Alto Neuroscience, Inc.

1. Description of the Business

Alto Neuroscience, Inc. (the “Company” or “Alto”) was incorporated in Delaware on March 25, 2019. The Company maintains its headquarters in Mountain View, California. The Company hasone wholly-owned subsidiary in Australia that was formed during 2020 to conduct clinical trials.

Alto is a clinical stage biopharmaceutical company with a mission to redefine psychiatry by leveraging individuals’ neurobiology to develop personalized and highly effective treatment options. Through insights derived from the Company’s scalable and proprietary Precision Psychiatry Platform, the Company aims to discover brain-based biomarkers to better identify which patients are more likely to respond to its novel product candidates. The Company’s current pipeline consists offive clinical-stage assets addressing high-need therapeutic areas, including major depressive disorder (“MDD”), bipolar depression (“BPD”), and schizophrenia, as identified by independent brain-based biomarkers.

Liquidity and Capital Resources

The Company has incurred significant operating losses since inception and has relied upon equity financings to fund its operations. At December 31, 2024, the Company had an accumulated deficit of $138.4 million. As the Company continues to incur losses, its transition to profitability will depend on the successful development, approval and commercialization of product candidates and on the generation of sufficient revenues to support its cost structure. No assurance can be provided that the Company will ever be profitable, and unless or until it becomes profitable, the Company will need to continue to raise additional capital.

In February 2024, the Company completed its initial public offering ("IPO") of its common stock. The Company issued and sold 9,246,000 shares of common stock at a public offering price of $16.00 per share, which included 1,206,000 shares sold pursuant to the exercise of the underwriters’ option to purchase additional shares, and received net proceeds of $133.0 million after deducting underwriting discounts and commissions and other offering costs. Upon completion of the IPO, all outstanding shares of the Company’s outstanding preferred stock converted into an aggregate of 13,664,261 shares of common stock. In addition, the IPO resulted in the net exercise and conversion of all outstanding Series A Preferred Stock Warrants for an aggregate of 72,631 shares of common stock. During the year ended December 31, 2023, the Company sold and issued 4,166,667 shares of Series B convertible preferred stock for gross proceeds of $25.0 million and sold and issued 9,547,802 shares of Series C convertible preferred stock for gross proceeds of $45.0 million.

Management believes that its existing financial resources are sufficient to continue operating activities at least one year past the issuance date of these consolidated financial statements. The Company has based this estimate on assumptions that may prove to be wrong, and its operating plan may change as a result of many currently unknown factors. As a result, the Company could deplete its capital resources sooner than it currently expects. Future capital requirements will depend on many factors, including the timing and extent of spending on research and development and the market acceptance of the Company’s products. The Company will need to obtain additional financing in order to complete clinical studies and launch and commercialize any product candidates for which it receives regulatory approval. There can be no assurance that such financing will be available on acceptable terms or at all. However, the Company expects to finance its future cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances, or licensing arrangements. If the Company is unable to obtain funding, the Company would be forced to delay, reduce, or eliminate some or all of its research and development programs, preclinical and clinical testing or commercialization efforts, which could adversely affect its business prospects.

2. Basis of Presentation

The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) as determined by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and include all adjustments necessary for the fair presentation of the Company’s financial position for the periods presented.

The accompanying consolidated financial statements include the accounts of Alto and its wholly-owned subsidiary. All intercompany transactions and balances have been eliminated in consolidation.

Emerging Growth Company Status and Smaller Reporting Company Status

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

The Company is also a “smaller reporting company” as defined in the Exchange Act. The Company may continue to be a smaller reporting company even after the Company is no longer an EGC. The Company may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as its voting and non-voting common stock held by non-affiliates is less than $250.0 million measured on the last business day of its second fiscal quarter, or its annual revenue is less than $100.0 million during the most recently completed fiscal year and its voting and non-voting common stock held by non-affiliates is less than $700.0 million measured on the last business day of its second fiscal quarter.

