Tempest Therapeutics, Inc. 10-Q

Item 1 – Financial Statements TEMPEST THERAPEUTICS, INC. Consolidated Balance Sheets (in thousands except share and per share amounts) (Unaudited) June 30, 2021 December 31, 2020 Assets Current assets: Cash and cash equivalents $ 68,413 $ 18,820 Restricted cash 45 — Prepaid expenses and other current assets 2,036 1,005 Total current assets 70,494 19,825 Property and equipment — net 1,218 1,110 Operating lease right-of-use assets 3,673 1,877 Other noncurrent assets 112 51 Total assets $ 75,497 $ 22,863 Liabilities and stockholders’ equity (deficit) Current liabilities: Accounts payable $ 6,695 $ 1,071 Accrued expenses 948 665 Current operating lease liabilities 1,484 712 Accrued compensation 540 695 Interest payable 89 — Early option exercise liability 38 79 Total current liabilities 9,794 3,222 Loan payable (net of issuance costs of $ 85 ) 14,915 — Operating lease liabilities 2,674 1,727 Total liabilities 27,383 4,949 Commitments and contingencies (Note 8) Convertible preferred stock, $ 0.001 par value; 5,000,000 and 135,936,731 shares authorized at June 30, 2021 and December 31, 2020, respectively; nil and 114,686,731 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively; liquidation preference of $ 0 and $ 100,186,732 at June 30, 2021 and December 31, 2020, respectively — 86,707 Stockholders’ equity (deficit): Common stock, $ 0.001 par value; 100,000,000 and 196,000,000 shares authorized at June 30, 2021 and December 31, 2020, respectively; 6,637,081 and 527,265 shares issued and outstanding, 8,767 and 29,041 subject to repurchase at June 30, 2021 and December 31, 2020, respectively 7 15 Additional paid-in capital 132,281 2,953 Accumulated deficit ( 84,174 ) ( 71,761 ) Total stockholders’ equity (deficit) 48,114 ( 68,793 ) Total liabilities, convertible preferred stock and stockholders’ equity (deficit) $ 75,497 $ 22,863 See accompanying Notes to unaudited Interim Consolidated Financial Statements 5 Table of Contents TEMPEST THERAPEUTICS, INC. Consolidated Statements of Operations (Unaudited) (in thousands except share and per share amounts) Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Operating expenses: Research and development $ 4,229 $ 4,094 $ 7,821 $ 7,121 General and administrative 2,556 1,144 4,091 2,420 Loss from operations 6,785 5,238 11,912 9,541 Other income (expense): Interest expense $ ( 276 ) $ — $ ( 507 ) $ — Interest income and other income (expense), net 3 9 6 84 Net loss $ ( 7,058 ) $ ( 5,229 ) $ ( 12,413 ) $ ( 9,457 ) Net loss per share of common stock, basic and diluted $ ( 7.63 ) $ ( 11.42 ) $ ( 17.30 ) $ ( 21.28 ) Weighted-average shares of common stock outstanding, basic and diluted 925,432 457,998 717,618 444,466 See accompanying Notes to unaudited Interim Consolidated Financial Statements 6 Table of Contents TEMPEST THERAPEUTICS, INC. Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) (Unaudited) (in thousands except share amounts) Three Months Ended June 30, 2021 Series A Convertible Series B Convertible Series B1 Convertible Additional Paid-In Capital Deficit Accumulated Total Stockholders’ Equity (Deficit) Preferred Stock Prefer110red Stock Preferred Stock Common Stock Shares Amount Shares Amount Shares Amount Shares Amount BALANCE—March 31, 2021 17,000,000 $ 16,982 25,186,738 $ 12,235 72,499,993 $ 57,490 514,508 $ 1 $ 3,164 $ ( 77,116 ) $ ( 73,951 ) Exercise of stock options — — — — — — 6,285 — 29 — 29 Vesting of early exercised stock options — — — — — — 8,314 — 39 — 39 Conversion of preferred stock to common stock ( 17,000,000 ) ( 16,982 ) ( 25,186,738 ) ( 12,235 ) ( 72,499,993 ) ( 57,490 ) 3,692,912 4 86,703 — 86,707 Issuance of common stock for cash — — — — — — 1,136,849 1 30,009 30,010 Share-based compensation — — — — — — — — 411 — 411 Reverse recapitalization transaction costs — — — — — — — — ( 6,074 ) — ( 6,074 ) Record pre-merger Millendo stockholders’ equity and elimination of Millendo historical accumulated deficit — — — — — — 1,269,446 1 18,000 — 18,001 Net loss — — — — — — — — — ( 7,058 ) ( 7,058 ) BALANCE—June 30, 2021 — $ — — $ — — $ — 6,628,314 $ 7 $ 132,281 $ ( 84,174 ) $ 48,114 Three Months Ended June 30, 2020 Series A Convertible Series B Convertible Series B1 Convertible Additional Paid-In Capital Deficit Accumulated Total Stockholders’ Equity (Deficit) Preferred Stock Preferred Stock Preferred Stock Common Stock Shares Amount Shares Amount Shares Amount Shares Amount BALANCE—March 31, 2020 17,000,000 $ 16,982 25,186,738 $ 12,235 72,499,993 $ 57,490 440,292 $ — $ 2,315 $ ( 56,781 ) $ ( 54,466 ) Vesting of early exercised stock options — — — — — — 36,675 — 103 — 103 Share-based compensation — — — — — — — — 227 — 227 Net loss — — — — — — — — — ( 5,229 ) ( 5,229 ) BALANCE—June 30, 2020 17,000,000 $ 16,982 25,186,738 $ 12,235 72,499,993 $ 57,490 476,967 $ — $ 2,645 $ ( 62,010 ) $ ( 59,365 ) S ee accompanying Notes to unaudited Interim Consolidated Financial Statements. 7 Table of Contents TEMPEST THERAPEUTICS, INC. Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) (Unaudited) (in thousands except share amounts) Six Months Ended June 30, 2021 Series A Convertible Series B Convertible Series B1 Convertible Additional Paid-In Capital Deficit Accumulated Total Stockholders’ Equity (Deficit) Preferred Stock Preferred Stock Preferred Stock Common Stock Shares Amount Shares Amount Shares Amount Shares Amount BALANCE—December 31, 2020 17,000,000 $ 16,982 25,186,738 $ 12,235 72,499,993 $ 57,490 498,224 $ 1 $ 2,967 $ ( 71,761 ) $ ( 68,793 ) Exercise of stock options — — — — — — 10,654 — 49 — 49 Vesting of early exercised stock options — — — — — — 20,229 — 96 — 96 Conversion of preferred stock to common stock ( 17,000,000 ) ( 16,982 ) ( 25,186,738 ) ( 12,235 ) ( 72,499,993 ) ( 57,490 ) 3,692,912 4 86,703 — 86,707 Issuance of common stock for cash — — — — — — 1,136,849 1 30,009 — 30,010 Share-based compensation — — — — — — — — 