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Item 8. Financial Statements and Supplementary Data

2023-03-20 compared with 2022-03-01 · 155 added, 117 removed, 382 unchanged (42% of the section changed)

Financial Statements and Supplementary Data.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

INDEX TO FINANCIAL STATEMENTS

Neoleukin Therapeutics, Inc.

Reports of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated balance sheets

Consolidated statements of operations

Consolidated statements of cash flow

Consolidated statements of stockholders’ equity

Notes to the consolidated financial statements

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Balance Sheets

Statements of Operations

Statements of Cash Flow

Statements of S tockholders’ E quity

Notes to the F inancial S tatements

Report of Independent Registered Public Accounting Firm

1 unchanged sentence

Opinion on the Financial Statements

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").

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

(the "Company") as of December 31, 2022 and 2021, the related statements of operations and comprehensive income (loss), stockholders' equity, and cash flows, for each of the two years in the period ended December 31, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

21 unchanged sentences

NEOLEUKIN THERAPEUTICS, INC.

Consolidated Balance Sheets

Balance Sheets

(in thousands, except share and per share amounts)

1 unchanged sentence

Cash and cash equivalents $ 37,887 $ 142,467

Short-term investments 58,497 —

Other current assets 2,750 1,522

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Additional paid-in capital 545,407 536,362

Accumulated other comprehensive income (loss) ( 21 ) —

Accumulated deficit ( 451,055 ) ( 393,498 )

1 unchanged sentence

Total liabilities and stockholders’ equity $ 115,948 $ 163,263

The accompanying notes form an integral part of these consolidated financial statements

The accompanying notes form an integral part of these financial statements

NEOLEUKIN THERAPEUTICS, INC.

Consolidated Statements of Operations

Statements of Operations and Comprehensive Income (Loss)

(in thousands, except share and per share amounts)

Years Ended December 31,

Operating loss

Operating expenses

Research and development $ 41,129 $ 39,162

General and administrative 17,968 21,536

Gain on sale of Aquinox Canada — ( 7,826 )

Total operating loss 60,698 33,728

Other income, net 6 451

Total operating expenses 59,097 60,698

Loss from operations ( 59,097 ) ( 60,698 )

Interest income 1,582 19

Other income (loss), net ( 42 ) ( 13 )

Net loss $ ( 57,557 ) $ ( 60,692 )

Comprehensive income (loss)

Unrealized loss on available-for-sale securities ( 21 ) —

Comprehensive loss $ ( 57,578 ) $ ( 60,692 )

Net loss per common stock - basic and diluted $ ( 1.04 ) $ ( 1.10 )

Basic and diluted weighted average number of common stock outstanding 55,221,161 55,041,662

The accompanying notes form an integral part of these consolidated financial statements

The accompanying notes form an integral part of these financial statements

NEOLEUKIN THERAPEUTICS, INC.

Consolidated Statements of Cash Flows

Statements of Cash Flows

(in thousands)

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Net loss $ ( 57,557 ) $ ( 60,692 )

Adjustments to reconcile net loss used in operating activities:

Adjustments to reconcile net loss to net cash used in operating activities:

Stock-based compensation 8,829 11,557

Depreciation and amortization 1,561 1,306

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

Amortization of operating lease right-of-use assets 1,051 971

Amortization and accretion of premiums/discounts on available-for-sale securities ( 494 ) —

Loss on disposal of property and equipment 118 —

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

Changes in operating assets and liabilities:

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Accounts payable and accrued liabilities 2,256 ( 142 )

Operating lease right-of-use assets — ( 169 )

Operating lease liabilities ( 1,165 ) ( 687 )

2 unchanged sentences

Purchases of property and equipment ( 1,110 ) ( 3,263 )

Purchase of available-for-sale securities ( 107,524 ) —

Proceeds from maturities of available-for-sale securities 49,500 —

Net cash used in investing activities ( 59,134 ) ( 3,263 )

Financing activities

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

Payment of offering costs — ( 355 )

Proceeds from exercise of stock options 134 411

Proceeds from issuance of common stock under Employee Stock Purchase Plan 372 199

Payment on finance lease obligations ( 55 ) ( 51 )

Proceeds from issuance of common stock under Employee Stock Purchase Plan 82 372

Net cash provided by financing activities 161 732

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Cash, cash equivalents, and restricted cash at end of year $ 38,765 $ 143,345

Supplemental disclosure of non-cash investing and financing activities:

Supplemental disclosure:

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

Supplemental disclosure of non-cash investing and financing activities:

Finance lease liabilities arising from obtaining right-of-use asset $ 307 $ —

Purchase of property and equipment unpaid at period end $ 283 $ 412

The accompanying notes form an integral part of these consolidated financial statements

The accompanying notes form an integral part of these financial statements

NEOLEUKIN THERAPEUTICS, INC.

