Tempest Therapeutics, Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA TEMPEST THERAPEUTICS, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm (PCAOB ID 42 ) 94 Consolidated Balance Sheets 96 Consolidated Statements of Operations 97 Consolidated Statements of Stockholders’ Equity 98 Consolidated Statements of Cash Flows 99 Notes to Consolidated Financial Statements 100 93 Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Tempest Therapeutics, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Tempest Therapeutics, Inc. (the Company) as of December 31, 2024 and 2023, the related consolidated statements of operations, stockholders' equity and cash flows for each of the two years in the period ended December 31, 2024, 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, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2024, 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 audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter 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 the 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 accounts or disclosures to which it relates. 94 Accrued research and development expenses Description of the Matter As described in Note 2 to the financial statements under the caption “Research and development expenses and accrued research and development”, the Company records the cost of research and development activities as they are incurred. The Company estimates preclinical studies and clinical trial expenses based on the services performed pursuant to contracts with research institutions and clinical research organizations that conduct and manage preclinical studies and clinical trials on the Company’s behalf. Service fees are accrued based on the Company’s estimates of the time period over which services will be performed and the level of effort to be expended in each period. These estimates are based on communications with the third-party service providers, the Company’s estimates of accrued expenses and on information available at each balance sheet date. As of December 31, 2024, the Company’s accrued clinical trial liability was $1.4 million. Auditing the Company’s accrual for research and development expenses was challenging because of the significant volume of transactions and the use of third-party data involved in determining the accrual balance, which was accumulated from multiple sources. In certain circumstances, the determination of the nature and level of services that have been received during the reporting period requires judgment because the timing and pattern of vendor invoicing did not correspond to the level of services provided and invoicing from clinical study sites and other vendors may not yet be available to management. How We Addressed the Matter in Our Audit To test the accrued research and development expenses, our audit procedures included, among others, testing the completeness and accuracy of the underlying data used in the estimate, including, but not limited to, estimated project duration, research and manufacturing services incurred to date and terms of contractual arrangements. To assess the reasonableness of the data, we corroborated the progress of the clinical trials with Company research and development personnel and obtained third-party evidence supporting the activities performed to date. We recalculated the accrual based on executed contracts with the clinical research organizations, contract manufacturing organizations, and clinical study sites. We also tested subsequent invoicing received from third parties to assess the impact to the accrual at the balance sheet date and compared that to the Company’s estimates. /s/ Ernst & Young LLP We have served as the Company's auditor since 2021. Chicago, Illinois March 27, 2025 95 Tempest Therapeutics, Inc. Consolidated Balance Sheets (in thousands, except share and per share amounts) As of December 31, 2024 2023 Assets Current assets: Cash and cash equivalents $ 30,268 $ 39,230 Prepaid expenses and other current assets 1,206 1,133 Total current assets 31,474 40,363 Property and equipment — net 886 840 Operating lease right-of-use assets 8,643 9,952 Other noncurrent assets 485 448 Total assets $ 41,488 $ 51,603 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 2,450 $ 845 Accrued expenses 2,726 1,673 Current loan payable (net of discount and issuance costs of $ 74 and $ 112 , respectively) 6,354 4,285 Current operating lease liabilities 869 952 Accrued compensation 1,762 1,543 Interest payable 59 113 Total current liabilities 14,220 9,411 Loan payable (net of discount and issuance costs of nil and $ 164 , respectively) — 6,264 Operating lease liabilities, less current portion 8,142 9,160 Total liabilities 22,362 24,835 Commitments and contingencies (Note 5) Stockholders’ equity: Common stock, $ 0.001 par value; 100,000,000 shares authorized; 43,971,622 and 22,045,255 shares issued and outstanding at December 31, 2024 and December 31, 2023, respectively 44 22 Additional paid-in capital 226,188 192,009 Accumulated deficit ( 207,106 ) ( 165,263 ) Total stockholders’ equity 19,126 26,768 Total liabilities and stockholders’ equity $ 41,488 $ 51,603 See accompanying Notes to Consolidated Financial Statements 96 Tempest Therapeutics, Inc. Consolidated Statements of Operations (in thousands, except share and per share amounts) Year Ended December 31, 2024 2023 Operating expenses: Research and development $ 28,476 $ 17,498 General and administrative 13,550 11,659 Operating loss ( 42,026 ) ( 29,157 ) Other income (expense), net: Interest expense ( 1,316 ) ( 1,449 ) Interest income and other income (expense), net 1,499 1,115 Other income (expense), net 183 ( 334 ) Provision for income taxes — — Net loss $ ( 41,843 ) $ ( 29,491 ) Net loss per share of common stock and pre-funded warrants, basic and diluted $ ( 1.50 ) $ ( 1.91 ) Weighted-average shares of common stock and pre-funded warrants outstanding, basic and diluted 27,901,739 15,416,203 See accompanying Notes to Consolidated Financial Statements 97 Tempest Therapeutics, Inc. Consolidated Statements of Stockholders’ Equity (in thousands, except share amounts) Common Stock Additional Paid-In Deficit Total Stockholders' Shares Amount Capital Accumulated Equity (Deficit) BALANCE — December 31, 2022 10,518,539 $ 11 $ 153,872 $ ( 135,772 ) $ 18,111 Exercise of stock options 713 — 1 — 1 Issuance of common stock for cash, net of issuance cost of $ 1,105 8,323,218 8 35,590 — 35,598 Exercise of pre-funded warrants 3,202,785 3 — — 3 Share-based compensation — — 2,546 — 2,546 Net loss — — — ( 29,491 ) ( 29,491 ) BALANCE — December 31, 2023 22,045,255 $ 22 $ 192,009 $ ( 165,263 ) $ 26,768 Issuance of common stock for cash, net of issuance cost of $ 1,056 21,626,191 22 28,569 — 28,591 Share-based compensation — — 5,303 — 5,303 Issuance of common stock under equity