CGTX 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 consolidated financial statements and the related notes to those statements included elsewhere in this Annual Report on Form 10-K. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Some of the numbers included herein have been rounded for the convenience of presentation. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under Item 1A, Risk factors, in this Annual Report on Form 10-K.

Overview

We are a clinical-stage biopharmaceutical company engaged in the discovery and development of innovative, small molecule therapeutics targeting age-related degenerative diseases and disorders of the central nervous system, or CNS, and retina. Currently available therapies for these diseases are limited, with many diseases having no approved therapies or treatments. Our goal is to develop disease modifying treatments for patients with these degenerative disorders by initially leveraging our expertise in the σ-2 (sigma-2) receptor, or S2R, which is expressed by multiple cell types, including neuronal synapses, and acts as a key regulator of cellular damage commonly associated with certain age-related degenerative diseases of the CNS and retina. We believe that targeting the S2R complex represents a mechanism that is functionally distinct from other current approaches in clinical development for the treatment of degenerative diseases.

Since our inception in 2007, we have incurred significant operating losses and devoted substantially all of our time and resources to developing our lead product candidate, CT1812, building our intellectual property portfolio, raising capital and recruiting management and technical staff to support these operations. As of December 31, 2022, we had an accumulated deficit of $115.4 million. We incurred net losses of $21.4 million and $11.7 million for the years ended December 31, 2022 and 2021, respectively.

To date, we have funded our operations primarily with proceeds from grants awarded by the National Institute of Aging, or NIA, a division of the National Institutes of Health, or NIH, and proceeds from our initial public offering, or IPO, completed in October 2021, proceeds from our follow-on public offering in November 2022, and the sales of our convertible promissory notes, convertible preferred stock, simple agreements for future equity, or SAFE, and stock option exercises. Since our inception, we have received approximately $171.0 million in cumulative grant awards to fund our clinical trials, primarily from the NIA, and we have raised approximately $108.8 million in net proceeds from sales of our equity securities, convertible notes, SAFE, stock option exercises, our IPO and follow-on public offering. As of December 31, 2022, we had cash and cash equivalents of $41.6 million.

On October 13, 2021, we completed our IPO, pursuant to which we issued and sold 3,768,116 shares of our common stock at a public offering price of $12.00 per share. Additionally, on November 12, 2021, the underwriters exercise of their over-allotment option in full to purchase 565,217 shares of our common stock closed. In connection with the IPO, we received net proceeds of approximately $44.2 million, after deducting underwriting discounts and commissions and other offering related expenses payable by us, which includes net proceeds of approximately $6.3 million from the exercise of the over-allotment option.

On November 15, 2022, we completed our follow-on public offering, pursuant to which we issued and sold 5,000,000 shares of our common stock at a public offering price of $1.20 per share. In connection with the follow-on public offering, we received net proceeds of approximately $5.2 million, after deducting underwriting discounts and commissions and other offering related expenses.

On December 23, 2022, we entered into a sales agreement with Cantor Fitzgerald & Co. and B. Riley Securities, Inc., or the Sales Agents, providing for the offering, issuance and sale by us of up to $40 million of our common stock from time to time in “at-the-market” offerings (the “ATM”). For the year ended December 31, 2022, we have not sold any shares of common stock under the ATM.

106

Table of Contents

We expect to continue to incur significant and increasing expenses and net losses for the foreseeable future, as we advance our current and future product candidates through preclinical and clinical development, manufacture drug product and drug supply, seek regulatory approval for our current and future product candidates, maintain and expand our intellectual property portfolio, hire additional research and development and business personnel and operate as a public company. 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, debt financings or other sources, such as potential collaboration agreements and strategic alliances, licensing or similar arrangements with third parties. To the extent available, we expect to continue our pursuit of non-dilutive research contributions, or grants, including additional NIA grant funding. However, we may fail to receive additional NIA grants, or 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 obtain additional NIA grants or 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.

Because of the numerous risks and uncertainties associated with product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to raise capital, maintain our research and development efforts, expand our business or continue our operations at planned levels, and as a result we may be forced to substantially reduce or terminate our operations.

We do not own or operate manufacturing facilities. We rely, and expect to continue to rely, on third parties for the manufacture of CT1812 for preclinical studies and clinical trials, as well as for commercial manufacture if CT1812 obtains marketing approval. We also rely, and expect to continue to rely, on third parties to manufacture, package, label, store, and distribute CT1812, if marketing approval is obtained. We believe that this strategy allows us to maintain a more efficient infrastructure by eliminating the need for us to invest in our own manufacturing facilities, equipment, and personnel while also enabling us to focus our expertise and resources on the development of CT1812.

Impact of COVID-19 on Our Business

Our business has been and could continue to be adversely affected by the effects of the ongoing COVID-19 pandemic, including, but not limited to, our clinical trials. For example, our ongoing and/or planned clinical trials may be impacted by interruptions or delays in the operations of the FDA and comparable foreign regulatory authorities. Additionally, we have made certain adjustments to the operation of our trials in an effort to ensure the monitoring and safety of patients and minimize risks to trial integrity during the pandemic in accordance with the guidance issued by the FDA and may need to make further adjustments in the future. We have also initiated our clinical trial protocols to enable remote visits to mitigate any potential impacts as a result of the COVID-19 pandemic. Many of these adjustments are new and untested, may not be effective, may affect the integrity of data collected, and may have unforeseen effects on the progress and completion of our clinical trials and the findings from such clinical trials.

The spread of COVID-19, including the spread of new strains and variants of COVID-19, and actions taken to reduce such spread may also materially affect us economically. While the potential further economic impact brought by, and the duration of, the COVID 19 pandemic may be difficult to assess or predict, there could be a significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity and financial position. As a result, we may face difficulties raising capital through future sales of our common stock or such sales may be on unfavorable terms.

107

Table of Contents

Components of Our Results of Operations

Operating Expenses

Research and Development Expenses

Research and development expenses consist primarily of direct and indirect costs incurred for our research activities, including development of our drug discovery efforts and the development of our product candidates. Direct costs include laboratory materials and supplies, contracted research and manufacturing, clinical trial costs, consulting fees, and other expenses incurred to sustain our research and development program. Indirect costs include personnel-related expenses, consisting of employee salaries, related benefits, and stock-based compensation expense for employees engaged in research and development activities, facilities, and other expenses consisting of direct and allocated expenses for rent and depreciation, and lab consumables.

We expense research and development costs as incurred. Non-refundable advance payments for goods and services that will be used over time for research and development are capitalized and recognized as goods are delivered or as the related services are performed. In-licensing fees and other costs to acquire technologies used in research and development that have not yet received regulatory approval and that are not expected to have an alternative future use are expensed when incurred. We track direct costs by stage of program, clinical or preclinical. However, we do not track indirect costs on a program specific basis because these costs are deployed across multiple programs and, as such, are not separately classified.

We cannot reasonably determine the nature, timing, and estimated costs of the efforts that will be necessary to complete the development of, and obtain regulatory approval for, any of our product candidates. Product candidates in later stages of development generally have higher development costs than those in earlier stages. We expect that our research and development expenses will increase substantially for the foreseeable future as we continue to invest in research and development activities related to developing our product candidates, as our product candidates advance into later stages of development, as we begin to conduct larger clinical trials, as we seek regulatory approvals for any product candidates that successfully complete clinical trials, as we expand our product pipeline, as we maintain, expand, protect and enforce our intellectual property portfolio, and as we incur expenses associated with hiring additional personnel to support our research and development efforts.

General and Administrative Expenses

General and administrative expenses consist primarily of personnel-related costs, including employee salaries, related benefits, and stock-based compensation expense for our employees in the executive, finance and accounting, and other administrative functions. General and administrative expenses also include third-party costs such as legal costs, insurance costs, accounting, auditing and tax related fees, consulting fees and facilities and other expenses not otherwise included as research and development expenses. We expense general and administrative costs as incurred.

We expect that our general and administrative expenses will increase for the foreseeable future as we increase our headcount to support our continued research activities and development of our programs. Following the completion of our IPO on October 13, 2021, we have incurred, and will continue to incur, substantially increased expenses as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the SEC, and those of any national securities exchange on which our securities are traded, legal, auditing, additional insurance expenses, investor relations activities, and other administrative and professional services.