Consolidated Statements of Stockholders' Equity

Statements of Stockholders' Equity

(in thousands, except share amounts)

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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 commissions and offering expenses of $ 4,930

3,262,471 — 71,320 — — 71,320

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

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Stock-based compensation — — 8,829 — — 8,829

Unrealized gain (loss) on available-for-sale securities — — — — ( 21 ) ( 21 )

Net loss — — — ( 57,557 ) — ( 57,557 )

Balances, December 31, 2022 42,648,346 $ — $ 545,407 $ ( 451,055 ) $ ( 21 ) $ 94,331

The accompanying notes form an integral part of these consolidated financial statements

The accompanying notes form an integral part of these financial statements

NEOLEUKIN THERAPEUTICS, INC.

Notes to Consolidated Financial Statements

Notes to Financial Statements

Nature of operations

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Neoleukin uses sophisticated computational methods to design proteins that demonstrate specific pharmaceutical properties that provide potentially superior therapeutic benefit over native proteins.

The Company’s lead product candidate, NL-201, is a combined IL-2 and IL-15 agonist designed to eliminate alpha receptor binding.

Basis of presentation and summary of significant accounting policies

(a) Basis of presentation

The accompanying consolidated financial statements are presented in United States (“U.S.”) dollars and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

The financial results are presented on a consolidated basis.

All intercompany transactions are eliminated on consolidation.

In July 2020, the Company sold all of the issued and outstanding capital stock of Aquinox Pharmaceuticals (Canada) (“Aquinox Canada”) to an unrelated third party, as further described in Note 13, Sale of Aquinox Canada .

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

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

The accompanying financial statements are presented in United States (“U.S.”) dollars and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

(b) Use of estimates and assumptions

The preparation of consolidated financial statements in conformity with U.S.

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, estimated useful lives utilized in the amortization and depreciation of property, plant and equipment and intangible assets, and pre-clinical, clinical, and other accruals.

The preparation of financial statements in conformity with U.S.

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 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, estimated useful lives utilized in the amortization and depreciation of property and equipment, and pre-clinical, clinical, and other accruals.

Actual results could differ from those estimates.

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(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.

Restricted cash, included in Other non-current assets in the consolidated balance sheets, includes cash deposits the Company maintains with its bank as collateral for the irrevocable letters of credits related to its lease obligations.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows (in thousands):

The Company considers all highly liquid investments with an original contractual maturity or a remaining maturity of three months or less at the date of purchase to be cash equivalents.

Cash equivalents consist of money market funds and U.S.

treasury securities as of December 31,2022 and of money market funds as of December 31,2021.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash in the balance sheets that sum to the total of the same such amounts shown in the statements of cash flows (in thousands):

Cash and cash equivalents $ 37,887 $ 142,467

1 unchanged sentence

Total cash, cash equivalents, and restricted cash $ 38,765 $ 143,345

Restricted cash, included in other non-current assets in the balance sheets, includes $ 0.9 million in cash deposits the Company maintains with its bank as collateral for the irrevocable letters of credits related to its lease obligations.

(e) Property and equipment

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Based on management’s assessment there were no indicators of impairment of property and equipment as of December 31, 2022 and 2021.

(f) Earnings (loss) per share

(f) Net 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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(h) 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 and tax carryforwards recognized at enacted tax rates.

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 financial statements and the tax bases of assets and liabilities and tax carryforwards recognized at enacted tax rates.

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.

They are recorded in the period when there is reasonable assurance the credits will be realized.

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

(i) Research and development costs

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The Company records costs for certain development activities based on management’s evaluation of the progress to completion of specific tasks or information provided to the Company by vendors on their actual costs incurred.

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.

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 financial statements as prepaid or accrued expense.

(j) Accounting for stock-based compensation

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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 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.

Cash and cash equivalents are invested in accordance with the Company’s investment policy.

Certain of the Company’s financial instruments are measured at fair value on a recurring basis.

The Company determines the fair value of those financial instruments based upon the fair value hierarchy, which prioritizes valuation inputs based on the observable nature of those inputs.