plan awards 300,176 — 307 — 307 Net loss — — — ( 41,843 ) ( 41,843 ) BALANCE — December 31, 2024 43,971,622 $ 44 $ 226,188 $ ( 207,106 ) $ 19,126 See accompanying Notes to Consolidated Financial Statements 98 Tempest Therapeutics, Inc. Consolidated Statements of Cash Flows (in thousands) Year Ended December 31, 2024 2023 Operating activities: Net loss $ ( 41,843 ) $ ( 29,491 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation expense 389 381 Stock-based compensation expense 5,303 2,546 Noncash lease expense 1,309 1,698 Noncash interest and other expense, net 202 186 Changes in operating assets and liabilities: Prepaid expenses and other assets ( 110 ) 193 Accounts payable 1,605 ( 263 ) Accrued expenses and other liabilities 1,273 ( 992 ) Interest payable ( 54 ) 16 Operating lease liabilities ( 1,101 ) ( 1,631 ) Cash used in operating activities ( 33,027 ) ( 27,357 ) Investing activities: Purchase of property and equipment ( 435 ) ( 170 ) Cash used in investing activities ( 435 ) ( 170 ) Financing activities: Proceeds from the issuance of common stock in connection with at the market offering, net of issuance costs 28,591 35,602 Repayment of loan ( 4,398 ) — Proceeds from the issuance of common stock under equity plan awards 307 — Cash provided by financing activities 24,500 35,602 Net increase in cash and cash equivalents ( 8,962 ) 8,075 Cash, cash equivalents and restricted cash at beginning of period 39,673 31,598 Cash, cash equivalents and restricted cash at end of period 30,711 39,673 Supplemental disclosure of cash flow information: Cash paid for interest $ 1,177 $ 1,249 Cash paid for business taxes $ 54 $ 191 Non-cash investing activities: Property and equipment in accounts payable $ — $ — See accompanying Notes to Consolidated Financial Statements 99 Tempest Therapeutics, Inc. Notes to Consolidated Financial Statements As of and For the Years Ended December 31, 2024 and 2023 (In Thousands, Except Share and Per Share Amount) 1. ORGANIZATION AND DESCRIPTION OF BUSINESS Description of Business Tempest Therapeutics, Inc. (“Tempest” or the “Company”) is a clinical-stage biotechnology company moving into late-stage development with a diverse portfolio of targeted and immune-mediated product candidates with the potential to be first-in-class treatments for a wide range of cancers. Tempest’s novel programs range from early research to the lead program, amezalpat (previously known as TPST-1120), that is poised to begin a pivotal study in first-line liver cancer. Tempest is also developing other potential product candidates in its Discovery Research group. The Company is headquartered in Brisbane, California. Liquidity and Management Plans The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company has incurred operating losses since inception. As of December 31, 2024 , the Company had cash and cash equivalents of $ 30.3 million, which is sufficient to fund operations beyond 12 months from the issuance of the financial statements. The Company’s ability to fund continued development, including its Phase 3 clinical trial for amezalpat, will require significant additional capital. The Company intends to focus its short-term efforts on raising such capital through the issuance of additional equity or debt. Adequate additional financing may not be available to us on acceptable terms, or at all. If additional capital is not available to us on a timely basis, or at all, the Company will be required to take additional actions, including exploring potential merger opportunities and other strategic options, such as partnerships or collaborations for our programs, or may need to reduce operating expenses or delay, reduce the scope of, discontinue or alter the Company’s research and development activities, or may be forced to wind down its operations. The Company’s ability to continue as a going concern in the absence of additional capital is dependent upon its ability to control its expenses over the next 12 months, which include de-prioritizing R&D programs, a reduction in its workforce, and controlling variable spend, while management secures sources of capital or another strategic opportunity. ATM Program On July 23, 2021, the Company entered into a sales agreement with Jefferies LLC (“Jefferies”), pursuant to which the Company may sell, from time to time at its sole discretion through Jefferies, as its sales agent, shares of its common stock having, up to an aggregate sales price of $ 100.0 million of its common stock through Jefferies (the “Prior ATM Program”). As of June 20, 2024, the Company had sold an aggregate 9,017,110 shares of its common stock for gross proceeds of approximately $ 42.7 million ($ 41.5 million net of commissions and estimated expenses) under the Prior ATM Program. On June 20, 2024, the Company and Jefferies terminated the Prior ATM Program and entered a new Open Market Sale Agreement (the “Sales Agreement”) to sell shares of common stock from time to time through Jefferies acting as sales agent (the “ATM Program”). The Company will pay Jefferies a commission up to 3.0 % of the gross sales proceeds of any shares of its common stock sold through Jefferies under the ATM Program and also has provided Jefferies with indemnification and contribution rights. Pursuant to the prospectus supplement dated June 20, 2024 filed by the Company with the U.S. Securities and Exchange Commission (“SEC”), the Company was able to offer and sell up to $ 205,000,000 of its shares of common stock pursuant to the Sales Agreement. As of December 31, 2024, the Company has sold an aggregate of 21,626,191 shares of its common stock for gross proceeds of approximately $ 29.6 million, or $ 28.8 million after deducting commissions 100 and offering expenses, pursuant to the ATM Program. As of December 31, 2024, approximately $ 175.4 million remained available for sale under the ATM Program. Under current SEC regulations, if at any time the Company's public float is less than $ 75.0 million, and for so long as the Company’s public float remains less than $ 75.0 million, the amount the Company can raise through primary public offerings of securities in any 12-month period using shelf registration statements is limited to an aggregate of one-third of the Company's public float, which is referred to as the baby shelf rules. On February 6, 2025, the Company filed a prospectus supplement with the SEC limiting the availability under the ATM Program to $ 14.5 million. Between January 1, 2025 and March 21, 2025, we sold 1,464,321 shares of our common stock for gross and net proceeds of $ 1.3 million, pursuant to the ATM Program. As of March 21, 2025, we have approximately $ 13.4 million available for sale under the ATM Program. PIPE Financing On April 29, 2022, the Company completed a private investment in public equity (“PIPE”) financing from the sale of 3,149,912 shares of its common stock at a price per share of $ 2.36 and, in lieu of shares of common stock, pre-funded warrants to purchase up to 3,206,020 shares of its common stock at a price per pre-funded warrant of $ 2.359 to EcoR1 Capital, LLC and Versant Venture Capital (the “PIPE Investors”). Net proceeds from the PIPE financings totaled approximately $ 14.5 million, after deducting offering expenses. The Company entered into a registration rights agreement with the PIPE Investors pursuant to which the Company filed a registration statement with the SEC registering the resale of the 3,149,912 shares common stock and the 3,206,020 shares of common stock underlying the pre-funded warrants issued in the PIPE financing. As of December 31, 2024 , all pre-funded warrants had been exercised. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation —The accompanying Consolidated Financial Statements have been prepared in accordance with US generally accepted accounting principles ("GAAP") and necessarily include amounts based on estimates and assumptions by management. 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, and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates and assumptions, including those related to research and development accruals, recoverability of long-lived assets, right-of-use assets, lease obligations, stock-based compensation and income taxes uncertainties and valuation allowances. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from those estimates. Segment Information —The Company operates and manages its business as one reportable and operating segment, which is the business of discovery and development of small molecule drugs to treat cancers. All assets and operations are in the U.S. The Company’s Chief Executive Officer , who is the chief operating decision maker (“CODM”), reviews financial information on an aggregate basis for purposes of allocating resources and evaluating financial performance. For additional segment information, see Note 12, Segment Reporting. Risks and Uncertainties —The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, development by competitors of new technological innovations, protection of proprietary technology, dependence on key personnel, reliance on single-source vendors, availability of raw materials, patentability of the Company’s products and processes and clinical efficacy and safety of the Company’s products under development, compliance with government regulations and the need to obtain additional financing to fund operations. Product 101 candidates currently under development will require significant additional research and development efforts, including extensive preclinical studies, clinical trials and regulatory approval, prior to commercialization. These efforts will require significant amounts of additional capital, adequate personnel infrastructure and extensive compliance and reporting. The Company’s product candidates are still in development and, to date, none of the Company’s product candidates have been approved for sale and, therefore, the Company has not generated any revenue from product sales. There can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s intellectual property will be obtained or maintained, that any products developed will obtain necessary government regulatory approval or that any approved products will be commercially viable. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will generate revenue from product sales. The Company operates in an environment of rapid technological change and substantial competition from other pharmaceutical and biotechnology companies. In addition, the Company is dependent upon the services of its employees, consultants and other third parties. Concentration of Credit Risk —Financial instruments, which potentially subject the Company to concentration of risk, consist principally of cash and money market fund. All of the Company’s cash and money market fund are deposited in accounts with a major financial institution in excess of federally insured limits. The Company is exposed to credit risk in the event of default by the financial institutions holding its cash and cash equivalents to the extent recorded in the balance sheets. While the Company has not experienced any losses in such accounts, the recent failure of Silicon Valley Bank (“SVB”), at which the Company held cash and cash equivalents in multiple accounts, exposed the Company to significant credit risk prior to the completion by the Federal Deposit Insurance Corporation of the resolution of SVB in a manner that fully protected all depositors. The Company had subsequently transferred its accounts to one or more alternate depository institutions. The Company has no off-balance sheet concentrations of credit risk, such as foreign currency exchange contracts, option contracts or other hedging arrangements. Cash and Cash Equivalents —The Company considers all highly liquid investments purchased with original maturities of 90 days or less at acquisitions to be cash equivalents. As of December 31, 2024 and 2023 , the Company’s cash and cash equivalents consisted of bank deposits and money market funds. Leases —The Company determines if an arrangement is a lease at contract inception. A lease exists when a contract conveys to the customer the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. The definition of a lease embodies two conditions: (1) there is an identified asset in the contract that is land or a depreciable asset (i.e., property, plant, and equipment), and (2) the customer has the right to control the use of the identified asset. The lease liabilities are initially and subsequently measured at the present value of the unpaid lease payments at the lease commencement date. When readily determinable, the Company uses the implicit rate in determining the present value of lease payments. When leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date, including the lease term. The ROU asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred less any lease incentives received. For operating leases, the ROU asset is subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Property and Equipment —Property and equipment is recorded at cost and depreciated over the estimated useful lives of the related assets using the straight-line method. Upon disposal of an asset, the related cost and accumulated depreciation are removed from the asset accounts and any resulting gain or loss is included in the consolidated statements of operations. Repair and maintenance costs are expensed as incurred, whereas major improvements are capitalized as additions to property and equipment. The estimated useful lives of the Company’s respective assets are as follows: 102 Computer equipment and software 3 years Furniture and fixtures 7 years Laboratory equipment 5 