ABOS US Equity☆

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited financial statements and related notes included elsewhere in this Annual Report on Form

10-K.

This discussion, particularly information with respect to our future results of operations or financial condition, business strategy, plans and objectives of management for future operations and the potential impact that the ongoing

COVID-19

pandemic may have on our business, includes forward-looking statements that involve risks and uncertainties as described under the heading “Special Note Regarding Forward-Looking Statements” in this Annual Report on Form

10-K.

You should review the disclosure under the heading “Risk Factors” in this Annual Report on Form

10-K

for a discussion of important factors that could cause our actual results to differ materially from those anticipated in these forward-looking statements.

Overview

We are a clinical-stage biopharmaceutical company developing a novel disease-modifying approach to target what we believe to be a key underlying cause of AD. Alzheimer’s disease is a progressive neurodegenerative disease of the brain that leads to loss of memory and cognitive functions and ultimately results in death. Our scientific founders pioneered research on soluble AßOs, which are globular assemblies of the Aß peptide that are distinct from Aß monomers and amyloid plaques. We are currently focused on advancing a targeted immunotherapy drug candidate, ACU193, through clinical proof of mechanism trials in early AD patients. We initiated a Phase 1 clinical trial of ACU193 in the second quarter of 2021, which we named

“INTERCEPT-AD.”

This trial is enrolling patients with mild dementia or MCI due to AD, conditions referred to as “early AD.”

INTERCEPT-AD

is a U.S.-based, multi-center, randomized, double-blind, placebo-controlled clinical trial with overlapping SAD and MAD cohorts involving a total of approximately 62 patients with early AD. The overall objective of the trial is to evaluate the safety and tolerability and establish clinical proof of mechanism of ACU193 administered intravenously. The primary trial endpoints are focused on safety and immunogenicity. An important safety measure will be the use of MRI to assess the presence or absence of ARIA. Secondary endpoints include pharmacokinetics in plasma and CSF and target engagement as evidenced by detection of ACU193 bound to AßOs in CSF. Clinical scales typically used in AD trials as well as computerized cognitive testing are included as exploratory measures. In October 2021, we announced the initial dosing of the first patient in the

INTERCEPT-AD

trial and the subsequent successful sentinel safety review of the first two patients. Due to delays in clinical trial site activation and patient enrollment that we believe are principally related to the effects of the

COVID-19

pandemic, we are expanding the anticipated number of trial sites to support our enrollment objectives and anticipated timelines. Clinical trial site activation and patient recruitment and enrollment is ongoing. At present,

INTERCEPT-AD

is in the SAD portion of the trial. Based on current site activations and enrollment rates, we anticipate reporting our topline data from this trial in the first half of 2023.

We were incorporated in 1996 and were party to an exclusive license and research collaboration with Merck in 2003. Although we acquired the exclusive rights to ACU193 from Merck in 2011 following Merck’s strategic decision to focus its AD development efforts on a different product candidate, we did not recommence meaningful operations until we completed our first institutional fundraising in 2018. Since 2018, we have devoted substantially all of our efforts to organizing and staffing our company, business planning, raising capital, conducting discovery, research and development activities, and providing general and administrative support for these operations. We do not have any products approved for sale and have not generated any revenue from product sales. We have funded our operations primarily through the sale of our convertible preferred stock and common stock, the issuance of notes, grant revenue and during our collaboration with Merck, certain payments received under our collaboration agreement.

Prior to our IPO, which closed on July 6, 2021, we raised an aggregate of $99.4 million of gross proceeds through the issuance of convertible preferred stock, as well as sales of common stock and issuance of notes that were converted to preferred stock, with the vast majority of this capital being raised since our Series

A-1

convertible preferred stock, or Series

A-1,

financing in 2018. In 2020, we conducted a Series B convertible preferred stock, or Series B, financing, with the funding to occur in two tranches. We closed the first tranche of the Series B financing

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in November 2020, selling 11,862,043 shares of Series B at $3.80 per share for gross proceeds of $45.1 million. On June 9, 2021, our board of directors and the holders of more than 67% of the outstanding shares of Series B preferred stock elected to waive the achievement of the milestone event. On June 17, 2021, we closed the second tranche of our Series B preferred stock financing, pursuant to which certain of our investors funded an additional $30.0 million in exchange for 7,908,027 shares of Series B preferred stock.

On July 6, 2021, we issued 9,999,999 shares of our common stock in the IPO, and on July 8, 2021, we issued an additional 1,499,999 shares of our common stock that were purchased by the underwriters pursuant to the underwriters’ option to purchase additional shares at the public offering price less underwriting discounts and commissions. The price to the public for each share was $16.00. The aggregate net proceeds from the IPO, after underwriting discounts and commissions and other offering expenses of $15.4 million, were $168.6 million.

We have incurred net losses and negative cash flows from operations since our inception. Our net losses were $100.6 million and $7.3 million for the years ended December 31, 2021 and 2020, respectively. Approximately $81.2 million, or 81%, of the net loss for the year ended December 31, 2021 was due to increases in the fair value of the Series B tranche liability and the Series

A-1

warrant liability of $76.2 million and $5.0 million, respectively. As of December 31, 2021, we had an accumulated deficit of $127.6 million. Our net losses and cash flows from operations may fluctuate significantly from

quarter-to-quarter

and

year-to-year,

depending on the timing of nonclinical studies, clinical trials and our expenditures on other research and development activities. We expect our expenses and operating losses will increase substantially for the foreseeable future as we advance ACU193 in clinical trials, seek to expand our product candidate portfolio through developing additional product candidates, grow our clinical, regulatory and quality capabilities, and incur additional costs associated with operating as a public company. It is likely that we will seek third-party collaborators for the future commercialization of ACU193 or any other product candidate that is approved for marketing. However, we may seek to commercialize our products at our own expense, which would require us to incur significant additional expenses for marketing, sales, manufacturing and distribution.

We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for our product candidates. In addition, if we obtain regulatory approval for our product candidates and do not enter into a third-party commercialization partnership, we expect to incur significant expenses related to developing our commercialization capability to support product sales, marketing, manufacturing and distribution activities.

As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity offerings and debt financings or other sources, such as potential collaboration agreements, strategic alliances and licensing arrangements. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on acceptable terms, or at all. Our failure to raise capital or enter into such agreements as, and when needed, could have a material adverse effect on our business, results of operations and financial condition.

As of December 31, 2021, we had cash and cash equivalents of $122.2 million and $103.7 million in marketable securities. Based on our current operating plan, we expect that our existing cash and cash equivalents and marketable securities will be sufficient to enable us to fund our operating expenses and capital expenditure requirements at least through 2025. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. See “—Liquidity and Capital Resources.”

