You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our final prospectus for our initial public offering filed pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended, or the Securities Act, onFebruary 11, 2021 ("Prospectus"). Some of the information contained in this discussion and analysis or set forth elsewhere in this Form 10-Q, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the "Risk Factors" section of this Form 10-Q, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Investors and others should note that we routinely use the Investor Relations section of our website to announce material information to investors and the marketplace. While not all of the information that we post on the Investor Relations section of our website is of a material nature, some information could be deemed to be material. Accordingly, we encourage investors, the media, and others interested in us to review the information that it shares on the Investor Relations section of our website, www.neximmune.com. Overview We are a clinical-stage biotechnology company developing a novel approach to immunotherapy designed to employ the body's own T cells to generate a specific, potent and durable immune response that mimics natural biology. Our mission is to create therapies with curative potential for patients with cancer and other life-threatening immune-mediated diseases. Currently, we have two product candidates in human trials: NEXI-001 in acute myeloid leukemia, or AML, and NEXI-002 in multiple myeloma, or MM. We were incorporated under the laws of theState of Delaware onJune 7, 2011 . InJune 2011 , we exclusively licensed the core AIM technology from TheJohns Hopkins University , orJohns Hopkins . See "Business-Johns Hopkins License Agreement" for information about this license. To date, we have devoted substantially all of our resources to organizing and staffing our company, business planning, raising capital, identifying and developing product candidates, enhancing our intellectual property portfolio, undertaking research, conducting preclinical studies and clinical trials, and securing manufacturing for our development programs. We do not have any products approved for sale and have not generated any revenue from product sales. To date, we have funded our operations primarily with proceeds from private placement of convertible preferred stock, our convertible promissory notes and the IPO. InFebruary 2021 , we completed the IPO and issued and sold an aggregate 7,441,650 shares of common stock, which included 970,650 shares of our common stock issued pursuant to the underwriters' option to purchase additional shares, at a public offering price of$17.00 per share, for net proceeds of$114.6 million after deducting underwriting discounts and commissions and other offering costs. We have incurred significant operating losses since our inception, which are mainly attributed to research and development costs and employee payroll expense included in general and administrative expenses. As ofJune 30, 2021 , we had an accumulated deficit of$97.6 million . Our operating losses may fluctuate significantly from quarter-to-quarter and year-to-year as a result of several factors, including the timing of our preclinical studies and clinical trials and our expenditures related to other research and development activities. We expect to continue to incur operating losses for the foreseeable future. We anticipate these losses will increase substantially as we advance our product candidates through preclinical and clinical development, develop additional product candidates and seek regulatory approvals for our product candidates. We do not expect to generate any revenues from product sales unless and until we successfully complete development and obtain regulatory approval for one or more product candidates. In addition, if we obtain marketing approval for any product candidate, we expect to incur pre-commercialization expenses and significant commercialization expenses related to marketing, sales, manufacturing and distribution We may also incur expenses in connection with the in-licensing of additional product candidates. Furthermore, we expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations, compliance and other expenses that we did not incur as a private company. As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from sales of our product candidates, if ever, we expect to finance our cash needs through public or private equity offerings, debt financings, collaborations and licensing arrangements or other capital sources. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and could force us to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our product candidates that we would otherwise prefer to develop and market ourselves. Because of the numerous risks and uncertainties associated with pharmaceutical 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 or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations. 16
