What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-03-01 compared with 2021-03-25 · 117 added, 240 removed, 382 unchanged (48% of the section changed)

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Neoleukin Therapeutics, Inc.

Report s of Independent Registered Public Accounting Firm

Reports of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated balance sheets

Consolidated statements of operations and comprehensive loss

Consolidated statements of operations

Consolidated statements of cash flow

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Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Neoleukin Therapeutics, Inc.

(the "Company") as of December 31, 2020, the related consolidated statements of operations, stockholders' equity, and cash flows, for the year ended December 31, 2020, and the related notes (collectively referred to as 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, 2020, and the results of its operations and its cash flows for the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Basis of Opinion

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

(the "Company") as of December 31, 2021 and 2020, the related consolidated statements of income, stockholders' equity, and cash flows, for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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

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

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

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

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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 audit 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.

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 audit 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.

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.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

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

Critical Audit Matters

Critical audit matters are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The critical audit matters are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

We determined that there are no critical audit matters.

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

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of

NEOLEUKIN THERAPEUTICS, INC.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Neoleukin Therapeutics, Inc.

and subsidiaries (the “Company”) as of December 31, 2019, the related consolidated statements of operations, cash flows, and stockholders’ equity, for the period ended December 31, 2019, and the related notes (collectively referred to as the “2019 financial statements”).

In our opinion, the 2019 financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and the results of its operations and its cash flows for the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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

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

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit 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 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 audit, 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.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

/s/ Deloitte LLP

Chartered Professional Accountants

Vancouver, Canada

March 12, 2020

We began serving as the Company’s auditor in 2007.

In 2020, we became the predecessor auditor.

NEOLEUKIN THERAPEUTICS, INC.

Consolidated Balance Sheets

(in thousands, except share and per share amounts)

Years Ended December 31,

Current assets

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Stockholders’ equity

Common stock, $ 0.000001 par value per share;

100,000,000 shares authorized at December 31, 2020 and 2019;

42,196,296 and 37,996,849 issued and outstanding at December 31, 2020 and 2019, respectively

Preferred stock, $ 0.000001 par value per share;

5,000,000 authorized at December 31, 2020 and 2019;

0 issued and outstanding at December 31, 2020 and 2019

Common stock, $ 0.000001 par value - authorized, 100,000,000 as of December 31, 2021 and December 31, 2020;

issued and outstanding, 42,457,471 as of December 31, 2021 and 42,196,296 as of December 31, 2020.

Preferred stock, $ 0.000001 par value - authorized, 5,000,000 as of December 31, 2021 and December 31, 2020;

issued and outstanding, 0 as of December 31, 2021 and December 31, 2020

Additional paid-in capital 536,362 524,022

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Research and development $ 39,162 $ 24,344

Acquired in-process research and development — 47,716

General and administrative 21,536 17,210

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Stock-based compensation 11,557 5,622

Acquired in-process research & development — 47,716

Depreciation and amortization 1,306 785

Loss on disposal of property and equipment 180 5

Amortization of right-of-use asset 971 1,036

Loss on disposal of property and equipment — 180

Write-off of right-of-use asset upon lease termination — 113

Unrealized foreign exchange loss and others — 70

Changes in operating assets and liabilities:

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Investing activities

Acquisition of Neoleukin Therapeutics, Inc., net of cash acquired — 191

Purchase of property and equipment ( 2,219 ) ( 879 )

Purchases of property and equipment ( 3,263 ) ( 2,219 )

Net cash used in investing activities ( 3,263 ) ( 2,219 )

Financing activities

Proceeds from public offering of common stock and pre-funded warrants, net of commissions of $ 4,575 and $ 5,173 in 2020 and 2019, respectively.

71,675 81,043

Proceeds from issuance of common stock and pre-funded warrants, net of commissions of $ 4.6 million

Payment of offering costs — ( 355 )

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Net cash provided by financing activities 732 77,135

Effect of exchange rate changes on cash, cash equivalents, and restricted cash — 10

Net change in cash, cash equivalents, and restricted cash during the year ( 50,089 ) 50,341

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Cash, cash equivalents, and restricted cash at end of year $ 143,345 $ 193,434

Non-cash investing and financing activities:

Other current assets acquired through the issuance of common stock $ — $ 560

Property, equipment and intangibles acquired through the issuance of common stock $ — $ 1,693

Accounts payable, finance lease and other liabilities assumed through the issuance of common stock $ — $ ( 1,673 )

Supplemental disclosure of non-cash investing and financing activities:

Operating lease liabilities arising from obtaining right-of-use asset $ 1,584 $ 10,364

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(in thousands, except share amounts)

Common Stock Non-Voting

Preferred Stock Additional

Common Stock Additional

Capital Accumulated

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Stockholders’

Number Amount Number Amount Amount Amount Amount Amount

Number Amount Amount Amount Amount Amount

Balances, December 31, 2019 37,996,849 $ — $ 441,216 $ ( 299,529 ) $ — $ 141,687

Issuance of common stock for Former Neoleukin common stock 4,589,771 — — — 15,055 — — 15,055