COVID-19

Business Update

In March 2020, the World Health Organization declared

COVID-19

a global pandemic and the United States declared a national emergency with respect to

COVID-19.

In response to the

COVID-19

pandemic, a number of governmental orders and other public health guidance measures have been implemented across much of the United States, including in the locations of our office, clinical trial sites and third parties on whom we rely. We implemented a work-from-home policy allowing employees and consultants who can work from home to do so.

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Business travel has been limited, and online video and teleconference technology is used to meet virtually rather than in person. We have taken measures to secure our research and development activities, while work in laboratories by our partners has been organized to reduce risk of

COVID-19

transmission.

In October 2021, we announced the initial dosing of the first patient in the

INTERCEPT-AD

trial and the subsequent successful sentinel safety review of the first two patients. Due to delays in clinical trial site activation and patient enrollment that we believe are principally related to effects of the

COVID-19

pandemic, we are expanding the anticipated number of trial sites to support our enrollment objectives and anticipated timelines. However, we cannot assure that we will not experience additional delays in site activation or enrollment. Clinical trial site activation and patient recruitment and enrollment is ongoing. At present,

INTERCEPT-AD

is in the SAD portion of the trial. Based on current site activations and enrollment rates, we anticipate reporting our topline data from this trial in the first half of 2023.

The ultimate impact of the

COVID-19

pandemic on our business, results of operations, financial position and cash flows will depend on future developments, including the duration and spread of the outbreak and related advisories and restrictions. These developments and the impact of the

COVID-19

pandemic on the financial markets and the overall economy are highly uncertain and cannot be predicted. If the financial markets and/or the overall economy are impacted for an extended period, our business, results of operations, financial position and cash flows may be materially adversely affected.

Components of Results of Operations

Grants and Other Revenue

To date, we have not generated any revenues from the commercial sale of any products, and we do not expect to generate revenues from the commercial sale of any products for the foreseeable future, if ever. For the year ended December 31, 2020, we derived revenue from a grant awarded by the National Institutes of Health, or the NIH, in September 2017 and renewed annually in 2018 through 2020. The grant provided us with funding to support the completion of preclinical chemistry, manufacturing and control studies, toxicology and pharmacokinetic studies, submit an IND dossier to the FDA, and then conduct first in human clinical safety trials for ACU193. We recognized revenue from this grant when the related costs were incurred and the right to payment was realized. The full $3.9 million awarded to us was fully recognized as of December 31, 2020, as the final $1.4 million under the grant was recorded as revenue during the year ended December 31, 2020.

Operating Expenses

Our operating expenses consist of research and development expenses and general and administrative expenses.

Research and Development Expenses

Research and development costs primarily consist of direct costs associated with consultants and materials, biologic storage, third party, contract research organization costs and contract development and manufacturing expenses, salaries and other personnel-related expenses. Research and development costs are expensed as incurred. More specifically, these costs include:

• costs of manufacturing drug supply and drug product;

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• costs related to compliance with clinical regulatory requirements; and

As we currently only have one product candidate, ACU193, in development, we do not separately track expenses by program. Further, as we have historically relied exclusively on consultants for research and development activities, we did not have any material internal research and development costs for the years ended December 31, 2021 and 2020. We expect that our research and development expenses will increase substantially in connection with our clinical development activities for our ACU193 program.

General and Administrative Expenses

General and administrative expenses consist primarily of management and business consultants and other related costs, including stock-based compensation. General and administrative expenses also include insurance, professional fees for legal, consulting, accounting, auditing, tax and patent services, investor and public relations, board of directors’ expenses, franchise taxes and rent.

We expect that our general and administrative expenses will increase as our organization and headcount needed in the future grows to support continued research and development activities and potential commercialization of our product candidates. These increases will likely include increased costs related to the hiring of additional personnel and fees to outside consultants, attorneys and accountants, among other expenses. Additionally, we expect to incur increased expenses associated with being a public company, including costs of additional personnel, accounting, audit, legal, regulatory

and tax-related services

associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance costs, and investor and public relations costs.

Other Income (Expense)

Other income (expense) primarily includes changes in fair value of the

Series A-1 warrant

liability and the Series B tranche rights, interest income, net and other expense, net.

The Series

A-1

warrant liability and the Series B tranche rights were initially recorded at fair value as liabilities on our balance sheet. Each was

subsequently re-measured at

fair value at the end of each reporting period and also upon the exercise of the warrant on June 22, 2021 and upon settlement of the tranche rights with the milestone closing for the Series B on June 17, 2021. Changes in the fair value were recognized as a component of other income (expense).

Following our IPO, we made investments in marketable securities and the interest income earned, as well as the amortization and accretion of premiums and discounts are recorded in interest income, net.

Other income (expense), net generally consists of sublease income offset by fees incurred on our investments in marketable securities.

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Results of Operations

Comparison of the Years Ended December 31, 2021 and 2020

The following table summarizes our results of operations for the years ended December 31, 2021 and 2020 (in thousands):

Year EndedDecember 31,

Grant and other revenue $ — $ 1,436 $ (1,436 )

Costs and operating expenses

Other income (expense)

Interest income, net 84 1 83

Other income, net 51 — 51

Other comprehensive loss

Unrealized loss on marketable securities (231 ) — (231 )

Grant and Other Revenue

Revenue related to our NIH grant was nil and $1.4 million for the years ended December 31, 2021 and 2020, respectively. Revenue under the NIH grant was recognized when the related costs were incurred and the right to payment was realized.

Research and Development Expenses

Research and development expenses were $12.3 million and $8.0 million for the years ended December 31, 2021 and 2020, respectively. The $4.3 million increase was primarily due to increases in expenses of $2.3 million for personnel-related expenses, $2.3 million for materials and $2.1 million for contract research organization services, which were partially offset by decreases in expenses of $1.6 million for drug safety testing, $0.6 million for consulting and $0.2 million for contract manufacturing. The net increase in research and development expenses in 2021 from 2020 was primarily due to increased costs related to initiating our clinical trial in 2021.

General and Administrative Expenses

General and administrative expenses were $7.3 million and $1.4 million for the years ended December 31, 2021 and 2020, respectively. The $5.9 million increase was primarily due to increases of $2.2 million for personnel expenses, including stock compensation costs, $1.5 million for insurance expenses, $0.8 million for accounting and audit expenses, $0.5 million for legal expenses, $0.3 million for investor relations, as well as $0.1 million each for marketing/public relations, board of directors’ fees, rent, travel, other general and administrative costs and the

write-off

of the remaining NIH grant receivable which was not submitted in a timely enough manner to

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collect these funds from the NIH. Following the IPO, we have added a number of new personnel and a large portion of the other increases are a direct result of our transition from a private to a public company.