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Table of Contents As ofJune 30, 2021 , we had cash, cash equivalents, and marketable securities of$102.8 million . Components of our Results of Operations Revenue We have not generated any revenue since our inception and do not expect to generate any revenue from the sale of products in the near future, if at all. Research and Development Expenses To date, our research and development expenses, have related primarily to development of NEXI-001 and NEXI-002, preclinical studies and other preclinical activities related to our portfolio. Research and development expenses are recognized as incurred and payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received. Research and development expenses also include the accrual of minimum royalties under ourJohns Hopkins license. Research and development expenses include: • salaries, payroll taxes, employee benefits and stock-based compensation charges for those individuals involved in research and development efforts; • external research and development expenses incurred under agreements with contract research organizations, or CROs, and consultants to conduct our preclinical, toxicology and other preclinical studies; • laboratory supplies; • costs related to manufacturing product candidates, including fees paid to third-party manufacturers and raw material suppliers; • license fees and research funding; and • facilities, depreciation and other allocated expenses, which include direct and allocated expenses for rent, maintenance of facilities, insurance, equipment and other supplies. Clinical trial costs are a significant component of research and development expenses and include costs associated with third-party contractors. We outsource a substantial portion of our clinical trial activities, utilizing external entities such as CROs, independent clinical investigators and other third-party service providers to assist us with the execution of our clinical trials. We also expect to incur additional expenses related to milestone and royalty payments payable toJohns Hopkins . We plan to substantially increase our research and development expenses for the foreseeable future as we continue the development of our product candidates and seek to discover and develop new product candidates. Due to the inherently unpredictable nature of preclinical and clinical development, we cannot determine with certainty the timing of the initiation, duration or costs of future clinical trials and preclinical studies of product candidates. Clinical and preclinical development timelines, the probability of success and the amount of development costs can differ materially from expectations. We anticipate that we will make determinations as to which product candidates and development programs to pursue and how much funding to direct to each product candidate or program on an ongoing basis in response to the results of ongoing and future preclinical studies and clinical trials, regulatory developments and our ongoing assessments as to each product candidate's commercial potential. In addition, we cannot forecast which product candidates may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements. Our future clinical development costs may vary significantly based on factors such as: • per-patient trial costs; • the number of trials required for regulatory approval; • the number of sites included in the trials; • the countries in which the trials are conducted; • the length of time required to enroll eligible patients; • the number of patients that participate in the trials; • the number of doses that patients receive; • the drop-out or discontinuation rates of patients; • potential additional safety monitoring requested by regulatory agencies; • the duration of patient participation in the trials and follow-up; 17
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Table of Contents • the phase of development of the product candidate; and • the efficacy and safety profile of the product candidate. General and Administrative Expenses General and administrative expenses consist primarily of salaries and employee-related costs, including stock-based compensation, for personnel in our executive, finance and other administrative functions. Other significant costs include facility related costs, legal fees relating to intellectual property and corporate matters, professional fees for accounting and consulting services and insurance costs. We anticipate that our general and administrative expenses will increase in the future to support our continued research and development activities, pre-commercialization and, if any product candidates receive marketing approval, commercialization activities. We also anticipate increased expenses related to audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing andSEC requirements, director and officer insurance premiums and investor relations costs associated with operating as a public company. Interest Income Interest income consists of interest earned on our cash equivalents and marketable securities during the period. Interest Expense Interest expense consists of interest accrued on the convertible notes and interest recognized upon the amortization of the beneficial conversion feature, debt issuance costs and bifurcated derivative liability. Change in Fair Value of Derivative Liability The change in fair value of derivative liability consists entirely of the mark-to-market adjustment of the bifurcated derivative liability related to the convertible notes. As a result of our IPO, the derivative liability was settled. Results of Operations Comparison of the Three Months EndedJune 30, 2021 and 2020 The following table summarizes our results of operations for the three months endedJune 30, 2021 and 2020: For the three months ended June 30, 2021 2020 Change (in thousands) Operating expenses Research and development$ 8,125 $ 4,209 $ 3,916 General and administrative 4,038 2,566 1,472 Total operating expenses 12,163 6,775 5,388 Loss from operations (12,163 ) (6,775 ) (5,388 ) Other (expense) income: Interest income 7 1 6 Interest