Issuance of convertible preferred stock for Former Neoleukin common stock — — 102 — 33,432 — — 33,432

Conversion of convertible preferred stock into common shares 10,192,700 — ( 102 ) — — — — —

Issuance of common stock, net of discounts, commissions and offering expenses of $ 5,525

Issuance of common stock and pre-funded warrants, net of commissions and offering expenses of $ 4,930

3,262,471 — 71,320 — — 71,320

Issuance of common stock to University of Washington 12,647 — — — 41 — — 41

Conversion of common stock to pre-funded warrants ( 10,925,481 ) — — — — — — —

Options exercised 326,094 — — — 1,555 — — 1,555

Common stock issued upon exercises of stock options 882,624 — 5,665 — — 5,665

Common stock issued upon vesting of restricted stock units 36,000 — — — — —

Issuance of common stock under Employee Stock Purchase Plan 18,352 — 199 — — 199

Stock-based compensation — — 5,622 — — 5,622

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Balances, December 31, 2020 42,196,296 $ — $ 524,022 $ ( 332,806 ) $ — $ 191,216

Issuance of common stock and pre-funded warrants, net of discounts, commissions and offering expenses of $ 4,930

3,262,471 — — — 71,320 — — 71,320

Options exercised 882,624 — — — 5,665 — — 5,665

Restricted stock units vested 36,000 — — — — — — —

Common stock issued upon exercises of stock options 124,928 — 411 — — 411

Common stock issued upon vesting of restricted stock units 84,500 — — — — —

Issuance of common stock under Employee Stock Purchase Plan 51,747 — 372 — — 372

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On December 31, 2020, Neoleukin Corporation, the Company's wholly owned subsidiary, was merged into the Company.

As a result, the Company consists of a single operating company without any subsidiaries at December 31, 2020.

As a result, the Company has consisted of a single operating company without any subsidiaries since December 31, 2020.

(b) Use of estimates and assumptions

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

Significant areas requiring estimates include valuation and recognition of stock-based compensation, the incremental borrowing rate utilized in the measurement of operating and finance lease liabilities, amortization and depreciation of property, plant and equipment and intangible assets, and pre-clinical, clinical, and other accruals.

Significant areas requiring estimates include valuation and recognition of stock-based compensation, the incremental borrowing rate utilized in the measurement of operating and finance lease liabilities, estimated useful lives utilized in the amortization and depreciation of property, plant and equipment and intangible assets, and pre-clinical, clinical, and other accruals.

Actual results could differ from those estimates.

The Company reclassified amounts related to prior year amortization of operating lease right-of-use assets, loss on disposal of property and equipment, changes in operating lease liabilities, and payment of offering costs in the consolidated statements of cash flows to conform to current year presentation.

This reclassification had no effect on cash used in operating activities or cash provided by financing activities.

At contract inception, the Company determines if the contract is or contains a lease.

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The related right-of-use assets are recorded net of any lease incentives received.

Variable lease cost primarily includes building operating expenses as charged to the Company by its landlords.

We include options to extend the lease in our lease liability and right-of-use asset when it is reasonably certain that we will exercise that option.

None of our options to extend the rental term of any existing leases were considered reasonably certain as of December 31, 2020.

Variable lease cost primarily includes building operating expenses as charged to the Company by its landlords and payments for lessor-owned assets that are not covered by a tenant improvement allowance.

The Company includes options to extend the lease in its lease liability and right-of-use asset when it is reasonably certain that it will exercise that option.

None of the Company's options to extend the rental term of any of its existing leases were considered reasonably certain as of December 31, 2021.

For leases of office space, the Company has elected to not separate the lease components from the non-lease components.

For leases of office space with a lease term of 12 months or less and which do not include an option to purchase the underlying asset, the Company has elected to recognize the lease payments in the statement of operations on a straight-line basis over the lease term.

(e) Cash, cash equivalents, and restricted cash

(d) Cash, cash equivalents, and restricted cash

All highly liquid investments with maturities of three months or less at the date of acquisition are considered to be cash equivalents.

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Total cash, cash equivalents, and restricted cash $ 143,345 $ 193,434

(f) Property and equipment

(e) Property and equipment

Property and equipment are recorded at cost and are amortized using the straight-line basis over a range of three to seven years .

Expenditures for improvements to the Company’s office spaces are capitalized and expenditures for maintenance and repairs are expensed as incurred.

Leasehold improvements are amortized over the lesser of useful life and term of the lease.

Expenditures for maintenance and repairs are expensed as incurred.

The Company reviews the carrying value of property and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition.

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The factors considered by management in performing this assessment include current operating results, trends and prospects, the manner in which the property is used, and the effects of obsolescence, demand, competition, and other economic factors.

Based on management’s assessment there were no indicators of impairment of property and equipment as at December 31, 2020 and 2019.

(g) Earnings (loss) per share

Based on management’s assessment there were no indicators of impairment of property and equipment as of December 31, 2021 and 2020.

(f) Earnings (loss) per share

Basic net loss per share is calculated by dividing the net loss by the weighted average number of shares of common stock outstanding for the period, without consideration for common stock equivalents.