531 — 531 Reverse recapitalization transaction costs — — — — — — — — ( 6,074 ) — ( 6,074 ) Record pre-merger Millendo stockholders’ equity and elimination of Millendo historical accumulated deficit — — — — — — 1,269,446 1 18,000 — 18,001 Net loss — — — — — — — — — ( 12,413 ) ( 12,413 ) BALANCE—June 30, 2021 — $ — — $ — — $ — 6,628,314 $ 7 $ 132,281 $ ( 84,174 ) $ 48,114 Six Months Ended June 30, 2020 Series A Convertible Series B Convertible Series B1 Convertible Additional Paid-In Capital Deficit Accumulated Total Stockholders’ Equity (Deficit) Preferred Stock Preferred Stock Preferred Stock Common Stock Shares Amount Shares Amount Shares Amount Shares Amount BALANCE—December 31, 2019 17,000,000 $ 16,982 25,186,738 $ 12,235 28,749,997 $ 22,755 410,429 $ — $ 2,188 $ ( 52,553 ) $ ( 50,365 ) Exercise of options—net of — — — — — — 6,132 — 27 — 27 Issuance of preferred stock for cash—net of issuance costs of $ 265 — — — — 43,749,996 34,735 — — — — — Vesting of early exercised stock options — — — — — — 60,406 — 200 — 200 Share-based compensation — — — — — — — — 230 — 230 Net loss — — — — — — — — — ( 9,457 ) ( 9,457 ) BALANCE—June 30, 2020 17,000,000 $ 16,982 25,186,738 $ 12,235 72,499,993 $ 57,490 476,967 $ — $ 2,645 $ ( 62,010 ) $ ( 59,365 ) See accompanying Notes to unaudited Interim Consolidated Financial Statements. 8 Table of Contents TEMPEST THERAPEUTICS, INC. Consolidated Statements of Cash Flows (Unaudited) (in thousands) Six Months Ended June 30, 2021 2020 Operating activities: Net loss $ ( 12,413 ) $ ( 9,457 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation expense 165 174 Stock-based compensation expense 531 230 Noncash lease expense 274 264 Noncash related party interest income ( 4 ) ( 3 ) Noncash interest and other expense 290 — Changes in operating assets and liabilities: Prepaid expenses and other current assets 987 ( 176 ) Accounts payable 5,445 ( 891 ) Accrued expenses and other liabilities ( 1,197 ) ( 625 ) Interest payable 89 — Operating lease liabilities ( 350 ) 363 Cash used in operating activities ( 6,183 ) ( 10,121 ) Investing activities: Purchase of property and equipment ( 84 ) ( 37 ) Repayment of note receivable — 44 Cash (used in) provided by investing activities ( 84 ) 7 Financing activities: Proceeds from issuance of preferred stock — 35,000 Payment of preferred stock issuance costs — ( 469 ) Proceeds from the issuance of common stock 30,010 — Borrowings on loan payable 15,000 — Payment of loan issuance costs ( 93 ) Cash acquired in connection with the reverse recapitalization 17,045 — Payment of reverse recapitalization transaction costs ( 6,074 ) — Proceeds from option exercises 17 27 Cash provided by financing activities 55,905 34,558 Net increase in cash and cash equivalents 49,638 24,444 Cash and cash equivalents and restricted cash at beginning of period 18,820 3,244 Cash and cash equivalents and restricted cash at end of period $ 68,458 $ 27,688 Supplemental disclosure of cashflow information: Cash paid for interest $ 383 $ — Supplemental schedule of non-cash investing and financing activities: Vesting of early exercise stock options $ 95 $ 200 S ee accompanying Notes to unaudited Interim Consolidated Financial Statements 9 Table of Contents TEMPEST THERAPEUTICS, INC. Notes to Unaudited Interim Consolidated Financial Statements 1. ORGANIZATION AND DESCRIPTION OF THE BUSINESS Description of Business —Tempest Therapeutics, Inc. (“Tempest,” or the “Company”) is a clinical-stage oncology company focused on developing novel, orally available therapies for the treatment of solid tumors. Tempest has three programs currently in development, TPST-1495, TPST-1120 and a TREX-1 antagonist. TPST-1495 is a dual antagonist of the EP2 and EP4 prostaglandin E2 receptors, and to the Company’s knowledge, is the only such dual antagonist in clinical development. TPST-1495 is currently in a Phase 1 trial in solid tumors. Tempest’s second clinical program, TPST-1120, is a selective antagonist of peroxisome proliferator-activated receptor alpha (“PPARα”) and is also in a Phase 1 trial in solid tumors. Similar to TPST-1495, Tempest believes TPST-1120 is the only PPARα antagonist in clinical development. The Company also has a third program in preclinical studies that could be the first to target TREX-1, a cellular enzyme that regulates the innate immune response in tumors. Tempest is headquartered in South San Francisco, California. Merger with Millendo —On March 29, 2021, TempestTx, Inc. (“Private Tempest”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Millendo Therapeutics, Inc. (“Millendo”). Concurrent with the execution and delivery of the Merger Agreement, Private Tempest entered into funding agreements with certain investors named therein, pursuant to which the investors agreed to purchase, in the aggregate, $ 30.0 million of common stock of Private Tempest, convertible into securities of Millendo. On June 25, 2021, Private Tempest completed the merger with Millendo in accordance with the Merger Agreement. Prior to the effective time of the merger, Millendo effected a 1-for-15 reverse stock split, and right after the merger, Millendo changed its name to Tempest Therapeutics, Inc. Under the terms of the Merger Agreement, immediately prior to the effective time of the merger, each share Private Tempest’s preferred stock was converted into a share of Private Tempest’s common stock. At closing of the merger, the Company issued an aggregate of approximately 5,365,899 shares of its common stock to Private Tempest stockholders, based on an exchange ratio of 0.0322 shares of the Company’s common stock for each share of Private Tempest common stock outstanding immediately prior to the merger, including those shares of common stock issued upon conversion of the Private Tempest preferred stock, resulting in approximately 6,635,345 shares of the Company’s common stock being issued and