years Leasehold improvements Shorter of the useful life of the asset or the life of the lease Impairment of Long-Lived Assets —Long-lived assets are reviewed for impairment if events or circumstances indicate the carrying amount of these assets may not be recoverable. If this review indicates that these assets will not be recoverable, based on the forecasted undiscounted future operating cash flows expected to result from the use of long-lived assets and their eventual disposition, the Company’s carrying value of the long-lived assets is reduced to fair value based on a discounted future cash flow approach or quoted market values. Research and Development Expenses and Accrued Research and Development —Research and development expenses are charged to expense as incurred. Research and development expenses include certain payroll and personnel expenses including stock-based compensation, laboratory supplies, consulting costs, external contract research and development expenses and facility or lease expenses. In-licensing fees and other costs to acquire technologies that are utilized in research and development, and that are not expected to have alternative future use, are expensed when incurred. Advance payments for goods or services for future research and development activities are deferred and expensed as the goods are delivered or the related services are performed. The Company estimates preclinical studies and clinical trial expenses based on the services performed pursuant to contracts with research institutions and clinical research organizations that conduct and manage preclinical studies and clinical trials on the Company’s behalf. In accruing service fees, the Company estimates the time period over which services will be performed and the level of effort to be expended in each period. These estimates are based on communications with the third-party service providers, the Company’s estimates of accrued expenses and on information available at each balance sheet date. If the actual timing of the performance of services or the level of effort varies from the estimate, the Company will adjust the accrual accordingly. The estimates are trued up to reflect the best information available at the time of the financial statement issuance. Although the Company does not expect its estimates to be materially different from amounts actually incurred, the Company’s estimate of the status and timing of services performed relative to the actual status and timing of services performed may vary. Patent Costs —Costs related to filing and pursuing patent applications are expensed as incurred, as recoverability of such expenditures is uncertain. These patent-related legal costs are reported as a component of general and administrative expenses. General and Administrative Expenses —General and administrative costs are expensed as incurred and include employee-related expenses including salaries, benefits, travel and stock-based compensation for the Company’s personnel in executive, finance and accounting, and other administrative functions, as well as fees paid for legal, accounting and tax services, consulting fees and facilities costs not otherwise included in research and development expenses. Legal costs include general corporate legal fees and patent costs. Fair Value Measurements —Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. The carrying amounts of the Company’s financial instruments approximate fair value due to their short-term maturities. Stock-Based Compensation Expense —The Company accounts for stock-based compensation by measuring and recognizing compensation expense for all share-based payments made to employees, directors and non-employees based on estimated grant-date fair values. The Company uses the straight-line method to allocate compensation cost to reporting periods over each optionee’s requisite service period, which is generally the vesting period. 103 The Company estimates the fair value of stock options to employees, directors and non-employees using the Black-Scholes option-valuation model. The Black-Scholes model requires the input of subjective assumptions, including expected volatility, expected dividend yield, expected term, risk-free rate of return, and the fair value of the underlying common stock on the date of grant. Due to the lack of company-specific historical and implied volatility data, the Company has based its estimate of expected volatility on the historical volatility of a group of similar companies that are publicly traded. The historical volatility is calculated based on a period of time commensurate with the expected term assumption. The group of representative companies have characteristics similar to the Company, including stage of product development and focus on the life science industry. The Company uses the simplified method to calculate the expected term for options granted to employees as it does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term. The simplified method is based on the vesting period and the contractual term for each grant, or for each vesting tranche for awards with graded vesting. The mid-point between the vesting date and the maximum contractual expiration date is used as the expected term under this method. For awards with multiple vesting-tranches, the times from grant until the mid-points for each of the tranches may be averaged to provide an overall expected term. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected term of the stock options. The Company uses an assumed dividend yield of zero as the Company has never paid dividends and has no current plans to pay any dividends on its common stock. The Company accounts for forfeitures as they occur. Net Loss per Share Attributable to Common Stockholders —The Company follows the two-class method when computing net loss per share as the Company has issued shares that meet the definition of participating securities. The two-class method determines net loss per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income available to common stockholders for the period to be allocated between common and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed. Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted net loss attributable to common stockholders is computed by adjusting net loss attributable to common stockholders to reallocate undistributed earnings based on the potential impact of dilutive securities. Diluted net loss per share attributable to common stockholders is computed by dividing the diluted net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period, including potential dilutive common shares. For purpose of this calculation, outstanding stock options, convertible preferred stock and warrants to purchase shares of convertible preferred stock are considered potential dilutive common shares. Income Taxes —The Company accounts for income taxes using the asset and liability method. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. In evaluating the ability to recover its deferred income tax assets, the Company considers all available positive and negative evidence, including its operating results, ongoing tax planning and forecasts of future taxable income on a jurisdiction-by-jurisdiction basis. In the event the Company determines that it would be able to realize its deferred income tax assets in the future in excess of their net recorded amount, it would make an adjustment to the valuation allowance that would reduce the provision for income taxes. Conversely, in the event that all or part of the net deferred tax assets are determined not to be realizable in the future, an adjustment to the valuation allowance would be charged to earnings in the period when such determination is made. As of December 31, 2024 and 2023, the Company has recorded a full valuation allowance on its deferred tax assets. Tax benefits related to uncertain tax positions are recognized when it is more likely than not that a tax position will be sustained during an audit. Interest and penalties related to unrecognized tax benefits are included within the provision for income tax. 104 Recently Adopted Accounting Standards —In November 2023, the FASB issued ASU 2023-07, Segment Reporting: Improvements to Reportable Segment Disclosures, which amends guidance in ASC 280, Segment Reporting. The amendments in this ASU expand segment disclosure requirements, including new segment disclosure requirements for entities with a single reportable segment, among other disclosure requirements. The ASU’s amendments are effective for public business entities for annual periods beginning after December 15, 2023. The Company adopted ASU 2023-07 for the year ended December 31, 2024 and the application of ASU 2023-07 did no t have a material impact on the Company’s Consolidated Financial Statements. The adoption did result in enhanced disclosures as included in Note 12, Segment Reporting. 3 . FAIR VALUE MEASUREMENTS The following tables present the Company’s fair value hierarchy for assets and liabilities measured at fair value on a recurring basis (in thousands): As of December 31, 2024 Level 1 Level 2 Level 3 Total Cash and cash equivalents $ 30,268 $ — $ — $ 30,268 Total $ 30,268 $ — $ — $ 30,268 As of December 31, 2023 Level 1 Level 2 Level 3 Total Cash and cash equivalents $ 39,230 $ — $ — $ 39,230 Total $ 39,230 $ — $ — $ 39,230 4 . BALANCE SHEET ITEMS Prepaid expenses and other current asset consist of the following as of December 31, 2024 and 2023 (in thousands): 2024 2023 Prepaid expenses $ 642 $ 700 Prepaid research and development costs 29 337 Other current assets 535 96 Total $ 1,206 $ 1,133 Property and equipment, net, consists of the following as of December 31, 2024 and 2023 (in thousands): 2024 2023 Computer equipment and software $ 192 $ 169 Furniture and fixtures 328 328 Lab equipment 1,485 1,133 Leasehold improvements 201 235 Property and equipment 2,206 1,865 Less accumulated depreciation ( 1,320 ) ( 1,025 ) Property and equipment—net $ 886 $ 840 Depreciation expense for the years ended December 31, 2024 and 2023 was $ 389 and $ 381 , respectively. Accrued liabilities as of December 31, 2024 and 2023 consist of the following (in thousands): 2024 2023 Accrued other liabilities $ 1,335 $ 626 Accrued clinical trial liability 1,391 1,047 Total $ 2,726 $ 1,673 105 5 . COMMITMENTS AND CONTINGENCIES Facilities Lease Agreements —In January 2022, the Company entered into an 8-year office lease agreement for a 20,116 square feet facility in Brisbane, California (“Brisbane Lease”). The lease commenced in December 2022. As of December 31, 2024 and 2023 , the balance of the operating lease right of use assets were $ 8,643 and $ 9,952 , respectively, and the related operating lease liability were $ 9,011 and $ 10,112 , respectively, as shown in the accompanying consolidated balance sheets. Rent expense was $ 2,244 and $ 2,738 for the years ended December 31, 2024 and 2023, respectively. As of December 31, 2024, future minimum annual lease payments under the Company’s operating lease liabilities were as follows: Total Commitment Year Ending (in thousands) 2025 1,861 2026 1,926 2027 1,994 2028 and beyond 6,410 Total minimum lease payments 12,191 Less: imputed interest ( 3,180 ) Present value of operating lease obligations 9,011 Less: current portion ( 869 ) Noncurrent operating lease obligations $ 8,142 Related to this Brisbane Lease agreement, the Company entered into a letter of credit with a bank to deposit $ 388 in a separate account that is restricted cash to serve as security rent deposit. This amount is included in other noncurrent assets in the accompanying Consolidated Balance Sheets as of December 31, 2024 . 6 . LOAN PAYABLE On January 15, 2021, the Company entered into a loan agreement with Oxford Finance LLC (the “Lender”) to borrow a term loan amount of $ 35,000 to be funded in three tranches. Tranche A of $ 15,000 was wired to the Company on January 15, 2021. Tranche B of $ 10,000 expired on March 31, 2022 . Tranche C of $ 10,000 is available at the Lender’s option. On December 23, 2022, the Company entered into a First Amendment to the loan agreement. The amendment modified the agreement as follows: (i) each of the Company and Millendo, were joined as co-borrowers under the Loan Agreement; (ii) the interest-only repayment period was extended through December 31, 2023 (which interest-only period may be further extended through June 30, 2024 under certain circumstances); and (iii) a security interest in all of the assets of the Company, TempestTx and Millendo, including any intellectual property, was granted to the Lender. In addition, the Lender permitted a one-time prepayment in the amount of $ 5.0 million, which the Company paid on December 23, 2022. Following the amendment to the loan agreement, the term loan matures on August 1, 2025 and has an annual floating interest rate of 7.15 % which is an Index Rate plus 7.10 %. Index Rate is the greater of (i) 1-Month CME Term SOFR or (ii) 0.05 %. In the fourth quarter of 2023, the Company achieved the circumstances necessary to extend the interest-only repayment period through June 30, 2024. Monthly principal payments of $ 733 began on July 1, 2024 and the Company paid the first principal payment to the Lender in July 2024. Related to this borrowing, the Company recorded loan discounts totaling $ 898 and paid $ 95 of debt issuance costs. These amounts would be amortized as additional interest expense over the life of the loan. As of December 31, 106 2024 , the balance of the loan payable (net of debt issuance costs) was $ 6.4 million. The carrying value of the loan approximates fair value (Level 2). For the years ended December 31, 2024 and 2023 , total interest expense was $ 1,316 and $ 1,449 , respectively. 