company agreed to pay Dr.

Payne $ 0.1 million per year over the term of the agreement and granted Dr.

Payne 123,853 restricted Common Units in Holdings.

On November 30, 2016, 30 % immediately vested and was associated with Chondrial Therapeutics IP, LLC (“IP LLC”) becoming a subsidiary of Holdings, which was subsequently contributed to the Company on December 31, 2018.

The remaining 70 % vested ratably over 48 months beginning on December 1, 2016.

The consulting agreement had a four-year term, subject to earlier termination.

On November 30, 2020, the Company entered into a 1-month extension of the Consulting Engagement, expiring on December 31, 2020 .On January 1, 2021, the Company entered into a new consulting agreement with Mark Payne, M.D.

which extended the term of the Consulting Engagement for a four-year term beginning on January 1, 2021.

During each of the twelve months

ended December 31, 2021 and 2020 , the Company recognized $ 0.1 million, related to this consulting agreement, recorded as research and development expense in the Statement of Operations.

The funding to the Company originated from Holdings’

sale of Series A Preferred Units and Series B convertible preferred units (the "Units") with Deerfield Private Design Fund IV, L.P., Deerfield Private Design Fund III, L.P.

and Deerfield Health Innovations Fund, L.P.

(together, the “Deerfield Funds”), and certain other purchasers, from inception through May 28, 2020 and the contribution of the proceeds received by Holdings on such sales to the Company in order to fund the Company’s operations.

Under a November 30, 2016 Series A Preferred Unit Purchase Agreement, as amended on September 8, 2017, November 15, 2017, November 14, 2018 and April 29, 2019, Holdings sold Series A Preferred Units for gross proceeds of $ 35.6 million.

The gross proceeds of $ 35.6 million were contributed to the Company.

On November 21, 2019 (as amended on December 20, 2019), Holdings entered into a Second Amended and Restated LLC Agreement and entered into a Series B Bridge Unit Purchase Agreement with the Deerfield Funds and certain other purchasers to sell Series B convertible preferred units (“Series B Bridge Units”) for gross proceeds of up to $ 10.0 million.

The gross proceeds of $ 10.0 million were contributed to the Company.

On January 16, 2020, Holdings entered into a Third Amended and Restated LLC Agreement and entered into a Second Series B Bridge Unit Purchase Agreement with the Deerfield Funds and certain other purchasers to sell Second Series B convertible preferred units (“Second Series B Bridge Units”) for gross proceeds of up to $ 15.0 million.

The gross proceeds of $ 11.4 million were contributed to the Company.

During the twelve months ended December 31, 2020, Holdings provided the Company non-interest bearing, permanent funding from the above Series A and Series B preferred unit transactions, totaling $ 18.0 million which has been recorded as capital contributions with the balance of combined equity and additional paid in capital on the consolidated balance sheets and consolidated statements of changes in stockholders’

equity for each respective period.

No contributions were made by Holdings subsequent to the Merger.

During 2020, the Company purchased a piece of laboratory equipment for $ 0.5 million from a supplier of which one the Company's directors is also a current director.

During 2021, the Company purchased a piece of laboratory equipment and lab supplies for a cumulative $ 0.1 million from the same supplier.

During 2021, the Company purchased a piece of laboratory equipment and lab supplies for a cumulative $ 0.1 million from a supplier of which one of the Company's directors is also a current director.

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

What changed 10-K

Item 9A. Controls and Procedures