outstanding immediately following the effective time of the merger. The Company also assumed all of the outstanding and unexercised stock options and warrants to purchase shares of Private Tempest capital stock. The assumed options continue to be governed by the terms of the 2011 and 2017 Equity Incentive Plans (as discussed more in Note 12) under which the options were originally granted, with such options hence forth representing the right to purchase a number of shares of the Company’s common stock equal to 0.0322 multiplied by the number of share of Private Tempest common stock previously represented by such options. T he merger was accounted for as a reverse recapitalization in accordance with U.S. generally accepted accounting principles (“GAAP”). Under this method of accounting, Private Tempest was be deemed to be the accounting acquirer for financial reporting purposes. This determination was primarily based on the expectation that, immediately following the merger: (i) Private Tempest stockholders would own a substantial majority of the voting rights; (ii) Private Tempest would designate a substantial majority of the initial members of the board of directors of the combined company; (iii) Private Tempest’s executive management team would become the management of the combined company; and (iv) the combined company would be named Tempest Therapeutics, Inc. Accordingly, for accounting purposes, the merger was treated as the equivalent of Tempest issuing stock to acquire the net assets of Millendo. As a result of the merger, the net assets of Millendo were recorded at their acquisition-date fair value in the financial statements of Private Tempest and the reported operating results prior to the merger will be those of Private Tempest. Historical per share figures of Private Tempest have been retroactively restated based on the exchange ratio of 0.0322 . 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation —The accompanying unaudited interim financial statements have been prepared in accordance with GAAP. Unaudited Interim Financial Statements —The Company has prepared the accompanying unaudited interim financial statements on the same basis as the audited financial statements, and the unaudited interim financial statements include, in the Company’s opinion, all adjustments, consisting only of normal recurring adjustments that the Company considers necessary for a fair presentation of its financial position and results of operations for these periods. The unaudited interim financial statements, presented herein, do not contain the required disclosures under GAAP for annual 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, 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, fair value of common stock 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. 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, 10 Table of Contents 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 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. Moreover, the current COVID-19 (“coronavirus”) pandemic, which is impacting worldwide economic activity, poses risk that the Company or its employees, contractors, suppliers, and other partners may be prevented from conducting business activities for an indefinite period of time, including due to shutdowns that may be requested or mandated by governmental authorities. The extent to which the COVID-19 pandemic will impact the Company’s business will depend on future developments that are highly uncertain and cannot be predicted at this time. 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 June 30, 2021 and December 31, 2020, the Company’s cash and cash equivalents consisted of bank deposits and a money market funds. 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 statement 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: 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. For the six months ended June 30, 2021 and 2020, there were no events or circumstances which required an impairment test of long-lived assets. Convertible Preferred Stock —The Company records convertible preferred stock at fair value on the dates of issuance, net of issuance costs. The convertible preferred stock is recorded outside of stockholders’ deficit because the shares contain liquidation features that are not solely within the Company’s control. The Company has elected not to adjust the carrying values of the convertible preferred stock to the liquidation preferences of such shares because it is uncertain whether or when an event would occur that would obligate the Company to pay the liquidation preferences to holders of shares of convertible preferred stock. Subsequent adjustments to the carrying values to the liquidation preferences will be made only when it becomes probable that such a liquidation event will occur. Comprehensive Loss —Comprehensive loss includes net loss as well as other changes in stockholders’ deficit that results from transactions and economic events other than those with stockholders. There was no other comprehensive income or loss for the six months ended June 30, 2021 and 2020. 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, laboratory supplies, consulting costs, external contract research and development 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. 11 Table of Contents 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 expense. General and Administrative Expense – 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 expense. 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. 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 estimated 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. The fair value of restricted stock awards granted to employees are valued as of the grant date using the estimated fair value of the Company’s common stock. 