7 . STOCKHOLDERS' EQUITY Authorized Stock The Company is authorized to issue 100,000,000 shares of common stock, par value of $ 0.001 per share, and 5,000,000 shares of preferred stock, 100,000 of which have been designated as Series A Participating Preferred Stock (the “Series A Preferred Stock”), par value of $ 0.001 per share. No shares of the Company’s Series A Participating Preferred Stock were outstanding as of December 31, 2024 and 2023. Stockholders are entitled to dividends as declared by the Board of Directors, subject to rights of holders of all classes of stock outstanding having priority rights as to dividends. There have been no dividends declared to date. The holders of each share of common stock are entitled to one vote and the holders of each share of Series A Preferred Stock, if issued, are entitled to 1,000 votes. Except for effecting or validating certain specific actions intended to protect the preferred stockholders, the holders of common stock vote together with preferred stockholders. Rights Plan On October 10, 2023, the Company’s Board of Directors adopted a limited duration stockholder rights plan (the “Rights Plan”), effective immediately, and declared a dividend of one preferred share purchase right (a “Right”) for each outstanding share of the Company’s common stock. The dividend was effective as of October 23, 2023 (the “Record Date”) with respect to stockholders of record on that date. The Rights will also attach to new common stock issued after the Record Date. Each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of the Series A Preferred Stock at a price of $ 25.00 per one one-thousandth of a preferred share, subject to adjustment. The descriptions and terms of the Rights are set forth in a Rights Agreement, dated as of October 10, 2023 (the “Rights Agreement"), between the Company and Computershare Trust Company, NA. On October 9, 2024, the Company entered into Amendment No. 1 (the “Amendment”) to the Rights Agreement. The Amendment extends the Final Expiration Date of the Rights Agreement until immediately following the Company’s 2025 Annual Meeting of Stockholders or, if the Company’s stockholders approve the Rights Plan at or prior to such meeting, to October 10, 2026, unless the Rights are earlier redeemed or exchanged by the Company. The Company does not have any obligation under the Rights Agreement to seek stockholder approval for the Rights Agreement. On December 5, 2024, the Company entered into Amendment No. 2 (the “Second Amendment”) to the Rights Agreement. The Second Amendment makes certain technical amendments to the rights and obligations of the Company’s Board of Directors to administer and make determinations with respect to the Rights Agreement and the rights issued thereunder. The Rights Agreement otherwise remains unmodified and in full force and effect in accordance with its terms. 8 . STOCK-BASED COMPENSATION Equity Plans In 2011, Private Tempest adopted the 2011 Equity Incentive Plan (the “2011 Plan), and in 2017, Private Tempest adopted the 2017 Equity Incentive Plan (the “2017 Plan”), and together with the 2011 Plan, the “Tempest Prior Plans.” The Tempest Prior Plans have been terminated and no additional grants may be made under either plan. All stock awards granted under the Tempest Prior Plans will remain subject to the terms of the applicable prior plan. As a result of the merger with Millendo, the Tempest Prior Plans were assumed by the Company. 107 On April 29, 2019, the Board of Millendo adopted the 2019 Equity Incentive Plan (the “2019 Plan”), subject to approval by the Company’s stockholders, and became effective with such stockholder approval on June 11, 2019. On June 17, 2022, the Company’s stockholders approved the Amended and Restated 2019 Equity Incentive Plan (the “A&R 2019 Plan”), which amended and restated the 2019 Plan and was the successor to, and replacement of, the 2019 Plan. The Board of Tempest adopted the Amended and Restated 2023 Equity Incentive Plan (the “2023 Plan”) on April 30, 2023, subject to approval by the Company’s stockholders. On June 15, 2023, the Company’s stockholders approved the 2023 Plan, which amended and restated the A&R 2019 Plan and will be a successor to, and replacement of, the A&R 2019 Plan. The number of shares of the Company's common stock reserved for issuance under the 2023 Plan will automatically increase on January 1st of each year, for a period of 10 years, from January 1, 2024 continuing through January 1, 2033, by 4 % of the total number of shares of the Company's common stock outstanding on December 31 st of the preceding calendar year, or a lesser number of shares as may be determined by the Board of Directors. Accordingly, on January 1, 2025, the common stock reserved for issuance was increased by 1,758,864 shares. As of December 31, 2024 , there were 508,017 shares available for future grant under the 2023 Plan. The 2023 Plan allows the Company to grant stock awards to employees, directors and consultants of the Company, including incentive stock options (“ISOs”), non-qualified stock options (“NSOs”), stock appreciation rights, restricted stock awards, restricted stock unit awards and other stock awards. The Board of Tempest adopted the 2023 Inducement Plan (“2023 Inducement Plan”) on June 21, 2023, pursuant to which the Company reserved 1,150,000 shares of its common stock to be used exclusively for grants of awards to individuals who were not previously employees or directors of the Company, as an inducement material to the individual’s entry into employment with the Company within the meaning of Rule 5635(c)(4) of the Nasdaq Listing Rules. The 2023 Inducement Plan was approved by the Company’s Board of Directors without stockholder approval in accordance with such rule. As of December 31, 2024 , there were 924,000 shares available for future grant under the 2023 Inducement Plan. The Company measures employee and non-employee stock-based awards at grant date fair value and records compensation expense on a straight-line basis over the vesting period of the award. Employee Stock Ownership Plan The Board of Millendo adopted the 2019 Employee Stock Purchase Plan on April 29, 2019, which became effective upon stockholder approval on June 11, 2019. On June 17, 2022, the Company’s stockholders approved the Amended and Restated 2019 Employee Stock Purchase Plan (the “2019 ESPP”). The 2019 ESPP enables employees to purchase shares of the Company's common stock through offerings of rights to purchase the Company's common stock to all eligible employees. The 2019 ESPP provides that the number of shares of common stock reserved for issuance under the 2019 ESPP will automatically increase on January 1, 2023 and continuing through (and including) January 