The three levels of the fair value hierarchy are as follows:

Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities that can be accessed on the measurement date

Level 2 - quoted prices (in non-active markets or in active markets for similar assets or liabilities), observable inputs other than quoted prices and inputs that are not directly observable but are corroborated by observable market data

Level 3 - unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities

The following table presents information about the Company's financial instruments that are measured at fair value on a recurring basis:

December 31, 2022

(in thousands) Total Level 1 Level 2 Level 3

Financial assets

Money market funds $ 33,767 $ 33,767 $ — $ —

treasury securities 61,970 61,970 — —

Total financial assets $ 95,737 $ 95,737 $ — $ —

December 31, 2021

(in thousands) Total Level 1 Level 2 Level 3

Financial assets

Money market funds $ 140,856 $ 140,856 $ — $ —

treasury securities — — — —

Total financial assets $ 140,856 $ 140,856 $ — $ —

(m) Investments

The Company’s short-term investments consist entirely of investments in U.S.

treasury securities.

These investments are classified as available-for-sale debt securities and are therefore reported at fair value in the balance sheets.

Unrealized gains and losses are included in accumulated other comprehensive income (loss).

There were no realized gains or losses on investments for the years ended December 31, 2022 and 2021.

The Company assesses investments for impairment at each reporting period.

An investment is considered impaired when the amortized cost basis exceeds the fair value.

When this is the case, the Company assesses whether the impairment is credit-related or noncredit-related based on various factors.

When an impairment, or a portion of an impairment, is considered credit-related, an allowance for credit losses is recorded.

For the years ended December 31, 2022 and 2021, the Company recognized no year-to-date credit losses and no allowance for credit losses is recorded as of December 31, 2022 or 2021.

The aggregate fair value of investments with unrealized losses as of December 31, 2022 is $ 40.7 million.

(n) Concentration of credit risk

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

Cash, cash equivalents, and short-term investments are invested in accordance with the Company’s investment policy.

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.

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

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.

(o) Restructuring charges

The Company records costs and liabilities associated with exit and disposal activities in accordance with ASC 420, Exit or Disposal Cost Obligations .

Restructuring charges are recorded in the period in which they are incurred.

The Company evaluates and adjusts these costs as appropriate for changes in circumstances as additional information becomes available.

(p) Recently issued and recently adopted accounting standards

In June 2016, the FASB issued Accounting Standard Update ("ASU") No.

2016-13, Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which replaces the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

In November 2019, the FASB issued ASU 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives (Topic 815), and Leases (Topic 842).

This ASU delayed the required adoption for SEC filers that are smaller reporting companies as of their determination on November 15, 2019, until annual and interim periods beginning after December 15, 2022, with early adoption permitted.

The Company adopted this standard in conjunction with the investment in debt securities during the quarter ended June 30, 2022.

The Company's investments consist of the following (in thousands):

December 31, 2022

Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value

Cash equivalents:

Money market funds $ 33,767 $ — $ — $ 33,767

treasury securities - due within 3 months 3,473 — — 3,473

Short-term investments:

treasury securities - due within 1 year 58,518 6 ( 27 ) 58,497

Total $ 95,758 $ 6 $ ( 27 ) $ 95,737

December 31, 2021

Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value

Cash equivalents:

Money market funds 140,856 — — 140,856

Total $ 140,856 $ — $ — $ 140,856

Property and equipment, net

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Net intangible asset $ — $ 128

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 $ 0.1 million of amortization expense in fiscal year 2022.

Intangible asset, net, which is fully amortized as of December 31, 2022, included an assembled workforce that was acquired in 2019 and was being amortized over its expected life of 3 years based on management's judgement.

Amortization expense was $ 0.1 million for the year ended December 31, 2022 and $ 0.2 million for the year ended December 31, 2021.

Accounts payable and other liabilities

Accrued liabilities consist of the following (in thousands):

Accounts payable and other liabilities consist of the following (in thousands):

Trade accounts payable $ 478 $ 526

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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 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.

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.

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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.

The lease termination resulted in an extinguishment of the lease liability and the write-off of the related right-of-use asset.

After incurring additional expenses included in the termination fee of $ 0.5 million, the Company recognized a loss of $ 0.3 million on the termination of the lease, which was recorded in general and administrative expenses in June 2020.

In addition, the Company wrote-off leasehold improvements and other property and equipment associated with the lease and incurred a loss on disposal of $ 0.2 million in June 2020.

In December 2022, the Company entered into an agreement to sublease this space to an unrelated third party.

Pursuant to the terms of the sublease, the Company is entitled to receive up to $ 0.5 million in base lease payments.

The term of the sublease is through August 2023, with an option by the sublessee to extend such term through November 2023.

As of December 31, 2022, and December 31, 2021, the Company’s operating lease right-of-use assets were $ 9.7 million and $ 10.8 million, respectively.

As of December 31, 2021, and December 31, 2020, the Company's finance lease right-of use-assets, included within property and equipment on the consolidated balance sheet, were $ 0.2 million and $ 0.3 million, respectively.