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 June 30, 2021 and December 31, 2020, the Company has recorded a full valuation allowance on its deferred tax assets. 12 Table of Contents 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. Recently Issued Accounting Pronouncements —From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, or FASB, or other standard setting bodies and adopted by the Company as of the specified effective date. In August 2020, the FASB issued ASU 2020-06 , Debt-Debt With Conversions and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40) . The ASU simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. Under the new ASU, convertible instruments will now more frequently accounted for as a single unit of account. That is, a conversion feature and the host instrument in which it is embedded now generally will be treated as a single unit of acc o unt unless the conversion feature requires bifurcation under Topic 815. The ASU is effective for fiscal years beginning after December 15, 2021 for public business entities, and for fiscal years beginning after December 15, 2023 for all other entities. Early adoption is permitted. The Company is in the process of evaluating the impact of this new guidance on its financial statements and related disclosures. 3. MILLENDO MERGER As described in Note 1, Private Tempest merged with the Company on June 25 , 2021 . The merger was accounted for as a reverse recapitalization with Private Tempest as the accounting acquirer. The primary pre-combination assets of Millendo were cash, cash equivalents and restricted cash. Under reverse recapitalization accounting, the assets and liabilities of Millendo were recorded at their fair value which approximated book value due to the short-term nature of the instruments. No goodwill or intangible assets were recognized. Consequently, the consolidated financial statements of Tempest reflect the operations of Millendo for accounting purposes together with a deemed issuance of shares, equivalent to the shares held by the former stockholders of the legal acquirer and a recapitalization of the equity of the accounting acquirer. As part of the reverse recapitalization, the Company obtained approximately $ 17.0 million of cash, cash equivalents and restricted cash. The Company also obtained prepaids and other assets of approximately $ 1.4 million and assumed payables and accruals of approximately $ 0.5 million. The Company also acquired operating lease right-of-use asset of $ 2.1 million and the related operating lease liability of $ 2.1 million. All of the development programs and associated collaboration arrangements were terminated prior to the merger and were deemed to have no value at the transaction date and the Company is winding down the legacy Millendo operations. In addition, the Company incurred approximately $ 0.2 million in share-based compensation expense as a result of the acceleration of vesting of stock options at the time of merger. This amount was recorded in general and administrative expense in the accompanying consolidated statements of operations for the three months and six months period ended June 30, 2021. The Company also incurred transaction costs of approximately $ 6.1 million and this amount is recorded in additional paid-in capital in the accompanying consolidated statements of convertible preferred stock and stockholders’ equity (deficit) for the three months and six months period ended June 30, 2021. 4. 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): June 30, 2021 Level 1 Level 2 Level 3 Total Cash and cash equivalents $ 68,413 $ — $ — $ 68,413 Short-term restricted cash 45 — — 45 Total assets $ 68,458 $ — $ — $ 68,458 December 31, 2020 Level 1 Level 2 Level 3 Total Cash and cash equivalents $ 18,820 $ — $ — $ 18,820 Total assets $ 18,820 $ — $ — $ 18,820 13 Table of Contents 5. TRANSACTIONS WITH RELATED PARTIES (AMOUNTS IN THOUSANDS) Inception Sciences Service Agreements — Inception Sciences, Inc. (Inception Sciences US) and Inception Sciences Canada, Inc. (Inception Sciences Canada) are subsidiaries of Versant Ventures, affiliates of which, together, are a holder of more than 5 % of our capital stock. The Company has service agreements with Inception Sciences US, and Inception Sciences Canada whereby research and support services are provided to the Company. On June 30, 2020, the Company terminated these Inception Sciences service agreements. Total expenses under the service agreements consist of charges for services, equipment usage, lab supplies and other out of pocket expenses as incurred. For the six months ended June 30, 2021 and 2020, the Company incurred nil and $ 1,315 , respectively, in expenses under the Inception Sciences service agreements. Related Party Notes Receivable — On November 19, 2017, the Company loaned three employees a total of $ 353 pursuant to promissory notes in order for such employees to early exercise certain stock options which had a total exercise cost of $ 652 . Two employees paid $ 298 which represents 50 % of the exercise cost and the other 50 % totaling $ 298 was recorded as notes receivable. The other employee did not pay any portion of the exercise cost and $ 55 was recorded as note receivable. The three notes receivable accrue interest at 2 % per year and will mature on November 29, 2022 . The notes receivable vest over time until maturity in conjunction with the vesting of the early-exercised stock options. In February 2020, one of the employees left the Company in May 2019 and repaid her note balance of $ 44 , of which $ 43 was the vested portion of the note receivable and $ 1 was accrued interest. On June 25, 2021, prior to the closing of the Merger Agreement, one of the employees’ note receivable plus accrued interest totaling $ 278 was forgiven by the Company. This amount was recognized as compensation included in general and administrative expense in the accompanying consolidated statements of operations for the three and six months period ended June 30, 2021. As of June 30, 2021 and December 31, 2020, the balance of the vested notes receivable and accrued interest was $ 38 and $ 260 , respectively. 