Other Income (Expense)

Increases in the fair value of the Series B tranche liability and the

Series A-1 warrant

liability of $76.2 million and $5.0 million, respectively, were primarily responsible for total other expense for the year ended December 30, 2021. Additionally, these expenses were offset by interest income earned on our investments in marketable securities, net of amortization and accretion of premium and discount which are recorded in interest income, net and sublease income. Other income (expense) for the year ended December 31, 2020 was related to decreases in the fair value of the Series B tranche liability and the Series

A-1

warrant liability of $0.4 million and $0.2 million, respectively.

Liquidity and Capital Resources

Since our inception up until the time of our IPO in July 2021, we had funded our operations primarily through the sale of our convertible preferred stock and common stock, the issuance of notes, grant revenue and, during our collaboration with Merck, certain payments received under our collaboration agreement. We do not have any products approved for sale and have not generated any revenue from product sales. Prior to our IPO, we had raised an aggregate of $99.4 million of gross proceeds through the issuance of convertible preferred stock, as well as sales of common stock and issuance of notes that were converted to preferred stock, with the vast majority of this capital being raised since our Series

A-1 financing

in 2018. In 2020, we conducted a Series B financing, with the funding to occur in two tranches. We closed the first tranche of the Series B financing in November 2020 for gross proceeds of $45.1 million and the second tranche closed on June 17, 2021 for gross proceeds of $30.0 million following the election of our board of directors and a majority of the Series B investors to waive the requirement for a certain milestone event for ACU193 to be achieved prior to funding the second tranche on June 9, 2021.

On July 6, 2021, we issued 9,999,999 shares of common stock in our IPO, and on July 8, 2021, we issued an additional 1,499,999 shares of common stock that were purchased by the underwriters pursuant to the underwriters’ option to purchase additional shares at the public offering price less underwriting discounts and commissions. The price to the public for each share was $16.00. The aggregate net proceeds from our IPO, after underwriting discounts and commissions and other offering expenses of $15.4 million, were $168.6 million.

As of December 31, 2021, our cash and cash equivalents totaled $122.2 million. Additionally, we had $103.7 million of

available-for-sale

marketable securities as of December 31, 2021, which mature over the next one to two years. We enter into contracts in the normal course of business with contract research organizations, or CROs, and contract manufacturing organizations, or CMOs, for clinical trials, nonclinical research studies and testing, manufacturing and other services and products for operating purposes. These contracts do not contain any minimum purchase commitments and are generally cancelable by us upon prior notice of 30 days. Payments due upon cancelation consist only of payments for services provided and expenses incurred up to the date of cancelation.

Future minimum lease payments under our lease agreements for our leases in Carmel, Indiana and Charlottesville, Virginia total less than $0.3 million.

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Cash Flows

The following table summarizes our sources and uses of cash (in thousands):

Year Ended December 31,

Net cash used in operating activities $ (17,961 ) $ (7,450 )

Net cash used in investing activities (104,120 ) —

Net cash provided by financing activities 200,466 44,675

Net change in cash and cash equivalents $ 78,385 $ 37,225

Operating Activities

Net cash used in operating activities was $18.0 million and $7.5 million for the years ended December 31, 2021 and 2020, respectively. Net cash used in operating activities during the year ended December 31, 2021 primarily consisted of our net loss of $100.6 million, which includes $81.2 million of

non-cash

expense related to the change in the fair values of the Series B tranche liability and the Series

A-1

warrant liability and $0.9 million for stock compensation costs, plus $3.9 million of cash used for prepaid expenses mainly associated with research and development activities and insurance; partially offset by cash provided of $3.6 million from accrued expenses and other current liabilities mainly related to research and development expenses and employee-related accruals, and $0.6 million of cash provided by accounts payable. Cash used in operating activities during the year ended December 31, 2021, was the result of ongoing research and development activities as we commenced our clinical trial, as well as costs associated with the transition from a private to a public company. Net cash used in operating activities during the year ended December 31, 2020 primarily consisted of our net loss of $7.3 million, which includes $0.6 million of

non-cash

expense related to the change in the fair values of the Series B tranche liability and the Series

A-1

warrant liability and $0.2 million for stock compensation costs, partially offset by $0.3 million of cash provided by changes in our operating assets and liabilities.

Investing Activities

Cash used in investing activities for the year ended December 31, 2021 was $104.1 million and was predominantly related to the purchase of marketable securities, but also included less than $0.1 million for purchases of computer hardware. Cash used in investing activities for the year ended December 31, 2020 was nil.

Financing Activities

Net cash provided by financing activities was $200.5 million and $44.7 million for the year ended December 31, 2021 and 2020, respectively. Net cash provided by financing activities during the year ended December 31, 2021 was primarily due to our IPO for net proceeds of $168.6 million, the closing of the second tranche of our Series B convertible preferred stock for gross proceeds of $30.0 million, plus a total of $1.9 million received from the exercise of a Series

A-1

preferred warrant, as well as exercises of common stock warrants. Net cash provided by financing activities during the year ended December 31, 2020 was primarily due to the closing of the first tranche of the Series B financing for net proceeds of $44.7 million.

Funding Requirements

We expect our expenses to increase in connection with our ongoing activities, particularly as we continue our research and development, conduct clinical trials, and seek marketing approval for our current and any of our future product candidates. Furthermore, we have and expect to incur additional costs associated with operating as a public company following our July 2021 IPO. It is likely that we will seek third-party collaborators for the future commercialization of ACU193 or any other product candidate that is approved for marketing. However, we may seek to commercialize our products at our own expense, which would require us to incur significant

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additional expenses for marketing, sales, manufacturing and distribution., which costs we may seek to offset through entry into collaboration agreements with third parties. As a result, we expect that we will need to obtain substantial additional funding in connection with our future operations. If we are unable to raise capital when needed or on acceptable terms, we could be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts.

Based on our current operating plan, we expect that our existing cash and cash equivalents and our marketable securities will be sufficient to enable us to fund our operating expenses and capital expenditure requirements at least through 2025. We have based this estimate on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect. Our future capital requirements will depend on many factors, including:

• the costs, timing and outcome of regulatory review of our product candidates;

• the costs of operating as a public company.

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our longer-term cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. We do not have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interests may be diluted, and the terms of these securities may include liquidation or other preferences that could adversely affect your rights as a common stockholder. Any debt financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, that could adversely impact our ability to conduct our business.