Other Income (Expense)

Grant Income

Grant income relates to the grants awarded from governmental bodies that are conditional cost reimbursement grants and are recognized as grant income as allowable costs are incurred and the right to payment is realized. The grants awarded relate to agreed upon direct and indirect costs for specific studies or clinical trials, which may include personnel

108

Table of Contents

and consulting costs, costs paid to contract research organizations, research institutions and /or consortiums involved in the grant, as well as facilities and administrative costs. These grants are cost plus fixed fee arrangements in which we are reimbursed for eligible direct and indirect costs over time, up to the maximum amount of each specific grant award. Only costs that are allowable under the grant award, certain government regulations and the NIH’s supplemental policy and procedure manual may be claimed for reimbursement, and the reimbursements are subject to routine audits from governmental agencies from time to time. As of December 31, 2022, the Company has been awarded grants with project periods that extend through May 31, 2026, subject to extension. Our clinical trials have been funded by approximately $171.0 million in cumulative grants awarded primarily by the NIA, which includes an approximately $81.0 million grant from the NIA to fund our Phase 2 (COG0203) study of CT1812 in patients with early-stage AD, an approximately $30.5 million grant from the NIA to fund our Phase 2 (COG0201) study of CT1812 in patients with mild to moderate AD, and an approximately $29.5 million grant from the NIA to fund our Phase 2 (COG1201) study of CT1812 in patients with dementia with Lewy bodies.

Change in fair value of derivative liability

Change in fair value of our derivative liability consists of changes in the fair value of certain conversion and redemption features associated with our convertible notes that are required to be bifurcated and accounted for as free-standing derivative financial instruments. The derivative liability expired unexercised upon the conversion of the convertible notes into Series B-1 convertible preferred stock in May 2021.

Change in fair value of SAFE

Change in fair value of our SAFE consists of fair value adjustments to these instruments based primarily on the changes in the probability of occurrence and estimated timing of future event inputs in the valuation model. Upon the occurrence of our IPO on October 7, 2021, the SAFE was converted into 931,485 shares of our common stock.

Gain on Debt Extinguishment

Gain on debt extinguishment for the year ended December 31, 2021 was the result of the forgiveness of the Paycheck Protection Program loan on January 21, 2021. There was no gain or loss on debt extinguishment for the year ended December 31, 2022.

​

Interest expense

Interest expense for the year ended December 31, 2022 consisted of interest expense related to the insurance premium financing arrangement with a lender. Interest expense for the year ended December 31, 2021 primarily consisted of interest expense from our convertible notes.

Other income (expense), net

Other income (expense), net consists primarily of research and development tax credits earned in the applicable period, as well as foreign currency transaction gains or losses, and interest income from interest-bearing cash equivalents.

109

Table of Contents

Results of Operations

Comparison of the Years Ended December 31, 2022 and 2021

The following table summarizes our results of operations (in thousands):

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended December 31, ​ ​ ​

Consolidated Statements of Operations Data: ​ ​ ​ ​ ​ ​ ​ ​ ​

Operating Expenses: ​ ​ ​

Other income (expense): ​ ​ ​ ​

Change in the fair value of the derivative liability ​ — ​ 2,209 ​ (2,209)

Change in the fair value of SAFE ​ ​ — ​ (2,236) ​ 2,236

Other income (expense), net ​ (35) ​ (88) ​ 53

Gain on debt extinguishment ​ — ​ 443 ​ (443)

​

Research and Development Expenses

The following table summarizes our research and development expenses (in thousands):

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended December 31, ​ ​ ​

​

Research and development expenses were $30.3 million for the year ended December 31, 2022, compared to $18.6 million for the year ended December 31, 2021. The increase of $11.7 million was primarily due to the following:

110

Table of Contents

General and Administrative Expenses

General and administrative expenses were $13.2 million for the year ended December 31, 2022, compared to $10.0 million for the year ended December 31, 2021. The increase of $3.2 million was primarily due to:

Other Income (Expense)

Grant Income

Grant income was $22.2 million for the year ended December 31, 2022, compared to $17.4 million for the year ended December 31, 2022. The change in grant income is correlated with the increase in eligible reimbursable costs incurred during 2022 as compared to 2021.

Change in Fair Value of the Derivative Liability

Changes in the fair value derivative liability resulted in a gain of $2.2 million for the year ended December 31, 2021. There was no gain or loss for the year ended December 31, 2022 as the derecognition of the derivative liability occurred in May 2021 upon the conversion of convertible notes into shares of Series B-1 convertible preferred stock.

Change in Fair Value of the SAFE

Changes in the fair value of the SAFE resulted in a loss of $2.2 million for the year ended December 31, 2021. There was no gain or loss for the year ended December 31, 2022 as the derecognition of the SAFE liability occurred when the SAFE converted into shares of our common stock upon the closing of our IPO.

Other Income (Expense), Net

Other income, net was less than $0.1 million for the year ended December 31, 2022, compared to other expense, net of less than $0.1 million for the year ended December 31, 2021. Overall, management believes that the change in other expense was not significant in either period.

Gain on Debt Extinguishment

Gain on debt extinguishment was $0.4 million for the year ended December 31, 2021 as a result of the forgiveness of the Paycheck Protection Program loan on January 21, 2021. There was no gain or loss on debt extinguishment for the year ended December 31, 2022.

Interest Expense

Interest expense was less than $0.1 million for the year ended December 31, 2022, compared to interest expense of $0.9 million for the year ended December 31, 2021. The change of $0.9 million in interest expense was the result of the convertible notes outstanding balance during the year ended December 31, 2021, which were subsequently converted into shares of our Series B-1 convertible preferred stock in May 2021.

111

Table of Contents

Liquidity and Capital Resources

Sources of Liquidity

To date, we have funded our operations primarily with proceeds from grants awarded by the NIA, and proceeds from the sales of our convertible promissory notes, convertible preferred stock, SAFE, stock option exercises, our IPO and our follow-on public offering. Since our inception, we have received grant awards primarily from the NIA in the aggregate amount of approximately $171.0 million and have raised approximately $108.8 million in net proceeds from sales of our equity securities, convertible notes and SAFE, stock option exercises, our IPO and our follow-on public offering. On March 25, 2021, we completed a SAFE offering with various investors, pursuant to which we received gross proceeds in an aggregate amount equal to $8.9 million. On October 13, 2021, we closed our IPO, selling 3,768,116 shares of our common stock at a public offering price of $12.00 per share. Additionally, on November 12, 2021, the underwriters exercise of their over-allotment option to purchase 565,217 shares of our common stock closed. The net proceeds were approximately $44.2 million, after deducting underwriting discounts and commissions and other offering related expenses payable by us, which includes net proceeds of approximately $6.3 million from the exercise of the over-allotment option. On November 15, 2022, we closed our follow-on public offering, selling 5,000,000 shares of our common stock at a public offering price of $1.20 per share. The net proceeds were approximately $5.2 million, after deducting underwriting discounts and commissions and other offering related expenses payable by us. On December 23, 2022, we entered into a sales agreement with the Sales Agents, providing for the offering, issuance and sale by us of up to $40.0 million of our common stock from time to time in ATM offerings. As of December 31, 2022, we have not sold any shares of common stock under the ATM. In addition, in March 2023, we entered into a Purchase Agreement with Lincoln Park Capital Fund, LLC, or Lincoln Park, giving the Company the right, but not the obligation to sell to Lincoln Park up to $35.0 million worth of shares of our common stock.

​

As of December 31, 2022, we had $41.6 million in cash and cash equivalents and have not generated positive cash flows from operations. Based on our current business plans, we believe that the net proceeds from the IPO and follow-on public offering, together with our existing cash and cash equivalents and income from non-dilutive grants, will be sufficient for us to fund our operating expenses and capital expenditures requirements into the second half of 2024, which assumes no usage from the ATM nor purchase agreement with Lincoln Park. We have based these estimates on assumptions that may prove to be incorrect or require adjustment as a result of business decisions, and we could utilize our available capital resources sooner than we currently expect.

​

Future Funding Requirements

We expect to continue to incur significant and increasing expenses and net losses for the foreseeable future, as we advance our current and future product candidates through preclinical and clinical development, manufacture drug product and drug supply, seek regulatory approval for our current and future product candidates, maintain and expand our intellectual property portfolio, hire additional research and development and business personnel, and operate as a public company. We anticipate that we will need to raise additional funding in the future to fund our operations, including the commercialization of any approved product candidates. We are subject to the risks typically related to the development of new products, and we may encounter unforeseen expenses, difficulties, complications, delays, and other unknown factors that may adversely affect our business.