6. BALANCE SHEET ITEMS (AMOUNTS IN THOUSANDS) Prepaid expenses and other current asset consist of the following as of June 30, 2021 and December 31, 2020: June 30, 2021 December 31, 2020 Prepaid expenses $ 439 $ 245 Research tax credit 304 — Prepaid research and development costs 569 441 Notes and interest receivable 38 260 Other current assets 686 59 $ 2,036 $ 1,005 Property and equipment, net, consists of the following as of June 30, 2021 and December 31, 2020: June 30, 202 1 December 31, 2020 Computer equipment and software $ 96 $ 85 Furniture and fixtures 142 135 Lab equipment 667 600 Leasehold improvements 934 746 Property and equipment 1,839 1,566 Less accumulated depreciation ( 621 ) ( 456 ) Property and equipment—net $ 1,218 $ 1,110 Depreciation expense for the three months and six months period ended June 30, 2021 were $ 86 and $ 165 , respectively. Depreciation expense for the three months and six months period ended June 30, 2020 were $ 80 and $ 174 , respectively. 14 Table of Contents Accrued liabilities as of June 30, 2021 and December 31, 2020 consist of the following: June 30, 2021 December 31, 2020 Accrued other liabilities $ 838 $ 441 Accrued clinical trial liability 110 224 $ 948 $ 665 7. EARLY OPTION EXERCISE LIABILITY (AMOUNTS IN THOUSANDS) The recorded amount of the early option exercise liability relates to restricted stock awards and stock options granted to certain employees and contractors that were early-exercised before they became vested. The early option exercise liability decreases as the restricted stock awards and stock options vest over time or if the Company decides to repurchase them, and the amount of decrease is recorded in common stock and additional paid-in capital. As of June 30, 2021 and December 31, 2020, the early option exercise liability was $ 38 and $ 79 , respectively, which represents unvested shares of 8,767 and 29,041 . The unvested shares purchased by the employees are not deemed, for accounting purposes, to be issued and outstanding. 8. COMMITMENTS AND CONTINGENCIES (AMOUNTS IN THOUSANDS) Facilities Lease Agreements —In February 2019, the Company entered into a 5 -year office lease agreement for a 9,780 square feet facility in South San Francisco, California (“SSF Lease”). The remaining lease term of the SSF Lease is two years and eight months as of June 30, 2021. The Company has no other leases as of June 30,2021 and December 31, 2020. As a result of the merger with Millendo, the Company assumed Millendo’s noncancelable operating leases for office space which have remaining lease terms of approximately 3.0 years. In February 2019 and October 2018, Millendo entered into two noncancellable operating leases for office space in Ann Arbor, Michigan (“Ann Arbor Leases”) of which one that Millendo took possession of in April 2019 and the other that Millendo took possession of in July 2019, respectively. One of its leases in Ann Arbor, Michigan expires in June 2024 and the other expires in March 2024 . There were no other leases assumed by the Company as of June 30,2021. As of June 30, 2021 and December 31, 2020, the balance of the operating lease right of use assets on the SSF Lease were $ 1,603 and $ 1,877 , respectively, and the related operating lease liability were $ 2,088 and $ 2,439 , respectively, as shown in the accompanying consolidated balance sheets. As of June 30, 2021, the balance of the operating lease right of use assets on the Ann Arbor Leases was $ 2,070 and the related operating lease liability was $ 2,070 as shown in the accompanying consolidated balance sheet. Rent expense for the SSF Lease w as $ 322 and $ 330 for the six months ended June 30, 2021 and 2020, respectively. 15 Table of Contents As of June 30, 2021, future minimum annual lease payments under the Company’s operating lease liabilities for the SSF Lease and Ann Arbor Leases were as follows: Year Ending Total Commitment 2021 (excluding the six months ended June 30, 2021) $ 786 2022 1,603 2023 1,647 2024 443 2025 — Total minimum lease payments 4,479 Less: imputed interest ( 321 ) Present value of operating lease obligations 4,158 Less: current portion ( 1,484 ) Noncurrent operating lease obligations $ 2,674 Guarantees and Indemnifications —In the normal course of business, the Company enters into agreements that contain a variety of representations and provide for general indemnification. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations. As of June 30, 2021 and December 31, 2020, the Company does not have any material indemnification claims that were probable or reasonably possible and consequently has not recorded related liabilities. Legal Proceedings — Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties, and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. As a result of the merger with Millendo, the Company is party to various litigation matters given Millendo’s role as successor to OvaScience, Inc. (“OvaScience”). OvaScience merged with Millendo in 2018. Prior to the merger with Millendo, OvaScience was sued in three matters that are disclosed below. On November 9, 2016, a purported shareholder derivative action was filed in Massachusetts State court (Cima v. Dipp) against certain former officers and directors of OvaScience and OvaScience alleging breach of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement and waste of corporate assets for purported actions related to OvaScience’s January 2015 follow-on public offering. No material proceedings have occurred since the case was filed; in April 2021, the Company filed a unilateral request to continue a stay of the case, which the court has not yet ruled on. On March 24, 2017, a purported