expense - (184 ) 184 Other (expense) income (26 ) 27 (53 ) Other (expense) income (19 ) (156 ) 137 Net loss$ (12,182 ) $ (6,931 ) $ (5,251 ) Research and Development Expenses. Research and development expenses were$8.1 million and$4.2 million for the three months endedJune 30, 2021 and 2020, respectively. The increase of$3.9 million was due primarily to increases of$2.0 million for research and clinical trial expenses, increases to salary and benefits of$0.6 million resulting from increased headcount,$0.6 million in stock compensation expense, and$0.5 million in consulting fees. We have not historically tracked internal research and development expenses by product candidate. General and Administrative Expenses. General and administrative expenses were$4.0 million and$2.6 million for the three months endedJune 30, 2021 and 2020, respectively. The increase of$1.5 million was due primarily to increases of$0.6 million in salary and benefits resulting from increased headcount,$0.6 million in stock compensation expense, and an increase of$0.5 million in professional fees and Directors and Officers insurance as a result of operating as public company, offset by a reduction of$0.2 million in legal and consulting fees. 18
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Table of Contents
Comparison of the Six Months Ended
For the six months ended June 30 2021 2020 Change (in thousands) Operating expenses Research and development$ 14,138 $ 8,481 $ 5,657 General and administrative 8,095 4,654 3,441 Total operating expenses 22,233 13,135 9,098 Loss from operations (22,233 ) (13,135 ) (9,098 ) Other income (expense): Interest income 10 20 (10 ) Interest expense (904 ) (185 ) (719 ) Change in fair value of derivative liability 2,425 - 2,425 Other (expense) income (27 ) 54 (81 ) Other income (expense) 1,504 (111 ) 1,615 Net loss$ (20,729 ) $ (13,246 ) $ (7,483 ) Research and Development Expenses. Research and development expenses were$14.1 million and$8.5 million for the six months endedJune 30, 2021 and 2020, respectively. The increase of$5.7 million was due primarily to increases of$3.2 million for research and clinical trial expenses, increases to salary and benefits of$1.1 million resulting from increased headcount,$0.7 million in stock compensation expense, and$0.7 million in consulting fees. We have not historically tracked internal research and development expenses by product candidate. General and Administrative Expenses. General and administrative expenses were$8.1 million and$4.7 million for the six months endedJune 30, 2021 and 2020, respectively. The increase of$3.4 million was due primarily to increases of$1.3 million in stock compensation expense, an increase in insurance of$1.1 million for Directors and Officers insurance, an increase of$0.5 million in profession fees, and an increase to salary and benefits of$0.3 million from increased headcount. Interest Expense. Interest expense was$0.9 million and$0.2 million for the six months endedJune 30, 2021 and 2020, respectively. The increase is due to the issuance of convertible debt during the period fromApril 2020 intoJanuary 2021 . The convertible notes were converted into shares of common stock upon the completion of the IPO inFebruary 2021 . Change in Fair Value of Derivative Liability. The change in fair value of derivative liability was$2.5 million and$0 for the six months endedJune 30, 2021 and 2020, respectively. The increase reflected the remeasurement of the derivative liability immediately before the conversion of the convertible notes into shares of common stock upon the completion of the IPO inFebruary 2021 . Following the IPO there are no derivative instruments. Liquidity and Capital Resources We have incurred net losses and negative cash flows from operations since our inception and anticipate we will continue to incur net losses for the foreseeable future. As ofJune 30, 2021 , we had cash, cash equivalents, and marketable securities of$102.8 million . Sources of Liquidity To date, we have financed our operations principally through private placements of our redeemable convertible preferred stock, our convertible promissory notes and the IPO. Series A Preferred Stock Financing InDecember 2017 throughAugust 2018 , we issued an aggregate of 121,735,303 shares of our Series A Redeemable Convertible Preferred Stock at a purchase price of$0.2951 per share for aggregate consideration of$25.0 million plus conversion of convertible notes. 19
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Table of Contents InJanuary 2019 andFebruary 2019 , we issued an aggregate of 22,047,361 shares of our Series A-2 Preferred Stock at a purchase price of$0.3523 per share for aggregate consideration of$7.8 million . InNovember 2019 andDecember 2019 , we issued an aggregate of 31,209,734 shares of our Series A-3 Preferred Stock at a purchase price of$0.3523 per share for aggregate consideration of$11.0 million . Convertible Note Financing FromApril 2020 throughDecember 31, 2020 , we issued$21,618,286 aggregate principal amount of convertible notes, which bear interest at the rate of 6% per annum and mature inApril 2021 . InJanuary 2021 , we issued an additional$9,031,480 aggregate principal amount of convertible notes, which bore interest at the rate of 6% per annum and had a scheduled maturity date inApril 2021 . Paycheck Protection Program Loan OnApril 23, 2020 , we entered into an unsecured loan agreement withJPMorgan Chase Bank , or Chase, under the terms of which Chase loaned us$843,619 , or the PPP Loan, pursuant to the