If we raise funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Critical Accounting Policies, Significant Judgments and Use of Estimates

Our financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that

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affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates and assumptions are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

Actual results may differ from these estimates under different assumptions or conditions. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

While our significant accounting policies are described in the notes to our financial statements included elsewhere in this Annual Report for Form

10-K,

we believe that the following critical accounting policies are most important to understanding and evaluating our reported financial results.

Stock-Based Compensation Expense

We recognize stock-based compensation expense for all stock-based awards. Stock-based compensation costs are estimated at the grant date based on the fair value of the equity and recognized as expense, net of actual forfeitures when they occur, on a straight-line basis over the requisite service period.

We calculate the fair value of options using the Black-Scholes option-pricing model, which requires the use of various highly subjective assumptions as follows:

We will continue to use judgment in evaluating the expected volatility, expected terms and interest rates utilized for our stock-based compensation expense calculations on a prospective basis.

For the years ended December 31, 2021 and 2020, stock-based compensation expense was $0.9 million and $0.2 million, respectively. As of December 31, 2021, we had approximately $4.7 million of total unrecognized stock-based compensation costs, which we expect to recognize over an estimated weighted-average period of 3.0 years. We expect to continue to grant options and other stock-based awards in the future, and to the extent that we do, our stock-based compensation expense recognized in future periods will likely increase.

Common Stock Valuations

Given the absence of a public trading market of our common stock prior to the IPO, and in accordance with the American Institute of Certified Public Accountants Practice Guide,

Valuation of Privately Held Company Equity

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Securities Issued as Compensation

, the Practice Aid, our board of directors exercised reasonable judgment and considered numerous and subjective factors to determine the best estimate of fair value of our common stock prior to the IPO, including, but not limited to:

• relevant precedent transactions involving our capital stock;

• market multiples of comparable publicly-traded companies; and

• U.S. and global capital and macroeconomic conditions.

The Practice Aid identifies various available methods for allocating enterprise value across classes and series of capital stock to determine the estimated fair value of common stock at each valuation date. In accordance with the Practice Aid, we considered the following methods:

For valuations performed during fiscal years 2018 through 2020 we used the OPM. For valuations performed beginning in 2021, prior to the IPO, in accordance with the Practice Aid, we used a hybrid approach of the OPM and the PWERM methods to determine the estimated fair value of our common stock as a result of the increasing likelihood of the occurrence of certain discrete events, such as a potential IPO, improving market conditions and receptivity of the market to initial public offerings. The enterprise value determined under the OPM and PWERM methods was weighted according to our board of directors’ estimate of the probability of the occurrence of a certain discrete event as of the valuation date. The resulting equity value for the common stock was then divided by the number of shares of common stock outstanding at the date of the valuation to derive a per share value on a

non-marketable

basis. In order to determine the fair value of our common stock on a marketable basis, we then applied a discount for lack of marketability which we derived based on inputs including a company-specific volatility rate, a term equal to the expected time to a future liquidity event and a risk-free rate equal to the yield on treasuries of similar duration.

Application of these approaches involves the use of estimates, judgment and assumptions that are highly complex and subjective, such as those regarding our expected future revenue, expenses, cash flows, discount rates, market multiples, the selection of comparable companies and the probability of future events. Changes in any or all of these estimates and assumptions, or the relationships between those assumptions, impact our valuations as of each valuation date and may have a material impact on the valuation of common stock. The assumptions underlying these valuations represent our management’s best estimate, which involve inherent uncertainties and

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the application of management judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our stock-based compensation expense could be materially different.

Following the closing of the initial public offering, the fair value of our common stock has been determined based on the quoted market price of our common stock.

Accrued Research and Development Expenses

As part of the process of preparing our financial statements, we are required to estimate our accrued expenses as of each balance sheet date. This process involves reviewing open contracts and purchase orders, identifying services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. We make estimates of our accrued expenses as of each balance sheet date based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary. The significant estimates in our accrued research and development expenses include the costs incurred for services performed by our vendors in connection with research and development activities for which we have not yet been invoiced. Since our inception, we have not experienced any material differences between accrued or prepaid costs and actual costs.

We base our expenses related to research and development activities on our estimates of the services received and efforts expended pursuant to quotes and contracts with vendors that conduct research and development on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the research and development expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepaid expense accordingly. Advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made.

Accrued research and development expenses increased to $2.6 million as of December 31, 2021, compared with $0.1 million as of December 31, 2020, and prepaid research and development expenses increased to $2.6 million as of December 31, 2021, compared with $0.4 million as of December 31, 2020. The increases in both accrued and prepaid research and development are due to commencement of our clinical trial.

Emerging Growth Company and Smaller Reporting Company Status

In April 2012, the Jumpstart Our Business Startups Act of 2012, or JOBS Act, was enacted. Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We elected the extended transition period for complying with new or revised accounting standards, which delays the adoption of these accounting standards until they would apply to private companies.

In addition, as an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. These provisions include:

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We may take advantage of these provisions until we no longer qualify as an emerging growth company. We will cease to qualify as an emerging growth company on the date that is the earliest of: (i) December 31, 2025, (ii) the last day of the fiscal year in which we have more than $1.07 billion in total annual gross revenues, (iii) the date on which we are deemed to be a “large accelerated filer” under the rules of the SEC, which means the market value of our common stock that is held by

non-affiliates

exceeds $700 million as of the prior June 30th, or (iv) the date on which we have issued more than $1.0 billion of

non-convertible

debt over the prior three-year period. We may choose to take advantage of some but not all of these reduced reporting burdens. We have taken advantage of certain reduced reporting requirements in this Annual Report on Form

10-K

and our other filings with the SEC. Accordingly, the information contained herein may be different than you might obtain from other public companies in which you hold equity interests.

We are also a “smaller reporting company,” meaning that the market value of our shares held

by non-affiliates

is less than $700 million and our annual revenue was less than $100 million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our shares held

by non-affiliates is

less than $250 million or (ii) our annual revenue was less than $100 million during the most recently completed fiscal year and the market value of our shares held

by non-affiliates is

less than $700 million. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company, we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report

on Form 10-K and,

similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

As a “smaller reporting company” as defined by Item 10 of Regulation

S-K,

the Company is not required to provide the information required by this item.

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Item 8. Financial Statements and Supplementary Data.

ACUMEN PHARMACEUTICALS, INC.

INDEX TO FINANCIAL STATEMENTS

Page

Report of Independent Registered Public Accounting Firm (PCAOB ID: 42) 115

Statements of Cash Flows for the years ended December 31, 2021 and 2020 119

Notes to Financial Statements 120

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Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Acumen Pharmaceuticals, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Acumen Pharmaceuticals, Inc. (the Company) as of December 31, 2021 and 2020, the related statements of operations, changes in convertible preferred stock and stockholders’ deficit and cash flows for the years then ended, and the related notes

(collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended 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.