shareholder class action lawsuit was filed in Massachusetts Federal court (Dahhan v. OvaScience, Inc.) OvaScience and certain former officers of OvaScience alleging violations of Sections 10(b) and 20(a) of the Exchange Act (the “Dahhan Action”). Defendants have answered and the case is currently in discovery. On July 27, 2017, a purported shareholder derivative complaint was filed in Massachusetts Federal court (Chiu v. Dipp) against OvaScience and certain former officers and directors of OvaScience alleging breach of fiduciary duties, unjust enrichment and violations of Section 14(a) of the Exchange Act. related to OvaScience’s January 2015 follow-on public offering and other public statements concerning OvaScience’s AUGMENT treatment. Following the Court’s dismissal of an amended complaint, the parties agreed that plaintiffs could file a second amended complaint and that the case would be stayed pending the resolution of the Dahhan Action. In May 2018, the court entered an order staying this case pending the resolution of the Dahhan Action. With respect to each of the three OvaSciences matters described above, the Company is unable to estimate potential losses, if any. However, the Company believes the matters are without merit, and that in light of applicable insurance, any material exposure to the Company is remote. On April 23, 2021 a complaint was filed against the Company and each of its directors in New York Federal court (Nakkhumpun v. Millendo Therapeutics, Inc.) alleging violations of the Securities Exchange Act of 1934 and breach of fiduciary duty of candor, for allegedly disseminating a materially incomplete and misleading registration statement with the SEC in connection with the proposed merger. Following the filing of this complaint, ten additional complaints containing substantially the same claims were filed in Federal courts in New York, the Eastern District of New York, and Michigan. After the Company filed a Form 8-K on June 11, 2021 containing additional disclosures, each of these cases was voluntarily dismissed without prejudice. 9. LOAN PAYABLE (AMOUNTS IN THOUSANDS) On January 15, 2021, the Company entered into a loan agreement with a 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 will be available through March 31, 2022 contingent upon achievement of each of the following: i) receipt of at least $ 50,000 in Series C equity capital, ii) initiation of the Phase 1 combination study of TPST-1495 or monotherapy expansion study, and iii) initiation of Phase 2 trial of TPST-1120 or the 1L Triplet Collaboration study. And Tranche C of $ 10,000 is available at lender’s option. 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 %. Index Rate is the greater of (i) 30-day US LIBOR or (ii) 0.15 %. Monthly principal payments of $ 500 will begin on March 1, 2023 . Related to this borrowing, the Company paid $ 96 of debt issuance costs and the amount would be amortized as additional interest expense over the life of the loan. As of June 30, 2021, the balance of the loan payable (net of debt issuance costs) was $ 14,915 . The carrying value of the loan approximates fair value. For the three months and six months period ended June 30, 2021, total interest expense were $ 276 and $ 507 , respectively. 10. CONVERTIBLE PREFERRED STOCK As of June 30, 2021, the Company was authorized to issue up to 5,000,000 shares of preferred stock at a par value of $ 0.001 as a result of Private Tempest completing the merger with Millendo on June 25, 2021. As of December 31, 2020, Private Tempest was authorized to issue up to 135,936,731 shares of preferred stock at par value of $ 0.001 . In October 2011, Private Tempest received a commitment from its venture investor for a Series A Preferred Stock financing totaling $ 10 million to be taken down in two tranches of $ 5 million each. Upon execution of the stock purchase agreement, Private Tempest received the first tranche of $5 million, which included $ 2,399 in cash proceeds and the conversion of notes payable and accrued interest totaling $ 2,601 for issuing 5,000,000 shares of its Series A Preferred Stock. In June 2012, Private Tempest received cash proceeds of $ 5 million related to the second tranche of the Series A Preferred Stock financing from the issuance of 5,000,000 shares of Series A Preferred Stock. In August 2015, Private Tempest issued an additional 2,000,000 shares of Series A Preferred Stock to its venture investor for cash proceeds of $ 2 million. In September 2016, Private Tempest issued an additional 5,000,000 shares of Series A Preferred Stock to its venture investor for cash proceeds of $ 5 million. 16 Table of Contents In February 2018, Private Tempest issued 25,186,738 shares of Series B Preferred Stock for $ 1.00 per share in connection with the closing of the Series B Preferred Stock Purchase Agreement. Private Tempest’s convertible notes of $ 8.0 million and accrued interest were converted as part of the Series B offering. In February 2019, Private Tempest issued 28,749,997 shares of Series B-1 preferred stock for $ 0.80 per share for total cash proceeds of $ 23 million. In January 2020, Private Tempest issued 43,749,996 shares of Series B-1 preferred stock for $ 0.80 per share for total cash proceeds of $ 35 million. On June 25, 2021, Private Tempest completed the mer g er with Millendo in accordance with the Merger Agreement. Under the terms of the Merger Agreement, immediately prior to the effective time of the merger, each share Private Tempest’s preferred stock was converted into a share of Private Tempest’s common stock. At closing of the merger, the Company issued an aggregate of approximately 5,365,899 shares of its common stock to Private Tempest stockholders, based on an exchange ratio of 0.0322 shares of the Company’s common stock for each share of Private Tempest common stock outstanding immediately prior to the merger, including