1, 2029, by the lesser of 1.5 % of the total number of shares of Common Stock outstanding on December 31 st of the preceding calendar year, (ii) 500,000 shares of Common Stock, or (iii) such lesser number of shares of Common Stock as determined by the Board of Directors (which may be zero). On January 1, 2025, the common stock reserved for issuance was increased by 500,000 shares. As of December 31, 2024 , 469,337 shares of common stock remained available for future issuance under the 2019 ESPP. During the year ended December 31, 2024 , 93,477 shares of common stock had been issued under the 2019 ESPP. Stock Options Options to purchase the Company’s common stock may be granted at a price not less than the fair market value in the case of both NSOs and ISOs, except for an options holder who owns more than 10% of the voting power of all classes of stock of the Company, in which case the exercise price shall be no less than 110 % of the fair market value per share on the grant date. Stock 108 options granted under the Plans generally vest over four years and expire no later than ten ( 10 ) years from the date of grant. Vested options can be exercised at any time. Prior to the merger with Millendo, the grant date fair market value of the shares of common stock underlying stock options was determined by the Company’s Board of Directors. Up until the merger, there had been no public market for the Company’s common stock, and therefore the Board of Directors exercised reasonable judgment and considered a number of objective and subjective factors to determine the best estimate of the fair market value, which included valuations performed by an independent third-party, important developments in the Company’s operations, sales of convertible preferred stock, actual operating results, financial performance, the conditions in the life sciences industry, the economy in general, the stock price performance and volatility of comparable public companies, and the lack of liquidity of the Company’s common stock. The following shows the stock option activities for the years ended December 31, 2024 and 2023: Total Options Outstanding Weighted-Average Exercise Price Balance—December 31, 2022 1,553,041 $ 6.66 Granted 2,308,800 7.26 Exercised ( 713 ) 1.23 Cancelled and forfeited ( 307,016 ) 3.97 Balance—December 31, 2023 3,554,112 $ 7.28 Granted 897,125 3.96 Exercised ( 81,699 ) 1.91 Cancelled and forfeited ( 208,376 ) 8.23 Balance—December 31, 2024 4,161,162 6.62 The following table summarizes information about stock options outstanding at December 31, 2024: Shares Weighted Average Remaining Contractual Life (In Years) Weighted Average Exercise Price Aggregate Intrinsic Value Options outstanding 4,161,162 8.18 $ 6.62 $ — Vested and expected to vest 4,161,162 8.18 $ 6.62 $ — Exercisable 1,772,011 7.47 $ 6.78 $ — During the years ended December 31, 2024 and 2023 , the Company granted employees and non-employees stock options to purchase 897,125 and 2,308,800 shares of common stock with a weighted-average grant date fair value of $ 3.33 and $ 6.05 per share, respectively. As of December 31, 2024 and 2023 , total unrecognized compensation costs related to unvested employee stock options were $ 12,352 and $ 14,703 , respectively. These costs are expected to be recognized over a weighted-average period of approximately 2.6 years and 3.5 years, respectively. The Company estimated the fair value of stock options using the Black-Scholes option pricing valuation model. The fair value of employee stock options is being amortized on the straight-line basis over the requisite service period of the awards. The fair value of employee stock options was estimated using the following assumptions for the years ended December 31, 2024 and 2023: 2024 2023 Expected term (in years) 5.5 - 6.1 5.5 - 6.1 Expected volatility 109 % - 124 % 106 % - 111 % Risk-free interest rate 3.5 % - 4.7 % 3.4 % - 4.5 % Dividends — % — % 109 Expected Term —The expected term of options granted represents the period of time that the options are expected to be outstanding. Due to the lack of historical exercise history, the expected term of the Company’s employee stock options has been determined utilizing the simplified method for awards that qualify as plain-vanilla options. Expected Volatility —The expected stock price volatility assumption was determined by examining the historical volatilities for industry peers, as the Company did not have any trading history for the Company’s common stock. The Company will continue to analyze the historical stock price volatility and expected term assumption as more historical data for the Company’s common stock becomes available. Risk-Free Interest Rate —The risk-free interest rate assumption is based on the U.S. Treasury instruments whose term was consistent with the expected term of the Company’s stock options. Dividends —The Company has not paid any cash dividends on common stock since inception and does not anticipate paying any dividends in the foreseeable future. Consequently, an expected dividend yield of zero was used. Stock-Based Compensation Expense The following table summarizes the components of stock-based compensation expense recognized in the Company’s consolidated statements of operations for the years ended December 31, 2024 and 2023: 2024 2023 Research and development $ 2,222 $ 899 General and administrative 3,081 1,647 Total $ 5,303 $ 2,546 9 . INCOME TAXES There was no provision for income taxes for the years ended December 31, 2024 and 2023, because the Company has incurred losses since inception. At December 31, 2024 and 2023 the Company concluded it was not more likely than not that it would realize its deferred tax assets, and therefore has recorded a full valuation allowance. For the years ended December 31, 2024 and 2023, income tax provision (benefit) related to continuing operations differ from the amounts computed by applying the statutory income tax rate of 21% to pre-tax loss as follows (in thousands): 2024 2023 U.S. federal provision (benefit) At statutory rate $ ( 8,786 ) $ ( 6,192 ) State taxes ( 2,958 ) ( 2,492 ) Valuation allowance 12,156 9,129 Tax credits ( 1,136 ) ( 836 ) Stock-based compensation 709 371 Permanent differences 15 20 Total $ — $ — 110 Significant components of the Company’s deferred tax assets at December 31, 2024 and 2023 are shown below. 