Our future funding requirements will depend on many factors, including, but not limited to:

112

Table of Contents

● the availability, timing, and receipt of any future NIA Grants;

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

Until such time as we can generate significant revenue from product sales, we expect to finance our operations through a combination of public or private equity offerings, debt financings or other sources, such as potential collaboration agreements and strategic alliances, licensing or similar arrangements with third parties. To the extent available, we expect to continue our pursuit of non-dilutive research contributions, or grants, including additional NIA grant funding. However, we may fail to receive additional NIA Grants, or 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 obtain additional NIA Grants or 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.

To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, licenses and other similar arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us and/or may reduce the value of our common stock. Adequate funding may not be available when needed or on terms acceptable to us, or at all. Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic or other diseases, the ongoing conflict between Ukraine and Russia, inflation, liquidity constraints, failures and instability in U.S. and international financial banking systems, and otherwise. If we fail to obtain necessary capital when needed on acceptable terms, or at all, it could force us to delay, limit, reduce or terminate our product development programs, commercialization efforts or other operations. Insufficient liquidity may also require us to relinquish rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise choose. We cannot assure you that we will ever be profitable or generate positive cash flows from operating activities.

113

Table of Contents

Cash Flows

The following table summarizes our cash flows for the periods indicated (in thousands):

​

​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended December 31,

Cash flows used in operating activities ​ $ (18,533) $ (3,631)

Cash flows used in investing activities ​ (171) ​ (27)

Cash flows provided by financing activities ​ 5,546 ​ 53,201

Effect of exchange rate changes on cash and cash equivalents ​ (1) ​ (11)

Net (decrease) increase in cash and cash equivalents ​ $ (13,159) ​ $ 49,532

​

Operating Activities

Net cash used in operating activities for the year ended December 31, 2022 was $18.5 million, which consisted primarily of our net loss of $21.4 million partially offset by net non-cash charges of $3.8 million and a net change of $0.9 million in our operating assets and liabilities. The non-cash charges primarily consisted of depreciation and amortization of less than $0.1 million, amortization of right-of-use assets of $0.2 million, and equity-based compensation of $3.6 million. The net change in our operating assets and liabilities was primarily due to an increase in grant receivables of $1.9 million, an increase in other assets of $1.7 million, a decrease in accounts payable of $1.1 million, partially offset by an increase in deferred grant income and other liabilities of $2.6 million, and a decrease of $0.9 million of prepaid expenses, other current assets, and other receivables.

Net cash used in operating activities for the year ended December 31, 2021 was $3.6 million, which consisted primarily of our net loss of $11.7 million partially offset by net non-cash charges of $5.2 million and a net change of $2.8 million in our operating assets and liabilities. The non-cash charges primarily consisted of depreciation and amortization of $0.1 million, amortization of debt discount of $0.4 million, change in fair value of SAFE of $2.2 million, and equity-based compensation of $5.1 million, partially offset by a change in the fair value of the derivative liability of $2.2 million. The net change in our operating assets and liabilities was primarily due to an increase in accounts payable of $2.2 million, an increase in accrued expenses of $1.3 million, and an increase in other current liabilities of $0.5 million, partially offset by an increase in grant receivables of $1.2 million.

Investing Activities

During the years ended December 31, 2022 and 2021, we used $0.2 and less than $0.1 million of cash, respectively, for investing activities related to purchases of property and equipment.

Financing Activities

Net cash provided by financing activities was $5.5 million and $53.2 million for the years ended December 31, 2022 and 2021, respectively. The decrease in cash provided by financing activities relates primarily to the IPO of our stock whereby we received net proceeds of $44.2 million and the issuance of SAFEs whereby we received $8.9 million during the year ended December 31, 2021. This is partially offset by proceeds received from the exercise of common stock options in the amount of $1.6 million, as well as proceeds from issuance of common stock in our follow-on public offering in the amount of $5.3 million during the year ended December 31, 2022.

114

Table of Contents

Contractual Obligations

The following table summarizes our contractual obligations as of December 31, 2022 (in thousands):

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Less than ​ 1 to 3 ​ 3 to 5 ​ More than 5 ​ ​ ​

​ 1 Year Years Years years Total

​

In October 2022, we entered into an insurance premium financing arrangement with a lender. Under the agreement, we financed $0.8 million of certain premiums at a 6.85% annual interest rate. Payments of less than $0.1 million are due monthly from October 2022 through September 2023. As of December 31, 2022, the outstanding principal of the loan was $0.6 million.

We have entered into operating leases for office and laboratory facilities under agreements that run through May 31, 2029. The amounts reflected in the table above consist of the future minimum lease payments under the non-cancelable lease arrangements.

On August 31, 2022, we entered into an agreement to lease 2,980 square feet of office space in Pittsburgh, Pennsylvania. The lease has a term of 45 months and commenced on October 1, 2022. The annual base rent under the lease is less than $0.1 million throughout the term of the lease. Total payments due over the term of the lease are $0.2 million. Additionally, on August 31, 2022, we modified one of our existing lease agreements with the landlord for approximately 3,706 square feet of lab space at the same location to extend the lease term termination date from June 30, 2023 until June 30, 2026.

On July 1, 2021, we entered into an agreement to lease 2,864 square feet of office space in Purchase, New York. The lease has a term of 89 months and commenced on December 9, 2021. The annual base rent under the lease is less than $0.1 million for the first lease year and is subject to annual increases of between 1.82% and 2.04%. We provided a security deposit in the form of a Letter of Credit in the amount of less than $0.1 million pursuant to the terms of the lease.

We enter into contracts in the normal course of business with contract research organizations and other vendors to assist in the performance of our research and development and other services and products for operating purposes. These contracts typically do not contain minimum purchase commitments and generally provide for termination on notice, and therefore are cancelable contracts and not included in the table of contractual obligations.

Critical Accounting Policies and Use of Estimates

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.

Research and Development Costs, Accrued Research and Development Costs and Related Prepaid Expenses

Research and development costs are expensed as incurred. Research and development expenses consist principally of personnel costs, including salaries, stock-based compensation, and benefits for employees, third-party license fees and other operational costs related to our research and development activities, including allocated facility-related expenses and external costs of outside vendors, and other direct and indirect costs. Non-refundable advance payments for research and development costs are deferred and expensed as the related goods are delivered or services are performed. Costs for external development activities are recognized based on an evaluation of the progress to completion of specific tasks. Costs for certain research and development activities are recognized based on the pattern of performance of the individual arrangements, which may differ from the pattern of billings incurred, and are reflected in the consolidated financial statements as prepaid expenses or as accrued research and development expenses.

115

Table of Contents

Equity-Based Compensation

We maintain an equity-based compensation plan as a long-term incentive for employees, non-employee directors and consultants. The plan allows for the issuance of incentive stock options, non-qualified stock options, restricted stock units, and other forms of equity awards.

We recognize equity-based compensation expense for stock options subject to time-based vesting on a straight-line basis over the requisite service period and account for forfeitures as they occur. To the extent any stock option grants are made subject to the achievement of a performance condition, management evaluates when the achievement of any such performance-based milestone is probable based on the relative satisfaction of the performance conditions as of the reporting date. Our stock-based compensation costs are based upon the grant date fair value of options estimated using the Black-Scholes option pricing model.

The Black-Scholes option pricing model utilizes inputs which are highly subjective assumptions and generally require significant judgment. These assumptions include:

See Note 9 to our audited financial statements for more information concerning certain of the specific assumptions we used in applying the Black-Scholes option pricing model to determine the estimated fair value of our stock options. Certain of such assumptions involve inherent uncertainties and the application of significant judgment.

As of December 31, 2022, the total unrecognized compensation expense related to unvested time-based vesting awards was $6.5 million, which is expected to be recognized over weighted-average remaining vesting period of approximately 2.0 years.

116

Table of Contents

Recent Accounting Pronouncements

For a description of recent accounting pronouncements, see Note 2 of the notes to our audited consolidated financial statements for the year ended December 31, 2022 included elsewhere in this Annual Report.

Emerging Growth Company Status

We are an emerging growth company, as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we (1) are no longer an emerging growth company or (2) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

We will remain an emerging growth company until the earliest to occur of: (1) the last day of the fiscal year in which we have at least $1.235 billion in annual revenue; (2) the last day of the fiscal year in which we are deemed to be a “large accelerated filer,” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such year; (3) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period; and (4) the last day of the fiscal year ending after the fifth anniversary of our IPO.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

As a “smaller reporting company,” as that term is defined in Rule 229.10(f)(1), we are not required to provide the information required by this Item.