/s/

Ernst & Young LLP

We have served as the Company’s auditors since 2021.

Tysons, Virginia

March 28, 2022

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ACUMEN PHARMACEUTICALS, INC.

BALANCE SHEETS

(in thousands, except share and per share data)

December 31,

ASSETS

Current assets

Marketable securities, short-term 72,075 —

Grant receivable — 109

Prepaid expenses and other current assets 4,424 543

Marketable securities, long-term 31,619 —

Property and equipment, net 36 —

Other assets 14 —

LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

Current liabilities

Accrued expenses and other current liabilities 4,059 423

Preferred stock tranche rights liability — 5,033

Preferred stock warrant liability — 380

Stockholders’ equity (deficit)

Accumulated other comprehensive loss (231 ) —

The accompanying notes are an integral part of these financial statements.

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STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except share and per share data)

Year Ended December 31,

Grant and other revenue $ — $ 1,436

Operating expenses

Other income (expense)

Interest income, net 84 1

Other income, net 51 —

Total other income (expense) (81,022 ) 587

Other comprehensive loss

Unrealized loss on marketable securities (231 ) —

Net loss per common share, basic and diluted $ (5.02 ) $ (17.48 )

Weighted-average shares outstanding, basic and diluted 20,057,534 419,124

The accompanying notes are an integral part of these financial statements.

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ACUMEN PHARMACEUTICALS, INC.

STATEMENTS OF CHANGES IN CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands, except share data)

Shares Amount Shares Amount Shares Amount Shares Amount

Share-based compensation — — — — — — — — 154 — — 154

Net loss — — — — — — — — — (7,325 ) — (7,325 )

Exercise of preferred stock warrant — — 447,426 1,250 — — — — — — — —

Exercise of common stock warrants — — — — — — 137,446 — 614 — — 614

Cashless exercise of common stock warrants — — — — — — 178,847 — — — — —

Stock options exercised — — — — — — 5,183 — 15 — — 15

Unrealized loss on marketable securities — — — — — — — — — — (231 ) (231 )

Share-based compensation — — — — — — — — 922 — — 922

The accompanying notes are an integral part of these financial statements.

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ACUMEN PHARMACEUTICALS, INC.

STATEMENTS OF CASH FLOWS

(in thousands)

Year Ended December 31,

Cash flows from operating activities

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

Depreciation 4 —

Stock-based compensation expense 922 154

Other non-cash expense 109 —

Changes in operating assets and liabilities:

Grant receivable — (79 )

Prepaid expenses and other current assets (3,881 ) 53

Accrued expenses and other current liabilities 3,636 (119 )

Net cash used in operating activities (17,961 ) (7,450 )

Cash flows from investing activities

Purchases of available-for-sale marketable securities (104,080 ) —

Purchases of property and equipment (40 ) —

Net cash used in investing activities (104,120 ) —

Cash flows from financing activities

Proceeds from exercise of Series A-1 warrant 1,250 —

Proceeds from exercise of common stock warrants 614 —

Proceeds from stock option exercises 15 —

Net cash provided by financing activities 200,466 44,675

Net change in cash and cash equivalents 78,385 37,225

Cash and cash equivalents at the beginning of the period 43,777 6,552

Cash and cash equivalents at the end of the period $ 122,162 $ 43,777

Supplemental disclosure of cash flow information

Cash paid for income taxes $ — $ —

Cash paid for interest $ — $ —

Supplemental disclosure of noncash financing activities

The accompanying notes are an integral part of these financial statements.

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ACUMEN PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS

Acumen Pharmaceuticals, Inc. (“Acumen” or the “Company”) was incorporated in 1996 in the state of Delaware. Acumen discovers and develops targeted therapies for the treatment of Alzheimer’s disease (“AD”). Acumen’s sole drug candidate, ACU193, is a humanized monoclonal antibody which selectively targets amyloid-beta oligomers (“AßOs”). Acumen and Merck & Co., Inc. discovered and developed ACU193 through an eight-year research collaboration. Acumen currently holds exclusive rights to the program. The Company submitted an Investigational New Drug Application for ACU193 to the Food and Drug Administration in the fourth quarter of 2020. The Company initiated a Phase 1 clinical trial of ACU193 in the second quarter of 2021, which the Company named

“INTERCEPT-AD.”

Approximately 62 individuals with early AD (mild cognitive impairment or mild dementia due to AD) are expected to be randomized into this double-blind, placebo-controlled,

first-in-human

study of ACU193.

INTERCEPT-AD

consists of single-ascending-dose and multiple-ascending-dose cohorts and the overall objective of the trial is to evaluate the safety and tolerability

and

establish clinical proof of mechanism of ACU193 administered intravenously. In October 2021, the Company announced the initial dosing of the first patient in the

INTERCEPT-AD

trial and the subsequent successful sentinel safety review of the first two patients. Clinical trial site activation and patient recruitment and enrollment is ongoing. At present, INTERCEPT-AD is in the single-ascending-dose portion of the trial. Based on current site activations and enrollment rates, the Company anticipates reporting its topline data from this trial in the first half of 2023.

The Company is subject to the uncertainty of whether the Company’s intellectual property will develop into successful commercial products.

November 2020 Reverse Stock Split

On November 20, 2020, the Company effected a

1-for-30

reverse stock split of its authorized, issued and outstanding shares of common stock and convertible preferred stock. Accordingly, all share and per share amounts for the periods presented in the accompanying financial statements and these notes have been adjusted retroactively, where applicable, to reflect this reverse stock split. On November 20, 2020, the Company also increased the number of shares of preferred stock and common stock authorized for issuance (see Note 6).

June 2021 Reverse Stock Split

The Company’s Board of Directors (“Board”) approved a reverse split of shares of the Company’s common stock and convertible preferred stock on a

1-for-1.49

basis (the “June 2021 Reverse Stock Split”), which was effected on June 23, 2021. The par value and the number of authorized shares of the convertible preferred stock and common stock were not adjusted in connection with the June 2021 Reverse Stock Split. All references to common stock, convertible preferred stock, warrants to purchase common stock, warrants to purchase convertible preferred stock, options to purchase common stock, share data, per share data and related information contained in the financial statements have been retrospectively adjusted to reflect the effect of the June 2021 Reverse Stock Split for all periods presented. No fractional shares of the Company’s common stock were issued in connection with the June 2021 Reverse Stock Split. Any fractional share resulting from the June 2021 Reverse Stock Split was rounded down to the nearest whole share, and any stockholder entitled to a fractional share as a result of the June 2021 Reverse Stock Split received a cash payment in lieu of receiving fractional shares.