Stock Splits

In January 2023, the Company’s Board of Directors (the “Board”) approved a 1.1156 for 1 forward stock split of the Company’s issued and outstanding shares of Series B Preferred Stock, and a proportional adjustment to the existing conversion ratio, as well as the exercise price of the then-outstanding K2 Warrant. Accordingly, all Series B share and per share amounts for all periods presented in the financial statements have been adjusted retroactively, where applicable, to reflect this stock split and adjustment of the preferred stock conversion ratio.

In January 2024, the Board approved a 1 for 2.2241 reverse stock split of the Company’s issued and outstanding shares of common stock and options to purchase common stock under its 2019 Equity Incentive Plan. The reverse stock split reduced the number of shares of the Company’s issued and outstanding common stock, as well as the numbers of shares reserved and available for future issuance and underlying outstanding options to purchase common stock under its 2019 Equity Incentive Plan, on a 1 for 2.2241 basis, and resulted in an adjustment to the respective conversion ratios for the Company’s Series Seed convertible preferred stock, Series A convertible preferred stock, Series B convertible preferred stock, and Series C convertible preferred stock to account for the reverse stock split on any conversion of such series of convertible preferred stock into common stock. The reverse stock split did not affect the par values per share, and has been adjusted retroactively in the financial statements, where applicable.

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments —

Credit Losses: Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The guidance is effective for the Company beginning January 1, 2023 and changes how entities account for credit losses on financial assets and other instruments that are not measured at fair value through net income, including available-for-sale debt securities. The Company adopted the provisions of ASU 2016-13 prospectively beginning January 1, 2023. The adoption did not have a material impact on the Company’s consolidated financial statements.

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting - Improving Reportable Segment Disclosures (Topic 280). The standard requires disclosures to include significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”), a description of other segment items by reportable segment, and any additional measures of a segment's profit or loss used by the CODM when deciding how to allocate resources. The ASU also requires all annual disclosures currently required by Topic 280 to be included in interim periods. The Company adopted this ASU as of December 31, 2024 with retrospective application to all periods presented in these financial statements. Refer to Note 17 for additional information.

Accounting Pronouncements Not Yet Adopted

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740) : Improvements to Income Tax Disclosures. The standard expands the disclosure requirements for income taxes, specifically related to the rate reconciliation and income taxes paid. The standard will be effective starting in annual periods beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statement disclosures.

In November 2024, the FASB issued ASU No. 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which expands disclosures about specific expense categories presented on the face of the income statement. The standard is effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027. The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements.

In November 2024, the FASB issued ASU No. 2024-04, Debt– Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments, which affects entities that settle convertible debt instruments for which the conversion privileges were changed to induce conversion. The standard is effective for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods. The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements.

3. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results may differ materially from those estimates. The most significant estimates and assumptions in the Company’s consolidated financial statements relate to the determination of the fair value of its common stock prior to the completion of the IPO (as an input for calculating stock-based compensation), estimating accrued or prepaid research and development expenses, and the valuation of the preferred stock warrant liability. These estimates and assumptions are based on current facts, historical experience, and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. To the extent there are material differences between the estimates and actual results, the Company’s future results of operations will be affected.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash and, if applicable, highly liquid investments with an original maturity of three months or less when purchased. As of December 31, 2024 and 2023, the Company held $168.2 million and $82.5 million in total cash and cash equivalents, respectively.

Credit Risk

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

Risk and Uncertainties

The Company’s future results of operations involve a number of risks and uncertainties. Factors that could affect the Company’s future operating results and cause actual results to vary materially from expectations include, but are not limited to, uncertainty of future clinical study results, the scope, rate of progress, and expense of the Company’s ongoing as well as any additional non-clinical studies, clinical trials and other research and development activities, clinical trial enrollment rate or design, the manufacturing of the Company’s product candidates, significant and changing government regulation, and the timing and receipt of any regulatory approvals.