those shares of common stock issued upon conversion of the Private Tempest preferred stock. The authorized, issued and outstanding shares of the convertible preferred stock and liquidation preferences at December 31, 2020 were as follows (in thousands except share and per share amounts): December 31, 2020 Series Shares Authorized Shares Issued and Outstanding Per Share Liquidation Preference Aggregate Liquidation Amount Proceeds Net of Issuance Cost Net Carrying Value Series A 17,000,000 17,000,000 $ 1.00 $ 17,000 $ 16,982 $ 16,982 Series B 25,186,738 25,186,738 1.00 25,187 24,943 12,235 Series B-1 93,749,993 72,499,993 0.80 58,000 57,489 57,489 135,936,731 114,686,731 $ 100,187 $ 99,414 $ 86,706 The significant rights, preferences, and privileges of the convertible preferred stock as of December 31, 2020 were as follows: Dividends —The holders of the Company’s convertible preferred stock are entitled to receive noncumulative dividends of 8 % per share (as adjusted for stock splits, combinations, and reorganizations) per annum on each outstanding share of Series convertible preferred stock. Such dividends shall be payable only when and if declared by the Board of Directors. As of June 30, 2021 and December 31, 2020, the Company’s Board of Directors had not declared any dividends. Dividends on convertible preferred stock shall be payable in preference to and prior to any payments of any dividends on common stock. No dividends have been declared to date. Voting Rights —The holders of preferred stock are entitled to one vote for each share of common stock into which such preferred stock could then be converted; and with respect to such vote, such holder shall have full voting rights and powers equal to the voting rights and powers of the holders of common stock. Liquidation —The holders of preferred stock are entitled to receive liquidation preferences at an amount per share of preferred stock equal to the original price plus all declared and unpaid dividends on the preferred stock. Liquidation payments to the holders of preferred stock have priority and are made in preference to any payments to the holders of common stock. After full payment of the liquidation preference to the holders of the preferred stock, the remaining assets, if any, will be distributed ratably to the holders of the common stock and preferred stock on an as-if-converted to common stock basis. Redemption and Balance Sheet Classification — The convertible preferred stock is recorded within mezzanine equity because while it is not mandatorily redeemable, it will become redeemable at the option of the stockholders upon the occurrence of certain deemed liquidation events that are considered not solely within the Company’s control. 17 Table of Contents 11. COMMON STOCK Upon completion of the merger on June 25, 2021, the Company issued an aggregate of approximately 5,365,899 shares of its common stock to Private Tempest stockholders, based on an exchange ratio of 0.0322 shares of the Company’s common stock for each share of Private Tempest common stock outstanding immediately prior to the merger, including those shares of common stock issued upon conversion of the Private Tempest preferred stock ( 3,692,912 common shares) and those shares of common stock issued with its pre-merger financing of $ 30.0 million ( 1,136,849 common shares). As of June 30, 2021, the Company was authorized to issue 100,000,000 shares of common stock at a par value of $ 0.001 . Of the 1 00 ,000,000 common stock shares authorized, 6,637,081 are legally issued and outstanding at June 30, 2021, with 8,767 shares subject to repurchase due to remaining vesting requirements. Common 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. Except for effecting or validating certain specific actions intended to protect the preferred stockholders, the holders of common stock vote together with preferred stockholders and have the right to elect one member of the Company’s Board of Directors. 12. STOCK COMPENSATION In 2011 Private Tempest adopted the 2011 Equity Incentive Plan, and in 2017, Private Tempest adopted the 2017 Equity Incentive Plan, together “the Plans”. Upon adoption of the 2017 Equity Incentive Plan, the 2011 Equity Incentive Plan was terminated. Both the Plans provide for the granting of stock awards to employees, directors and consultants of the Company. Awards issuable under the Plans include incentive stock options (“ISO”), nonqualified stock options (“NSO”), stock appreciation rights (“SAR”), restricted stock awards, restricted stock unit awards and other stock awards. As a result of the merger, the Plans of Private Tempest were assumed by the Company. 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 employee or non-employee with options who owns more than 10 percent of the voting power of all classes of stock of the Company, in which case the exercise price shall be no less than 110 percent of the fair market value per share on the grant date. Stock 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. The grant date fair market value of the shares of common stock underlying stock options has historically been determined by the Company’s Board of Directors. Because there has been no public market for the Company’s common stock, the Board of Directors exercises reasonable judgment and considers a number of objective and subjective factors to determine the best estimate of the fair market value, which include 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. 