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Such common stock equivalents are excluded in the calculation of diluted net loss per share in periods of net loss as inclusion of such amounts would be anti-dilutive.

Outstanding pre-funded warrants as of December 31, 2020 of 12,663,010 are considered outstanding as of their issuance date and are included in the basic and diluted net loss per share calculation because they are fully vested and exercisable at any time for a nominal cash consideration.

(h) Asset acquisitions/Intangible assets

At the time of acquisition, the Company determines if a transaction should be accounted for as a business combination or acquisition of assets.

For an acquisition of assets, the cost of acquiring the asset group, including transaction costs, is allocated to the acquired assets and assumed liabilities based on their relative fair values without giving rise to goodwill.

Acquired in-process research and development assets are expensed if management determines that the assets do not have an alternative future use.

Other long-lived intangible assets are recorded at the acquired cost and amortized using the straight-line method over their estimated useful life.

Outstanding pre-funded warrants as of December 31, 2021 and 2020 of 12,663,010 are considered outstanding as of their issuance date and are included in the basic and diluted net loss per share calculation because they are fully vested and exercisable at any time for a nominal cash consideration.

(g) Intangible assets subject to amortization

Long-lived intangible assets are recorded at the acquired cost and amortized using the straight-line method over their estimated useful life.

The intangible asset is tested for impairment when events or changes in circumstances indicate that the carrying value of the asset may not be recoverable.

The Company recognizes an impairment loss when carrying amount is not recoverable and the estimated fair value of the intangible asset is less than its carrying value.

(i) Income taxes

The Company accounts for income taxes using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the differences between events that have been recognized in the Company’s consolidated financial statements and the tax bases of assets and liabilities recognized at enacted tax rates.

In estimating future tax consequences, Accounting Standards Codification ("ASC") 740 generally considers all expected future events other than enactments of and changes in the tax law or rates.

The measurement of deferred tax assets is reduced, if necessary, by the extent of the valuation allowance.

We will establish a valuation allowance for deferred tax assets if it is more likely than not that these items will expire before we are able to realize their benefits or that future deductibility is uncertain.

Based on management’s assessment there were no indicators of impairment of intangible assets as of December 31, 2021 and 2020.

(h) Income taxes

The measurement of deferred tax assets is reduced, if necessary, to the amount more likely than not to be realized by a valuation allowance.

Investment tax credits relating to scientific research and experimental development are accounted for as a reduction in operating expenses.

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If investment tax credit amounts subsequently received are less or more than originally recorded, the difference is treated as a change in estimate.

(j) Research and development costs

(i) Research and development costs

Research and development costs are charged to expense as incurred and include items such as:

employee related expenses, including salaries and benefits, expenses incurred under agreements with contract research organizations that conduct clinical trials and preclinical studies, the cost of acquiring, developing and manufacturing clinical trial materials, facilities, and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, and other supplies and costs associated with clinical trials, preclinical activities, and regulatory operations.

Restructuring costs associated with the termination of research and development programs and related employees are included in research and development costs.

employee related expenses, including salaries, stock-based compensation, and benefits, expenses incurred under agreements with contract research organizations that conduct clinical trials and preclinical studies, the cost of acquiring, developing, and manufacturing clinical trial materials, facilities, and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, and other supplies and costs associated with clinical trials, preclinical activities, and regulatory operations.

Development costs are expensed in the period incurred unless management believes a development project meets generally accepted accounting criteria for deferral and amortization.

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Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected in the consolidated financial statements as prepaid or accrued expense.

(k) Accounting for stock-based compensation

(j) Accounting for stock-based compensation

The Company has issued stock options and restricted stock units (“RSUs”).

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The cost of such award is recognized on a straight-line basis over the requisite service period, which is generally the vesting period.

Awards subject to performance-based vesting requirements are expensed utilizing a graded vesting model if achievement of the performance criteria is determined to be probable.

The Company accounts for forfeitures as they occur.

We utilize newly issued shares to satisfy option exercises.

The Company utilizes newly issued shares to satisfy option exercises, the vesting of RSUs, and Employee Stock Purchase Plan purchases.

The Company estimates the fair value of options using the Black-Scholes option pricing model on the grant date.

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

(l) Restructuring costs

The Company accounts for restructuring costs in accordance with ASC 420, Exit or Disposal Cost Obligations.

ASC 420 specifies that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred, except for a liability where employees are required to render service until they are terminated in order to receive termination benefits and will be retained to render service beyond the minimum retention period.

A liability for such one-time termination benefits shall be measured initially at the communication date based on the fair value of the liability as of the termination date and recognized ratably over the future service period.

The charges that the Company expects to incur in connection with the restructuring are subject to a number of assumptions, and actual results may differ materially.

The Company may also incur additional costs not currently contemplated due to events that may occur as a result of, or that are associated with, the restructuring plan.

(m) Segment reporting

(k) Segment reporting

The Company operates in one segment, the research and development of de novo protein therapeutics using sophisticated computational algorithms and methods to address unmet medical needs.