Initial Public Offering

On July 6, 2021, the Company issued 9,999,999 shares of common stock in an initial public offering (“IPO”), and on July 8, 2021, the Company issued an additional 1,499,999 shares of common stock that were purchased by the underwriters pursuant to the underwriters’ option to purchase additional shares at the public offering price

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NOTES TO FINANCIAL STATEMENTS

less underwriting discounts and commissions. The price to the public for each share was $16.00. The aggregate net proceeds from the Company’s IPO, after underwriting discounts and commissions and other offering expenses of $15.4 million, were $168.6 million.

On July 6, 2021, in connection with the closing of the IPO, 477,297 shares of Series A, 7,985,305 shares of Series

A-1,

and 19,770,070 shares of Series B convertible preferred stock, respectively, automatically converted into an equal number of shares of common stock. Warrants to purchase shares of common stock were automatically net exercised for the purchase of an aggregate of 178,847 shares of common stock.

As a result of the IPO, the underwriters’ exercise of their option, the conversions of the Series A,

A-1

and B convertible preferred stock, and the exercise of the warrants, the Company’s total number of outstanding common shares increased by 39,911,517 immediately following the closing of the IPO.

Liquidity and Capital Resources

The Company has incurred operating losses since inception and expects to continue to incur significant operating losses for the foreseeable future and may never become profitable. As of December 31, 2021 and 2020, the Company had an accumulated deficit of $127.6 million and $27.0 million, respectively, and working capital of $193.5 million and $38.1 million, respectively. Prior to the IPO, the Company historically relied on raising capital from venture capital firms and private investors and funding from a government grant to finance its operations.

On June 9, 2021, the Board and the holders of more than 67% of the then outstanding shares of Series B convertible preferred stock held by the Series B purchasers (the “Requisite Investors”) elected to waive the achievement of the milestone subject to the terms and conditions of the Series B Preferred Stock Purchase Agreement (the “Series B Agreement”) and consummate the subsequent closing (the “Milestone Closing”) (see Note 5). On June 17, 2021, the Milestone Closing for the Series B convertible preferred stock occurred, resulting in the sale of 7,908,027 shares of Series B convertible preferred stock at $3.80 per share for gross proceeds of $30.0 million.

As a result of the Milestone Closing and the closing of the Company’s IPO on July 6, 2021, management believes that its existing cash and cash equivalents and marketable securities will be sufficient to enable the Company to fund its operating expenses and capital expenditure requirements at least through 202

5

. Future capital requirements will depend upon many factors, including the timing and extent of spending on research and development and market acceptance of the Company’s products. The Company may need to obtain additional financing to complete clinical trials and launch and commercialize any product candidates for which it receives regulatory approval. Until such time, if ever, the Company can generate revenue sufficient to achieve profitability, the Company expects to finance its operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. There can be no assurance that such financing will be available on terms acceptable to the Company, or at all. To the extent that the Company raises additional capital through the sale of equity or convertible debt securities, the ownership interest of its stockholders will be diluted, and the terms of these securities may include liquidation of other preferences that adversely affect the rights of common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting the Company’s ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends. If the Company is unable to maintain sufficient financial resources, its business, financial condition and results of operations will be materially and adversely affected. The Company may be required to delay, limit, reduce or terminate its product discovery and development activities or future commercialization efforts.

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NOTES TO FINANCIAL

STATEMENTS

In October 2021, the Company announced the initial dosing of the first patient in the

INTERCEPT-AD

trial and the subsequent successful sentinel safety review of the first two patients. Due to delays in clinical trial site activation and patient enrollment that the Company believes are principally related to effects of the coronavirus (“COVID-19”) pandemic, the Company is expanding the anticipated number of trial sites to support its enrollment objectives and anticipated timelines. Clinical trial site activation and patient recruitment and enrollment is ongoing. At present, INTERCEPT-AD is in the single-ascending-dose portion of the trial. Based on current site activations and enrollment rates, the Company anticipates reporting its topline data from this trial in the first half of 2023. The ultimate impact of the

COVID-19

pandemic on the Company’s business, results of operations, financial position and cash flows will depend on future developments, including the duration and spread of the outbreak and related advisories and restrictions. These developments and the impact of the

COVID-19

pandemic on the financial markets and the overall economy are highly uncertain and cannot be predicted. If the financial markets and/or the overall economy are impacted for an extended period, the Company’s business, results of operations, financial position and cash flows may be materially adversely affected.

NOTE 2. BASIS OF PRESENTATIO N, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS

Basis of Presentation

The accompanying financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). In the opinion of management, all adjustments (consisting of normal recurring adjustments) have been made that are necessary to present fairly the Company’s financial position, and the results of its operations and its cash flows.

Emerging Growth Company

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”), or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s financial statements upon adoption. Under the Jumpstart Our Business Startups Act of 2012, as amended, the Company meets the definition of an emerging growth company and has elected the extended transition period for complying with new or revised accounting standards, which delays the adoption of these accounting standards until they would apply to private companies.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of expenses during the reporting periods. These estimates and assumptions are based on our historical experience, and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources.

Actual results may differ from these estimates under different assumptions or conditions. To the extent there are material differences between the estimates and actual results, the Company’s future results of operations will be affected.

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NOTES TO FINANCIAL STATEMENTS

Cash and Cash Equivalents

The Company

considers all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents. The Company’s cash equivalents consist of funds held in several money market accounts. The Company had $121.2 million and $36.8 million in cash equivalents as of December 31, 2021 and 2020, respectively.

Marketable Securities

The Company’s marketable securities portfolio consists primarily of investments in money market funds, commercial paper, asset-backed securities, U.S. treasury securities and short-term highly liquid, high credit quality corporate debt securities. The Company considers its marketable securities to be

available-for-sale.

Available-for-sale

securities are classified as cash equivalents, or as short-term or long-term marketable securities based on the maturity date at time of purchase and their availability to meet current operating requirements. Available-for-sale securities that mature in three months or less from the date of purchase are classified as cash equivalents. Available-for-sale securities, excluding cash equivalents, that mature in one year or less are classified as short-term marketable securities and those that mature in more than one year are classified as long-term.

Securities that are classified as

available-for-sale

are measured at fair value; see “

Fair Value of Financial Instruments

” below. Any premium arising at purchase is amortized to the earliest call date and any discount arising at purchase is accreted to maturity. Amortization and accretion of premiums and discounts are recorded along with interest income on investments in interest income, net in the statements of operations and comprehensive loss. Unrealized gains and losses are excluded from earnings and are reported as a component of other comprehensive income. The Company periodically evaluates whether declines in fair values of its available-for-sale securities below their book value are other-than-temporary. This evaluation consists of several qualitative and quantitative factors regarding the severity and duration of the unrealized loss, as well as the Company’s ability and intent to hold the available-for-sale security until a forecasted recovery occurs. The Company does not generally intend to sell its available-for-sale securities; however, the Company assesses whether it is more likely than not that it will be required to sell any security before recovery of its amortized cost basis. Realized gains and losses and declines in fair value judged to be other-than-temporary on available-for-sale securities will be included in other expense, net. The cost of investments sold will be calculated using the specific-identification method.