​

Item 8. Financial Statements and Supplementary Data

Index to Consolidated Financial Statements

As of and for the years ended December 31, 2022 and 2021

​

​ Page

​ ​ ​

Report of Independent Registered Public Accounting Firm (PCAOB ID 42) ​ 118

​ ​ ​

Consolidated Balance Sheets as of December 31, 2022 and 2021 ​ 119

​ ​ ​

​ ​ ​

​ ​ ​

​ ​ ​

Notes to Consolidated Financial Statements ​ 123

​

​

117

Table of Contents

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Cognition Therapeutics, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Cognition Therapeutics, Inc. and Subsidiary (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive loss, convertible preferred stock and stockholders’ (deficit) equity and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, 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 of 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 auditor since 2020.

Philadelphia, Pennsylvania

March 23, 2023

​

​

​

​

118

Table of Contents

COGNITION THERAPEUTICS, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​

​ ​ As of December 31,

Assets ​ ​ ​

Current assets ​ ​ ​

Prepaid expenses and other current assets ​ 2,413 ​ 2,005

Other receivables ​ ​ — ​ ​ 467

Property and equipment, net ​ 233 ​ 145

Right-of-use assets, operating leases ​ ​ 813 ​ ​ —

Other assets ​ ​ 1,732 ​ ​ —

Liabilities and Stockholders’ Equity ​ ​

Current liabilities ​ ​

Deferred grant income, current ​ ​ 1,702 ​ ​ 753

Operating lease liabilities, current ​ ​ 149 ​ ​ —

Other current liabilities ​ 634 ​ 1,192

Total current liabilities ​ 7,795 ​ 7,864

Operating lease liabilities, noncurrent ​ 695 ​ —

Deferred grant income and other liabilities, noncurrent ​ 1,686 ​ —

Commitments and contingencies (Note 7) ​ ​

Stockholders’ equity: ​ ​

Accumulated other comprehensive loss ​ (199) ​ (198)

Total liabilities and stockholders’ equity ​ $ 50,425 ​ $ 59,137

​

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

119

Table of Contents

COGNITION THERAPEUTICS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except share and per share amounts)

​

​ ​ ​ ​ ​ ​ ​

​ ​ For the Year Ended

​ ​ December 31,

Operating Expenses: ​ ​ ​

Other income (expense): ​ ​ ​

Change in the fair value of the derivative liability ​ — ​ 2,209

Other income (expense), net ​ (35) ​ (88)

Gain on debt extinguishment ​ — ​ 443

Interest expense ​ (28) ​ (893)

Cumulative preferred stock dividends ​ — ​ (4,532)

Net loss attributable to common stockholders ​ $ (21,397) ​ $ (16,248)

Unrealized loss on foreign currency translation ​ (1) ​ (11)

Net loss per share: ​ ​ ​ ​ ​ ​

Weighted average common shares outstanding: ​ ​ ​ ​ ​ ​

​

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

​

​

​

120

Table of Contents

COGNITION THERAPEUTICS, INC. AND SUBSIDIARY

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

(in thousands, except share amounts)

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​

​ ​ Convertible ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ ​ Other ​ Total

​ Shares Amount Shares Amount Capital Deficit Loss (Deficit) Equity

Exercise of common stock warrants ​ — ​ — ​ 198,198 ​ — ​ 34 ​ ​ ​ ​ ​ 34

Equity-based compensation ​ — ​ — ​ — ​ — ​ 5,183 ​ — ​ — ​ 5,183

Other comprehensive loss ​ — ​ — ​ — ​ — ​ — ​ — ​ (11) ​ (11)

Net income ​ — ​ — ​ — ​ — ​ — ​ (11,716) ​ — ​ (11,716)

Equity-based compensation ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 3,572 ​ ​ — ​ ​ — ​ ​ 3,572

Other comprehensive loss ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ (1) ​ ​ (1)

Net loss — ​ — ​ — ​ ​ — ​ ​ — ​ ​ (21,397) ​ ​ — ​ (21,397)

​

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

​

​

121

Table of Contents

COGNITION THERAPEUTICS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

​

​ ​ ​ ​ ​ ​ ​

​ ​ For the Year Ended December 31,

Cash flows from operating activities: ​ ​ ​

Depreciation and amortization ​ 83 ​ 93

Equity-based compensation ​ 3,572 ​ 5,183

Amortization of right-of-use assets ​ ​ 152 ​ ​ —

Amortization of debt issuance costs ​ — ​ 31

Amortization of debt discount ​ — ​ 352

Change in the fair value of the derivative liability ​ — ​ (2,209)

Gain on debt extinguishment ​ — ​ (443)

Changes in operating assets and liabilities: ​ ​ ​ ​

Prepaid expenses and other assets ​ 430 ​ 21

Other assets ​ ​ (1,732) ​ ​ —

Deferred grant income, current and other liabilities ​ ​ 2,635 ​ ​ 501

Operating lease liabilities ​ (121) ​ —

Net cash used in operating activities ​ (18,533) ​ (3,631)

Cash flows from investing activities: ​ ​

Payments for property and equipment ​ (171) ​ (27)

Net cash used in investing activities ​ (171) ​ (27)

Cash flows from financing activities: ​ ​

Proceeds from the exercise of common stock options ​ ​ 1,618 ​ ​ 276

Payments on loan payable ​ ​ (1,396) ​ ​ (268)

Proceeds from issuance of Simple Agreements for Future Equity ​ ​ — ​ ​ 8,942

Proceeds from exercise of stock warrants ​ ​ — ​ ​ 34

Net cash provided by financing activities ​ 5,546 ​ 53,201

Effect of exchange rate changes on cash and cash equivalents ​ (1) ​ (11)

Net (decrease) increase in cash and cash equivalents ​ (13,159) ​ 49,532

Cash and cash equivalents ​ ​ ​ ​ ​ ​

Cash and cash equivalents – beginning of period ​ 54,721 ​ 5,189

Cash and cash equivalents – end of period ​ $ 41,562 ​ $ 54,721

Supplemental disclosures of non-cash financing activities: ​ ​

Prepayment of insurance through third-party financing ​ $ 838 ​ $ 1,191

Remeasurement of right-of-use asset and operating lease liability ​ $ 349 ​ $ —

Deferred offering costs included in Accounts payable ​ $ 140 ​ $ —

​

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

​

​

​

122

Table of Contents

COGNITION THERAPEUTICS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts)

1. Description of Business and Financial Condition

Cognition Therapeutics, Inc. (the “Company”) was incorporated as a Delaware corporation on August 21, 2007. The Company is a biopharmaceutical company developing disease modifying therapies for central nervous system (“CNS”) disorders. The Company’s pipeline candidates were discovered using proprietary biology and chemistry platforms designed to identify novel drug targets and disease-modifying therapies that address dysregulated pathways specifically associated with neurodegenerative diseases. The Company was founded on the unique combination of biological expertise around these targets, including proprietary assays that emphasize functional responses, and proprietary medicinal chemistry intended to produce novel, high-quality small-molecule drug candidates.

On July 14, 2015, the Company formed Cognition Therapeutics PTY LTD, as its wholly owned subsidiary (the “Subsidiary”), primarily for the purpose of conducting research and development efforts at facilities located in Australia. Assets and liabilities of the Subsidiary, which uses the Australian dollar as its local functional currency, are translated to United States (U.S.) dollars at year-end exchange rates. Income statement accounts are translated using the average exchange rates prevailing during the month in which income and expenses are generated. Translation adjustments are recorded to accumulated other comprehensive income (loss) (“AOCI”) within stockholders’ deficit. Gains and losses from foreign currency transactions are included in net loss as a part of other income, net.

On October 13, 2021, the Company closed its initial public offering (“IPO”) of 3,768,116 shares of the Company’s common stock at a public offering price of $12.00 per share. The gross proceeds from the IPO, excluding the overallotment exercise, were $45,217 and the net proceeds were approximately $37,909, after deducting underwriting discounts and commissions and other offering related expenses payable by the Company. Upon completion of the IPO, all of the Company’s then outstanding preferred stock was automatically converted into an aggregate of 15,906,537 shares of common stock and an aggregate amount of $8,942 of simple agreements for future equity (“SAFE”) was automatically converted into an aggregate of 931,485 shares of common stock.

On November 10, 2021, the representative of the underwriters for the IPO provided notice to the Company that it had elected to exercise its over-allotment option in full to purchase 565,217 shares of the Company’s common stock. The representative’s exercise of the over-allotment option closed on November 12, 2021, resulting in gross proceeds of $6,783 and net proceeds to the Company of approximately $6,308, after deducting underwriting discounts and commissions and other offering related expenses.