The Company’s product candidates require approvals from the U.S. Food and Drug Administration and comparable foreign regulatory agencies prior to commercial sales in their respective jurisdictions. There can be no assurance that any product candidates will receive the necessary approvals. If the Company was denied approval, approval was delayed, or the Company was unable to maintain approval for any product candidate, it could have a materially adverse impact on the Company.

The Company is dependent upon third-party manufacturers to supply product for research and development activities in its programs. In particular, the Company relies and expects to continue to rely on a small number of manufacturers to supply it with its requirements for the active pharmaceutical ingredients and formulated drugs related to these programs. These programs could be adversely affected by a significant interruption in the supply of active pharmaceutical ingredients and formulated drugs.

Fair Value of Financial Instruments

ASC 820, Fair Value Measurement (“ASC 820”), establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability, and are developed based on the best information available in the circumstances.

ASC 820 identifies fair value as the exchange price, or 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 a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a three-tier fair value hierarchy that distinguishes between the following:

•Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.

•Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

•Level 3 inputs are unobservable inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. See Note 8 and Note 14 for more information related to the Company’s Level 3 fair value measurements.

The carrying values reported in the Company’s balance sheets for cash and cash equivalents, prepaid expenses and other current assets, accounts payable, and accrued expenses are reasonable estimates of their fair values due to the short-term nature of these items.

Property and Equipment

Property and equipment are stated at cost. Maintenance and repairs are charged to expense as incurred. Additions, major improvements, and replacements are capitalized. Depreciation of property and equipment is provided for by the straight-line method over the estimated useful lives of the related assets. Leasehold improvements are capitalized and amortized over the shorter of the estimated useful lives of the assets or the remaining lease term. The estimated useful lives of other categories of property and equipment are as follows:

Impairment of Long-Lived Assets

Long-lived assets consist of property and equipment as well as right-of-use assets. Long-lived assets to be held and used are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. If the sum of the estimated future undiscounted cash flows expected to result from the use and eventual disposition of an asset is less than the carrying amount of the asset, an impairment loss is recognized. Measurement of an impairment loss is based on the fair value of the asset. The Company has not recorded any impairment losses on long-lived assets during the years ended December 31, 2024 and 2023.

Leases

At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present in the arrangement. Leases with a term greater than one year are recognized on the balance sheet as right-of-use assets and short-term and long-term lease liabilities, as applicable.

Operating lease liabilities and their corresponding right-of-use assets are initially recorded based on the present value of lease payments over the expected remaining lease term. Certain adjustments to the right-of-use asset may be required for items such as incentives received. The interest rate implicit in lease contracts is typically not readily determinable. As a result, the Company utilizes its incremental borrowing rate to discount lease payments, which reflects the fixed rate at which the Company could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, in a similar economic environment. To estimate its incremental borrowing rate, a credit rating applicable to the Company is estimated using a synthetic credit rating analysis since the Company does not currently have a rating agency-based credit rating.

The Company has elected not to recognize leases with an original term of one year or less on the balance sheet. The Company typically only includes an initial lease term in its assessment of a lease arrangement. Options to renew a lease are not included in the Company’s assessment unless there is reasonable certainty that the Company will renew. Assumptions made by the Company at the commencement date are re-evaluated upon occurrence of certain events, including a lease modification. A lease modification results in a separate contract when the modification grants the lessee an additional right of use not included in the original lease and when lease payments increase commensurate with the standalone price for the additional right of use. When a lease modification results in a separate contract, it is accounted for in the same manner as a new lease.

The Company has elected to account for lease and non-lease components together as a single lease component for all underlying assets.

Debt Discount and Debt Issuance Costs

Debt issuance costs are deferred and presented as a reduction to long-term debt. The initial fair value of the preferred stock warrant liability that was issued to the lender under the Company’s loan agreement is treated as a debt discount. Debt discount and debt issuance costs are amortized using the effective interest rate method over the term of the loan.

Amortization of debt discount and debt issuance costs are included within interest expense in the consolidated statements of operations and comprehensive loss.

