Basis of Presentation and Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries and have been prepared in accordance with GAAP and follow the requirements of the U.S. Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP can be condensed or omitted. In management’s opinion, the unaudited interim financial statements have been prepared on the same basis as the audited financial statements and include all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of the Company’s financial position and its results of operations and its cash flows for the periods presented. These statements do not include all disclosures required by GAAP and should be read in conjunction with the Company’s financial statements and accompanying notes for the year ended December 31, 2021, which are contained in the Company’s Current Report on Form 10-K filed with the SEC on March 17, 2022. The results for interim periods are not necessarily indicative of the results expected for the full fiscal year or any other interim period.

Clinical Trial and Contracts Accruals

The Company accrues clinical trial costs based on work performed. In determining the amount to accrue, the Company relies on estimates of total costs incurred based on enrollment, the completion of clinical trials and other events. The Company follows this method because it is believed to provide reasonably dependable estimates of the costs applicable to various stages of a clinical trial. However, the actual costs and timing of clinical trials are highly uncertain, subject to risks and may change depending on a number of factors. Differences between the actual clinical trial costs and the estimated clinical trial costs that have been accrued in any prior period are recognized in the subsequent period in which the actual costs become known. Historically, estimated accrued expenses have approximated actual expenses incurred; however, material differences could occur in the future.

Research and Development Expenses

Research and development costs are expensed as incurred. These costs consist primarily of salaries and other personnel-related expenses, including share-based compensation; facility-related expenses; and services performed by clinical research organizations, research institutions, and other outside service providers.

The Company makes estimates of its accrued expenses as of each balance sheet date in the condensed consolidated financial statements based on facts and circumstances known to us at that time. If the actual timing of the performance of services or the level of effort varies from the estimate, the Company will adjust the accrual accordingly. This process involves reviewing contract and purchase orders, reviewing the terms of vendor agreements, communicating with applicable personnel to identify services that have been performed on the Company's behalf and estimating the level of service performed and the associated cost incurred for the services when it has not yet been invoiced or otherwise notified of actual cost. The majority of the Company's service providers invoice monthly in arrears for services performed.

Share-Based Compensation

The Company accounts for share-based compensation expense related to stock options granted to employees, members of the board of directors, and outside consultants by estimating the fair value of each stock option on the date of grant using the Black-Scholes option pricing model. The Company accounts for restricted stock units (“RSUs”) by determining the fair value of each restricted stock unit based on the closing market price of the common stock on the date of grant. The Company recognizes share-based compensation on a straight-line basis over the requisite service period of the stock-based award, and forfeitures are recognized as they occur. The estimate of fair value for share-based compensation for stock options requires management to make estimates and judgments about, among other things, employee exercise behavior and volatility of the Company’s common stock. The judgments directly affect the amount of compensation expense that will be recognized.

Fair Value Measurements

The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or non-recurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market- based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1: Observable inputs such as quoted prices in active markets.

Level 2: Inputs, other than the quoted prices in active markets that are observable either directly or indirectly.

Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

The carrying amounts of the Company’s cash and cash equivalents, prepaid expenses, accounts payable and accrued liabilities approximate fair values for these financial instruments due to their short maturities. The money market funds, classified as cash equivalents, are Level 1 and had an amortized cost and estimated fair value of $14.9 million as of March 31, 2022 and December 31, 2021.

The preferred stock warrant liability, a level 3 fair value measurement, was $0 as of March 31, 2022 and December 31, 2021, due to the reclassification to equity. The Company had no assets or liabilities measured at fair value on a recurring basis as of March 31, 2022 and December 31, 2021.

Preferred Stock Warrant Liability

The assumptions used in the Black-Scholes option pricing model to determine the fair value of the preferred stock warrant liability were as follows:


	February 24, 2021 (date of Merger close)
Expected volatility	90.2%
Risk-free interest rate	1.38%
Expected dividend yield	0%
Expected term	9.3 years
Fair value per share of preferred stock	$	17.15

The following table provides a reconciliation of the preferred stock warrant liability measured at fair value using Level 3 significant unobservable inputs (in thousands):


	Preferred Stock Warrant Liability
Balance at December 31, 2020	$	106
Change in fair value of preferred stock warrant liability		290
Reclassification to equity		(396	)
Balance at December 31, 2021	$	—

Net Loss Per Share

Basic loss per common share is computed by dividing net loss by the weighted average number of common shares and warrants to purchase common stock for nominal consideration outstanding during the period. Diluted loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding, plus the impact of common shares, if dilutive, resulting from the exercise of outstanding common stock equivalents. For all periods presented, there is no difference in the number of shares used to compute basic and diluted shares outstanding due to the Company's net loss position.

The following securities are excluded from the calculation of weighted average dilutive common shares because their inclusion would have been anti-dilutive:


	March 31,
	2022		2021
Shares issuable upon conversion of preferred stock		292,799		292,799
Common stock options and RSUs outstanding		6,277,172		4,266,928
Warrants to purchase common stock		23,100		23,100
Total excluded securities		6,593,071		4,582,827

Recent Adopted Accounting Pronouncements

In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The amendment requires acquiring entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. The ASU will be effective for the Company for the annual periods beginning after December 15, 2022, with early adoption permitted. The Company early adopted ASU 2021-08 in the fourth quarter of 2021 with no material impact on its condensed consolidated financial statements.

Recently Issued Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies that the Company will adopt as of the specified effective date. The Company has evaluated recently issued accounting pronouncements and as a result, based on the Company's preliminary assessment, do not believe any will have a material impact on the condensed consolidated financial statements or related footnote disclosures.