The Company did

no

t

record any other-than-temporary impairments related to available-for-sale securities for the year ended December 31, 2021. The Company did not own any marketable securities during the year ended December 31, 2020.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash, cash equivalents and marketable securities. The Company may maintain deposits in financial institutions in excess of government insured limits. Management believes that the Company is not exposed to significant credit risk as the Company’s cash and cash equivalents are held at financial institutions that management believes to be of high credit quality. The Company has not experienced any losses due to credit risk on such accounts during any of the periods presented.

Fair Value of Financial Instruments

The Company’s financial assets and liabilities are accounted for in accordance with Accounting Standards Codification (“ASC”) 820,

Fair Value Measurements and Disclosures

, which defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most

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NOTES TO FINANCIAL STATEMENTS

advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy requires an entity to maximize the use of observable inputs when measuring fair value and classifies those inputs into three levels:

To the extent the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair values requires more judgement. Accordingly, the degree of judgement exercised by management in determining fair value is greatest for instruments categorized as Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

The carrying values reported in the Company’s balance sheets for cash (excluding cash equivalents which are recorded at fair value on a recurring basis), accounts payable and accrued expenses are reasonable estimates of their fair values due to the short-term nature of these items.

The following tables present the Company’s fair value hierarchy for its money market securities,

available-for-sale

marketable securities, preferred stock tranche rights liability and preferred stock warrant liability measured at fair value on a recurring basis (in thousands):

Fair value measurements at reporting date using

Assets included in:

Cash and cash equivalents

Marketable securities

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NOTES TO FINANCIAL STATEMENTS

Fair value measurements at reporting date using

Assets included in:

Cash and cash equivalents

Liabilities included in:

Preferred stock tranche rights liability $ — $ — $ 5,033 $ 5,033

Preferred stock warrant liability — — 380 380

The fair value of the Company’s money market funds is determined using quoted market prices in active markets for identical assets.

The fair value for the

available-for-sale

marketable securities is determined based on valuation models using inputs that are observable either directly or indirectly (Level 2 inputs), such as quoted prices for similar assets or liabilities, yield curve, volatility factors, credit spreads, default rates, loss severity, current market and contractual prices for the underlying instruments or debt, broker and dealer quotes, as well as other relevant economic measures.

Refer to Note 5 for further information about the Level 3 rollforward of activity and Level 3 inputs.

Grant Receivable

Grant receivable consists of research expenses reimbursable under a grant from the National Institute of Health (“NIH”). The Company carried its grant receivable at the unreimbursed amount. Management determined that the remainder of the unreimbursed amount under the grant receivable could no longer be collected from the NIH and the Company recorded a loss of $0.1 million in

general and administrative

expense on the statement of operations and comprehensive loss during the year ended December 31, 2021. Management determined that no allowance was necessary for this receivable as of December 31, 2020.

Property and Equipment

Property and equipment consists primarily of computer equipment and is stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets, which is generally three years for computer-related assets.

Convertible Preferred Stock

The Company recorded shares of convertible preferred stock at their respective fair values on the dates of issuance, net of issuance costs. The Company applied the guidance in ASC

480-10-S99-3A,

SEC Staff Announcement: Classification and Measurement of Redeemable Securitie

s, and therefore classified the Series A, Series

A-1

and Series B convertible preferred stock as mezzanine equity. The convertible preferred stock was recorded outside of stockholders’ deficit because, in the event of certain deemed liquidation events considered

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ACUMEN PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS

not solely within the Company’s control, such as a merger, acquisition and sale of all or substantially all of the Company’s assets, the convertible preferred stock would have become redeemable at the option of the holders. In the event of a change of control of the Company, proceeds received from the sale of such shares would have been distributed in accordance with the corresponding liquidation preferences. The Company did not adjust the carrying values of the convertible preferred stock to the deemed liquidation values of such shares since a liquidation event was not probable at any of the reporting dates.

As mentioned above in Note 1, in connection with the closing of the IPO, all of the outstanding shares of Series A, Series

A-1

and Series B convertible preferred stock automatically converted into an equal number of shares of common stock on July 6, 2021.

Preferred Stock Tranche Rights Liability

The Company determined that its obligation to issue, and the Company’s investors’ right to purchase, additional shares of Series B convertible preferred stock pursuant to the Milestone Closing (see Note 1 and Note 5) represented a freestanding financial instrument (the “tranche liability”). The tranche liability was initially recorded at fair value. The proceeds from the sale of the convertible preferred stock were first allocated to the fair value of the tranche liability with the remaining proceeds from the sale of the convertible preferred stock allocated to the Series B convertible preferred stock. The tranche liability was remeasured at each reporting period and upon the exercise of the obligation, with gains and losses arising from subsequent changes in its fair value recognized in other income and expense in the statements of operations and comprehensive loss. As discussed above in Note 1, the Milestone Closing occurred on June 17, 2021, and as a result, the remaining value of the tranche liability was reclassified to convertible preferred stock on the balance sheet.

Preferred Stock Warrant Liability

The Company accounted for the warrant to purchase Series

A-1

convertible preferred stock as a liability as this warrant was a freestanding financial instrument that required the Company to transfer assets upon exercise. The warrant liability was initially recorded at fair value. The warrant liability was remeasured at each reporting period and upon the exercise of the applicable warrant, with gains and losses arising from subsequent changes in its fair value recognized in other income and expense in the statements of operations and comprehensive loss. The warrant was exercised on June 22, 2021, and the remaining value of the warrant liability was reclassified to convertible preferred stock on the balance sheet. There were no preferred stock warrants outstanding as of December 31, 2021.

Common Stock Warrants

The Company assesses whether warrants issued require accounting as derivatives. The Company determined that its common stock warrants were (1) indexed to the Company’s own stock and (2) classified in stockholders’ equity in accordance with FASB ASC Topic 815,

Derivatives and Hedging

. As such, the Company concluded the warrants met the scope exception for determining whether the instruments require accounting as derivatives and should be classified in stockholders’ equity. In June 2021, several holders of warrants to purchase the Company’s common stock exercised their warrants and purchased a total of 137,446 shares of common stock at an exercise price of $4.47. On July 6, 2021, in connection with the closing of the Company’s IPO, the Company issued 178,847 shares of common stock in exchange for the 248,247 outstanding common stock warrants at an exercise price of $4.47. There were no common stock warrants outstanding as of December 31, 2021.