Research and Development

Research and development expenses are comprised of costs incurred in clinical trials and in research and development activities. Such costs include: contract services performed by third parties in accordance with agreements established with clinical research organizations (“CROs”) and clinical trial sites; research agreements; laboratory costs and other supplies; and salaries and benefits, stock-based compensation, overhead costs, depreciation, and other related costs. Research and development costs are expensed to operations as the related obligation is incurred.

The Company has entered into various research and development contracts with research institutions, CROs, clinical manufacturing organizations, and other companies. These agreements are generally cancellable, and related payments are recorded as research and development expenses as incurred. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected on the consolidated balance sheet as prepaid or accrued expenses. The Company records accruals for estimated ongoing research costs. When evaluating the adequacy of the prepaid or accrued expenses, the Company analyzes progress of the studies, including the phase or completion of events, invoices received and contracted costs. Significant judgments and estimates may be made in determining the accrued or prepaid balances at the end of any reporting period. Actual results could differ from the Company’s estimates. The Company’s historical accrual estimates have not been materially different from the actual costs.

Costs incurred in obtaining product rights or technology licenses through asset acquisitions or pursuant to licensing agreements are charged to research and development expense if the purchased or licensed technology has not reached technological feasibility and has no alternative future use.

General and Administrative

General and administrative expenses generally consist of costs related to personnel, including stock-based compensation, third party service providers and professional fees, general office expenses, an allocation of rent and utilities expense, and legal costs associated with patents.

Stock-Based Compensation

The Company has stock-based compensation plans that cover the Company’s employees and nonemployees, which provide for grants of stock options, restricted stock awards (“RSAs”), and restricted stock units (“RSUs”). The Company expenses stock-based compensation related to stock options, RSAs and RSUs over the requisite service period using the straight-line method. All stock-based compensation costs are recorded in research and development expense or general and administrative expense in the consolidated statements of operations and comprehensive loss based upon the respective employee’s role within the Company. Forfeitures are recorded as they occur.

Deferred Initial Public Offering Costs

Costs directly attributable to the Company's offering of its equity securities are deferred and capitalized as deferred offering costs. These costs primarily represent legal, underwriting and accounting costs related to the Company's efforts to raise capital through a public sale of its common stock. These costs were deferred until the completion of the IPO, which occurred on February 6, 2024, at which time such costs were reclassified to additional paid-in capital as a reduction of the IPO proceeds. At December 31, 2023, the Company had capitalized $2.2 million of deferred IPO costs, which are recorded within prepaid expenses and other current assets, respectively. At December 31, 2024, the Company had no capitalized deferred initial public offering costs.

Convertible Preferred Stock

The Company has applied the guidance in ASC 480-10-S99-3A, SEC Staff Announcement: Classification and Measurement of Redeemable Securitiesand has therefore classified its Series Seed, Series A, Series B and Series C convertible preferred stock as mezzanine equity. The convertible preferred stock was recorded outside of stockholders’ equity (deficit) because, in the event of certain deemed liquidation events considered not solely within the Company’s control, such as a merger, acquisition or sale of all or substantially all of the Company’s assets, the convertible preferred stock would become redeemable at the option of the holders. In the event of a deemed liquidation event, proceeds received from such transaction would have been distributed in accordance with the liquidation preferences set forth in the Company’s amended and restated certificate of incorporation. The Company determined not to adjust the carrying values of the convertible preferred stock to the liquidation preferences of such shares because of the uncertainty of whether or when such an event would occur. All shares of the Company’s previously issued and outstanding convertible preferred stock were converted into shares of common stock upon the closing of the IPO (see Note 14).