18 Table of Contents Stock option activity under the Plans is set forth below: Weighted- Shares Average Available Total Options Exercise for Grant Outstanding Price Balance—January 1, 2021 489,797 452,165 $ 5.35 Assumed in reverse recapitalization — 178,732 178.64 Granted ( 186,482 ) 186,482 20.99 Exercised — ( 10,654 ) 4.60 Cancelled and forfeited 5,667 ( 6,316 ) 18.36 Balance—June 30, 2021 308,982 800,409 47.70 The following table summarizes information about stock options outstanding at June 30, 2021: Weighted Average Weighted Remaining Average Aggregate Contractual Exercise Intrinsic Shares Life (In Years) Price Value Options outstanding 800,409 8.46 $ 47.70 $ 2,594,131 Vested and expected to vest 799,823 8.46 $ 47.63 $ 2,593,281 Exercisable 366,374 7.64 $ 89.59 $ 1,133,181 Employee Stock Options —During the six months ended June 30, 2021, the Company granted employees stock options to purchase 184,872 shares of common stock with a weighted-average grant date fair value of $ 12.70 per share. As of June 30, 2021, there was total unrecognized compensation costs related to unvested employee stock options of $ 3,047 . These costs are expected to be recognized over a weighted-average period of approximately 1.6 years. 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 six months ended June 30, 2021: Expected term (in years) 6.0 – 6.1 Expected volatility 67 % Risk-free interest rate 1.0 % – 1.1 % Dividends 0 % 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. Non -Employee Stock Options — During the six months ended June 30, 2021, the Company granted non-employees stock options to purchase 1,610 shares of common stock with a weighted-average grant date fair value of $ 7.46 per share. As of June 30, 2021, there was total unrecognized compensation costs related to unvested non-employee stock options of $ 25 . These costs are expected to be recognized over a weighted-average period of approximately 1.3 years. 19 Table of Contents The Company estimated the fair value of stock options using the Black-Scholes option pricing valuation model. The fair value of non-employee stock options is being amortized on the straight-line basis over the requisite service period of the awards. The fair value of non-employee stock options was estimated using the following assumptions for the six months ended June 30, 2021: Expected term (in years) 10 Expected volatility 66 % Risk-free interest rate 1.50 % Dividends 0 % Expected Term —The expected term of options granted represents the period of time that the options are expected to be outstanding. The Company has valued its non-employee stock options using the contractual term as the expected term. 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 statement of operations for the three and six months ended June 30, 2021 and 2020: Three months ended June 30, Six months ended June 30, 2021 2020 2021 2020 Research and development $ 45 $ 176 $ 122 $ 231 General and administrative 366 51 409 ( 1 ) $ 411 $ 227 $ 531 $ 230 13. 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. There was no contribution from the Company for the six months ended June 30, 2021 and 2020. 14. NET LOSS PER SHARE The following table sets forth the computation of the Company’s basis in diluted net loss per share for the three months and six months ended June 30, 2021 and 2020 (in thousands except share and per share amounts): Three months ended June 30, Numerator: 2021 2020 Net loss $ ( 7,058 ) $ ( 5,229 ) Denominator: Weighted-average common shares outstanding 937,300 519,112 Less: Weighted-average unvested restricted shares and shares subject to repurchase ( 11,868 ) ( 61,114 ) Weighted-average shares used to computing basic and diluted net loss per share 925,432 457,998 Net loss per share attributable to common stockholders—basic and diluted $ ( 7.63 ) $ ( 11.42 ) 20 Table of Contents Six months ended June 30, 2021 2020 Numerator: Net loss $ ( 12,413 ) $ ( 9,457 ) Denominator: Weighted-average common shares outstanding 733,679 517,825 Less: Weighted-average unvested restricted shares and shares subject to repurchase ( 16,061 ) ( 73,359 ) Weighted-average shares used to computing basic and diluted net loss per share 717,618 444,466 Net loss per share attributable to common stockholders—basic and diluted $ ( 17.30 ) $ ( 21.28 ) As of June 30, 2021 and 2020, 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. Based on the amounts outstanding as of June 30, 2021 and 2020, 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: June 30, 2021 June 30, 2020 Options to purchase common stock 795,428 386,689 Redeemable convertible preferred stock — 3,692,909 Unvested restricted common stock — 393 Common stock warrants 7,178 — 802,606 4,079,991 15. SUBSEQUENT EVENTS Subsequent events were evaluated through the filing date of this Quarterly Report on Form 10-Q. On July 23, 2021, the Company entered into a sales agreement (the “Sales Agreement”) with Jefferies LLC (the “Agent”), pursuant to which the Company may sell, from time to time, up to an aggregate sales price of $ 100,000,000 of its common stock through the Agent. The common stock sold in the offering will be issued pursuant to a prospectus supplement filed with the Securities and Exchange Commission (the “SEC”) on July 23, 2021, and the accompanying base prospectus dated July 23, 2021, forming part of the Company’s registration statement on Form S-3 (Registration No. 333-257990), which was declared effective on July 23, 2021. Sales of the common stock, if any, made pursuant to the Sales Agreement may be sold in negotiated transactions or transactions that are deemed to be an “at the market offering”, as defined in Rule 415(a)(4) of the Securities Act of 1933, as amended (the “Securities Act”), including sales made directly on or through the Nasdaq Capital Market, on or through any other existing trading market for the common stock or by any other method permitted by law, at market prices prevailing at the time of sale, at prices related to prevailing market prices or at negotiated prices, or as otherwise agreed between the Company and the Agent. The Agent will be entitled to compensation equal to 3.0 % of the gross proceeds from the sale of all shares of common stock sold through it as Agent under the Sales Agreement. 21 Table of Contents