Our primary areas of focus are in oncology, inflammation, and autoimmunity.

The Company's primary areas of focus are in oncology, inflammation, and autoimmunity.

The Company’s operations and its assets are held in the United States.

(n) Fair value of financial instruments

The carrying amounts of certain of the Company’s financial instruments, including cash, cash equivalents, receivables, accounts payable and other liabilities, approximate their fair values because of their nature and/or short maturities.

(l) Fair value of financial instruments

The carrying amounts of certain of the Company’s financial instruments, including cash and cash equivalents, restricted cash, receivables, accounts payable, and other liabilities, approximate their fair values because of their nature and/or short maturities.

At December 31, 2021, and December 31, 2020, the Company had $ 140.9 million and $ 108.3 million in money market funds, respectively.

Money market funds are level one financial instruments as their pricing can be obtained from an actively traded exchange.

(o) Concentration of credit risk

Money market funds are level one financial instruments as they are valued at the closing price reported by the fund sponsor from an actively traded exchange.

(m) Concentration of credit risk

Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist primarily of cash and cash equivalents.

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The primary objective for the Company’s investment portfolio is the preservation of capital and maintenance of liquidity and includes guidelines on the quality of financial instruments and defines allowable investments that the Company believes minimizes the exposure to concentration of credit risk.

(p) Recently issued and recently adopted accounting standards

In December 2019, the FASB issued ASU 2019-12 “Simplifying the Accounting for Income Taxes.” The objective of the standard is to improve areas of GAAP by removing certain exceptions permitted by ASC Topic 740-- Income Taxes and clarifying existing guidance to facilitate consistent application.

(n) Recently issued and recently adopted accounting standards

In December 2019, the FASB issued ASU 2019-12 “ Simplifying the Accounting for Income Taxes ”.

The objective of the standard is to improve areas of GAAP by removing certain exceptions permitted by ASC Topic 740-- Income Taxes and clarifying existing guidance to facilitate consistent application.

ASU 2019-12 is effective for fiscal years and interim periods beginning after December 15, 2020.

The Company has incurred net losses since its inception and maintains a full valuation allowance on the net deferred tax assets.

As such, the Company does not expect the adoption of this standard to have a material impact on the financial condition, results of operations and cash flows, or financial statement disclosures.

In August 2018, the FASB issued “ASU 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” The objective of the standard is to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.

The Company adopted this standard on January 1, 2021 on a prospective basis.

The adoption of this ASU did not have a material impact on the Company’s financial condition, results of operations, cash flows, and financial statement disclosures.

Merger of Neoleukin Therapeutics, Inc.

and Aquinox Pharmaceuticals, Inc.

On August 8, 2019, Neoleukin Therapeutics, Inc., or Former Neoleukin, and Aquinox Pharmaceuticals, Inc., or Aquinox, completed a transaction pursuant to the Agreement and Plan of Merger dated August 5, 2019.

Former Neoleukin became a wholly owned subsidiary of Aquinox and Aquinox subsequently changed its name to Neoleukin Therapeutics, Inc.

All of the outstanding shares of common stock of the Former Neoleukin were exchanged for 4,589,771 shares of common stock of the Company and 101,927 shares of non-voting convertible preferred stock of the Company.

The total consideration paid was $ 51.6 million and consisted of (in thousands, except share amounts):

Fair value of 4,589,771 Aquinox common stock

Fair value of 101,927 Aquinox convertible preferred stock

Cash consideration for fractional shares 5

Transaction costs 3,086

Total consideration $ 51,578

The fair value of the Aquinox securities issued to stockholders of Former Neoleukin was based on the closing stock price on August 7, 2019, the last day of trading prior to the completion of the transaction.

The transaction was accounted for as an asset acquisition as Former Neoleukin did not meet the definition of a business as substantially all of the value was in the In-Process Research & Development (“IPR&D”) asset.

The estimated fair value of the IPR&D asset of $ 47.7 million was expensed as the Company determined that the asset has no alternative future use.

The following table summarizes the assets acquired and liabilities assumed (in thousands):

Assets acquired:

Cash and cash equivalents $ 3,282

Receivables, prepayments and deposits 560

Property and equipment 1,034

In-process research and development 47,716

Intangible asset 659

Total assets acquired 53,251

Liabilities assumed:

Accounts payable and other liabilities 1,472

Financing lease liability 201

Total liabilities assumed 1,673

Total consideration $ 51,578

The adoption of ASU 2019-12 did not have a material impact on the Company's financial condition, results of operations, cash flows, and financial statement disclosures.

Property and equipment, net

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Cost Accumulated Amortization Net Book Value

Leasehold improvements $ 490 $ 333 $ 157

Laboratory equipment $ 3,402 $ 426 $ 2,976

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Net intangible asset $ 128 $ 347

As part of the Merger as discussed in Note 3, Merger of Neoleukin Therapeutics, Inc.

and Aquinox Pharmaceuticals, Inc.

, an assembled workforce was acquired.

In an asset acquisition, an assembled workforce meets the asset recognition criteria and is separately recognized as an intangible asset and amortized over its expected life.