Warrants

The Company accounted for its freestanding warrants on its convertible preferred stock as liabilities at fair value, as the instruments underlying the warrants were classified outside of permanent equity. The preferred stock warrants were remeasured at each reporting period with changes in fair value recognized in the consolidated statements of operations and comprehensive loss. The preferred stock warrants continued to be remeasured to fair value until the earlier of the exercise of the preferred stock warrants, the expiration of the preferred stock warrants, or until such time as the preferred stock warrants are no longer considered liability instruments. All preferred stock warrants previously issued and outstanding were either exercised into shares of common stock or converted into common stock warrants upon the closing of the IPO (see Note 14), and are no longer subject to remeasurement.

Net Loss Per Share

Basic net loss per share is computed using the weighted-average number of shares of common stock outstanding during the period excluding unvested restricted stock subject to repurchase. Diluted net loss per share is computed using the sum of the weighted-average number of shares of common stock outstanding during the period and the effect of dilutive securities.

The Company’s convertible preferred stock contractually entitles the holders of such shares to participate in dividends but does not contractually require the holders of such shares to participate in losses of the Company. Accordingly, in periods in which the Company reports a net loss, such losses are not allocated to such participating securities.

Comprehensive Loss

Comprehensive loss comprises net loss and other comprehensive income or loss. Other comprehensive income or loss consists only of foreign currency translation adjustments related to the consolidation of the Company’s foreign subsidiary.

Foreign Currency

Alto’s functional currency is the U.S. dollar. The functional currency of the Company’s foreign subsidiary is the same as its corresponding local currency. Assets and liabilities of the foreign subsidiary are translated at the spot rate in effect at the applicable reporting date. Likewise, expenses are translated at the average exchange rates in effect during the applicable period. The resulting foreign currency translation adjustment is recorded as accumulated other comprehensive income (loss), which is reflected as a separate component of stockholders’ deficit. Foreign currency transaction gains and losses were not significant in any period presented.

Income Taxes

The Company accounts for income taxes under the liability method in accordance with FASB ASC 740, Income Taxes. Under this method, deferred income tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is established if it is more likely than not that all, or some portion, of deferred income tax assets will not be realized. The Company has recorded a full valuation allowance to reduce its net deferred income tax assets to zero. In the event the Company were to determine that it would be able to realize some or all its deferred income tax assets in the future, an adjustment to the deferred income tax asset valuation allowance would increase income in the period such determination was made.

The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained upon an examination. Any recognized income tax positions would be measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement would be reflected in the period in which the change in judgment occurs. At December 31, 2024 and 2023, the Company had no liability for income tax associated with uncertain tax positions. The Company would recognize any corresponding interest and penalties associated with its income tax positions in income tax expense. No income tax interest or penalties were incurred in the years ended December 31, 2024 and 2023.

4. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following (in thousands):

5. Property and Equipment, Net

Property and equipment, net are as follows (in thousands):

Depreciation and amortization expense was approximately $0.5 million and $0.4 million for the years ended December 31, 2024 and 2023, respectively.

6. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following (in thousands):

7. Leases

On May 29, 2024, the Company and Mountain View City Center, LP (“Landlord”) entered into a lease agreement (the “2024 Lease Agreement”) for 16,332 square feet of office space in a multi-tenant building located in Mountain View, California with an initial lease term of 65 months. Including payments already made, the Company will make payments of approximately $7.1 million over the course of the initial term of the lease. In connection with the 2024 Lease Agreement, the Company secured a letter of credit amounting to $0.5 million, which was recorded in restricted cash on its consolidated balance sheet as of December 31, 2024. At the Company’s option, it may renew the lease forone three-year period. The Company also has aone-time option to terminate the lease after the third lease year. If the Company elects to terminate the lease after the third lease year, including payments already made, the Company will make payments of approximately $4.0 million over the term of the lease.

The Company obtained control of the space in September 2024, and, accordingly, the Company recorded the liability associated with the 2024 Lease Agreement at the present value of the lease payments not yet paid, using the discount rate as of the commencement date. As the discount rate implicit in the 2024 Lease Agreement was not readily determinable, the Company utilized its incremental borrowing rate. The renewal or early termination options were not assumed to be exercised in the determination of the lease term, since they are not deemed to be reasonably certain at the inception of the lease. At lease commencement, the Company recorded an operating right-of-use asset and lease liability of $5.2 million.