Paycheck Protection Program, or PPP, under the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act. In accordance with the requirements of the CARES Act, we have used the proceeds primarily for payroll costs and other eligible expenses. The PPP Loan has a maturity date ofApril 23, 2022 and accrues interest at an annual rate of 0.98%. Interest and principal payments are deferred for the first six months of the loan. Thereafter, monthly interest and principal payments are due until the loan is fully satisfied. The promissory note evidencing the PPP Loan contains customary events of default resulting from, among other things, default in the payments. The use of loan proceeds must be for payroll costs, payment of interest on covered mortgage obligations, rent and utility costs over either an eight-week or 24-week period, at our option, following our receipt of the loan proceeds. We elected to use the proceeds over a 24-week period. We treat the PPP loan as debt under ASC 470, Debt. The CARES Act and the PPP provide a mechanism for forgiveness of up to the full amount borrowed. We submitted the PPP Loan forgiveness application inMarch 2021 . The Company submitted the PPP Loan forgiveness application inMarch 2021 and received full forgiveness from the$843,619 loan under the PPP inJuly 2021 . Initial Public Offering InFebruary 2021 , we completed the IPO and issued and sold an aggregate 7,441,650 shares of common stock, which included 970,650 shares of our common stock issued pursuant to the underwriters' option to purchase additional shares, at a public offering price of$17.00 per share, for net proceeds of$114.6 million after deducting underwriting discounts and commissions and other offering costs. Cash Flows The following table sets forth a summary of the net cash flow activity for the six months endedJune 30, 2021 and 2020: 2021 2020 (in thousands) Net cash provided by (used in): Operating activities$ (24.8 ) $ (12.5 ) Investing activities (40.6 ) 0.7 Financing activities 124.2 7.3 Net increase (decrease) in cash, cash equivalents and restricted cash$ 58.8 $ (4.5 ) Operating Activities Net cash used in operating activities was$24.8 million and$12.1 million for the six months endedJune 30, 2021 and 2020, respectively. The net cash used in operating activities for the six months endedJune 30, 2021 and 2020 was primarily due to our net loss of$20.8 million , resulting from R&D expenses of$14.1 million as we ramp up our clinical program plus$6.0 million in prepaid R&D and insurance and$8.1 million of administrative expenses for public company expenses, salary and related expenses and professional fees. The net cash used in operating activities for the six months endedJune 30, 2020 was primarily due to our net loss of$ 13.2 million , consisting of$8.5 million for R&D expenses primarily in pre-clinical research expenses and manufacturing as we prepared for our clinical program, and$4.7 million in administrative expenses for salary and related expenses and professional fees. Investing Activities Net cash used in investing activities was$40.6 million for the six months endedJune 30, 2021 resulting from purchases of marketable securities and property and equipment. Net cash provided by investing activities of$0.7 million for the six months endedJune 30, 2020 was primarily due to maturities of available-for-sale marketable securities of$1.0 million , partially offset by the purchase of property and equipment for$0.4 million . 20
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Table of Contents Financing Activities Net cash provided by financing activities was$124.2 million for the six months endedJune 30, 2021 primarily due to the net proceeds of$114.7 million from the IPO and$9.0 million from the issuance of convertible debt. Net cash provided by financing activities was$7.3 million for the six months endedJune 30, 2020 primarily due to the net proceeds of$6.4 million from issuance of convertible debt and$0.8 million in short-term debt. Funding Requirements We believe that our existing cash and cash equivalents, together with the net proceeds from our IPO, will be sufficient to meet our anticipated cash requirements through third quarter of 2022. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. We have based this estimate on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we expect. Our future capital requirements will depend on many factors, including: • the initiation, progress, timing, costs and results of drug discovery, preclinical studies and clinical trials of NEXI-001 and NEXI-002 and any other future product candidates; • the number and characteristics of product candidates that we pursue; • the outcome, timing and costs of seeking regulatory approvals; • the cost of manufacturing NEXI-001 and NEXI-002 and future product candidates for clinical trials in preparation for marketing approval and in preparation for commercialization; • the costs associated with hiring additional personnel and consultants as our preclinical and clinical activities increase; • the emergence of competing therapies and other adverse market developments; • the ability to establish and maintain strategic licensing or other arrangements and the financial terms of such agreement; • the costs involved in preparing, filing, prosecuting, maintaining, expanding, defending and enforcing patent claims, including litigation costs and the outcome of such litigation; • the extent to which we in-license or acquire other products and technologies; and • the costs of operating as a public company.