Intangible asset, net includes an assembled workforce that was acquired in 2019 and is being amortized over its expected life.

Amortization expense was $ 0.2 million for each of the years ended December 31, 2021 and 2020.

The amortization period has been established as 3 years based on management's judgement.

The Company will recognize $ 0.2 million and $ 0.1 million of amortization expense in fiscal years 2021 and 2022, respectively.

The Company will recognize $ 0.1 million of amortization expense in fiscal year 2022.

Accounts payable and other liabilities

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The Company enters into lease arrangements for its facilities as well as certain equipment, classified either as operating or finance leases.

The Company has a lease agreement for approximately 33,300 square feet of office space in Seattle, Washington for the Company’s principal executive offices, a laboratory for research and development and related uses (the "Blaine lease").

The Company has an operating lease agreement, as amended by the execution of two subsequent amendments, for approximately 33,300 square feet of office space in Seattle, Washington for the Company’s principal executive offices, a laboratory for research and development, and related uses.

In January 2020, the Company issued an irrevocable letter of credit in the amount of $ 0.5 million for the security deposit in accordance with the terms of the lease.

The lease commenced on January 15, 2020 and rent obligations were scheduled to commence on December 1, 2020.

The Company will also be responsible for the payment of additional rent to cover the Company’s share of the annual operating and tax expenses and utilities costs for the building.

The lease was originally scheduled to expire on December 1, 2028, with the option to extend the lease for two five-year terms.

The lease provides for a tenant improvement allowance of $ 8.0 million, which is included in the base rent, and an optional additional tenant improvement allowance with a maximum amount of $ 1.5 million, which will result, if elected, in additional rent expense recognized over the term of the lease.

In September 2020, the Company elected to utilize this additional tenant improvement allowance.

This resulted in a remeasurement of the lease liability due to an increase in lease payments over the term of the lease.

The Company recorded an increase to the lease liability and related right-of-use asset of $ 1.0 million.

In November 2020, the Company executed an amendment to this lease that extends the scheduled rent commencement date to February 1, 2021 and the base term expiration to February 1, 2029.

This amendment was accounted for as a modification to the lease and resulted in an immaterial reduction of the lease liability and related right-of-use asset.

As of December 31,2020, there was a tenant improvement allowance receivable of $ 0.9 million recorded in other current assets on the consolidated balance sheets related to reimbursable build-out costs incurred by the Company.

The Company has a lease agreement for approximately 6,272 square feet of office space in Seattle, Washington, for the Company’s former principal executive offices, a laboratory for research and development and related uses.

In June 2020, the Company executed an amendment to this lease pursuant to which the Company has the option to terminate the lease, without penalty, at any point subsequent to November 1, 2020 with 45 days advance written notice.

At December 31, 2020, the Company determined that it is reasonably certain to not exercise this termination option.

On March 24, 2021, the Company executed a second amendment to this lease, pursuant to which the term of the lease is extended through September 30, 2026.

This will result in an increase in fixed rental payments over the updated term.

The lease term commenced on January 15, 2020 and payments of rent obligations began on February 1, 2021.

The lease is scheduled to expire on February 1, 2029, with the option to extend the lease for two five-year terms.

The lease provides for a tenant improvement allowance of up to $ 9.5 million, which is included in the base rent, and has been fully utilized as of December 31, 2021.

The Company will also be responsible for the payment of additional rent to cover the Company’s share of the annual operating, tax expenses, and utilities costs for the building.

The Company has an operating lease agreement for approximately 6,272 square feet of laboratory and office space in Seattle, Washington, for research and development and related uses.

In March 2021, the Company executed an amendment to this lease pursuant to which the contractual lease term was extended through September 30, 2026, unless terminated earlier, with the option to extend the lease for an additional 28-month term.

The execution of this amendment was accounted for as a modification to the lease due to the extension of the lease term and an increase in lease payments, and the Company recorded an increase in the lease liability and related right-of-use asset of $ 1.6 million.

On June 30, 2020, the Company terminated its lease agreement for 10,946 square feet of office space in Vancouver, Canada.

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Finance Lease Operating Lease

December 31, 2021 $ 60 $ 2,161

December 31, 2022 60 2,289

December 31, 2023 60 2,341

December 31, 2024 — 2,394

December 31, 2025 — 2,448

2022 $ 64 $ 2,657

2023 64 2,718

Thereafter — 5,391

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Stockholders’ equity

(a) Common stock

(a) Common stock and pre-funded warrants

The Company is authorized to issue 100,000,000 shares of common stock with a par value of $ 0.000001 per share as of December 31, 2021.

As of December 31, 2021, and 2020, the total number of shares of common stock issued and outstanding was 42,457,471 , and 42,196,296 , respectively.

The Company had pre-funded warrants outstanding to purchase an aggregate of 12,663,010 shares of common stock as of December 31, 2021.

The pre-funded warrants are exercisable at any time, with 61 days' notice, for an exercise price of $ 0.000001 , except that the pre-funded warrants cannot be exercised by the holders if, after giving effect thereto, the holders would beneficially own more than 9.99 % of the outstanding common stock, subject to certain exceptions.

