Protara Therapeutics, Inc. 10-K

Item 9A. Controls and Procedures. Disclosure Controls and Procedures We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. As of December 31, 2021, our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our principal executive officer and principal financial officer have concluded based upon the evaluation described above that, as of December 31, 2021, our disclosure controls and procedures were effective at the reasonable assurance level. We continue to review and document our disclosure controls and procedures, including our internal controls and procedures for financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business. Management’s Annual Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. As of December 31, 2021, our management assessed the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, in Internal Control-Integrated Framework (2017). Based on this assessment, management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, concluded that, as of December 31, 2021, our internal control over financial reporting was effective based on those criteria. Changes in Internal Control Over Financial Reporting An evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of any changes in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. That evaluation did not identify any change in our internal control over financial reporting, as such term is defined in Rules 13a-15 and 15(d)-15 promulgated under the Exchange Act, that occurred during our latest fiscal quarter and that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information. None. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. None. 71 PART III Item 10. Directors, Executive Officers and Corporate Governance. The information required by this Item and not set forth below will be set forth in the section headed “—Election of Directors” and “Information Regarding the Board of Directors and Corporate Governance” in our definitive Proxy Statement for our 2022 Annual Meeting of Stockholders to be filed with the SEC on or before May 2, 2022 (our “ Proxy Statement ”) and is incorporated in this report by reference. We have adopted a code of ethics for directors, officers (including our principal executive officer, principal financial officer and principal accounting officer) and employees, known as the Code of Business Conduct and Ethics. The Code of Business Conduct and Ethics is available on our website at http://www.protaratx.com under the Corporate Governance section of our Investors page. We will promptly disclose on our website (i) the nature of any amendment to the policy that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions and (ii) the nature of any waiver, including an implicit waiver, from a provision of the policy that is granted to one of these specified individuals, the name of such person who is granted the waiver and the date of the waiver. Stockholders may request a free copy of the Code of Business Conduct and Ethics by emailing info@protaratx.com. Item 11. Executive Compensation. The information required by this Item will be set forth in the section headed “ Executive Compensation ” in our Proxy Statement and is incorporated in this report by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The information required by this Item will be set forth in the section headed “ Security Ownership of Certain Beneficial Owners and Management ” in our Proxy Statement and is incorporated in this report by reference. Information regarding our equity compensation plans will be set forth in the section headed “ Executive Compensation ” in our Proxy Statement and is incorporated in this report by reference. Item 13. Certain Relationships and Related Transactions, and Director Independence. The information required by this Item will be set forth in the section headed “ Transactions with Related Persons ” in our Proxy Statement and is incorporated in this report by reference. Item 14. Principal Accountant Fees and Services. The information required by this Item will be set forth in the section headed “—Ratification of Selection of Independent Registered Public Accounting Firm” in our Proxy Statement and is incorporated in this report by reference. 72 PART IV Item 15. Exhibits and Financial Statement Schedules. (a) Documents filed as part of this report. 1. The following financial statements of Protara Therapeutics, Inc. and Report of Marcum LLP, Independent Registered Public Accounting Firm, and Report of Ernst & Young LLP, Independent Register Public Accounting Firm, are included in this report: Page Number Report of Independent Registered Public Accounting Firm (PCAOB ID:42) F-2 Report of Independent Registered Public Accounting Firm (PCAOB ID:688) F-3 Consolidated Balance Sheets F-4 Consolidated Statements of Operations and Comprehensive Loss F-5 Consolidated Statements of Changes in Stockholders’ Equity F-6 Consolidated Statements of Cash Flows F-7 Notes to Consolidated Financial Statements F-8 2. List of financial statement schedules: All schedules have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. 3. List of Exhibits required by Item 601 of Regulation S-K. See part (b) below. (b) Exhibits. Exhibit No. Description 2.1 Agreement and Plan of Merger and Reorganization, dated September 23, 2019, by and among the Registrant, ArTara Therapeutics, Inc. and REM 1 Acquisition, Inc. (filed as Exhibit 2.1 to the Registrant’s Current Report on Form 8-K as filed on September 24, 2019, and incorporated herein by reference). 2.2 Amendment No. 1 to Agreement and Plan of Merger and Reorganization, dated November 19, 2019, by and among the Registrant, ArTara Therapeutics, Inc. and REM 1 Acquisition, Inc. (filed as Exhibit 2.2 to the Registrant’s Registration Statement on Amendment No. 2 to Form S-4 as filed on December 4, 2019, and incorporated herein by reference). 3.1 Sixth Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on October 27, 2014). 3.2 Certificate of Amendment to the Sixth Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed with the SEC on January 10, 2020). 3.3 Second Certificate of Amendment to the Sixth Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.3 to the Registrant’s Quarterly Report on Form 10-Q, filed with the SEC on May 13, 2020). 3.4 Certificate of Designation of Preferences, Rights and Limitations of Series 1 Convertible Preferred Stock (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K, filed with the SEC on January 10, 2020). 3.5 Certificate of Amendment to the Certificate of Designation of Preferences, Rights and Limitations of Series 1 Convertible Non-Voting Preferred Stock (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed with the SEC on September 23, 2020). 3.6 Second Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 of Current Report on Form 8-K, filed on August 3, 2017). 4.1 Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, filed with the SEC on January 10, 2020). 4.2+ Description of securities registered under Section 12 of the Exchange Act of 1934 4.3 Registration Rights Agreement, dated as of September 23, 2019, by and among the Registrant and the institutional investors named therein (incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K, filed with the SEC on September 24, 2019). 10.1† 2006 Equity Incentive Plan, as amended and restated August 21, 2014 (incorporated by reference to Exhibit 10.1 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 filed on October 7, 2014 (File No. 333-198777)). 10.2† Form of Stock Option Grant Notice and Stock Option Agreement under the Company’s 2006 Equity Incentive Plan, as amended (incorporated by reference to Exhibit 10.16 to the Company’s Registration Statement on Form S-1 filed on September 16, 2014). 73 10.3 Assignment of Rights/License Agreement, effective as of February 4, 2002, by and between Johns Hopkins University and F. Nicholas Franano (incorporated by reference to Exhibit 10.11 to the Company’s Registration Statement on Form S-1 filed on September 16, 2014). 10.4 Letter Agreement, dated January 12, 2009, by and between F. Nicholas Franano and the Company (as successor-in-interest to Proteon Therapeutics, L.L.C.) (incorporated by reference to Exhibit 10.14 to the Company’s Registration Statement on Form S-1 filed on September 16, 2014). 10.5† 2014 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.25 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 filed on October 7, 2014). 10.6** Subscription Agreement, dated September 23, 2019, by and among the Registrant and the institutional investors named therein (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K, filed with the SEC on September 24, 2019). 10.7** First Amendment to Subscription Agreement, dated November 19, 2019, by and among the Registrant and the institutional investors named therein (incorporated by reference to Exhibit 99.12 to the Registrant’s Registration Statement on Form S-4). 10.8† Amended and Restated 2014 Equity Incentive Plan of the Registrant (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on January 10, 2020). 10.9† Forms of Stock Option Agreement, Option Exercise, Restricted Stock Unit Grant and Restricted Stock Unit Agreement under the Amended and Restated 2014 Equity Incentive Plan of the Registrant, as amended (incorporated by reference to Exhibit 10.25 to the Registrant’s Annual Report on Form 10-K on form 10-K for the fiscal year ended December 31, 2019 filed on March 20, 2020). 10.10† 2017 Equity Incentive Plan of ArTara Subsidiary, Inc. (incorporated by reference to Exhibit 10.11 to the Registrant’s Current Report on Form 8-K, filed with the SEC on January 10, 2020). 10.11† Inducement Plan of the Registrant (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed with the SEC on March 30, 2020). 10.12† Form of Stock Option Grant Notice and Stock Option Agreement under the Inducement Plan of the Registrant (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, filed with the SEC on March 30, 2020). 10.13† Forms of Restricted Stock Unit Grant Notice and Restricted Stock Unit Agreement under the Inducement Plan of the Registrant (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K, filed with the SEC on March 30, 2020). 10.14† Executive Employment Agreement, dated as of November 5, 2019, as amended on December 4, 2019, by and between ArTara Subsidiary, Inc. and Jesse Shefferman. (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, filed with the SEC on January 10, 2020). 10.15† Executive Employment Agreement, dated as of December 17, 2019, by and between ArTara Subsidiary, Inc. and Jacqueline Zummo, Ph.D., MPH, MBA. (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K, filed with the SEC on January 10, 2020). 10.16†^ Separation Agreement and Release, dated as of July 23, 2020, by and between the Registrant and Julio Casoy (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q, filed with the SEC on July 31, 2020). 10.17† Executive Employment Agreement, effective as of February 11, 2020 by and between the Registrant and Blaine Davis (incorporated by reference to Exhibit 10.30 to the Registrant’s Annual Report on Form 10-K, filed with the SEC on March 19, 2020). 10.18†† Choline License Agreement, by and between ArTara Subsidiary, Inc. and Alan L. Buchman, M.D. dated as of September 27, 2017. (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K, filed with the SEC on January 10, 2020). 10.19†† Sponsored Research and License Agreement, by and between ArTara Subsidiary, Inc. and The University of Iowa dated as of November 28, 2018. (incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K, filed with the SEC on January 10, 2020). 10.20†† License Agreement, by and between ArTara Subsidiary, Inc. and The Feinstein Institute for Medical Research dated as of December 22, 2017. (incorporated by reference to Exhibit 10.6 to the Registrant’s Current Report on Form 8-K, filed with the SEC on January 10, 2020). 74 10.21 †† Agreement, by and between ArTara Subsidiary, Inc. and Chugai Pharmaceutical Co., Ltd. dated as of June 17, 2019. (incorporated by reference to Exhibit 10.7 to the Registrant’s Current Report on Form 8-K, filed with the SEC on January 10, 2020). 10.22 †† Amendment to Agreement, by and between Chugai Pharmaceutical Co., Ltd. and the Registrant, dated as of July 14, 2020 and effective as of June 30, 2020 (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q, filed with the SEC on November 12, 2020). 