Until such time, if ever, as we can generate substantial product revenues to
support our capital requirements, we expect to finance our cash needs through
cash and cash equivalents and marketable securities on hand and a combination of
public or private equity offerings, debt financings, collaborations and
licensing arrangements or other capital sources. 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
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, or other similar arrangements with third parties,
we may need to relinquish valuable rights to our product candidates, future
revenue streams or research programs or may have to grant licenses on terms that
may not be favorable to us and/or may reduce the value of our common stock. If
we are unable to raise additional funds through equity or debt financings as and
when needed, we may be required to delay, limit, reduce or terminate our product
development or future commercialization efforts or grant rights to develop and
market our product candidates even if we would otherwise prefer to develop and
market such product candidates ourselves.
Critical Accounting Policies and Significant Judgments and Estimates
Our management's discussion and analysis of our financial condition and results
of operations is based on our financial statements, which have been prepared in
accordance with
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Table of Contents While our significant accounting policies are described in more detail in Note 3, "Summary of significant accounting policies", and in our Form 10-K for the year endedDecember 31, 2020 , we believe the following accounting policies and estimates to be most critical to the preparation of our financial statements. Stock-Based Compensation Expense Stock-based compensation expense represents the cost of the grant date fair value of equity awards recognized over the requisite service period of the awards (usually the vesting period) on a straight-line basis. We estimate the fair value of equity awards using the Black-Scholes option pricing model and recognize forfeitures as they occur. Estimating the fair value of equity awards as of the grant date using valuation models, such as the Black-Scholes option pricing model, is affected by assumptions regarding a number of variables, including the risk-free interest rate, the expected stock price volatility, the expected term of stock options, the expected dividend yield and the fair value of the underlying common stock on the date of grant. Changes in the assumptions can materially affect the fair value and ultimately how much stock-based compensation expense is recognized. These inputs are subjective and generally require significant analysis and judgment to develop. See Note 3, "Summary of significant accounting policies" for 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 granted for the three and six months endedJune 30, 2021 and 2020. Common Stock Valuations We are required to estimate the fair value of the common stock underlying our equity awards when performing fair value calculations. The fair value of the common stock underlying our equity awards was determined on each grant date by our board of directors, taking into account input from management and independent third-party valuation analyses. All options to purchase shares of our common stock are intended to be granted with an exercise price per share no less than the fair value per share of our common stock underlying those options on the date of grant, based on the information known to us on the date of grant. In the absence of a public trading market for our common stock, on each grant date we develop an estimate of the fair value of our common stock in order to determine an exercise price for the option grants. Our determinations of the fair value of our common stock were made using methodologies, approaches and assumptions consistent with theAmerican Institute of Certified Public Accountants Accounting and Valuation Guide : Valuation of Privately Held Company Equity Securities Issued as Compensation, or the Practice Aid. Our board of directors considered various objective and subjective factors, along with input from management, to determine the fair value of our common stock, including: • valuations of our common stock performed with the assistance of independent third-party valuation specialists; • current and potential strategic relationships and licenses; • our stage of development and business strategy, including the status of research and development efforts of our product candidates, and the material risks related to our business and industry; • our results of operations and financial position, including our levels of available capital resources; • the valuation of publicly traded companies in the life sciences and biotechnology sectors, as well as recently completed mergers and acquisitions of peer companies; • the lack of marketability of our common stock as a private company; • the prices of preferred stock sold to investors in arm's length transactions and the rights, preferences and privileges of our preferred stock relative to those of our common stock; • the likelihood of achieving a liquidity event for the holders of our common stock, such as an initial public offering or a sale of our company, given prevailing market conditions; • trends and developments in our industry; and • external market conditions affecting the life sciences and biotechnology industry sectors. The Practice Aid prescribes several valuation approaches for setting the value of an enterprise, such as the cost, income and market approaches, and various