The holders of the pre-funded warrants will not have the right to vote on any matter except to the extent required by Delaware law.

On November 4, 2021, the Company entered into an ATM “at-the-market” Equity Offering Sales Agreement (the “Sales Agreement”) with BofA Securities, Inc., as agent (“BofA”), pursuant to which the Company may offer and sell, from time to time through BofA, shares of the Company’s common stock, having an aggregate offering price of up to $ 40.0 million.

The offer and sale of the shares will be made pursuant to a shelf registration statement on Form S-3 and the related prospectus filed on December 11, 2020, and declared effective by the SEC on December 21, 2020, as supplemented by a prospectus supplement dated November 4, 2021.

The Company has no obligation to sell any such shares under the Sales Agreement.

As of December 31, 2021, no sales of common stock had been made pursuant to the Sales Agreement.

On July 7, 2020, the Company completed an underwritten public offering of 3,262,471 shares of its common stock at a price of $ 15.25 per share and pre-funded warrants to purchase 1,737,529 shares of its common stock at a price of $ 15.249999 per prefunded warrant.

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The aggregate net proceeds received by the Company from the offering were $ 71.3 million, net of underwriting discounts, commissions, and offering costs of approximately $ 4.9 million.

On December 20, 2019, the Company completed an underwritten public offering of 10,263,750 shares of its common stock at a price to the public of $ 8.40 per share.

The aggregate net proceeds received by the Company from the offering, net of underwriting discounts, commissions, and offering costs of approximately $ 5.5 million, were $ 80.7 million.

(b) Preferred stock

The Company is authorized to issue 5,000,000 shares of preferred stock with a par value of $ 0.000001 per share.

As of December 31, 2020 and December 31, 2019, 0 shares of preferred stock were issued or outstanding.

On August 8, 2019, the Company issued 4,589,771 shares of common stock and 101,927 shares of non-voting convertible preferred stock as consideration in the Merger among Aquinox, Former Neoleukin and Apollo Merger Inc.

(see Note 3, Merger of Neoleukin Therapeutics, Inc.

and Aquinox Pharmaceuticals, Inc.

Each share of non-voting convertible preferred stock was convertible into 100 shares of common stock and was entitled to receive dividends, on an as-is converted to common stock basis, when dividends are paid to common stockholders.

The holders of preferred stock were only entitled to vote when it impacts the rights of the preferred stockholder.

On November 12, 2019, the Company’s stockholders approved the conversion of 101,927 shares of non-voting convertible preferred stock into 10,192,700 shares of the Company’s common stock.

As of December 31, 2020, the Company did no t have any outstanding non-voting convertible preferred stock.

(d) December 2019 pre-funded common stock warrants

On December 17, 2019, Neoleukin entered into an exchange agreement (the “Exchange Agreement”) with certain stockholders, pursuant to which the Company exchanged an aggregate of 10,925,481 shares of common stock held by the stockholders for pre-funded warrants (the “Exchange Warrants”) to purchase an aggregate of 10,925,481 shares of common stock (subject to adjustment in the event of stock splits, recapitalizations and other similar events affecting common stock), with an exercise price of $ 0.000001 per share.

The Exchange Warrants may be exercised at any time after the date of issuance, except that the Exchange Warrants cannot be exercised by the stockholders if, after giving effect thereto, the stockholders would beneficially own more than 9.99 % of the outstanding common stock, subject to certain exceptions.

The holders of the Exchange Warrants will not have the right to vote on any matter except to the extent required by Delaware law.

As the Exchange Warrants meet the conditions for equity classification, the proceeds previously received for the shares of common stock will remain in additional paid-in capital.

Upon the exercise of the warrants the proceeds received along with the exercise price will be recorded in common stock.

(e) Stock option plan

In January 2014, the Company’s stockholders approved the 2014 Equity Incentive Plan (“2014 Plan”) which became effective in March 2014.

The 2014 Plan is the successor to and continuation of the Joint Canadian Stock Option Plan (the “2006 Plan”).

As of December 31, 2021 and 2020, 0 shares of preferred stock were issued or outstanding.

The 2014 Equity Incentive Plan (“2014 Plan”), as amended and restated on May 13, 2021, became effective in March 2014 and is the successor to and continuation of the Joint Canadian Stock Option Plan (the “2006 Plan”).

No further grants will be made under the 2006 Plan.

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As of December 31, 2021, there were 23,958 shares subject to stock options granted under the 2006 Plan.

Additionally, the number of shares of common stock reserved for issuance under the 2014 Plan will automatically increase on January 1 of each year for a period of up to 10 years, beginning on January 1, 2015 and ending on and including January 1, 2024, by 4.00 % of the total number of shares of capital stock

outstanding on December 31 of the preceding calendar year, or a lesser number of shares determined by the board of directors.

On November 12, 2019, the Company’s stockholders approved the increase in the number of shares reserved from issuance under the 2014 Plan by 4,500,000 shares.

All awards granted pursuant to the 2014 Plan have a contractual term of ten years .

All awards granted to date are equity classified and subject to service based vesting, typically over a period of one to four years .