On November 15, 2022, the Company closed its follow-on public offering of 5,000,000 shares of the Company’s common stock at a public offering price of $1.20 per share (“November 2022 Offering”). The gross proceeds from the November 2022 Offering were $6,000 and the net proceeds were approximately $5,184, after deducting underwriting discounts and commissions and other offering related expenses payable by the Company. Additionally, the Company granted the underwriters in the November 2022 Offering an option to purchase up to 750,000 additional shares of its common stock at the public offering price, less underwriting discounts and commissions.

On December 23, 2022, the Company filed a Registration Statement on Form S-3 (File No. 333-268992) (the “Shelf”) with the Securities and Exchange Commission (“SEC”) in relation to the registration of common stock, preferred stock, debt securities, warrants, subscription rights, and/or units of any combination thereof of up to $200,000 in aggregate. The Shelf was declared effective on January 3, 2023 by the SEC. The Company also simultaneously entered into a sales agreement with Cantor Fitzgerald & Co. and B. Riley Securities, Inc., or the Sales Agents, providing for the offering, issuance and sale by the Company of up to $40,000 of its common stock from time to time in “at-the-market” offerings under the Shelf (the “ATM”).

The Company held cash and cash equivalents of $41,562 at December 31, 2022. The Company expects that its cash and cash equivalents, including the net proceeds from its IPO and its follow-on public offering, will enable it to fund its operating expenses and capital expenditure requirements through at least the one year period subsequent to the filing

123

Table of Contents

date of this Annual Report on Form 10-K. However, additional funding will be necessary to fund future preclinical and clinical activities. The Company expects to finance its future cash needs through a combination of grant awards, equity or debt financings, collaboration agreements, strategic alliances and licensing arrangements.

​

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative United States generally accepted accounting principles as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”).

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents consist primarily of interest-bearing deposits at various financial institutions and money markets. The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.

Receivables

Grant Receivables

Grant receivables relate to outstanding amounts due for reimbursable expenditures of awarded grants issued by the National Institute of Health (“NIH”) and are carried at their estimated collectible amounts. The Company expects all receivables to be collectible, and accordingly, there is no allowance for doubtful accounts required on these grant receivables.

Deferred Offering Costs

The Company capitalizes certain legal, accounting and other third-party fees that are directly associated with in-process equity financings, including the IPO, as deferred costs until such financings are consummated. After consummation of the equity financing, these costs are recorded in stockholders’ deficit as a reduction of proceeds generated as a result of the offering.

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is computed on the straight-line basis over the estimated useful life of the asset. The Company estimates the useful life to be 5 and 6 years for equipment and furniture and fixtures, respectively. The cost of repairs and maintenance is charged to expense as incurred. Equipment finance leases are included in Property and Equipment, net and other liabilities on the consolidated balance sheet.

The Company reviews the recorded values of property and equipment for impairment whenever events or changes in business circumstances indicate that the carrying amount of an asset or group of assets may not be fully recoverable. There were no indicators of impairment of long-lived assets during the years ended December 31, 2022 or 2021.

124

Table of Contents

Convertible Instruments

ASC 815, Derivatives and Hedging Activities (“ASC 815”) requires companies to bifurcate certain conversion options and redemption features from their host instruments and account for them as free-standing derivative financial instruments should certain criteria be met.

The Company also follows ASC 480-10, Distinguishing Liabilities from Equity (“ASC 480-10”) when evaluating the accounting for its hybrid instruments. A financial instrument that embodies an unconditional obligation, or a financial instrument other than an outstanding share that embodies a conditional obligation, that the issuer must or may settle by issuing a variable number of its equity shares shall be classified as a liability (or an asset in some circumstances) if, at inception, the monetary value of the obligation is based solely or predominantly on any one of the following: (a) a fixed monetary amount known at inception; (b) variations in something other than the fair value of the issuer’s equity shares; or (c) variations inversely related to changes in the fair value of the issuer’s equity shares. Hybrid instruments meeting these criteria are not further evaluated for any embedded derivatives and are carried as a liability at fair value at each balance sheet date.

Grant income

The Company generates grant income through grants from government and other (non-government) organizations. Grant income is recognized in other income (expense) in the period in which the reimbursable research and development services are incurred and the right to payment is realized. Deferred grant income represents grant proceeds received by the Company prior to the period in which the reimbursable research and development services are incurred. For the year ended December 31, 2022 and 2021, the Company generated grant income of $22,217 and $17,447, respectively, primarily from reimbursements from the National Institute of Aging, a division of the NIH for aging research. The current and noncurrent portion of deferred grant income as of December 31, 2022 was $1,702 and $1,686, respectively, as compared to the current and noncurrent portion of deferred grant income as of December 31, 2021 of $753 and $0, respectively.

The grants awarded relate to agreed-upon direct and indirect costs for specific studies or clinical trials, which may include personnel and consulting costs, costs paid to contract research organizations (“CROs”), research institutions and/or consortiums involved in the grant, as well as facilities and administrative costs. These grants are cost plus fixed fee arrangements in which the Company is reimbursed for its eligible direct and indirect costs over time, up to the maximum amount of each specific grant award. Only costs that are allowable under the grant award, certain government regulations and the NIH’s supplemental policy and procedure manual may be claimed for reimbursement, and the reimbursements are subject to routine audits from governmental agencies from time to time. While these NIH grants do not contain payback provisions, the NIH or other government agency may review the Company’s performance, cost structures and compliance with applicable laws, regulations, policies and standards and the terms and conditions of the applicable NIH grant. If any of the expenditures are found to be unallowable or allocated improperly or if the Company has otherwise violated terms of such NIH grant, the expenditures may not be reimbursed and/or the Company may be required to repay funds already disbursed. To date, the Company has not been found to have breached the terms of any NIH grant. As of December 31, 2022, the Company has been awarded grants with project periods that extend through May 31, 2026, subject to extension.

Research and Development Costs

The Company is involved in research and development aimed at the development of treatments for a variety of diseases related to the central nervous system, with a primary focus on Alzheimer’s Disease. Research and development costs are expensed as incurred. Research and development expenses consist principally of personnel costs, including salaries, stock-based compensation, and benefits for employees, third-party license fees and other operational costs related to our research and development activities, including allocated facility-related expenses and external costs of outside vendors, and other direct and indirect costs. Non-refundable research and development costs are deferred and expensed as the related goods are delivered or services are performed. Costs for external development activities are recognized based on an evaluation of the progress to completion of specific tasks. Costs for certain research and development activities are recognized based on the pattern of performance of the individual arrangements, which may

125

Table of Contents

differ from the pattern of billings incurred, and are reflected in the consolidated financial statements as prepaid expenses or as accrued research and development expenses.

Leases

The Company adopted Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842) using the optional transition method of the modified retrospective approach, as of January 1, 2022. Accordingly, prior periods will not be restated to reflect the adoption of the standard. The Company elected the practical expedient to not apply the recognition requirements in the leasing standards to short-term leases (a lease that at commencement date has a lease term of 12 months or less and does not contain a purchase option that it is reasonably certain to exercise) and the practical expedient that permits lessees to make an accounting policy election (by class of underlying asset) to not separate lease components of a contract from non-lease components.

The Company determines if an arrangement is a lease at contract inception. The Company’s contracts are determined to contain a lease when all of the following criteria based on the specific circumstances of the arrangement are met: (1) there is an identified asset for which there are no substantive substitution rights; (2) the Company has the right to obtain substantially all of the economic benefits from the identified asset; and (3) the Company has the right to direct the use of the identified asset.

At the commencement date, operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of future lease payments over the expected lease term. The Company’s lease agreements do not provide an implicit rate. As a result, the Company utilizes an estimated incremental borrowing rate to discount lease payments, which is based on the rate of interest the Company would have to pay to borrow a similar amount on a collateralized basis over a similar term. Certain adjustments to the right-of-use asset may be required for items such as initial direct costs paid or lease incentives received. Operating lease cost is recognized over the expected term on a straight-line basis. Variable lease cost is recognized as incurred. The expected lease term for those leases commencing prior to January 1, 2022 did not change with the adoption of the new leasing standards.

As a result of the adoption of the new leasing standard, on January 1, 2022, the Company recorded a right-of-use asset of $616 and corresponding current and noncurrent operating lease liabilities of $130 and $486, respectively. The adoption did not have a material impact on the condensed consolidated statement of operations or cash flows. For additional information on the adoption of the new leasing standard, refer to Note 7. The Company will continue to report financial information for fiscal years ended before December 31, 2021 under ASC 840.