methodologies for allocating the value of an enterprise to its common stock. The cost approach establishes the value of an enterprise based on the cost of reproducing or replacing the property less depreciation and functional or economic obsolescence, if present. The income approach establishes the value of an enterprise based on the present value of future cash flows that are reasonably reflective of our future operations, discounting to the present value with an appropriate risk-adjusted discount rate or capitalization rate. The market approach is based on the assumption that the value of an asset is equal to the value of a substitute asset with the same characteristics. Each valuation methodology was considered in our valuations. The various methods for allocating the enterprise value across our classes and series of capital stock to determine the fair value of our common stock in accordance with the Practice Aid include the following: Option Pricing Method, or OPM . Under the OPM, shares are valued by creating a series of call options with exercise prices based on the liquidation preferences and conversion terms of each equity class. The values of the preferred and common stock are inferred by analyzing these options. 22
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Table of Contents Probability-Weighted Expected Return Method, or PWERM. The PWERM is a scenario-based analysis that estimates the value per share based on the probability-weighted present value of expected future investment returns, considering each of the possible outcomes available to us, as well as the economic and control rights of each equity class. In determining the fair value of our common stock underlying stock option grants for the years endedDecember 31, 2020 and 2019, we estimated the enterprise value of our business using the back-solve method and the OPM to allocate enterprise value. The back-solve method is a market approach that assigns an implied enterprise value based on the most recent round of funding or investment and allows for the incorporation of the implied future benefits and risks of the investment decision assigned by an outside investor. We believed the OPM was the most appropriate method given the expectation of various potential liquidity outcomes and the difficulty of selecting and supporting appropriate enterprise values given our early stage of development. The determination of the fair value of our common stock after our IPO onFebruary 11, 2021 is determined by the closing price our common stock on the date of grant. Other Company Information Net Operating Loss and Research and Development Carryforwards and Other Income Tax Information AtDecember 31, 2020 , we had federal and state net operating loss carryforwards of$69.1 million . As ofDecember 31, 2020 , we also had federal research credit carryforwards of$0.3 million . Approximately$10.5 million of the federal NOL was generated prior to 2018 and will expire in increments through 2037 beginning in 2035, while the remaining$58.6 million will be carried forward indefinitely. The state NOL will expire in increments through 2037, beginning expiring in 2035. The federal research and development tax credit carryforwards, if not utilized, will expire beginning in 2037. We believe that it is more likely than not that we will not realize the benefits of the deferred tax assets. Accordingly, a full valuation allowance has been established against the net deferred tax assets as ofDecember 31, 2020 . Management reevaluates the positive and negative evidence at each reporting period. We have not completed a Section 382 study to assess whether an ownership change has occurred or whether there have been multiple ownership changes since our formation due to the complexity and cost associated with such a study and the fact that there may be additional such ownership changes in the future. Pursuant to Sections 382 and 383 of the Internal Revenue Code, annual use of our net operating loss and research and development tax credit carryforwards may be limited in the event a cumulative change in ownership of more than 50% occurs within a three-year period. Emerging Growth Company and Smaller Reporting Company Status We are an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012, as amended, or the JOBS Act. We will remain an emerging growth company until the earlier of (1)December 31, 2026 , (2) the last day of the fiscal year in which we have total annual gross revenues of at least$1.07 billion , (3) the date on which we are deemed to be a "large accelerated filer" as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, or (4) the date on which we have issued more than$1.0 billion in non-convertible debt securities during the prior three-year period. An emerging growth company may take advantage of specified reduced reporting requirements and is relieved of certain other significant requirements that are otherwise generally applicable to public companies. As an emerging growth company, • we may present only two years of audited financial statements, plus unaudited condensed financial statements for any interim period, and related Management's Discussion and Analysis of Financial Condition and Results of Operations in this filing. • we may avail ourselves of the exemption from the requirement to obtain an attestation and report from our auditors on the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act; • we may provide reduced disclosure about our executive compensation arrangements; and • we may not require stockholder non-binding advisory votes on executive compensation or golden parachute arrangements.