Additionally, the number of shares of common stock reserved for issuance under the 2014 Plan will automatically increase on January 1 of each year, beginning on January 1, 2022 and ending on and including January 1, 2030, by 4.00 % of the sum of (A) the total number of shares of capital stock and (B) the total number of shares of common stock subject to pre-funded warrants, in each case outstanding on December 31 of the preceding calendar year, or a lesser number of shares determined by the board of directors.

On January 1, 2022, the number of shares of common stock reserved under the 2014 Plan was increased by 2,204,819 shares.

All stock options granted pursuant to the 2014 Plan have a contractual term of ten years .

All awards granted to date are equity classified and subject to either service or performance based vesting, typically over a period of one to four years .

The number of shares available to be granted under the 2014 Plan was 5,040,300 and 6,037,532 as of December 31, 2021 and 2020, respectively.

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During the year ended December 31, 2020, 882,624 shares of common stock were issued upon exercise of options with an aggregate intrinsic value of $ 6.0 million.

The weighted-average grant date fair value of options granted during the years ended December 31, 2020 and December 31, 2019 was $ 8.70 and $ 2.17 per share, respectively.

The weighted-average grant date fair value of options granted during the years ended December 31, 2021 and 2020 was $ 6.37 and $ 8.70 per share, respectively.

The fair value of stock options granted is estimated using the Black-Scholes option pricing model with the following weighted average assumptions:

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Non-vested at December 31, 2021 132,000 $ 9.97

(f) Stock-based compensation

During the year ended December 31, 2021, the Company granted 50,000 RSUs, which vest based on certain performance conditions in two equal tranches.

Twenty-five thousand of such performance-based RSUs vested during the year ended December 31, 2021 as the related performance condition was met.

Related stock-based compensation expense recognized was $ 0.3 million.

The remaining 25,000 RSUs were forfeited prior to December 31, 2021.

Each vested RSU entitles the holder to receive one share of the Company's common stock.

(d) Stock-based compensation

Stock-based compensation expense is classified in the consolidated statements of operations as follows (in thousands):

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Total unrecognized compensation for all stock-based compensation was $ 29.6 million as of December 31, 2021, which is expected to be recognized over a weighted-average period of 2.84 years.

(g) Employee stock purchase plan

(e) Employee stock purchase plan

The Company’s 2020 Employee Stock Purchase Plan (“2020 ESPP”) was adopted by the Company’s board of directors in March 2020 and approved by the Company’s stockholders in May 2020.

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There are two six-month offering periods during each fiscal year, ending on May 15 and November 15.

During the year ended December 31, 2020, the Company issued 18,352 shares of common stock at a price per share of $ 10.84 under the 2020 ESPP.

Cash received from the purchases under the 2020 ESPP for the year ended December 31, 2020 was $ 0.2 million.

Restructuring

In July 2018, the Company’s Board of Directors approved a restructuring plan to reduce operating costs and better align the Company’s workforce with the needs of its business following the June 27, 2018 announcement that its Phase 3 Leadership 301 clinical trial evaluating once-daily, oral rosiptor for the treatment of IC/BPS failed to meet its primary endpoint.

The Company has halted all further development activities with rosiptor.

In 2018 and 2019, the Company incurred and paid aggregate restructuring charges of $ 7.4 million related to clinical trial closing costs, contract cancellations, closing of its office in San Bruno, California, severance payments and other employee-related costs.

During the second quarter of 2019, the Company revised its original estimate of aggregate restructuring charges lower by $ 2.0 million based upon updated information from its vendors related to a completed project.

There were no amounts accrued as of December 31, 2020 or December 31, 2019.

On November 6, 2018, the Company’s Board of Directors approved an additional restructuring plan to further reduce operating costs.

The Company incurred and paid aggregate restructuring charges of $ 1.6 million related to severance payments and other employee-related costs.

There were no amounts accrued as of December 31, 2020.

For the year ended December 31, 2020, the Company incurred and paid an immaterial amount of restructuring charges.

For the year ended December 31, 2019, restructuring recoveries of $ 1.9 million were recorded in research and development expenses and restructuring costs of $ 0.7 million were recorded in general and administrative expenses.

During the year ended December 31, 2021, the Company issued 22,972 shares of common stock at a price per share of $ 9.53 and 28,775 of shares of common stock at a price per share of $ 5.33 , respectively, under the 2020 ESPP.

During the year ended December 31, 2020, the Company issued 18,352 shares of common stock at a price per share of $ 10.84 .

Cash received from the purchases under the 2020 ESPP for the years ended December 31, 2021 and 2020 was $ 0.4 million and $ 0.2 million, respectively.

As of December 31, 2021 and 2020, employee contributions included in accounts payable and accrued liabilities in the accompanying consolidated balance sheet were immaterial.