10.23 † Form of Indemnity Agreement between the Registrant and each of its directors and officers. (incorporated by reference to Exhibit 10.8 to the Registrant’s Current Report on Form 8-K, filed with the SEC on January 10, 2020). 10.24 † Restated Non-Employee Director Compensation Policy (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q, filed with the SEC on July 31, 2020). 10.25 †† ** Lease by and between 345 PAS HOLDING LLC, and the Registrant, dated as of December 7, 2020. 10.26 †+ Consulting Agreement, dated as of October 16, 2021, by and between the Company and Martín Sebastian Olivo, M.D. (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed with the SEC on October 18, 2021). 10.27 †+ Separation Agreement and Release, dated as of October 15, 2021, by and between the Company and Martín Sebastian Olivo, M.D. (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, filed with the SEC on October 18, 2021. 21.1 + List of Subsidiaries. 23.1 + Consent of Ernst & Young LLP, independent registered public accounting firm. 23.2 + Consent of Marcum LLP, independent registered public accounting firm. 24.1 + Power of Attorney (Included in signature pages) 31.1 + Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 + Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 + Principal Executive Officer Certification and Principal Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101 * Interactive Data Files Pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets as of December 31, 2020 and 2019; (ii) the Consolidated Statements of Operations for the years ended December 31, 2020 and 2019; (iii) the Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the years ended December 31, 2020 and 2019; (iv) the Consolidated Statements of Cash Flows for the years ended December 31, 2020 and 2019; and (v) the notes to the Consolidated Financial Statements. 101.INS * Inline XBRL Instance Document. 101.SCH * Inline XBRL Taxonomy Extension Schema Document. 101.CAL * Inline XBRL Taxonomy Extension Calculation Linkbase Document. 101.DEF * Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB * Inline XBRL Taxonomy Extension Label Linkbase Document. 101.PRE * Inline XBRL Taxonomy Extension Presentation Linkbase Document. 104 Cover Page Interactive Data File (embedded within the Inline XBRL document) + Filed herewith. ** Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. A copy of any omitted schedules will be furnished to the SEC upon request. † Indicates management contract or compensatory plan or arrangement. †† Certain portions of this exhibit (indicated by “[***]”) have been omitted as the Registrant has determined (i) the omitted information is not material and (ii) the omitted information is of the type the Registrant customarily and actually treats as private or confidential. ^ Certain exhibits and schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Registrant hereby undertakes to furnish supplementally a copy of any omitted exhibit or schedule upon request by the SEC. Item 16. Form 10-K Summary. None. 75 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Protara Therapeutics, Inc. . Date: March 9, 2022 /s/ Jesse Shefferman Jesse Shefferman President and Chief Executive Officer (on behalf of the registrant and as the registrant’s Principal Executive Officer) Date: March 9, 2022 /s/ Blaine Davis Blaine Davis Chief Financial Officer (on behalf of the registrant and as the registrant’s Principal Financial and Accounting Officer) KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature appears below constitutes and appoints Jesse Shefferman and Blaine Davis his or her true and lawful attorney-in-fact and agent with full power of substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ JESSE SHEFFERMAN President and Chief Executive Officer and Director (Principal Executive Officer) March 9, 2022 Jesse Shefferman /s/ BLAINE DAVIS Chief Financial Officer (Principal Financial and Accounting Officer) March 9, 2022 Blaine Davis /s/ LUKE BESHAR Chairman of the Board of Directors March 9, 2022 Luke Beshar /s/ BARRY FLANNELLY, PHARM.D. Director March 9, 2022 Barry Flannelly, Pharm.D. /s/ ROGER GARCEAU, M.D. Director March 9, 2022 Roger Garceau, M.D. /s/ JANE HUANG, M.D. Director March 9, 2022 Jane Huang, M.D. /s/ RICHARD LEVY, M.D. Director March 9, 2022 Richard Levy, M.D. /s/ GREGORY P. SARGEN Director March 9, 2022 Gregory P. Sargen /s/ CYNTHIA SMITH Director March 9, 2022 Cynthia Smith /s/ MICHAEL SOLOMON, PH.D. Director March 9, 2022 Michael Solomon, Ph.D. 76 Protara Therapeutics, Inc. Index to Consolidated Financial Statements Protara Therapeutics, Inc. for the Years Ended December 31, 2021 and 2020 Page No. Report of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) F-2 Report of Independent Registered Public Accounting Firm (PCAOB ID:688) F-3 Consolidated Balance Sheets as of December 31, 2021 and 2020 F-4 Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2021 and 2020 F-5 Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2021 and 2020 F-6 Consolidated Statements of Cash Flows for the Years Ended December 31, 2021 and 2020 F-7 Notes to Consolidated Financial Statements F-8 F- 1 Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Protara Therapeutics, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of Protara Therapeutics, Inc. (the “Company”) as of December 31, 2021, the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity and cash flows for the year ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021, and the results of its operations and its cash flows for the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles. 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. 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. 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. 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. 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. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates. Valuation of Goodwill Description of the Matter As of December 31, 2021, the Company’s goodwill was $29.5 million. As discussed in Note 2 to the consolidated financial statements, goodwill is assessed annually for impairment as of December 31, or more frequently if an event occurs or circumstances change that would indicate that it is more likely than not that the fair value of a reporting unit has declined below its carrying value. Auditing the Company’s quantitative impairment test for goodwill was especially complex and judgmental due to the significant estimation required in determining the fair value of the reporting unit. In particular, the fair value estimate was sensitive to the significant assumptions that require judgment including the amount and timing of expected future cash flows and the related discount rate. These assumptions are affected by such factors as expected future market or economic conditions and clinical trial and regulatory events. How We Addressed the Matter in Our Audit To test the estimated fair value of the reporting unit, our audit procedures included, among others, assessing the valuation methodology, evaluating the significant assumptions used to develop the projected financial information, and testing the underlying data used by the Company in its analysis. For example, we compared the projected financial information developed by management to current industry benchmarks and economic trends and evaluated the expected impacts of the Company’s ongoing operating strategies to develop its portfolio of therapies on the significant assumptions. We performed sensitivity analyses of the significant assumptions to evaluate the change in the fair value of the reporting unit resulting from changes in the assumptions. We also considered the relationship between the fair value of the reporting unit to the market capitalization of the Company. In addition, we involved our internal valuation specialists to assist in evaluating the methodology and significant assumptions applied in developing the fair value estimate. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2021. New York, New York March 9, 2022 F- 2 Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors of Protara Therapeutics, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of Protara 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 year ended December 31, 2020, 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. 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. 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. 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. 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. 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. We determined that there are no critical audit matters. /s/ Marcum LLP We served as the Company’s auditor from 2019 to 2021. New York, NY March 11, 2021 F- 3 Protara Therapeutics, Inc. Consolidated Balance Sheets (in thousands, except share and per share data) December 31, 2021 2020 Assets Current assets: Cash and cash equivalents $ 35,724 $ 168,598 Restricted cash - 50 Marketable debt securities 55,505 - Prepaid expenses and other current assets 1,883 787 Total current assets 93,112 169,435 Restricted cash, non-current 745 745 Marketable debt securities, non-current 39,467 - Property and equipment, net 1,719 1,240 Operating lease right-of-use asset 7,171 1,060 Goodwill 29,517 29,517 Other assets 865 1,160 Total assets $ 172,596 $ 203,157 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 954 $ 914 Accrued expenses 2,489 1,913 Operating lease liability 855 88 Total current liabilities 4,298 2,915 Operating lease liability, non-current 6,384 999 Total liabilities 10,682 3,914 Commitments and contingencies (Note 11) Stockholders’ Equity Preferred stock, $0.001 par value, authorized 10,000,000 shares: Series 1 convertible preferred stock, 8,028 shares authorized at December 31, 2021 and 2020, respectively 8,027 shares issued and outstanding as of December 31, 2021 and 2020, respectively. - - Common stock, $0.001 par value, authorized 100,000,000 shares: Common stock, 11,235,731 and 11,211,840 shares issued and outstanding as of December 31, 2021 and 2020, respectively. 11 11 Additional paid in capital 256,126 245,992 Accumulated deficit ( 94,012 ) ( 46,760 ) Accumulated other comprehensive income (loss) ( 211 ) - Total stockholders’ equity 161,914 199,243 Total liabilities and stockholders’ equity $ 172,596 $ 203,157 See accompanying notes to consolidated financial statements. F- 4 Protara Therapeutics, Inc. Consolidated Statements of Operations and Comprehensive Loss (in thousands, except share and per share data) Years Ended December 31, 2021 2020 Operating expenses: Research and development $ 21,088 $ 11,982 General and administrative 26,401 22,462 Total operating expenses 47,489 34,444 Loss from operations ( 47,489 ) ( 34,444 ) Other income (expense), net Interest and investment income 237 500 Interest expense - ( 34 ) Other income (expense), net 237 466 Net loss ( 47,252 ) ( 33,978 ) Net loss per share attributable to common stockholders, basic and diluted $ ( 4.21 ) $ ( 4.70 ) Weighted average shares outstanding, basic and diluted 11,232,576 7,233,913 Other comprehensive income (loss): Net unrealized (loss) gain on marketable debt securities ( 211 ) - Other comprehensive income (loss) ( 211 ) - Comprehensive Loss $ ( 47,463 ) $ ( 33,978 ) See accompanying notes to consolidated financial statements. F- 5 Protara Therapeutics, Inc. Consolidated Statements of Changes in Stockholders’ Equity (in thousands, except share and per share data) Series 1 Convertible Preferred Stock Common Stock Additional Paid-in Accumulated Accumulated Other Comprehensive Total Stockholders’ Shares Amount Shares Amount Capital Deficit Loss Equity Balance at December 31, 2019 - $ - 2,627,533 $ 3 $ 10,651 $ ( 12,782 ) $ - $ ( 2,128 ) Issuance of Common Stock in ArTara Private Placement, net of offering costs - - 284,875 - 1,867 - - 1,867 Issuance of Common Stock in Proteon Private Placement, net of offering costs - - 1,896,888 2 12,411 - - 12,413 Issuance of Series 1 Convertible Preferred Stock in Proteon Private Placement, net of offering costs 3,879 - - - 25,319 - - 25,319 Reverse business combination - - 1,033,907 1 34,532 - - 34,533 Issuance of Common Stock in public offering, net of offering costs - - 4,600,000 4 73,566 - - 73,570 Issuance of Series 1 Convertible Preferred in public offering, net of offering costs 4,148 - - - 66,284 - - 66,284 Issuance of Common Stock in Common Offering (Underwriters Overallotment Option), net of offering costs - - 690,000 1 11,086 - - 11,087 Settlement of restricted stock units - - 20,870 - - - - - Exercise of stock options - - 57,767 - 530 - - 530 Stock-based compensation expense - - - - 9,746 - - 9,746 Net loss - - - - - ( 33,978 ) - ( 33,978 ) Balance at December 31, 2020 8,027 $ - 11,211,840 $ 11 $ 245,992 $ ( 46,760 ) $ - $ 199,243 Settlement of restricted stock units - - 23,891 - ( 228 ) - - ( 228 ) Stock-based compensation expense - - - - 10,362 - - 10,362 Other comprehensive loss - - - - - - ( 211 ) ( 211 ) Net loss - - - - - ( 47,252 ) - ( 47,252 ) Balance at December 31, 2021 8,027 $ - 11,235,731 $ 11 $ 256,126 $ ( 94,012 ) $ ( 211 ) $ 161,914 See accompanying notes to consolidated financial statements. F- 6 Protara Therapeutics, Inc. Consolidated Statements of Cash Flows (in thousands) Years Ended December 31, 2021 2020 Cash flows from operating activities: Net loss $ ( 47,252 ) $ ( 33,978 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock based compensation 10,362 9,746 Operating lease right-of-use asset 1,050 93 Depreciation 117 103 Amortization of premium on marketable debt securities 1,737 - Changes in operating assets and liabilities: Prepaid expenses and other current assets ( 418 ) 1,405 Other assets 295 58 Accounts payable 40 198 Accrued expenses 576 ( 966 ) Operating lease liabilities ( 1,009 ) ( 66 ) Net cash used in operating activities ( 34,502 ) ( 23,407 ) Cash flows from investing activities: Cash and restricted cash acquired in connection with the reverse merger with ArTara Therapeutics, Inc. - 3,719 Purchase of marketable debt securities ( 124,748 ) - Proceeds from maturity and redemption of marketable debt securities 27,150 - Purchase of property and equipment ( 596 ) ( 884 ) Net cash (used in)/provided by investing activities ( 98,194 ) 2,835 Cash flows from financing activities: Proceeds from - ArTara Private Placement, net of offering costs - 1,867 Proceeds from - Common Stock in Proteon Private Placement, net of offering costs - 12,413 Proceeds from - Series 1 Convertible Preferred Stock in Proteon Private Placement, net of offering costs - 25,319 Proceeds from Common Offering, net of offering costs - 73,570 Proceeds from Preferred Offering, net of offering costs - 66,284 Proceeds from Underwriters Overallotment Option - 11,087 Repayments under short-term debt - ( 1,669 ) Proceeds from the exercise of stock options - 530 Repurchase of shares in connection with settlement of RSUs ( 228 ) - Net cash (used in)/provided by financing activities ( 228 ) 189,401 Net (decrease)/increase in cash and cash equivalents and restricted cash ( 132,924 ) 168,829 Cash and cash equivalents and restricted cash - beginning of year 169,393 564 Cash and cash equivalents and restricted cash - end of period $ 36,469 $ 169,393 Supplemental disclosure of cash flow information: Cash paid for: Interest $ - $ 34 Income Taxes $ - $ - Supplemental schedule of non-cash activities: Deferred offering costs recognized that were previously recorded in accrued expenses $ - $ 122 Purchase of insurance agreement with notes payable $ - $ 1,669 Common stock issued in connection with the reverse merger with ArTara Therapeutics, Inc. $ - $ 34,533 See accompanying notes to consolidated financial statements. F- 7 Protara Therapeutics, Inc. Notes to Consolidated Financial Statements (amounts in thousands, except share and per share data) 1. Organization and Nature of the Business Overview Protara Therapeutics, Inc., and its consolidated subsidiaries (“Protara” or the “Company”), is a clinical-stage biopharmaceutical company committed to identifying and advancing transformative therapies for the treatment of cancer and rare diseases with significant unmet needs. Protara’s portfolio includes two development programs utilizing TARA-002, an investigational cell therapy in development for the treatment of lymphatic malformations (“LMs”) and non-muscle invasive bladder cancer (“NMIBC”). The third program in the portfolio is Intravenous (“IV”) Choline Chloride, an investigational phospholipid substrate replacement therapy initially in development for patients receiving parenteral nutrition (“PN”) who have intestinal failure associated liver disease (“IFALD”). On January 9, 2020, privately-held ArTara Subsidiary, Inc. (“Private ArTara”) and Protara Therapeutics, Inc. (formerly ArTara Therapeutics, Inc., formerly Proteon Therapeutics, Inc.) completed the merger and reorganization (the “Merger”), in accordance with the terms of the Agreement and Plan of Merger and Reorganization, dated September 23, 2019, (the “Merger Agreement”) by and among Protara Therapeutics, Inc., Private ArTara and REM 1 Acquisition, Inc., a wholly owned subsidiary of Protara Therapeutics, Inc (“Merger Sub”). Thereupon, Merger Sub merged with and into Private ArTara, with Private ArTara surviving as a wholly owned subsidiary of Protara Therapeutics, Inc. The Merger was structured as a reverse merger and Private ArTara was determined to be the accounting acquirer based on the terms of the Merger and other factors, and the post-merger company retained the name ArTara Therapeutics, Inc., which on May 11, 2020 was changed to Protara Therapeutics, Inc. On January 9, 2020, in connection with and prior to the completion of the Merger, Protara Therapeutics, Inc. effected a 1-for-40 reverse stock split of its common stock (the “Protara Reverse Stock Split”), Private ArTara changed its name from “ArTara Therapeutics, Inc.” to “ArTara Subsidiary, Inc.”, and ArTara Therapeutics, Inc. changed its name from “Proteon Therapeutics, Inc.” to “ArTara Therapeutics, Inc” then subsequently changed its name from “ArTara Therapeutics, Inc” to “Protara Therapeutics, Inc.” All share and per share amounts presented in this Annual Report on Form 10-K have been adjusted to reflect the Protara Reverse Stock Split and the Exchange Ratio (defined below). In addition, immediately following the closing of the Private Placements (defined below), all of the outstanding shares of Protara Therapeutics, Inc.’s Series A Preferred Stock were converted into shares of Protara Therapeutics, Inc.’s common stock. Shares of the Company’s common stock commenced trading on The Nasdaq Capital Market under the new name and ticker symbol “TARA” as of market open on January 10, 2020. See Note 3 for the full discussion regarding the Merger, Exchange Ratio and recapitalization Liquidity, Capital Resources and Management Plans The Company is in the business of developing biopharmaceuticals and has no current or near-term revenues. The Company has incurred substantial clinical and other costs in its drug development efforts. The Company will need to raise additional capital in order to fully realize management’s plans. The Company believes that its current financial resources are sufficient to satisfy the Company’s estimated liquidity needs for at least twelve months from the date of issuance of these consolidated financial statements. Impact of COVID-19 The ultimate impact of the current COVID-19 pandemic is highly uncertain and subject to change. The Company has experienced delays and may experience additional future delays that impact the business, research and development activities, the healthcare systems in which the Company operates and the global economy as a whole. Due to the continued evolution o f the COVID-19 pandemic and the global responses to curb its spread, the Company is not able to estimate the ongoing effects on the Company’s results of operations, financial condition, or liquidity. The Company will continue to monitor the COVID-19 public health crisis closely including whether the effects would have a material impact on the Company’s operations, liquidity and capital resources F- 8 Protara Therapeutics, Inc. Notes to Consolidated Financial Statements (amounts in thousands, except share and per share data) 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP” or “GAAP”). Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in the accompanying consolidated financial statements. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Significant items subject to such estimates include but are not limited to income taxes, the valuation of deferred tax assets, recoverability of goodwill, and contingencies. On an ongoing basis, the Company’s management evaluates its estimates based on historical and anticipated results, trends, and various other assumptions believed to be reasonable . Actual results could differ from those estimates. The results of any changes in accounting estimates are reflected in the financial statements of the period in which the change becomes evident. Reclassification Certain amounts in prior periods related to the classification of operating right-of-use assets have been reclassified to conform to current period presentation. These reclassifications to adjust prior period presentation had no impact on consolidated statements of operations and comprehensive loss or consolidated statements of cash flows. Business Combinations The purchase price of the assets acquired and the liabilities assumed are measured at their fair values and recognized at the acquisition date, including identifiable intangible assets that either arise from a contractual or legal right or are separable from goodwill. The excess purchase price over the value of net tangible and identifiable intangible assets acquired is recorded as goodwill . Deferred tax liabilities and assets are recognized for the deferred tax consequences of differences between the tax bases and the recognized values of assets acquired and liabilities assumed in a business combination. See Note 3 for the Company’s accounting for the reverse merger. Cash, Cash Equivalents and Restricted Cash The Company considers all highly liquid instruments with an original maturity of three months or less when acquired to be cash equivalents. Cash and cash equivalents are held in depository and money market accounts and are reported at fair value. The Company’s restricted cash balances consist of cash deposits to collateralize letter of credit obligations. F- 9 Protara Therapeutics, Inc. Notes to Consolidated Financial Statements (amounts in thousands, except share and per share data) The following table provides a reconciliation of cash, cash equivalents, and restricted cash in the consolidated balance sheets to the total amount shown in the consolidated statements of cash flows: December 31, 2021 2020 Cash and cash equivalents $ 35,724 $ 168,598 Restricted cash - 50 Restricted cash, non-current 745 745 Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows $ 36,469 $ 169,393 Fair Value Measurements Accounting Standards Codification (“ASC”) Topic 820 “Fair Value Measurements” provides the framework for measuring fair value and establishes a fair value hierarchy that prioritizes the inputs used in pricing the asset or liability. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). Fair value is defined as the exchange price, or an exit price, representing the amount that would be received upon the sale of an asset or payment to transfer a liability in an orderly transaction between market participants. As a basis for considering market participant assumptions in fair value measurements, the three-tier fair value hierarchy is used to prioritize the inputs in measuring fair value as follows: Ø Level 1 Quoted prices in active markets for identical assets or liabilities. Ø Level 2 Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable, either directly or indirectly. Ø Level 3 Significant unobservable inputs that cannot be corroborated by market data. The carrying amounts of cash and cash equivalents, prepaid expenses and accounts payable approximate their fair values due to the short-term nature of these instruments. Marketable Debt Securities The Company classifies investments in marketable debt securities with remaining maturities when purchased of greater than three months as available-for-sale. Investments with a remaining maturity date greater than one year are classified as non-current. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in investment income. The Company records investments at fair value with unrealized gains and losses recorded as a component of other comprehensive loss in the consolidated statements of operations and comprehensive loss until realized. Fair value is determined based on quoted market rates when observable or utilizing data points that are observable, such as quoted prices, interest rates and yield curves. To determine whether an other-than-temporary impairment exists, the Company considers whether it has the ability and intent to hold the investment until a market price recovery, and whether evidence indicating the recoverability of the cost of the investment outweighs evidence to the contrary. The Company has the ability to hold such securities with an unrealized loss until its forecasted recovery. The Company determined that there was no material change in the credit risk of these investments. F- 10 Protara Therapeutics, Inc. Notes to Consolidated Financial Statements (amounts in thousands, except share and per share data) Concentrations of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk include amounts held as cash, cash equivalents, restricted cash, and marketable debt securities. The Company uses high quality, accredited financial institutions to maintain its balances, and accordingly, such funds are subject to minimal credit risk. The Company has not experienced any losses in such accounts and management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held. The Company has no financial instruments with off-balance sheet risk of loss. Property and Equipment, net Property and equipment, including leasehold improvements, are recorded at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful life of the asset. Depreciation begins at the time the asset is placed in service. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or estimated useful life of the asset. Repairs and maintenance costs are expensed as incurred, whereas major improvements are capitalized as additions to property and equipment. The estimated useful lives for significant property and equipment categories are as follows: Asset Classification Estimated Useful Life Computer equipment 5 Furniture, fixtures and other 5 Laboratory equipment 7 Leasehold improvements Shorter of the useful life of asset or the lease term Impairment of Long-Lived Assets Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset or asset group may not be recoverable or that the useful life is shorter than originally estimated. When such events occur, the Company compares the carrying amounts of the asset or asset group to the undiscounted expected future cash flows. If this comparison indicates that the asset or asset group is impaired, the amount of impairment is measured as the difference between the carrying value and fair value of the asset or asset group. If the useful life is shorter than originally estimated, the Company will amortize the remaining carrying value over the new shorter useful life. To date, no such impairment loss has been recognized. Leases The Company enters into contracts in the normal course of business and assesses whether any such contracts contain a lease. The Company determines if an arrangement is a lease at inception if it conveys the right to control the identified asset for a period of time in exchange for consideration. Under ASC 842, lease expense is recognized as a single lease cost on a straight-line basis over the lease term. The lease term consists of non-cancelable periods and may include options to extend or terminate the lease term, when it is reasonably certain such options will be exercised. Leases classified as operating leases are included in operating lease right-of-use (“ROU”) assets, current operating lease liabilities and noncurrent operating lease liabilities in our consolidated balance sheet. Finance leases are included in property and equipment and finance lease obligations, in our consolidated balance sheet. ROU assets represent the right to use an underlying asset for the lease term. Lease liabilities represent the present value of future lease payments, net of lease incentives, discounted using an incremental borrowing rate, which is a management estimate based on the information available at the commencement date of a lease arrangement. ROU assets and lease liabilities are recognized at the lease commencement date . The Company has elected to account for the lease and non-lease components for leases as a single component for classes of all underlying assets and allocate all the contract consideration to the lease component only. Lease cost for operating leases is recognized on a straight-line basis over the lease term and is included in operating expenses on the statements of operations and comprehensive loss. Variable lease payments are included in lease operating expenses. The Company recognizes costs associated with lease arrangements having an initial term of 12 months or less (“short-term leases”) on a straight-line basis over the lease term; such short-term leases are not recorded on the balance sheet. F- 11 Protara Therapeutics, Inc. Notes to Consolidated Financial Statements (amounts in thousands, except share and per share data) Segment Information The Company identifies its operating segments in accordance with Accounting Standards Codification (“ASC”) 280, Segment Reporting (“ASC 280”). Operating segments are defined as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker, its Chief Executive Officer, manages the Company’s operations on a consolidated basis for the purposes of allocating resources. Accordingly, the Company has determined it operates and manages its business in a single reportable operating segment. Goodwill On January 9, 2020, in connection with the Merger, the Company separately valued the assets and liabilities acquired, and then determined goodwill as the residual of the purchase price less identified net assets. The carrying value of goodwill is $ 29.5 million at December 31, 2021 and 2020, respectively. Goodwill represents the excess of purchase price over the fair value of identifiable net assets acquired in a business combination. Goodwill has an indefinite useful life. Goodwill is assessed annually for impairment as of December 31, or more frequently if an event occurs or circumstances change that would indicate that it is more likely than not that the fair value of a reporting unit or the fair value of an indefinite-lived intangible asset has declined below its carrying value. In performing its annual goodwill impairment assessment, the Company has the option under GAAP to qualitatively assess whether it is more likely than not that the fair value of a reporting unit is less than its carrying value; if the conclusion of the qualitative assessment is that there are no indicators of impairment, the Company does not perform a quantitative assessment. Otherwise, a quantitative assessment is performed and the fair value of the reporting unit is determined. Goodwill is evaluated for impairment at the reporting unit level, which is defined as an operating segment, or one level below an operating segment. The Company has determined that it operates as one reporting unit and has selected December 31 as the date to perform its annual impairment test. As of December 31, 2021, the Company elected to forego the qualitative screen and performed a quantitative annual goodwill impairment test for the reporting unit. As of December 31, 2020, the Company elected to perform a qualitative impairment assessment of goodwill impairment and considered qualitative indicators of the fair value of the reporting unit. Based upon the results of our annual goodwill impairment test, no adjustments to the carrying value of goodwill were necessary during the years ended December 31, 2021 and 2020. Research and Development Research and development expenses consist primarily of third-party costs incurred to develop drug candidates, employee-related expenses, including salaries, benefits, travel and stock-based compensation expense, depreciation and other allocated overhead costs, which include rent and maintenance of facilities and other supplies. Research and development costs are expensed as incurred. Before a compound receives regulatory approval, the Company records upfront and milestone payments made to third parties under licensing arrangements as expense provided that there is no alternative future use of the rights in other research and development projects. Nonrefundable advance payments to vendors for goods or services that will be used or received in future research and development activities are deferred and recognized as expense in the period in which the related goods are delivered or services are performed. Where milestone payments are due to third parties under research and development collaboration arrangements or other contractual agreements, the milestone payment obligations are expensed when the milestone conditions are met and the amount of payment is reasonably estimable. F- 12 Protara Therapeutics, Inc. Notes to Consolidated Financial Statements (amounts in thousands, except share and per share data) Once a compound receives regulatory approval, the Company records any milestone payments in identifiable intangible assets, less accumulated amortization and, unless the asset is determined to have an indefinite life, the Company amortizes the payments on a straight-line basis over the remaining agreement term or the expected product life cycle, whichever is shorter. Certain third-party costs are included as a component of research and development expense. These expenses include fees paid to contract research organizations (“CROs”) and other clinical trial costs, contractual services costs and costs for supply of its drug candidates. Depending upon the timing of payments to the service providers, the Company recognizes prepaid expenses or accrued expenses related to these costs. These accrued or prepaid expenses are based on management’s estimates of the work performed under service agreements, milestones achieved and experience with similar contracts. The Company monitors each of these factors and adjusts estimates accordingly. Patent Costs All patent-related costs incurred in connection with filing and prosecuting patent applications are expensed as incurred due to the uncertainty about the recovery of the expenditure. Amounts incurred are classified as general and administrative expenses. Investment Income Investment income consists primarily of interest income and accretion income earned and amortization expense incurred related to our marketable debt securities and interest income related to cash, cash equivalents and restricted cash. Stock-Based Compensation The Company’s stock-based compensation programs include stock options, restricted stock units (“RSUs”), and an employee stock purchase program (“ESPP”). The Company accounts for stock-based compensation using the fair value method. The Company measures all stock options and other stock-based awards granted to employees and directors based on the fair value on the date of the grant and recognizes compensation expense of those awards over the requisite service period, which is generally the vesting period of the respective award. The Company recognizes forfeitures at the time forfeitures occur. The fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model. Expected volatility for the Company’s common stock is determined based on an average of the historical volatility of the Company and the historical volatility of a peer-group of similar public companies. The expected term of options granted to employees is calculated using the simplified method, which represents the average of the contractual term of the option and the weighted-average vesting period of the option. The assumed dividend yield is based upon the Company’s expectation of not paying dividends in the foreseeable future. The risk-free interest rate is based upon the U.S. Treasury yield curve commensurate with the expected term at the time of grant or remeasurement. The stock-based compensation expense associated with purchase rights under the ESPP is measured at fair-value using a Black-Scholes option-pricing model at commencement of each offering period and recognized over that offering period. The Black-Scholes option pricing assumptions are similar to those used for stock options with the exception of the expected term of purchase rights for the ESPP which is based on the duration of an offering period. The fair values of RSUs are based on the fair market value of the Company’s common stock on the date of the grant. The RSUs are granted to directors pursuant to the Company’s equity plan. Settlement for the RSUs is deferred until the earliest to occur of (i) the director’s termination of service, (ii) death, (iii) disability or (iv) a change in control of the Company. In the event of a change in control of the Company, the RSUs will vest in full. The fair value of all stock-based awards is recognized as stock-based compensation expense on a straight-line basis over the vesting period, which is typically one to four years for RSUs and four years for stock options. The Company classifies stock-based compensation expense in its statement of operations and comprehensive loss in the same way the payroll costs or service payments are classified for the related stock-based award recipients. F- 13 Protara Therapeutics, Inc. Notes to Consolidated Financial Statements (amounts in thousands, except share and per share data) Income Taxes Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The measurement of net deferred tax assets is reduced by the amount of any tax benefit that, based on available evidence, is not expected to be realized, and a corresponding valuation allowance is established. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. Tax benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon settlement. A liability for unrecognized tax benefits is recorded for any tax benefits claimed in the Company’s tax returns that do not meet these recognition and measurement standards. The Company’s policy is to record interest and penalties on uncertain tax positions as a component of income tax expense in the consolidated statement of operations and comprehensive loss. Net Loss Per Share Attributable to Common Stockholders Basic net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period plus the common equivalent shares for the period including any dilutive effect from unvested restricted common stock, outstanding stock options and potential shares issuable under the ESPP. Recently Adopted Accounting Pronouncements In August 2018, the Financial Accounting Standards Board, or the FASB, issued ASU No. 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”). This ASU is designed to reduce complexity for accounting for costs of implementing a cloud computing service arrangement. This standard aligns the accounting for implementation costs of hosting arrangements, regardless of whether they convey a license to the hosted software. The standard became effective for the first interim period within annual reporting periods beginning after December 15, 2020. On January 1, 2021, the Company adopted ASU 2018-15. The adoption of this standard did not have a material effect on the Company’s financial position, results of operations, or cash flows. In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). The amendments in ASU 2019-12 remove certain exceptions to the general principles in Topic 740. The amendments also clarify and amend existing guidance to improve consistent application. The amendments became effective for annual reporting periods beginning after December 15, 2020. On January 1, 2021, the Company adopted ASU 2019-12. The adoption of this standard did not have a material effect on the Company’s financial position, results of operations, or cash flows. Recent Accounting Pronouncements Not Yet Adopted In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Statements (“ASU 2016-13”). The new standard requires that expected credit losses relating to financial assets measured on an amortized cost basis and available-for-sale debt securities be recorded through an allowance for credit losses. It also limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and also requires the reversal of previously recognized credit losses if fair value increases. In November 2019, the FASB issued ASU 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates (ASU 2019-10), which amended the effective date for certain companies. The standard is effective for public companies eligible to be smaller reporting companies for annual and interim periods beginning after December 15, 2022. Early adoption is available. The Company is currently evaluating the potential impact ASU 2016-13, and related updates, will have on its consolidated financial statements and disclosures. F- 14 Protara Therapeutics, Inc. Notes to Consolidated Financial Statements (amounts in thousands, except share and per share data) The Company has evaluated other recently issued accounting pronouncements and has concluded that the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s financial position or results of operations upon adoption. Subsequent Events The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the financial statements were available to be issued. Other than as described in Note 13, the Company did not identify any subsequent events that would have required adjustment or disclosure in the financial statements. 3. Reverse Merger with Protara and Recapitalization On January 9, 2020, in connection with, and prior to the completion of the Merger, Protara Therapeutics, Inc. effected the Protara Reverse Stock Split, which resulted in 557,631 pre-merger shares of Protara Therapeutics, Inc. outstanding. Under the terms of the Merger Agreement, Protara Therapeutics, Inc. issued shares of its common stock to the Company’s stockholders, at an exchange ratio of 0.190756 (the “Exchange Ratio”), after taking into account the Protara Reverse Stock Split, for each share of Private ArTara common stock outstanding immediately prior to the Merger. Protara Therapeutics, Inc. assumed all of the unvested Private ArTara restricted stock awards, which were exchanged for a number of shares of Protara Therapeutics, Inc.’s common stock equal to 0.190756 multiplied by the number of shares of Private ArTara common stock previously represented by such Private ArTara restricted stock awards and unvested to the same extent as such Private ArTara restricted stock awards and subject to the same restrictions as such Private ArTara restricted stock awards. On account of the adjustment required pursuant to the Exchange Ratio, there were 2,627,533 shares of Private ArTara common stock outstanding immediately prior to the Merger. Protara Therapeutics, Inc. assumed all of the outstanding and unexercised stock options of Private ArTara, with such stock options representing the right to purchase a number of shares of Protara Therapeutics, Inc.’s common stock equal to 0.190756 multiplied by the number of shares of Private ArTara common stock previously represented by such Private ArTara stock options. As a result, 219,699 shares were assumed under Private ArTara’s 2017 Equity Incentive Plan. No additional awards will be made under the 2017 Equity Incentive Plan. On January 1, 2020, Protara Therapeutics, Inc. amended its Amended and Restated 2014 Equity Incentive Plan (the “Amended 2014 Plan”) to increase the number of shares of stock available for issuance under the 2014 Equity Incentive Plan to 1,048,300 shares and made conforming changes and updates pursuant to Section 162(m) of the Code. Concurrently with the execution of the Merger Agreement, certain institutional investors (together, the “Investors”) entered into a subscription agreement (as amended on November 19, 2019, the “Subscription Agreement”) with Protara Therapeutics, Inc. and Private ArTara, pursuant to which (A) Protara Therapeutics, Inc. issued in a private placement immediately after the Merger (the “Proteon Private Placement”) (i) 3,879.356 of shares of Protara Therapeutics, Inc.’s Series 1 Convertible Non-Voting Preferred Stock at a purchase price of approximately $7,011.47 per share for gross proceeds of $27,200 and proceeds, net of issuance costs, of $25,319, (ii) 1,896,888 shares of Protara Therapeutics, Inc.’s common stock at a purchase price of approximately $7.01 per share for gross proceeds of $13,300 and proceeds, net of issuance costs, of $12,413 and (B) Private ArTara issued in a private placement immediately prior to the Merger (the “ArTara Private Placement”) 284,875 shares of Private ArTara common stock (post-Exchange Ratio basis) at a purchase price of approximately $7.01 per share (post-Exchange Ratio basis) (together with the Proteon Private Placement, the “Private Placements”) for gross proceeds of $2,000 and proceeds, net of issuance costs, of $1,867. The shares issued in the Proteon Private Placement were registered for resale on a registration statement on Form S-3 filed and declared effective by the SEC on January 30, 2020. Immediately following the closing of the Proteon Private Placement, 18,954 shares of Protara Therapeutics, Inc.’s Series A Convertible Preferred Stock outstanding were converted into 476,276 shares of Protara Therapeutics, Inc.’s common stock. These shares, combined with the 557,631 pre-merger shares of Protara Therapeutics, Inc. outstanding after the Protara Reverse Stock Split, resulted in an aggregate of 1,033,907 shares of Protara Therapeutics, Inc.’s common stock issued in connection with the Merger. Immediately after the consummation of the Merger and prior to the consummation of the Proteon Private Placement, the former stockholders and option holders of Private ArTara owned, or held rights to acquire, approximately 75.2% of the fully diluted common stock of Protara, with Protara Therapeutics, Inc.’s stockholders and option holders immediately prior to the Merger owning approximately 24.8% of the fully-diluted common stock of Protara. F- 15 Protara Therapeutics, Inc. Notes to Consolidated Financial Statements (amounts in thousands, except share and per share data) Based on the terms of the Merger, the transaction was treated as a reverse merger of Protara Therapeutics, Inc. by Private ArTara. The Merger was accounted for using acquisition accounting under ASC Topic 805 “Business Combinations”. Under acquisition accounting, the assets and liabilities (including executory contracts, commitments and other obligations) of Protara Therapeutics, Inc. as of the effective time of the Merger were recorded at their respective fair values and added to those of Private ArTara. Any excess of purchase price consideration over the fair values of the identifiable net assets is recorded as goodwill. During the year ended December 31, 2020, the Company recorded an adjustment of $ 150 to goodwill. This adjustment was comprised of a decrease of $ 78 in prepaid expenses and other current assets, and an increase of $ 77 in accrued expenses, resulting in a final purchase price allocation as follows: Cash $ 3,669 Restricted cash 50 Prepaid expenses and other current assets 1,662 Goodwill 29,517 Accrued expenses ( 365 ) Total purchase price consideration $ 34,533 The total fair value of the net assets of Protara Therapeutics Inc. was determined by the Company to be $ 34,533 based on the consideration transferred. The total consideration was based on the enterprise value of Protara Therapeutics Inc. as of January 9, 2020, based upon the number of common shares deemed outstanding, multiplied by the closing stock price on January 9, 2020. Of the amount of goodwill acquired in the reverse merger, no portion is deductible for tax purposes. The primary reasons for the reverse merger were to increase access to sources of capital and a broader range of investors to support the clinical development of Private ArTara’s product candidates, the potential to provide current stockholders with greater liquidity by owning stock in a public company, the potential for a more cost-effective means to access capital and the registration of Protara common stock issued to Private ArTara’s stockholders. In addition, Protara assumed the existing 2014 Equity Incentive Plan, and all outstanding stock options thereunder. The following presents the unaudited pro forma combined financial information as if the reverse merger had occurred as of January 1, 2020. For the Year Ended December 31, 2020 Net loss $ ( 33,754 ) Pro forma loss per common share, basic and diluted $ ( 4.62 ) Pro forma weighted average number of common shares outstanding, basic and diluted 7,304,201 The pro forma combined results of operations are not necessarily indicative of the results of operations that would have occurred had the reverse merger been completed as of January 1, 2020, nor are they necessarily indicative of future consolidated results. F- 16 Protara Therapeutics, Inc. Notes to Consolidated Financial Statements (amounts in thousands, except share and per share data) 4. Fair Value of Financial Instruments The table below presents