As of December 31, 2022, and December 31, 2021, the Company's finance lease right-of use-assets, included within property and equipment on the balance sheet, were $ 0.5 million and $ 0.2 million, respectively.

The components of the lease expense were as follows (in thousands):

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Cash paid for amounts included in the measurement of finance lease liabilities $ 64 $ 63

The calculation of the present value of the operating lease payments for the Blaine lease did not include the option to extend the lease for two five-year terms.

The calculation of the present value of the lease payments for operating leases did not include any options to extend the leases as the Company is not reasonably certain to exercise such options.

At December 31, 2022, the future payments under the Company’s operating and finance lease liabilities were as follows (in thousands):

2 unchanged sentences

2024 109 2,781

2025 109 2,845

2026 26 2,806

Thereafter — 2,835

4 unchanged sentences

Non-current lease liabilities—December 31, 2022

$ 233 $ 10,322

Stockholders’ equity

2 unchanged sentences

As of December 31, 2022, and 2021, the total number of shares of common stock issued and outstanding was 42,648,346 , and 42,457,471 , 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 Company has pre-funded warrants outstanding to purchase an aggregate of 12,663,010 shares of common stock as of December 31, 2022.

The pre-funded warrants are exercisable at any time 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.

However, any holder may increase or decrease such percentage to any other percentage (not in excess of 19.99 %) upon at least 61 days’ prior notice from the holder to the Company.

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.

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As of December 31, 2022, 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.

The pre-funded warrants can be exercised at any time after issuance for an exercise price of $ 0.000001 per share.

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.

(b) Preferred stock

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The number of shares of common stock reserved for issuance under the 2014 Plan will be increased by the number of shares subject to stock options granted under the 2006 Plan that would have otherwise returned to the 2006 Plan, such as upon the expiration or termination of a stock award prior to vesting.

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

As of December 31, 2022, there were no 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, 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.

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Non-vested at December 31, 2022 378,500 $ 4.22

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):

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

Research and development expenses $ 4,342 $ 5,095

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During the year ended December 31, 2022, the Company issued 75,881 shares of common stock at a price per share of $ 0.83 and 53,744 of shares of common stock at a price per share of $ 0.36 , 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 .

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.

Cash received from the purchases under the 2020 ESPP for the years ended December 31, 2022 and 2021 was $ 0.1 million and $ 0.4 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

Other income is presented for all periods (in thousands):

Interest income $ 19 $ 490

Foreign exchange gains (losses) ( 1 ) 5

Other expenses ( 12 ) ( 44 )

As of December 31, 2022 and 2021, employee contributions included in accounts payable and accrued liabilities in the accompanying balance sheet were immaterial.

Net loss per common stock

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

Foreign rate differential — ( 0.1 )

Stock-based compensation 2.2 2.0

Disposal of Aquinox Canada — ( 5.2 )

Change in valuation allowance 21.4 21.2

Expiration of NOLs (section 382) — 0.5

Tax credits ( 2.6 ) ( 2.2 )

2 unchanged sentences

Years Ended December 31,

Canada $ — $ ( 522 )

( 57,578 ) ( 60,692 )

8 unchanged sentences

Stock-based compensation 2,274 1,695

Capitalized research and development 6,920 —

Other 168 186

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Deferred tax assets, net of valuation allowance $ — $ —

On July 31, 2020, the Company sold all issued and outstanding capital stock of its Canadian subsidiary, Aquinox Canada, to an unrelated third party for cash consideration.

As of the date of sale, Aquinox Canada’s remaining assets included intellectual property and other assets developed through past research and development activities, all of which had no book value.

The transaction resulted in a net gain on sale of $ 7.8 million.

The sale of Aquinox Canada triggered a significant capital loss carryforward for tax purposes.

However, most of the capital loss carryforward is limited by the prior ownership change under Section 382.

The remaining unlimited portion of the capital loss carryforward will be subject to a full valuation allowance as the Company has determined that it is more likely than not that the benefit of the loss will not be realized.

After the sale, Aquinox Canada's tax attributes of $ 51.7 million including the net operating losses, scientific research and experimental development expenditures and investment tax credits are no longer reflected in the deferred tax assets and valuation allowance.

The Tax Cuts and Jobs Act contained a provision which requires the capitalization of Section 174 costs incurred in years beginning on or after January 1, 2022.

Section 174 costs are expenditures which represent research and development costs that are incident to the development or improvement of a product, process, formula, invention, computer software, or technique.

This provision changes the treatment of Section 174 costs such that the expenditures are no longer allowed as an immediate deduction but rather must be capitalized and amortized.