We have elected to take advantage of certain of the reduced disclosure obligations in the registration statement of which this filing is a part and may elect to take advantage of other reduced reporting requirements in future filings. As a result, the information that we provide to our stockholders may be different than you might receive from other public reporting companies in which you hold equity interests. Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies, which may make our financial statements less comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates. Until the date that we are no longer an emerging growth company or affirmatively and irrevocably opt out of the exemption provided by Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, upon issuance of a new or revised accounting standard that applies to our financial statements and that has a different effective date for public and private companies, we will disclose the date on which we will adopt the recently issued accounting standard.
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Table of Contents We are also a "smaller reporting company," meaning that the market value of our stock held by non-affiliates plus the proposed aggregate amount of gross proceeds to us as a result of the IPO was less than$700.0 million and our annual revenue is less than$100.0 million during the most recently completed fiscal year. After the IPO we may continue to be a smaller reporting company if either (1) the market value of our stock held by non-affiliates is less than$250.0 million or (2) our annual revenue is less than$100.0 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than$700.0 million . If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Quarterly Report on Form 10-Q and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation. Recently Issued and Adopted Accounting Pronouncements A description of recently issued and adopted accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 3, "Summary of significant accounting policies". Off-Balance Sheet Arrangements During the periods presented we did not have, nor do we currently have, any off-balance sheet arrangements as defined underSEC rules. Item 3. Quantitative and qualitative disclosures about market risk. Not applicable Item 4. Controls and Procedures. Disclosure Controls and Procedures We maintain "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in theSEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and our management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our management, with the participation of our Chief Executive Officer (our principal executive officer) and our Chief Financial Officer (our principal financial officer), evaluated the effectiveness of our disclosure controls and procedures as ofJune 30, 2021 . Based on the evaluation of our disclosure controls and procedures as ofJune 30, 2021 , our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective. Previously Identified Material Weakness In preparation for our initial public offering, we identified a material weakness in our internal control over financial reporting related to our control environment. Specifically, we have determined that we have not maintained adequate formal accounting policies, processes and controls related to complex transactions as a result of a lack of finance and accounting staff with the appropriate GAAP technical expertise needed to identify, evaluate and account for complex and non-routine transactions. We also determined that we have not maintained sufficient staffing or written policies and procedures for accounting and financial reporting, which contributed to the lack of a formalized process or controls for management's timely review and approval of financial information. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented, or detected and corrected on a timely basis. More specifically, we have determined that our financial statement close process includes significant control gaps mainly driven by the small size of our accounting and finance staff and, as a result, a significant lack of appropriate segregation of duties. We also determined that we have not maintained sufficient staffing or written policies and procedures for accounting and financial reporting, which contributed to the lack of a formalized process or controls for management's timely review and approval of financial information. The process of designing and implementing an effective accounting and financial reporting system is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain an accounting and financial reporting system that is adequate to satisfy our reporting obligations. As we continue to evaluate and take actions to improve our internal control over financial reporting, we may determine to take additional actions to address control deficiencies or determine to modify certain of the remediation measures described above. We cannot assure you that the measures we have taken to date, or any measures we may take in the future, will be sufficient to remediate the material weakness we have identified or avoid potential future material weaknesses. 24
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Table of Contents Changes in Internal Controls over Financial Reporting There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the period covered by this filing that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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