Impact of Adoption of ASC 842 on the Consolidated Financial Statements

​

​ ​ ​ ​ ​ ​ ​ ​ ​

​ Prior to adoption ​ Adjustment for ​ ​

​ of new leasing ​ adoption of new ​ ​

​ standards ​ leasing standards ​ As adjusted

Right-of-use assets (1) $ — ​ $ 616 ​ $ 616

Deferred rent (2) $ 6 ​ $ (6) ​ $ —

Operating lease liabilities (3) $ — ​ $ 130 ​ $ 130

Operating lease liabilities, net of current portion (3) $ — ​ $ 486 ​ $ 486

​ ​ ​ ​ ​ ​ ​ ​ ​

(3) Represents recognition of operating lease liabilities. ​ ​ ​ ​ ​ ​ ​ ​

​

Income Taxes

The Company accounts for income taxes under the asset and liability method pursuant to authoritative guidance.

126

Table of Contents

Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under this authoritative guidance, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. If it is more likely than not that some portion or all of a deferred tax asset will not be recognized, a valuation allowance is recognized.

The Company accounts for uncertainty in income taxes using a recognition threshold of more-likely-than-not to be sustained upon examination by the appropriate taxing authority. Measurement of the uncertainty occurs if the recognition threshold is met. The Company has determined that there were no uncertainties as of December 31, 2022 and 2021 that met the recognition threshold.

Equity-based Compensation

Following the provisions of ASC 718, Compensation — Stock Compensation, the Company recognizes compensation expense for equity-based grants using the straight-line attribution method, in which the expense is recognized ratably over the requisite service period within operating expenses based on the grant date fair value. The Company also has granted awards subject to performance-based vesting. The Company would recognize compensation expense for these awards commencing in the period in which the vesting condition becomes probable of achievement. Grant date fair value is estimated on the date of grant using the Black-Scholes option pricing model. Forfeitures are recognized in the period in which they occur.

Black-Scholes requires inputs based on certain subjective assumptions, including (i) the expected stock price volatility, (ii) the expected term of the award, (iii) the risk-free interest rate and (iv) expected dividends. Due to a lack of sufficient public market data for the Company’s common stock and lack of company-specific historical and implied volatility data, the Company has based its computation of expected volatility on the historical volatility of a representative group of public companies with similar characteristics to the Company, including stage of product development and life science industry focus. The historical volatility is calculated based on a period of time commensurate with expected term assumption. The Company uses the simplified method to calculate the expected term for stock options granted to employees whereby the expected term equals the arithmetic average of the vesting term and the original contractual term of the stock options due to its lack of sufficient historical data. The risk-free interest rate is based on U.S. Treasury securities with a maturity date commensurate with the expected term of the associated award. The expected dividend yield is assumed to be zero as the Company has never paid dividends and has no current plans to pay any dividends on its common stock.

Prior to the IPO, due to the absence of an active market for the Company’s common stock, the Company utilized methodologies in accordance with the framework of the American Institute of Certified Public Accountants Technical Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation, to estimate the fair value of its common stock. In determining the exercise prices for stock options granted, the Company has considered the estimated fair value of the common stock as of the measurement date. The estimated fair value of the common stock has been determined at each grant date based upon a variety of factors, including the illiquid nature of the common stock, arm’s-length sales of the Company’s capital stock (including convertible preferred stock), the effect of the rights and preferences of the preferred stockholders and the prospects of a liquidity event. Among other factors are the Company’s financial position and historical financial performance, the status of technological developments within the Company’s research, the composition and ability of the current research and management team, an evaluation or benchmark of the Company’s competition and the current business climate in the marketplace. Significant changes to the key assumptions underlying the factors used could result in different fair values of common stock at each valuation date. Subsequent to the IPO, the board of directors will determine the fair value of the shares of common stock underlying the stock-based awards based off of the closing price as reported on the Nasdaq Stock Market LLC on the grant date.

127

Table of Contents

Concentration of Credit Risk

The Company’s financial instruments that are exposed to credit risks consist of cash and cash equivalents. The Company maintains its cash and cash equivalents in bank deposit accounts which, at times, may exceed the federally insured limit. The Company has not experienced any losses in these accounts and does not believe it is exposed to any significant credit risk related to these funds.

Fair Value of Financial Instruments

The Company applies ASC 820, Fair Value Measurement (“ASC 820”), which establishes a framework for measuring fair value and clarifies the definition of fair value within that framework. ASC 820 defines fair value as an exit price, which is the price that would be received for an asset or paid to transfer a liability in the Company’s principal or most advantageous market in an orderly transaction between market participants on the measurement date. The fair value hierarchy established in ASC 820 generally requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs reflect the assumptions that market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the entity’s own assumptions based on market data and the entity’s judgments about the assumptions that market participants would use in pricing the asset or liability and are to be developed based on the best information available in the circumstances.

The carrying value of the Company’s cash and cash equivalents, grants receivable, prepaid expense, other receivables, other assets, accounts payable, accrued expenses and other liabilities approximate fair value because of the short-term maturity of these financial instruments. In addition, the Company records its warrant liability, derivative liability, and SAFE at fair value.

The valuation hierarchy is composed of three levels. The classification within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The levels within the valuation hierarchy are described below:

Comprehensive Loss

The Company recorded $1 and $11 in other comprehensive loss related to foreign currency translation for the years ended December 31, 2022 and 2021, respectively. The Company presents comprehensive loss in a single statement within its consolidated financial statements.

Net Loss Per Share Attributable to Common Stockholders

Basic net loss attributable to common shares is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during each period. Diluted net loss attributable to common shares includes the effect, if any, from the potential exercise or conversion of securities, such as convertible preferred stock and stock options, which would result in the issuance of incremental shares of common stock. For diluted net loss per share, the weighted-average number of shares of common stock is the same for basic net loss per share due to the fact that when a net loss exists, dilutive securities are not included in the calculation as

128

Table of Contents

the impact is anti-dilutive. The Company’s convertible preferred stock entitles the holder to participate in dividends and earnings of the Company, and, if the Company were to recognize net income, it would have to use the two-class method to calculate earnings per share. The two-class method is not applicable during periods with a net loss, as the holders of the convertible preferred stock have no obligation to fund losses.

Segments

The Company has determined that it operates and manages one operating segment, which is the business of developing and commercializing therapeutics. The Company’s chief operating decision maker, its chief executive officer, reviews financial information on an aggregate basis for the purpose of allocating resources.

Emerging Growth Company Status

The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it is (a) no longer an emerging growth company or (b) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, these financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

Recent Accounting Pronouncements

In February 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842). ASU No. 2016-02 requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. The Company adopted ASU No. 2016-02 on January 1, 2022. For additional information on the adoption of the new leasing standards, please refer to the section titled “Leases” above, and Note 7.

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt – Modifications and Extinguishments (Subtopic 470-50), Compensation – Stock Compensation (Topic 718), and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This ASU clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. ASU 2021-04 is effective for fiscal years beginning after December 15, 2021, with early adoption permitted for all entities. The Company adopted ASU 2021-04 on January 1, 2022. The adoption of ASU 2021-04 did not have a material impact on the Company’s consolidated financial statements.

​

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. This ASU increases the transparency of government assistance including the disclosure of (1) the types of assistance, (2) an entity’s accounting for the assistance, and (3) the effect of the assistance on an entity’s financial statements. The Company adopted ASU 2021-10 on January 1, 2022. The adoption of ASU 2021-10 did not have a material impact on the Company’s consolidated financial statements. For additional information on the Company’s governmental assistance transactions, please refer to the sections titled “Grant Receivables” and “Grant Income” above.

​

Reverse Stock Split

​

In July 2021, the Company's board of directors approved an amendment to the Company's second amended and restated certificate of incorporation to effect a 1-for-3.2345 reverse stock split of the Company's common stock, which was effected on October 1, 2021 with a filing made with the Secretary of State of the State of Delaware. Stockholders entitled to fractional shares as a result of the reverse stock split received a cash payment in lieu of receiving fractional

129

Table of Contents

shares. The par value of the common stock was not adjusted as a result of the reverse stock split. Shares of common stock underlying outstanding stock options and other equity instruments were proportionately reduced and the respective exercise prices, if applicable, were proportionately increased in accordance with the terms of the appropriate securities agreements. Shares of common stock reserved for issuance upon the conversion of our convertible preferred stock were proportionately reduced and the respective conversion prices were proportionately increased. All common share and per share data have been retrospectively revised to reflect the reverse stock split.