The Company has included the impact of this provision, which results in a deferred tax asset of approximately $ 6.9 million as o f December 31, 2022 .

At December 31, 2022 and December 31, 2021, the Company had U.S.

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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, capitalized research expense, 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 due to an increase in U.S.

net operating losses and research and development tax credits.

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Furthermore, the Company is required to pay;

(i) an annual maintenance fee starting in January 2022 (but excluding any year in which minimum annual royalties are paid);

(i) an annual maintenance fee beginning in January 2022 (but excluding any year in which minimum annual royalties are paid);

(ii) up to $ 0.9 million in combined development and regulatory milestone payments with respect to each distinct class of licensed product;

(iii) up to $ 10.0 million in combined commercial milestone payments based on cumulative net sales of licensed products within each distinct class of licensed products, beginning when cumulative net sales of the class of licensed products equals or exceeds $ 100.0 million, with the majority payable when cumulative net sales of the class of licensed products equals or exceeds $ 1.0 billion;

(iii) up to $ 10.0 million in combined commercial milestone payments based on cumulative net sales of licensed products within each distinct class of licensed products, beginning when

cumulative net sales of the class of licensed products equals or exceeds $ 100.0 million, with the majority payable when cumulative net sales of the class of licensed products equals or exceeds $ 1.0 billion;

(iv) a low single-digit royalty on net sales of licensed products sold by the Company and its sublicensees, which may be subject to reductions, and subject to minimum annual royalty payments following the first commercial sale of a licensed product;

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During the years ended December 31, 2022 and December 31, 2021, the Company’s total expense for the matching contributions was immaterial.

Sale of Aquinox Canada

On July 31, 2020, the Company sold all issued and outstanding capital stock of its Canadian subsidiary, Aquinox Canada, to an unrelated third party for cash consideration of $ 8.2 million.

The Company concluded that the sale did not meet the criteria for discontinued operations reporting as it did not represent a strategic shift that had a major effect on the Company’s operations and financial results.

As of the date of sale, Aquinox Canada’s remaining assets included intellectual property and other assets developed through past research and development activities, all of which had no book value.

The transaction resulted in a net gain on sale of $ 7.8 million, after deducting $ 0.4 million in transaction costs, which is recorded as a reduction of operating loss in the Company’s consolidated statement of operations.

The sale of Aquinox Canada triggered a significant capital loss carryforward for tax purposes.

However, the deferred tax asset related to the capital loss carryforward will be subject to a full valuation allowance as the Company has determined that it is more likely than not that the benefit of the loss will not be realized.

Refer to Note 10, Income taxes for further information.

Workforce reduction

On November 14, 2022, the Company announced the decision to discontinue further development of NL-201.

In conjunction with this decision, the Company's Board of Directors approved a restructuring plan that includes a reduction of approximately 40 % of the Company's workforce (the "November 2022 Reduction").

The Company expects to incur aggregate restructuring charges consisting of severance payments, benefits, and other employee related costs of $ 1.8 million, of which $ 1.4 million was incurred during the year ended December 31, 2022 and the remaining $ 0.4 million will be incurred during the quarter ended March 31, 2023 due to future service requirements by certain employees to receive severance benefits.

Of the $ 1.4 million of restructuring charges incurred during the year ended December 31, 2022, $ 0.2 million is included in general and administrative expenses and $ 1.2 million is included in research and development expenses in the statement of operations and comprehensive income.

The Company expects to pay all remaining restructuring charges by the end of 2023.

A summary of the accrued liabilities activity recorded in connection with the November 2022 Reduction for the year ended December 31, 2022 is as follows (in thousands):

Charges Amounts Paid Accrued at December 31, 2022

Employee severance, benefits, and related costs

November 2022 Reduction $ 1,407 $ 366 $ 1,041

Total $ 1,407 $ 366 $ 1,041

Subsequent Events

On March 6, 2023, the Company's Board of Directors approved a reduction in force of the Company's workforce by approximately 70 % and a re-prioritization of the Company’s focus to seek strategic alternatives to maximize shareholder value (the "Restructuring Plan").

The Company's current best estimate of costs it will incur total between $ 2.5 million and $ 3.0 million, consisting of employee related costs, including severance and benefits and equity compensation, contract termination costs, and other costs.

Approximately $ 0.3 million of these costs are expected to be non-cash expenses.

The majority of these costs are expected to be incurred during the first half of 2023, and the Company expects the execution of the Restructuring Plan will be substantially complete by the end of the second quarter of 2023.

These costs are incremental to the exit and disposal costs previously disclosed in Item 5 of the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 14, 2022.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data