Other income, net

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Other expenses ( 12 ) ( 44 )

$ 451 $ 1,517

Net loss per common stock

The Company excluded the following potentially dilutive shares from diluted net loss per share as the effect would have been anti-dilutive for all periods presented:

December 31, YEARS ENDED

Outstanding stock options 8,963,945 6,848,289

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Statutory federal income tax rate ( 21.0 ) % ( 21.0 ) %

Change in tax rate — —

State income taxes — —

Foreign rate differential — ( 0.1 )

Acquired in-process research and development — 14.4

Stock compensation 1.8 2.6

Stock-based compensation 2.0 1.8

Disposal of Aquinox Canada — ( 5.2 )

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Income tax recovery — % — %

Years Ended December 31,

Net loss before taxes (in thousands):

Years Ended December 31,

Canada $ — $ ( 522 )

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Deferred tax assets:

Canadian net operating losses $ — $ 39,574

net operating losses $ 22,863 $ 12,328

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Lease liability 2,701 2,513

Stock Compensation 717 309

Stock-based compensation 1,695 717

Other 186 162

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Deferred income tax liabilities

ROU Assets 2,132 169

Right-of-use assets 2,261 2,132

Other 287 157

Total deferred tax liabilities 2,548 2,289

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The Company will continue to assess the realizability of its assets going forward and will adjust the valuation allowance as needed.

The valuation allowance decreased by $ 42.9 million for the year ended December 31, 2020.

The decrease is primarily due to the sale of Aquinox Canada and the write-off of the related tax attributes, and partially offset by an increase in US net operating losses and research and development tax credits.

The valuation allowance increased by $ 12.9 million for the year ended December 31, 2021.

The increase is primarily related to an increase in deferred tax assets.

The increase is primarily due to an increase in U.S.

net operating losses and research and development tax credits.

The valuation allowance decreased by $ 42.9 million for the year ended December 31, 2020.

The decrease is primarily due to the sale of Aquinox Canada and the write-off of the related tax attributes, and partially offset by an increase in U.S.

net operating losses and research and development tax credits.

The Company applies judgment in the determination of the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return.

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License and patent agreements

The Company has an exclusive license agreement with the University of Washington, or UW, under which UW (on behalf of itself and Stanford University) granted the Company an exclusive worldwide license under certain patent rights, to make, have made, use, offer to sell, sell, offer to lease or lease, import, export or otherwise offer to dispose of licensed products in all fields of use, and a nonexclusive worldwide license to use certain know-how.

On July 8, 2019, Neoleukin Therapeutics, Inc., or Former Neoleukin, entered into an exclusive license agreement with the University of Washington ("UW"), under which UW (on behalf of itself and Stanford University) granted the Company an exclusive worldwide license under certain patent rights, to make, have made, use, offer to sell, sell, offer to lease or lease, import, export or otherwise offer to dispose of licensed products in all fields of use, and a nonexclusive worldwide license to use certain know-how.

The foregoing licenses are sublicensable by the Company without UW’s consent, subject to certain limited conditions.

The Exclusive License Agreement was amended effective as of July 24, 2020 to, among other things, (i) add a jointly owned de novo cytokine antagonist to the agreement, (ii) specify royalties, milestone payments and sublicense consideration payments payable by Neoleukin for certain jointly licensed products, (iii) specify the term for achievement of performance milestones for certainly jointly licensed products, and (iv) terminate UW’s right to participate in equity financings.

As consideration for the licensed rights, the Company issued 536,813 shares of common stock to UW.

These shares were exchanged for 188,974 shares of common stock of the Company and 4,197 shares of non-voting convertible preferred stock on the completion of the Merger.

The Exclusive License Agreement was amended a second time, effective as of December 15, 2021 to, among other things, add a second jointly owned patent application family directed to de novo cytokine antagonists to the agreement subject to the same terms of the first jointly owned patent application family.

As consideration for the licensed rights, Former Neoleukin issued 536,813 shares of common stock to UW.

These shares were exchanged for 188,974 shares of common stock of the Company and 4,197 shares of non-voting convertible preferred stock on the completion of the merger of Former Neoleukin into the Company in August 2019.

Such convertible preferred shares were subsequently converted into 419,700 shares of common stock in November 2019.

Furthermore, the Company is required to pay;

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In addition, UW may terminate the agreement for material breach that is not cured within a specified number of days, which cure period is to be at least doubled if the Company is proceeding diligently to cure the default.

Commitments and contingencies

In December 2020, the Company entered into a non-cancelable contract to purchase laboratory equipment for $ 0.8 million.

The equipment is expected to be delivered in the first half of 2021.

In the ordinary course of business, the Company may be subject from time to time to various proceedings, lawsuits, disputes, or claims.

Although the Company cannot predict with assurance the outcome of any litigation, it does not believe there are currently any such actions that, if resolved unfavorable, would have a material impact on the Company’s financial condition, results of operations or cash flows.

In May 2020, the Company established a 401(k) plan that allows full-time employees to contribute a portion of their salary, subject to statutory limits.

The Company makes matching cash contributions up to a pre-defined annual maximum contribution per employee per year.

During the year ended December 31, 2020, the Company’s total expense for the matching contributions was immaterial.

During the years ended December 31, 2021 and December 31, 2020, the Company’s total expense for the matching contributions was immaterial.

Sale of Aquinox Canada

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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