​

3. Financial Instruments and Fair Value Measurements

Financial assets and liabilities measured at fair value are summarized below:

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ Significant ​ ​ ​

​ ​ Quoted Priced in ​ Significant Other ​ Unobservable ​ ​ ​

​ ​ Active Markets ​ Observable Inputs ​ Inputs ​ ​ ​

​ (Level 1) (Level 2) (Level 3) Total

Assets: ​ ​ ​ ​

Money market funds ​ $ 37,479 ​ $ — ​ $ — ​ $ 37,479

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ Significant ​ ​ ​

​ ​ Quoted Priced in ​ Significant Other ​ Unobservable ​ ​ ​

​ ​ Active Markets ​ Observable Inputs ​ Inputs ​ ​ ​

​ (Level 1) (Level 2) (Level 3) Total

Assets: ​ ​ ​ ​

Money market funds ​ $ 46,687 ​ $ — ​ $ — ​ $ 46,687

​

There were no Level 3 financial instruments during the year ended December 31, 2022. The following table sets forth a summary of the changes in fair value of the Level 3 liabilities for the year ended December 31, 2021:

​

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended December 31, 2021

​ ​ ​ ​ Derivative ​

​ SAFE Liability Total

Fair value recognized upon the issuance of SAFE ​ 8,942 ​ — ​ 8,942

Change in the fair value of SAFE ​ ​ 2,236 ​ ​ — ​ ​ 2,236

Balance at December 31, 2021 ​ $ — ​ $ — ​ $ —

​

​

Derivative Liability — The Company recognizes derivative liabilities as a result of the issuance of the convertible notes that contain conversion and redemption features that are required to be bifurcated. The fair value measurement of the derivative liability is classified as Level 3 under the fair value hierarchy as it has been valued using certain unobservable inputs. These inputs include: (1) probability of occurrence of future events (such as a qualified financing or a sale), and (2) discount rate for implied return required by investor. Significant increases or decreases in any of those inputs in isolation could result in a significantly lower or higher fair value measurement.

The fair value of the derivative liability was determined by calculating the fair value of the notes with the conversion and redemption features as compared to the fair value of the notes without such features, with the difference representing the value of the conversion and redemption features, or the derivative liability. The conversion and

130

Table of Contents

redemption features are measured at fair value as of each reporting date and the change in the fair value for the period is recorded in the consolidated statements of operations as a change in the fair value of the derivative liability. The fair value of the derivative liability is based on Level 3 unobservable inputs. Changes in fair value are recognized as a gain or loss within other income (expense) on the consolidated statements of operations and comprehensive loss. The derivative liability expired unexercised upon the conversion of the convertible notes into Series B-1 convertible preferred stock in May of 2021.

Simple Agreement for Future Equity — On March 25, 2021, the Company entered into SAFE with existing investors, pursuant to which the Company received gross proceeds in an aggregate amount equal to $8,942. The fair value of the SAFE liability is estimated using a fair value model that includes inputs such as: (1) probability of occurrence of future events (such as a change of control or public offering), and (2) discount rate for implied return required by investor. The Company recorded a change in fair value adjustment of $2,236 in the consolidated statement of operations and comprehensive loss for the year ended December 31, 2021. Upon the occurrence of the Company’s IPO on October 7, 2021, the SAFE converted into 931,485 shares of common stock.

​

The fair value of the SAFE was determined using a probability weighted expected return method (PWERM), in which the probability and timing of potential future events is considered in order to estimate the fair value of the SAFE as of each valuation date. Management determined the fair value of the SAFE using the following significant unobservable inputs:

​

​ ​ ​ ​ ​

​ ​ October 7, ​ March 25,

​ (Conversion) ​ (Issuance)

Expected term (in years) — ​ 0.35

Discount upon conversion 20.0% ​ 20.0%

Discount upon implied return 18.9% ​ 18.9%

Probability of IPO occurrence 100.0% ​ 45.0%

Probability of dissolution event occurrence ​ 0.0% ​ 15.0%

Probability of equity financing occurrence ​ 0.0% ​ 37.0%

Probability of change of control occurrence ​ 0.0% ​ 3.0%

​

In addition, the Company recorded the Series B-1 convertible preferred stock within mezzanine equity at fair value on the date of issuance, May 1, 2021. This non-recurring fair value measure was based on level 3 unobservable inputs.

​

In April 2020, the Company received a $443 unsecured loan, bearing interest at 1.0%, pursuant to the Paycheck Protection Program (the “PPP”), a program implemented by the U.S. Small Business Administration (the “SBA”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) (the “PPP Loan”). The PPP provided for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The loan and accrued interest are forgivable after eight weeks if the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities. The amount of loan forgiveness may be reduced if the borrower terminates employees or reduces salaries during the eight-week period. The unforgiven portion of the PPP loan is payable over two years at an interest rate of 1.0%, with a deferral of payments for the first six months. The Company used the proceeds for purposes consistent with the PPP.

​

On January 21, 2021, the Company received confirmation from the SBA that the PPP Loan had been forgiven in full, including all interest incurred. Accordingly, the Company recognized $443 of income for the debt extinguishment pursuant to ASC 470-50-15-4 for the year ended December 31, 2021.

​

​

131

Table of Contents

4. Property and Equipment

Property and equipment, net, consisted of the following:

​

​ ​ ​ ​ ​ ​ ​

​ ​ As of December 31,

Furniture and fixtures ​ 129 ​ 1

Less: Accumulated depreciation ​ (953) ​ (870)

Property and equipment, net ​ $ 233 ​ $ 145

​

Depreciation expense for the years ended December 31, 2022 and 2021 was $83 and $93, respectively, which includes amortization expense of $2 and $38 for the years ended December 31, 2022 and 2021, respectively.

​

5. Accrued Expenses

Accrued expense consists of the following:

​

​ ​ ​ ​ ​ ​ ​

​ ​ As of December 31,

Employee compensation, benefits, and related accruals ​ $ 870 ​ $ 1,285

Research and development costs ​ 900 ​ 250

Legal reserves, professional fees, and other accruals ​ 324 ​ 216

​

​

​

6. Other Current Liabilities

In October 2022, the Company entered into an insurance premium financing agreement with a lender. Under the agreement, the Company financed $838 of certain premiums at a 6.85% annual interest rate. Payments of approximately $72 are due monthly from November 2022 through December 2023. As of December 31, 2022, the outstanding principal of the loan was $634 included in other current liabilities on the consolidated balance sheet.

​

In October 2021, the Company entered into an insurance premium financing agreement with a lender. Under the agreement, the Company financed $1,453 of certain premiums at a 3.25% annual interest rate. Payments of approximately $134 are due monthly from October 2021 through September 2022. The loan paid in full as of September 30, 2022.

​

​

​

7. Commitments and Contingencies

Operating Leases

The Company’s principal executive offices are located in Purchase, New York where we currently occupy 2,864 square feet of office space under a lease that expires in May of 2029. The Company also leases approximately 6,068 square feet of laboratory and office space located in Pittsburgh, Pennsylvania under leases that expire in June of 2026.

On August 31, 2022, the Company entered into a lease agreement for approximately 2,980 square feet of office space located in Pittsburgh, Pennsylvania. The lease has a term of 45 months and commenced on October 1, 2022. Additionally, on August 31, 2022, the Company and Landlord modified one of its existing lease agreements for approximately 3,706 square feet of lab space at the same location to extend the lease term termination date from June 30, 2023 until June 30, 2026.

132

Table of Contents

Amounts reported in the consolidated balance sheets for leases where the Company is the lessee as of December 31, 2022 were as follows, in thousands:

​

​ ​ ​

​ As of

Assets ​ ​

Operating lease assets $ 813

Total operating lease assets $ 813

Liabilities ​ ​

Current ​ ​

Operating lease liabilities $ 149

Noncurrent ​ ​

Operating lease liabilities, net of current ​ 695

Total operating lease liabilities $ 844

​

Operating lease costs for the year ended December 31, 2022 was $203. Rent expense was $163 for the year ended December 31, 2021.

The maturities of the operating lease liabilities and minimum lease payments as of December 31, 2022 were as follows:

​ ​ ​ ​

For the Years Ended December 31, Operating Leases

Thereafter ​ ​ 126

Total undiscounted lease payments ​ $ 1,020

Less: Imputed interest ​ ​ (176)

Present value of operating lease liabilities ​ $ 844

​

The following table summarizes the lease term and discount rate as of December 31, 2022:

​ ​

​ As of

Weighted-average remaining lease term (years) ​

Operating leases 5.0

Weighted-average discount rate ​

Operating leases 8.1%

​

Operating cash flows used for operating leases for the year ended December 31, 2022 was $172.