2024 2023 Deferred tax assets: Net operating losses $ 143,896 $ 136,901 Research and development tax credits 20,513 19,240 Amortization 603 730 Lease liability 2,625 3,018 Stock based compensation 1,167 809 Other 491 449 Capitalized R&D 10,041 6,466 Total gross deferred tax assets 179,336 167,613 Less: valuation allowance ( 176,799 ) ( 164,643 ) Total deferred tax assets 2,537 2,970 Deferred tax liability: Right-of-use assets ( 2,518 ) ( 2,970 ) Fixed assets ( 19 ) — Total gross deferred tax liabilities ( 2,537 ) ( 2,970 ) Net deferred tax assets $ — $ — The valuation allowance increased by $ 12.2 million from December 31, 2023 to December 31, 2024 due primarily to the generation of net operating losses and research and development credits. As of December 31, 2024 , the Company had net operating loss carryforwards for federal and state income tax purposes of approximately $ 502.2 million and $ 487.8 million, respectively. As of December 31, 2023 , the Company had net operating loss carryforwards for federal and state income tax purposes of approximately $ 482.1 million and $ 457.8 million, respectively. The federal and state net operating loss carryforwards begin to expire in 2031 and 2024, respectively, if not utilized. Federal net operating losses of $ 281.1 million are not subject to expiration. As of December 31, 2024 , the Company had federal and state research and development carryforwards of approximately $ 14.1 million and $ 4.1 million, respectively. The Company also had $ 7.4 million of Orphan Drug Credit. As of December 31, 2023 , the Company had federal and state research and development carryforwards of approximately $ 12.7 million and $ 4.0 million, respectively. The federal and state credits begin to expire in 2031 and 2029, respectively, if not utilized; $ 3.0 million of the state credits can be carried forward indefinitely. Utilization of some of the federal and state net operating loss and credit carryforwards may be subject to annual limitations due to the “change in ownership” provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitations may result in the expiration of net operating losses and credits before utilization. The Company has not performed a Section 382 study as of December 31, 2024 . At least $ 455.8 thousand of legacy Millendo federal net operating losses are expected to expire unused due to prior ownership changes. The Company has the following activity relating to unrecognized tax benefits as of December 31, 2024 and 2023: 2024 2023 Beginning balance $ 4,923 $ 4,650 Gross increase - tax position in current period 316 273 Ending balance $ 5,239 $ 4,923 As of December 31, 2024 and 2023, none of the unrecognized tax benefits would impact the Company's effective tax rate due to the valuation allowance. The Company does not anticipate the uncertain tax positions will materially change in the next 12 months. The Company's practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual for interest and penalties on the accompanying balance sheet as of December 31, 2024 and 2023, 111 respectively, and has not recognized penalties and/or interest in the accompanying statements of operations for the years ended December 31, 2024 and 2023, respectively. The Company is subject to taxation in the United States, California, Massachusetts, and Michigan. The Company's tax years from inception are subject to examination by the IRS and state tax authorities due to the carryforward of unutilized net operating losses and research and development credits. 10. RETIREMENT PLAN The Company participates in a qualified 401(k) Plan sponsored by its professional service organization. The retirement plan is a defined contribution plan covering eligible employees. Participants may contribute a portion of their annual compensation limited to a maximum annual amount set by the Internal Revenue Service. During the year ended December 31, 2024 , the Company contributed $ 161 to the 401(k) Plan. During the year ended December 31, 2023 , the Company contributed $ 147 to the 401(k) Plan. 11. NET LOSS PER SHARE The following table sets forth the computation of the Company’s basic and diluted net loss per share for the years ended December 31, 2024 and 2023 (in thousands, except share and per share amounts): 2024 2023 Numerator: Net loss $ ( 41,843 ) $ ( 29,491 ) Denominator: Weighted-average common shares outstanding 27,901,739 15,416,203 Weighted-average shares used in computing basic and diluted net loss per share 27,901,739 15,416,203 Net loss per share attributable to common stockholders—basic and diluted $ ( 1.50 ) $ ( 1.91 ) As of December 31, 2024 and 2023 , the Company’s potentially dilutive securities included unvested stock warrants and stock options, which have been excluded from the computation of diluted net loss per share attributable to common stockholders as the effect would be anti-dilutive. The issuance of pre-funded warrants and vested RSUs have been included in the computation of basic and diluted net loss per share attributable to common stockholders. Based on the amounts outstanding as of December 31, 2024 and 2023, the Company excluded the following potential common shares from the computation of diluted net loss per share attributable to common stockholders because including them would have had an anti-dilutive effect: 2024 2023 Options to purchase common stock 4,161,162 3,554,112 Restricted stock units — 125,000 Common stock warrants 6,036 6,036 4,167,198 3,685,148 12. SEGMENT REPORTING The Company operates and manages its business as one reportable and operating segment, which is the business of discovery and development of small molecule drugs to treat cancers. The Company’s chief operating decision maker (“CODM”) is its Chief Executive Officer . The determination of a single business segment is consistent with the consolidated financial information regularly reviewed by the CODM for purposes of assessing performance, allocating resources and planning and forecasting future periods. As the Company has not generated revenue, the CODM assesses Company performance through the achievement of research goals towards advancing the Company’s product candidates through stages of development. As such, the CODM is regularly 112 provided with budgeted and forecasted expense information as well as the Company’s Consolidated Financial Statements which is used to determine the Company’s liquidity needs and pipeline resource allocation. The CODM regularly reviews and evaluates research and development expenses and uses consolidated net loss, as reported on the Company’s Consolidated Statements of Operations, to assess the performance of the segment and to allocate resources. The consolidated net loss and significant segment expenses reviewed by the CODM are reported on the Company’s Consolidated Statements of Operations for the years ended December 31, 2024 and 2023. The measure of segment assets is reported on the Consolidated Balance Sheet as total assets. The CODM monitors the Company's cash and cash equivalents as reported on the Consolidated Balance Sheets. All financial information required for segment reporting that is provided to the chief operating decision maker is contained within the financial statements and notes to financial statements. 113 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.