information about the Company’s financial instruments that are measured at fair value on a recurring basis as of December 31, 2021 and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value, as described under Note 2, Summary of Significant Accounting Policies. At December 31, 2021, the Company has classified financial instruments measured at fair value on a recurring basis as follows: December 31, 2021 Level 1 Level 2 Level 3 Total Cash Equivalents Money market funds $ 26,323 $ - $ - $ 26,323 Restricted cash, non-current Money market funds 745 - - 745 Marketable debt securities Corporate bonds - 94,972 - 94,972 Total $ 27,068 $ 94,972 $ - $ 122,040 Money market funds are classified as Level 1 within the fair value hierarchy, because they are valued using quoted prices in active markets. Corporate debt securities classified as Level 2 within the fair value hierarchy are valued on the basis of prices from an orderly transaction between market participants provided by reputable dealers or pricing services. Prices of these securities are obtained through independent, third-party pricing services and include market quotations that may include both observable and unobservable inputs. In determining the value of a particular investment, pricing services may use certain information with respect to transactions in such investments, quotations from dealers, pricing matrices and market transactions in comparable investments and various relationships between investments. There were no transfers of financial instruments among Level 1, Level 2, and Level 3 during the period presented. As of December 31, 2020, the Company did not have any marketable debt securities or money market funds. Cash equivalents, prepaid expenses and other current assets, accounts payable and accrued expenses at December 31, 2021 and 2020 are carried at amounts that approximate fair value due to their short-term maturities. 5. Marketable Debt Securities Marketable debt securities, all of which were classified as available-for-sale, consist of the following: December 31, 2021 Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value Corporate bonds - presented in marketable debt securities $ 55,548 $ - $ ( 43 ) $ 55,505 Corporate bonds - presented in marketable debt securities, non-current 39,635 - ( 168 ) 39,467 Total $ 95,183 $ - $ ( 211 ) $ 94,972 As of December 31, 2020, the Company did not have any marketable debt securities. The amount of realized gains and losses reclassified into earnings have not been material to the Company’s consolidated statements of operations. There were no sales of securities in the periods presented. F- 17 Protara Therapeutics, Inc. Notes to Consolidated Financial Statements (amounts in thousands, except share and per share data) The contractual maturities of all securities held at December 31, 2020 was 23 months or less. Of the 40 securities in a loss position held by the Company, there were no securities with an other-than-temporary impairment at December 31, 2021. There were no securities in a continuous unrealized loss position for greater than twelve months at December 31, 2021. Investment Income Investment income consists of the following: December 31, 2021 2020 Interest income $ 1,974 $ 500 Accretion/(amortization) of discount/premium, net ( 1,737 ) - Total interest and investment income $ 237 $ 500 6. Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consist of the following: December 31, 2021 2020 Prepaid insurance 279 292 Prepaid research and development 684 209 Prepaid software 79 10 Accrued interest on marketable debt securities 634 - Prepaid rent - 113 Other prepaid expenses 173 111 Other current assets 34 52 Total $ 1,883 $ 787 7. Property and Equipment, net Property and equipment, net consists of the following: December 31, 2021 2020 Computer equipment $ 175 $ 34 Furniture, fixtures and other 352 21 Laboratory equipment 591 601 Leasehold improvements 224 200 Property and equipment not yet placed into service 613 503 Total property and equipment 1,955 1,359 Less: Accumulated depreciation ( 236 ) ( 119 ) Total property and equipment, net $ 1,719 $ 1,240 Depreciation expense was $ 117 and $ 103 for the years ended December 31, 2021 and 2020, respectively. During the year ended December 31, 2021, $ 36 and $ 81 was included in research and development expense and general and administrative expense, respectively, within the consolidated statements of operations and comprehensive loss. For the year ended December 31, 2020, $ 99 and $ 4 was included in research and development expense and general and administrative expense, respectively, within the consolidated statements of operations and comprehensive loss. As of December 31, 2021 and 2020, 100 % of the Company’s total property and equipment, net was attributable to the United States. F- 18 Protara Therapeutics, Inc. Notes to Consolidated Financial Statements (amounts in thousands, except share and per share data) 8. Accrued Expenses Accrued expenses consist of the following: December 31, 2021 2020 Payroll $ 1,801 $ 1,530 Taxes 41 159 Legal fees 29 156 Research and development costs 437 37 Other expenses 181 31 Total $ 2,489 $ 1,913 9. Short-Term Debt Financing Agreement On February 19, 2020, the Company entered into a nine-month financing agreement with AFCO Credit Corporation for its directors and officers (“D&O”) liability insurance in the amount of $2,225. The Company made a down payment of $556, leaving a principal balance of $1,669. The financing bore interest at a rate of 4.25% per annum, and was repaid in monthly installments of $189, which included both principal and interest. As of December 31, 2021 and 2020, the balance under this debt was $ 0 . The Company recorded interest expense of $ 0 and $ 34 for the year ended December 31, 2021 and 2020, respectively, under this financing agreement. 10. Leases Operating leases In December 2020, the Company entered into an agreement to lease approximately 10.3 square feet of office space in New York, New York (“Office Lease”), which commenced in April 2021. The office space is owned by an affiliate of Deerfield Management Company, L.P., which together with its affiliates beneficially owned more than 5% of the Company’s voting securities at the time the lease was executed. Annual rent is approximately $1,117. The Office Lease has a term of approximately seven years and contains provisions for a free-rent period, annual rent increases and an allowance for tenant improvements. The Company has an option to extend the term by five years, however, the Company determined at the lease commencement date that it was not reasonably certain to exercise the renewal option and such renewal was excluded from the operating lease right-of-use, or ROU, asset and operating lease liability recorded for this lease. The Company is responsible for real estate taxes, maintenance and other operating expenses applicable to the leased premises which are recognized as variable lease expense in the period when incurred. In conjunction with the Office Lease, the Company established a letter of credit of approximately $ 745 secured by cash balances included in restricted cash. In June 2021, the Company amended the existing agreement with its contract development and manufacturing organization, or CDMO, establishing a term of eight-years from the amendment date. Prior to the amendment, the leased spaces met the short-term lease exception under a quarter-to quarter arrangement and were not included in measurement of lease liabilities. Leases classified as operating leases are included in operating lease ROU assets, operating lease liabilities and operating lease liabilities, non-current, in the Company’s consolidated balance sheets. The Office Lease and the CDMO leased spaces are included in operating lease ROU assets and operating lease liabilities. Cash paid for operating lease liabilities was $ 1,009 and $ 66 during the years ended December 31, 2021 and 2020, respectively, which is included in operating cash flows. The ROU asset obtained in exchange for operating lease liabilities related to the Office Lease was $ 6,549 . F- 19 Protara Therapeutics, Inc. Notes to Consolidated Financial Statements (amounts in thousands, except share and per share data) The components of lease expense were as follows: For the year ended December 31, Lease expense 2021 2020 Operating lease expense $ 1,050 $ 93 Short-term lease expense 102 215 Total $ 1,152 $ 308 Variable lease expense for the years ended December 31, 2021 and 2020 was not material. The weighted average remaining lease term and the weighted average discount rate for operating leases were: For the year ended December 31, 2021 2020 Weighted-average discount rate 7.0 % 12.0 % Weighted-average remaining lease term – operating lease (in months) 79 87 The total remaining operating lease payments included in the measurement of lease liabilities on the Company’s consolidated balance sheet as of December 31, 2021, was as follows: For the year ending December 31: Operating Lease Payments 2022 $ 1,327 2023 1,327 2024 1,327 2025 1,395 2026 1,429 Thereafter 2,234 Total gross operating lease payments 9,039 Less: imputed interest ( 1,800 ) Total lease liabilities, reflecting present value of future minimum lease payments $ 7,239 11. Commitments and Contingencies Employment Agreements Executive Employment Agreements The Company’s executive officers have entered into at-will employment agreements. Collaborations and License Agreements Choline License Agreement On September 27, 2017, the Company entered into a license agreement (the “Choline License Agreement”) with Alan L. Buchman (“Dr. Buchman”). Pursuant to the Choline License Agreement, the Company received from Dr. Buchman the license rights in and to the “Licensed Orphan Designations”, the “Licensed IND”, “Existing Study Data” and the “Licensed Know-How” for one or more of the licensed indications. Pursuant to the agreement there were no research and development expenses recognized during the years ended December 31, 2021 and 2020. F- 20 Protara Therapeutics, Inc. Notes to Consolidated Financial Statements (amounts in thousands, except share and per share data) License Agreement On December 22, 2017, the Company entered into an agreement (the “Feinstein Agreement”) with The Feinstein Institute for Medical Research (the “Feinstein Institute”), a not-for-profit corporation with 50 research labs and 2,500 clinical research studies. Pursuant to the Feinstein Agreement, the Company acquired an exclusive license relating to treatment of fatty liver diseases in humans for which Choline may be an effective therapeutic. In consideration for the rights and license granted, the Feinstein Institute would receive a royalty of one percent (1%) of the first one hundred million dollars ($100,000) of net sales of IV Choline Chloride and a royalty of one and one-half percent (1.5%) of all net sales thereafter. In addition, the Company would pay the Feinstein Institute twelve and one-half percent (12.5%) of net proceeds resulting from agreements entered within 2 years from the effective date, and seven and one-half percent (7.5%) of net proceeds resulting from agreements entered into thereafter. Pursuant to the Feinstein Agreement additional payments would be due to the Feinstein Institute for license maintenance payments and for meeting milestone events. Pursuant to the Feinstein Agreement, upon the achievement of certain future new drug application milestones, the Company would be obligated to remit an aggregate of $275. During the years ended December 31, 2021 and 2020, the Company recorded research and development expense of $ 15 and $ 115 , respectively, in connection with the Feinstein Agreement. Sponsored Research and License Agreement On November 28, 2018, the Company entered into a sponsored research and license agreement (the “Iowa Agreement”) with the University of Iowa. Pursuant to the Iowa Agreement, the University of Iowa, which is engaged in clinical research to improve the diagnosis and treatment of lymphangioma using a pharmaceutical product (OK-432), would assist the Company in collecting case reports, forms, source data, and safety data available to the University of Iowa in support of the development of the Company’s proprietary Streptococcus Pyogenes investigational product, TARA-002 for the LMs indication. During the term of the services, the Company would generally pay the University of Iowa thirty thousand