Litigation and Contingencies

From time to time, the Company may be involved in disputes or regulatory inquiries that arise in the ordinary course of business. When the Company determines that a loss is both probable and reasonably estimable, a liability is recorded and disclosed if the amount is material to the financial statements taken as a whole. When a material loss contingency is only reasonably possible, the Company does not record a liability, but instead discloses the nature and the amount of the claim, and an estimate of the loss or range of loss, if such an estimate can reasonably be made.

133

Table of Contents

As of December 31, 2022 and 2021, there was no litigation or contingency with at least a reasonable possibility of a material loss.

​

​

8. Common Stock

The Company is authorized to issue up to 250,000,000 shares of common stock with a par value of $0.001 per share, and 10,000,000 shares of preferred stock with a par value of $0.001 per share. As of December 31, 2022 and 2021, there were 28,991,548 and 22,230,032 shares of common stock issued and outstanding, respectively.

On October 13, 2021, in connection with the completion of the Company’s IPO, 2,819,027 shares of Series A convertible preferred stock, 3,730,366 shares of Series A-1 convertible preferred stock, 3,565,063 shares of Series A-2 convertible preferred stock, 30,409,890 shares of Series B convertible preferred stock, and 10,926,089 shares of Series B-1 convertible preferred stock automatically converted into 15,906,537 shares of common stock.

Common stockholders are entitled to dividends if and when declared by the Company’s board of directors subject to the rights of the preferred stockholders. As of December 31, 2022, no dividends on common stock had been declared by the Company.

As of December 31, 2022 and 2021, the Company has reserved the following shares of common stock for issuance as follows:

​

​ ​ ​ ​ ​

​ ​ December 31,

Shares available for future issuance under ESPP ​ 209,532 ​ 209,532

​

​

9. Equity-based Compensation

2021 Equity Incentive Plan

On October 7, 2021, the date upon which the Company’s Registration Statement on Form S-1 in connection with the IPO was declared effective, the Company’s 2021 Equity Incentive Plan (the “2021 Plan”) became effective. On the same date, the Company ceased granting awards under its 2017 Equity Incentive Plan (the “2017 Plan”). The 2021 Plan authorizes the award of both equity-based and cash-based incentive awards, including: (i) stock options (both incentive stock options and nonqualified stock options), (ii) stock appreciation rights, (iii) restricted stock awards, (iv) restricted stock units, or RSUs, and (v) cash or other stock-based awards. Incentive stock options may be granted only to employees. All other types of awards may be issued to employees, directors, consultants, and other service providers.

As of December 31, 2022, the aggregate number of shares of common stock of the Company that may be issued under the Plan is 2,561,085. The number of shares reserved for issuance under the 2021 Plan increased automatically on January 1, 2022 pursuant to an evergreen provision therein by 1,111,502 shares, representing 5% of total common shares outstanding at December 31, 2021. The aggregate number of shares will increase each anniversary of such date prior to the termination of the 2021 Plan, equal to the lesser of (i) 5% of the Company’s shares of common stock issued and outstanding on the last day of the immediately preceding fiscal year and (ii) such smaller number of shares as determined by the Company’s Board of Directors or the compensation committee. No more than 7,543,185 shares of common stock may be issued under the 2021 Plan through incentive stock options. Shares subject to the 2017 Plan or the 2007 Equity Incentive Plan (the “2007 Plan” and collectively with the 2017 Plan, the “Prior Plans”) that expire, terminate or are cancelled or forfeited for any reason after the effectiveness of the 2021 Plan will be added (or added back) to the shares available for issuance under the 2021 Plan. The total number of shares underlying the Prior Plan awards that may be recycled into the 2021 Plan will not exceed 4,334,131 shares.

134

Table of Contents

2017 Equity Incentive Plan

On September 15, 2017, the Company’s board of directors approved the 2017 Plan, which provides for the granting of incentive stock options, non-qualified stock options and stock awards to employees, certain consultants and directors. The Board, or its designated committee, has the sole authority to select the individuals to whom awards are granted and determine the terms of each award, including the number of shares and the schedule upon which the award becomes exercisable. Upon the effectiveness of the 2021 Plan, no further awards will be granted under the 2017 Plan.

The aggregate number of shares of common stock of the Company that may be issued under the 2017 Plan is 4,334,131 (taking into account shares of common stock that may become issuable pursuant to Section 3(b) of the 2017 Plan in respect of shares of common stock reserved under the Company’s Amended and Restated 2007 Equity Incentive Plan). The 2021 Plan allows for a provision for shares granted under the Prior Plans which are cancelled, forfeited, exchanged or surrendered without having been exercised to subsequently be available for reissuance under the 2021 Plan.

Employee Stock Purchase Plan

The Company’s board of directors approved the Employee Stock Purchase Plan, or ESPP, prior to the closing of the IPO. Under the ESPP, the Company may provide employees and employees of the Subsidiary with an opportunity to purchase shares of the Company’s common stock at a discounted purchase price. As of December 31, 2022, a total of 209,532 shares of common stock was authorized and reserved for issuance under the ESPP.

Subject to prior approval by the board of directors in each instance, on or about January 1, 2022 and each anniversary of such date thereafter prior to the termination of the ESPP, the number of shares of common stock authorized and reserved for issuance under the ESPP will be increased by a number of shares of common stock equal to the least of (i) 1,000,000 shares of our common stock, (ii) 1% of the shares of common stock outstanding on the final day of the immediately preceding calendar year, and (iii) such smaller number of shares of common stock as determined by the board of directors. Such shares of common stock may be newly issued shares, treasury shares or shares acquired on the open market. In the event that any dividend or other distribution (whether in the form of cash, our common stock, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, or exchange of common stock or other securities, or other change in the structure affecting common stock occurs, then in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the ESPP, the compensation committee will, in such manner as it deems equitable, adjust the number of shares and class of common stock that may be delivered under the ESPP, the purchase price per share and the number of shares covered by each outstanding option under the ESPP, and the numerical limits described above.

Equity-based Compensation

The fair value of options granted was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:

​

​ ​ ​ ​ ​

​ ​ Year Ended December 31,

​

Expected Term — The expected term represents the period that the stock-based awards are expected to be outstanding. As the Company does not have sufficient historical experience for determining the expected term of the stock option awards granted, expected term has been calculated using the simplified method.

135

Table of Contents

Risk-Free Interest Rate — The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the date of grant for zero-coupon U.S. Treasury constant maturity notes with terms approximately equal to the stock-based awards’ expected term.

Expected Volatility — Up until October 13, 2021, the Company was privately held and did not have a trading history of common stock. As such, the expected volatility was derived from the average historical stock volatilities of the common stock of several public companies within the industry that the Company considers to be comparable to our business over a period equivalent to the expected term of the stock-based awards. The Company will continue to derive expected volatility from average historical stock volatilities of industry peers until the Company has compiled a trading history of its own for a sufficient period of time.

Dividend Yield — The expected dividend yield is zero as the Company has not paid and does not anticipate paying any dividends in the foreseeable future.

Fair Value of Common Stock — Prior to the IPO, the fair value of the shares of common stock underlying the stock-based awards had historically been determined by the board of directors with input from management. Because there was no public market for the common stock, the board of directors had determined the fair value of the common stock at the time of grant of the stock-based award by considering a number of objective and subjective factors, including having contemporaneous valuations of the common stock performed by a third-party valuation specialist. Subsequent to the IPO, the board of directors will determine the fair value of the shares of common stock underlying the stock-based awards based off of the closing price as reported on the Nasdaq Stock Market LLC on the grant date.

Activity for options was as follows:

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Options Outstanding

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted

​ ​ ​ ​ Weighted- ​ Aggregate ​ Average

​ ​ ​ ​ Average ​ Intrinsic ​ Remaining

​ ​ Number of ​ Exercise ​ Value ​ Contractual Life

​ Options Price (in 000’s) (In Years)

​

The weighted-average grant date fair value of stock options granted was $1.83 and $9.09 during the years ended December 31, 2022 and 2021, respectively. There were 524,370 stock options granted at an aggregate fair value of $943 for the year ended December 31, 2022 and 1,697,076 stock options granted at an aggregate fair value of $15,424 for the year ended December 31, 2021. During the year ended December 31, 2022 and 2021, there were 1,761,516 and 321,686 stock options exercised, respectively, with an aggregate grant date fair value of $1,325 and $188, respectively. The intrinsic value of stock options exercised during the year ended December 31, 2022 and 2021 was $2,738 and $1,610, respectively.

136