Grant and Other Revenue Recognition

The Company’s NIH grant is not within the scope of ASC 606,

Revenue from Contracts with Customers

(“ASC 606”)

,

as the grant does not meet the definition of a contract with a customer. The Company has concluded that

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NOTES TO FINANCIAL STATEMENTS

the grant meets the definition of a contribution and is a

non-reciprocal

transaction, and management has also concluded that Subtopic

958-605,

Not-for-Profit-Entities-Revenue

Recognition

does not apply, as Acumen is a business entity and the grant is with a governmental agency.

In the absence of applicable guidance under U.S. GAAP, the Company’s policy is to recognize grant revenue when the related costs are incurred and the right to payment is realized. Costs incurred are recorded in research and development and general and administrative expenses on the statements of operations and comprehensive loss.

The Company believes the recognition of revenue as costs are incurred and amounts become realizable is analogous to the concept of transfer of control of a service over time under ASC 606.

Research and Development Expenses

Research and development expenses primarily consist of consultants and materials, biologic storage, salaries and other personnel-related expenses related to research and development activities and are expensed as incurred. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected on the balance sheets as prepaid or accrued expenses. The Company records accruals for estimated ongoing research costs. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the studies, including the phase or completion of events, invoices received and contracted costs.

Stock-based Compensation

The Company expenses stock-based compensation to employees,

non-employees

and board members over the requisite service period based on the estimated grant date fair value of the awards and actual forfeitures. The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model, which requires the use of a number of complex assumptions including the fair value of the common stock, expected volatility, risk-free interest rate, expected dividends, and the expected term of the option. The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. Stock-based awards with graded-vesting schedules are recognized on a straight-line basis over the requisite service period for each separately vesting portion of the award. All stock-based compensation costs are recorded in research and development expense or general and administrative expense in the statements of operations and comprehensive loss based upon the respective employee’s or

non-employee’s

roles within the Company. Forfeitures are recorded as they occur. See also Note 7 below.

Income Taxes

Income taxes are recorded in accordance with ASC 740,

Income Taxes

(“ASC 740”), which provides for deferred taxes using an asset and liability approach. 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 bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse, and net operating loss (“NOL”) carryforwards and research and development (“R&D”) tax credit carryforwards. Valuation allowances are provided if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company has recorded a full valuation allowance to reduce its net deferred income tax assets to zero. In the event the Company were to determine that it would be able to realize some or all of its deferred income tax assets in the future, an adjustment

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NOTES TO FINANCIAL STATEMENTS

to the deferred income tax asset valuation allowance would increase income in the period such determination was made.

The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740. When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit would more likely than not be realized assuming examination by the taxing authority. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances. The Company has not recorded any accruals related to uncertain tax positions as of December 31, 2021 and 2020. The Company’s policy is to record interest and penalties, if any, as part of income tax benefit. No interest or penalties were recorded during the years ended December 31, 2021 and 2020.

Net Loss Per Share of Common Stock

Basic net loss per share of common stock is calculated using the

two-class

method under which earnings are allocated to both common shares and participating securities based on their participation rights. Net loss attributable to common stockholders was not allocated to the convertible preferred stock as the holders of the convertible preferred stock did not have a contractual obligation to share in any losses. Basic net loss per share is calculated by dividing the net loss attributable to common shares by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share of common stock is computed by dividing the net loss using the weighted-average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of stock options and warrants to purchase common stock (using the treasury stock method), and the conversion of convertible preferred stock and the preferred warrant (using the

if-converted

method). See Note 10 below.

Segment Information

Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business in one segment.

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU

No. 2016-02,

Leases (Topic 842)

, as amended, with guidance regarding the accounting for and disclosure of leases. This update requires lessees to recognize the liabilities related to all leases, including operating leases, with a term greater than 12 months on the balance sheet. This update also requires lessees and lessors to disclose key information about their leasing transactions. Topic 842 became effective on January 1, 2022. The Company will adopt this guidance using the modified retrospective method and will elect the package of practical expedients upon transition, which will retain the lease classification for leases that existed prior to the adoption of this guidance. Additionally, in calculating the right-of-use asset and lease liability, the Company will elect to combine lease and non-lease components as permitted under the guidance and to exclude short-term leases having initial terms of 12 months or less as an accounting policy election and recognize rent expense on a straight-line basis over the lease term for short-term leases. Upon adoption, the Company will record both a

right-of-use

asset and a lease liability of approximately $0.2 million on its balance sheet.

In June 2016, the FASB issued ASU

2016-13,

Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on

Financial Instruments

, which was codified with its subsequent amendments as ASC 326. ASC 326 changes how entities account for credit losses on financial assets and other instruments that are not measured

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NOTES TO FINANCIAL STATEMENTS

at fair value through net income, including available-for-sale securities. The amendments require an entity to replace the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects current expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The updated guidance is effective for the Company on January 1, 2023, with early adoption permitted. The Company is currently evaluating the impact of this new guidance on its financial statements and related disclosures.

In December 2019, the FASB issued ASU

No. 2019-12,

Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes

(“ASU

2019-12”),

which is intended to simplify various aspects related to accounting for income taxes. ASU

2019-12

removes certain exceptions to the general principles in ASC 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for the Company for annual reporting periods beginning January 1, 2022, and interim periods within fiscal years beginning on January 1, 2023, with early adoption permitted. The Company is currently evaluating the impact of this standard on its financial statements.

NOTE 3. MARKETABLE SECURITIES

Marketable securities consisted of the following as of December 31, 2021 (in thousands):

Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value

Available-for-sale securities, short-term

Total available-for-sale securities, short-term 72,108 — (33 ) 72,075

Available-for-sale securities, long-term

Total available-for-sale securities, long-term 31,817 — (198 ) 31,619

As of December 31, 2021, the Company’s

available-for-sale

securities classified as short-term mature

in one year or less and the Company’s

available-for-sale

securities classified as long-term mature within two years.

Fourteen

of the

available-for-sale

marketable securities

were

in an unrealized loss position as of

December 31, 2021, all of which were in

a loss position for less than twelve months. Unrealized losses on

available-for-sale

securities as of December 31, 2021 were not significant and were primarily due to changes in interest rates, including market credit spreads, and not due to increased credit risks associated with specific securities. Accordingly, no other-than-temporary impairment was recorded for the year ended December 31, 2021.

There were no realized gains or losses for the year ended December 31, 2021.

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NOTE 4. SUPPLEMENTAL FINANCIAL INFORMATION