dollars ($30) per year to fund the project, plus additional amounts upon the realization of certain milestones. More specifically, upon forty-five (45) days of an approval of TARA-002 by the FDA, the Company would pay up to $1,750 to the University of Iowa for meeting these milestones. Furthermore, the Company would pay the University of Iowa royalties of up to 1.75% for net sales ranging from $0 - $25,000, 2.25% for net sales ranging from $25,000 to $50,000, and 2.50% for net sales in excess of $50,000. Pursuant to the Iowa Agreement, the University of Iowa would be entitled to additional payments for the Company achieving annual net sales of product according to the milestones. For annual net sales of product up to $25,000; $62; for annual net sales of product of up to $50,000; $62; and for annual net sales of product of up to $100,000; $125. During the years ended December 31, 2021 and 2020, the Company recorded research and development expense of $ 0 and $ 30 respectively, in connection with the Iowa Agreement. Chugai Agreement On June 17, 2019, the Company entered into an agreement (the “Chugai Pharmaceutical Agreement”) with Chugai Pharmaceutical Co., LTD (“Chugai”), a drug manufacturing firm with offices and operations in Japan. Pursuant to the Chugai Pharmaceutical Agreement, Chugai would help the Company in its goals to develop and commercialize a therapeutic product (the “New Product”) which is comparable to the Chugai existing therapeutic product (the “Existing Product”). In addition, the Company would be entitled to the use of Chugai materials and technical support as necessary. On July 14, 2020, the Company and Chugai entered into an amendment (the “Chugai Amendment”) to the Chugai Pharmaceutical Agreement. The Chugai Amendment is effective as of June 30, 2020. The Chugai Amendment extended the date through which Chugai will exclusively provide the Existing Product and materials to the Company from June 30, 2020 to June 30, 2021, extended the date through which Chugai will not provide materials or technical support to any third-party for the purpose of development and commercialization in a given area from the fifth anniversary to the eleventh anniversary of the original effective date and provides that, in addition to the designated fee provided upon the initial indication approval in the Chugai Pharmaceutical Agreement, the Company will pay Chugai a designated fee for each additional indication approval. The Company is obligated to Chugai for certain payments upon the completion of agreed upon milestones. Pursuant to the agreement there were no research and development expenses recognized during the years ended December 31, 2021 and 2020. F- 21 Protara Therapeutics, Inc. Notes to Consolidated Financial Statements (amounts in thousands, except share and per share data) Litigation From time to time, Protara may be subject to various legal proceedings and claims that arise in the ordinary course of its business activities. Management is of the opinion that the ultimate outcome of these matters would not have a material adverse impact on the financial position of the Company or the results of its operations. In the normal course of business, the Company enters into contracts in which it makes representations and warranties regarding the performance of its services and that its services will not infringe on third-party intellectual rights. There have been no significant events related to such representations and warranties in which the Company believes the outcome could result in losses or penalties in the future. 12. Stockholders’ Equity Common Stock As of December 31, 2021, the Company had 100,000,000 shares of common stock authorized for issuance, $ 0.001 par value per share, of which 11,235,731 and 11,211,840 shares were issued and outstanding as of December 31, 2021 and 2020, respectively. The holders of the Company’s common stock are entitled to one vote per share. Preferred Stock In connection with the Preferred Offering (defined below) on September 22, 2020, the Company filed a Certificate of Amendment to the Certificate of Designation of Preferences, Rights and Limitations of Series 1 Convertible Preferred Stock of the Company (the “Amendment”) with the State of Delaware to increase the authorized number of shares of the Company’s Series 1 Convertible Preferred Stock that may be issued from 3,880 to 8,028 . The Amendment was approved by a committee of the Company’s Board of Directors and the requisite holders of outstanding shares of Series 1 Convertible Preferred Stock. No approval of the holders of the Company’s common stock was required to effectuate the Amendment. As of December 31, 2021 and 2020, the Company had 10,000,000 shares of preferred stock authorized for issuance, $ 0.001 par value per share of which 8,028 shares of Series 1 Convertible Preferred Stock are authorized for issuance and 8,027 shares were issued and outstanding, respectively. Description of Series 1 Convertible Preferred Stock Each share of Series 1 Convertible Preferred Stock is convertible into 1,000 shares of the Company’s common stock, at a conversion price initially equal to approximately $ 7.01 per common share, subject to adjustment for any stock splits, stock dividends and similar events, at any time at the option of the holder, provided that any conversion of Series 1 Convertible Preferred Stock by a holder into shares of the Company’s common stock would be prohibited if, as a result of such conversion, the holder, together with its affiliates and any other person or entity whose beneficial ownership of the Company’s common stock would be aggregated with such holder’s for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended, would beneficially own more than 9.99 % of the total number of shares of the Company’s common stock issued and outstanding after giving effect to such conversion. Upon written notice to the Company, the holder may from time to time increase or decrease such limitation to any other percentage not in excess of 19.99 % specified in such notice. In addition, upon the occurrence of certain transactions that involve the merger or consolidation of the Company, an exchange or tender offer, a sale of all or substantially all of the assets of the Company or a reclassification of its Common Stock, each share of Series 1 Convertible Preferred Stock will be convertible into the kind and amount of securities, cash and/or other property that the holder of a number of shares of Common Stock issuable upon conversion of one share of Series 1 Convertible Preferred Stock would receive in connection with such transaction. The terms of the Series 1 Convertible Preferred Stock provide that, in the event of a fundamental transaction (as such term is described in the certificate of designation of preferences, rights and limitations of series 1 convertible non-voting preferred stock), each share of Series 1 Convertible Preferred Stock outstanding shall thereafter be convertible into the kind and amount of securities, cash and/or other property which a holder of the number of shares of Common Stock of the Company issuable upon conversion of one share of Series 1 Convertible Preferred Stock immediately prior to such fundamental transaction would have been entitled to receive pursuant to such fundamental transaction, provided that, if the value of the aggregate of such securities, cash and/or other property the which the holder of one share of Series 1 Convertible Preferred Stock would be entitled to upon conversion thereof would be less than the stated value, then each outstanding share of Series 1 Convertible Preferred Stock shall instead be convertible into such kind of securities, cash and/or other property with an aggregate value equal to the stated value. Each share of Series 1 Convertible Preferred Stock is entitled to a preference of $ 10.00 per share upon liquidation of the Company, and thereafter will share ratably in any distributions or payments on an as-converted basis with the holders of Common Stock. The Company’s Series 1 Convertible Preferred Stock are non-voting. F- 22 Protara Therapeutics, Inc. Notes to Consolidated Financial Statements (amounts in thousands, except share and per share data) Underwritten Public Offering On September 24, 2020, pursuant to an underwriting agreement dated September 22, 2020, the Company issued and sold in an underwritten public offering (the “Common Offering”) an aggregate of 4,600,000 shares of its common stock at an offering price of $ 16.87 per share, for gross and net proceeds of approximately $ 77.6 million and $ 73.6 million, respectively. The underwriters were granted an option to purchase up to 690,000 additional shares of the Company’s common stock at the public offering price, less the underwriting discount. On October 6, 2020, the underwriters exercised their overallotment option in full, purchasing an additional 690,000 shares, resulting in the receipt of gross and net proceeds of $ 11.6 million and $ 11.1 million, respectively. On September 24, 2020, pursuant to an underwriting agreement (dated September 22, 2020), the Company issued and sold in an underwritten public offering (the “Preferred Offering”) an aggregate of 4,148 shares of its Series 1 Convertible Preferred Stock at an offering price of $ 16,873.54 per share, for gross and net proceeds of approximately $ 70.0 million and $ 66.3 million, respectively. 13. Stock-Based Compensation 2020 Inducement Plan On March 26, 2020, the Compensation Committee of the Board of Directors (the “Compensation Committee”) approved the ArTara Therapeutics, Inc. Inducement Plan (the “2020 Inducement Plan”) in order to award nonstatutory stock options, restricted stock awards, restricted stock unit awards and other stock-based awards to persons not previously an employee or director of the Company, or following a bona fide period of non-employment, as an inducement material to such persons entering into employment with the Company. The 2020 Inducement Plan provides for a total of 600,000 shares for the issuance of the Company’s common stock. The Compensation Committee also adopted a form of stock option grant notice and stock option agreement and forms of restricted stock unit grant notice and restricted stock unit agreement for use with the Inducement Plan. As of December 31, 2021, 420,500 shares remain available to be issued under the 2020 Inducement Plan. 2017 Equity Incentive Plan On August 10, 2017, Private ArTara, its Board of Directors and its shareholders approved the ArTara Therapeutics, Inc. 2017 Equity Incentive Plan to enable Private ArTara and its affiliates to recruit and retain highly qualified personnel and to incentivize personnel for productivity and growth. The 2017 Equity Incentive Plan provided for the grant of a total of 2,000,000 shares for the issuance of stock options, stock appreciation rights, restricted stock and restricted stock units to among others, members of the Board of Directors, employees, consultants and service providers to the Company and its affiliates. As of January 9, 2020, in connection with the Merger, no additional awards will be made under the 2017 Equity Incentive Plan. F- 23 Protara Therapeutics, Inc. Notes to Consolidated Financial Statements (amounts in thousands, except share and per share data) 2014 Equity Incentive Plan On October 3, 2014, the stockholders approved the 2014 Equity Incentive Plan. On June 20, 2017, the Company’s Board of Directors amended the 2014 Equity Incentive Plan (the “Amended 2014 Plan”). On July 31, 2017, the stockholders approved this amendment. On January 1, 2020, Protara Therapeutics, Inc. amended its Amended and Restated 2014 Equity Incentive Plan to increase the number of shares of stock available for issuance under the 2014 Equity Incentive Plan to 1,048,300 shares and made conforming changes and updates pursuant to Section 162(m) of the Code. The Amended 2014 Plan provides for the grant of incentive and non-statutory stock options, stock appreciation rights, restricted stock and stock unit awards, performance units, stock grants and qualified performance-based awards. The Amended 2014 Plan provides that the number of shares reserved and available for issuance will automatically increase each January 1, by four percent of the Company’s common stock on the immediately preceding December 31, adjusted for the number of shares of the Company’s common stock issuable upon conversion of any security that the Company may issue that is convertible into or exchangeable for the Company’s common stock, or such lesser number of shares as determined by the Company’s Board of Directors. On January 1, 2021, pursuant to the Amended 2014 Plan’s annual evergreen feature, the number of shares authorized under the Amended 2014 Plan was increased by 812,889 shares to 1,861,189 shares. As of December 31, 2021, 398,604 shares remain available to be issued under the Amended 2014 Plan. On January 1, 2022, pursuant to the Amended 2014 Plan’s annual evergreen feature, the number of shares authorized under the Amended 2014 Plan was increased by 840,181 shares to 1,238,785 shares available to be issued. Terms of the stock awards, including vesting requirements, are determined by the Board of Directors, subject to the provisions of the plans. Certain awards provide for accelerated vesting if there is a change in control as defined in the plans. 