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,
on February 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 the State of Delaware on June 7, 2011. In
June 2011, we exclusively licensed the core AIM technology from The Johns
Hopkins University, or Johns 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. In February 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 of June 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.

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As of June 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 our
Johns 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 to Johns 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;



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  •   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 and SEC
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 Ended June 30, 2021 and 2020
The following table summarizes our results of operations for the three months
ended June 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 ended June 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 ended June 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.

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Table of Contents Comparison of the Six Months Ended June 30, 2021 and 2020 The following table summarizes our results of operations for the six months ended June 30, 2021 and 2020:



                                                         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 ended June 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 ended June 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 ended
June 30, 2021 and 2020, respectively. The increase is due to the issuance of
convertible debt during the period from April 2020 into January 2021. The
convertible notes were converted into shares of common stock upon the completion
of the IPO in February 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 ended June 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 in February 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 of June 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
In December 2017 through August 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.

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In January 2019 and February 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.
In November 2019 and December 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
From April 2020 through December 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 in April 2021.
In January 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 in April 2021.
Paycheck Protection Program Loan
On April 23, 2020, we entered into an unsecured loan agreement with JPMorgan
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 of
April 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 in March 2021. The Company
submitted the PPP Loan forgiveness application in March 2021 and received full
forgiveness from the $843,619 loan under the PPP in July 2021.
Initial Public Offering
In February 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 ended June 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 ended June 30, 2021 and 2020, respectively. The net cash used in
operating activities for the six months ended June 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 ended June 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 ended
June 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 ended June 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.

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Financing Activities
Net cash provided by financing activities was $124.2 million for the six months
ended June 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 ended June 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 U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses and stock-based compensation. We base our estimates on historical experience, known trends and events, and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.



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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 ended December 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 ended June 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 the American 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.

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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 ended December 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 on
February 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
At December 31, 2020, we had federal and state net operating loss carryforwards
of $69.1 million. As of December 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 of December 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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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 under SEC 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 the SEC'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 of June 30, 2021. Based on the evaluation of our disclosure
controls and procedures as of June 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.

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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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