2014 Employee Stock Purchase Plan On October 3, 2014, the stockholders approved the 2014 Employee Stock Purchase Plan (the “2014 ESPP”). The 2014 ESPP initially authorized the issuance of up to 3,513 shares of the Company’s common stock. The number of shares increases each January 1, commencing on January 1, 2015 and ending on (and including) January 1, 2024, by an amount equal to the lesser of one percent of the outstanding shares as of the end of the immediately preceding fiscal year, 7,025 shares or any lower amount determined by the Company’s Board of Directors prior to each such January 1st. On January 1, 2021, pursuant to the increase per the 2014 ESPP, the number of shares authorized under the 2014 ESPP was increased by 7,025 shares to 25,037 shares. As of December 31, 2021, the authorized number of shares under the 2014 ESPP is 25,037 and the number of shares available for issuance is 20,365 . During the years ended December 31, 2021 and 2020, no shares were issued under the 2014 ESPP. On January 1, 2022, pursuant to the increase per the 2014 ESPP, the number of shares authorized under the 2014 ESPP was increased by 7,025 shares to 32,062 shares. Restricted Stock Units The following table summarizes restricted stock unit activity: Restricted Stock Units Weighted Average Grant Date Fair Value Non-vested 12/31/2020 274,616 $ 29.95 Granted 10,500 11.16 Forfeited - - Vested ( 188,915 ) 29.46 Non-vested 12/31/2021 96,201 $ 28.87 F- 24 Protara Therapeutics, Inc. Notes to Consolidated Financial Statements (amounts in thousands, except share and per share data) The fair value of RSUs is amortized on a straight-line basis over the requisite service period of the respective awards. As of December 31, 2021, the unamortized value of RSUs was $ 1,835 . As of December 31, 2021, the weighted average remaining amortization period was 2.39 years. As of December 31, 2021 and 2020, 286,918 and 132,709 RSUs, respectively, have vested that have not yet been settled into shares of the Company’s common stock. During the year ended December 31, 2021, the Company issued 23,891 shares of the Company’s common stock from the net settlement of 34,706 RSUs. The Company paid $ 228 in connection with the net share settlement of these RSUs. Stock Options The Company determined the fair value of stock options granted based upon the assumptions as provided below. For the Years Ended December 31, 2021 2020 Exercise price $ 6.56 - $ 19.82 $ 17.84 - $ 51.12 Dividend yield 0.00 % 0.00 % Expected volatility 89.00 % - 98.00 % 95.00 % - 101.00 % Risk-free interest rate 0.45 % - 1.33 % 0.28 % - 1.69 % Expected life (in years) 5.27 - 6.08 5.27 - 6.08 The following table summarizes stock option activities for the year ended December 31, 2021: Number of Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term (years) Aggregate Intrinsic Value (1) Outstanding 12/31/2020 674,039 $ 25.23 9.06 $ 2,311 Granted 861,850 16.32 - - Exercised - - - - Forfeited ( 168,196 ) 17.62 - - Expired ( 11,054 ) 26.15 - - Outstanding at December 31, 2021 1,356,639 $ 20.51 8.59 $ 1 Vested or expected to vest at December 31, 2021 1,356,639 $ 20.51 8.59 $ - Exercisable as of 12/31/2021 407,981 $ 21.97 7.83 $ - (1) Aggregate intrinsic value represents the difference between the exercise price of the option and the closing market price of our common stock on December 31, 2021. The intrinsic value of options exercised during the year ended December 31, 2021 was $0 as no options were exercised. The intrinsic value of options exercised during the year ended December 31, 2020 was $ 696 . The weighted average grant date fair value per share of the options granted during the years ended December 31, 2021 and 2020 was $ 12.60 and $ 22.61 , respectively of December 31, 2021, there was approximately $ 12,664 of unrecognized share-based compensation for unvested stock option grants which is expected to be recognized over a weighted average period of 2.71 years. The total unrecognized share-based compensation cost will be adjusted for actual forfeitures as they occur. F- 25 Protara Therapeutics, Inc. Notes to Consolidated Financial Statements (amounts in thousands, except share and per share data) Summary of Stock-Based Compensation Expense The following tables summarize total stock-based compensation costs recognized: For the Years Ended December 31, 2021 2020 RSUs $ 4,520 $ 6,357 Stock options 5,842 3,389 Total $ 10,362 $ 9,746 Stock-based compensation expense was reflected within the statements of operations as: For the Years Ended December 31, 2021 2020 Research and development $ 1,409 $ 741 General and administrative 8,953 9,005 Total $ 10,362 $ 9,746 14. Income Taxes Federal and State income tax expense is as follows: For the Years Ended December 31, 2021 2020 Current Federal $ - $ - State - - Total current - - Deferred Federal ( 8,918 ) ( 6,211 ) State 4,294 ( 2,439 ) Total deferred ( 4,624 ) ( 8,650 ) Change in valuation allowance 4,624 8,650 Total income tax expense (benefit) $ - $ - Deferred income taxes, if applicable, are provided for the differences between the basis of assets and liabilities for financial reporting and income tax purposes. F- 26 Protara Therapeutics, Inc. Notes to Consolidated Financial Statements (amounts in thousands, except share and per share data) The tax effects of temporary differences that give rise to significant portions of the deferred tax assets are as follows: As of December 31, 2021 2020 Deferred tax assets: Net operating loss carry forwards $ 23,350 $ 19,371 Stock option expense 920 443 Research and development credits 1,551 70 Operating lease liability 1,564 330 RSU expense 1,960 1,796 Other 7 10 Total deferred tax assets 29,352 22,020 Valuation allowance ( 27,803 ) ( 21,698 ) Deferred tax assets, net of valuation allowance 1,549 322 Deferred tax liabilities: Operating right-of-use asset ( 1,549 ) ( 322 ) Total deferred tax liabilities ( 1,549 ) ( 322 ) Deferred tax assets, net of valuation allowance and deferred tax liabilities $ - $ - A reconciliation of the provision for income taxes with the amounts computed by applying the statutory Federal income tax to income before provision for income taxes is as follows: For the Years Ended December 31, 2021 2020 U.S. federal statutory rate ( 21.0 )% ( 21.0 )% State taxes, net of federal benefit ( 0.6 )% ( 9.4 )% Research and development credits ( 3.3 )% - % Option expense 1.1 % 1.2 % Other 1.2 % 1.9 % True-up to prior years return 8.2 % 1.8 % State rate change 1.5 % - % Change in valuation allowance 12.9 % 25.5 % Effective tax rate - % - % For the year ended December 31, 2020, the Company’s effective tax rate was 0%, which consisted principally of a federal rate of 21% and the Company’s estimate of state taxes, net of federal benefit, of 9.4%, offset by a valuation allowance 25.5%. For the year ended December 31, 2021, the Company’s effective tax rate was 0%, which consisted principally of a federal rate of 21%, and the Company’s estimate of state taxes, net of federal benefit, of 0.6%, offset by a valuation allowance 12.9% and true-up to the prior years tax return of 8.2%. As of December 31, 2021 for U.S. federal and state income tax reporting purposes, the Company has approximately $ 100.2 million and $ 29.6 million, respectively, of unused net operating losses (“NOLs”) available for carry forward to future years. As a result of the Tax Cuts and Jobs Act of 2017 (“TCJA”), for U.S. income tax purposes, NOLs generated in tax years beginning before January 1, 2018 can still be carried forward for up to 20 years, but net operating losses generated for tax years beginning after December 31, 2017 carryforward indefinitely and can be used to offset taxable income. Of the total Federal NOL, $ 0.6 million can be carried forward until 2037; and $ 99.6 million can be carried forward indefinitely. The New York state and city NOLs may be carried forward through the year 2041 and may be applied against future taxable income. Further, the benefit from utilization of NOL carry forwards could be subject to limitations due to material ownership changes that could occur as the Company continues to issue additional shares of common stock pursuant to its capital raising plans. Based on such limitations, the Company has significant NOLs for which realization of tax benefits is uncertain. The Company has not performed a study to determine whether or not there is such a limitation. F- 27 Protara Therapeutics, Inc. Notes to Consolidated Financial Statements (amounts in thousands, except share and per share data) The Company remains subject to examination by tax authorities for all tax years. Based on a history of cumulative losses at the Company and the results of operations for the years ended December 31, 2021 and 2020, the Company determined that it is more likely than not that it will not realize benefits from the net deferred tax assets. The Company will not record income tax benefits in the financial statements until it is determined that it is more likely than not that the Company will generate sufficient taxable income to realize the deferred income tax assets. As a result of the analysis, the Company determined that a full valuation allowance against the deferred tax assets, net, was required. As of December 31, 2021 and 2020, the Company has recorded a valuation allowance of $ 27.8 million and $ 21.7 million, respectively. As of December 31, 2021 and 2020, management does not believe that the Company has any material uncertain tax positions that would require it to measure and reflect the potential lack of sustainability of a position on audit in its consolidated financial statements. The Company will continue to evaluate its uncertain tax positions in future periods to determine if measurement and recognition in its financial statements is necessary. The Company does not believe there will be any material changes in its unrecognized tax positions over the next year. 15. Employee Benefit Plan The Company maintains a defined contribution benefit plan under section 401(k) of the Internal Revenue Code covering substantially all qualified employees of the Company (the “401(k) Plan”). Under the 401(k) Plan, the Company matches 100% up to a 4% contribution. The 401(k) Plan was implemented in June of 2020. For the years ended December 31, 2021 and 2020, the Company recorded expense of $215 and $69, respectively, representing employer contributions under the 401(k) Plan. 16. Net Loss per Common Share The following table sets forth the computation of the net loss per share attributable to common stockholders, basic and diluted: December 31, 2021 2020 Numerator: Net loss attributable to common stockholders $ 47,252 $ 33,978 Denominator: Weighted-average common shares outstanding – basic and diluted 11,232,576 7,233,913 Net loss per share attributable to common stockholders, basic and diluted $ ( 4.21 ) $ ( 4.70 ) Since the Company was in a net loss position for all periods presented, net loss per share attributable to common stockholders was the same on a basic and diluted basis, as the inclusion of all potential common equivalent shares outstanding would have been anti-dilutive. The Company excluded the following potential common shares, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect: December 31, 2021 2020 Stock options issued and outstanding 1,356,639 674,039 Restricted stock units issued and outstanding 383,119 407,325 Conversion of Series 1 Convertible Preferred Stock 8,029,039 8,029,039 Total potentially dilutive shares 9,768,797 9,110,403 F-28