The 2024 Lease Agreement does not contain material residual value guarantees, restrictions, or covenants.

The components of lease expense were as follows for the years ended December 31, 2024 and 2023 (in thousands):

Short-term lease costs were not material for the years ended December 31, 2024 and 2023.

Supplemental cash flow information related to operating leases for the years ended December 31, 2024 and 2023 (in thousands):

In addition to the above, during the year ended December 31, 2024, the Company made $0.1 million of payments related to its lease agreement for the office space in Los Altos, California, which concluded in the second quarter of 2024.

Supplemental balance sheet information related to operating leases as of December 31, 2024 and 2023 was as follows (in thousands):

As of December 31, 2024, the future payments under operating leases were as follows (in thousands):

8. Debt

On December 16, 2022, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with K2 HealthVentures LLC as a lender, and other lenders (collectively, “Lender”), K2 HealthVentures LLC, as administrative agent for Lender (“Administrative Agent”), and Ankura Trust Company, LLC, as collateral agent for Lender. The Lender has agreed to make available to the Company term loans in an aggregate principal amount of up to $35.0 million under the Loan Agreement. The Company plans to use the proceeds of the term loans to support clinical development as well as for working capital and general corporate purposes. The Loan Agreement provides a term loan commitment of $35.0 million infour potential tranches: (i) a $10.0 million term loan facility funded on December 16, 2022 (the “First Tranche Term Loan”), (ii) a $7.5 million term loan facility (the “Second Tranche Term Loan”) available at the Company’s request between October 1, 2023 and March 1, 2024, subject to either positive data from the Company’s Phase 2b randomized controlled study of ALTO-100 or positive data from the Company’s Phase 2b randomized controlled study of ALTO-300, in each case as determined by the Administrative Agent in its sole discretion, (iii) a $7.5 million term loan facility (the “Third Tranche Term Loan”) available at the Company’s request between October 1, 2023 and March 1, 2024, subject to positive data from the Company’s Phase 2b randomized controlled study of ALTO-100 and positive data from the Company’s Phase 2b randomized controlled study of ALTO-300, in each case as determined by the Administrative Agent in its sole discretion, and (iv) a $10.0 million term loan facility (the “Fourth Tranche Term Loan”) available through January 1, 2025 at both the Lender’s and the Company’s option, subject to the Lender’s review of the Company’s financial and clinical information and operating plans and approval of the Lender’s investment committee. All four of these term loans have a maturity date of December 1, 2026. Based upon the terms of the Loan Agreement the Company could potentially access up to $10.0 million of the remaining $25.0 million of the credit facility.

Borrowings under allfour term loan facilities bear interest at a variable annual rate equal to the greater of (i)6.70% and (ii) the Prime Rate plus 1.20%. The Company is permitted to make interest-only payments on the First Tranche Term Loan for the first 24 months following the funding date. The interest-only period can be extended by an additional 12 months, subject to the funding of the Second Tranche Term Loan or the funding of the Third Tranche Term Loan and if the Company has completed equity sales of greater than $75.0 million prior to January 1, 2025, subject to certain conditions. In addition, each term loan funded also accrues a deferred interest amount equal to 1% annually of the outstanding principal, and becomes payable at the end of the 48-month term, or earlier in the instance of a repayment. The term of the combined facility will be 48 months, with repayment in monthly installments commencing at the end of the resulting interest-only period as outlined above through the end of the 48-month term.

The Company is obligated to pay a final fee equal to 6.25% of the aggregate amount of the term loans funded (“Exit Fee”) to occur upon the earliest of (i) the maturity date, (ii) the acceleration of the term loans, and (iii) the prepayment of the term loans. The Company has the option to prepay all, but not less than all, of the outstanding principal balance of the term loans under the Loan Agreement. If the Company prepays all of the term loans prior to the maturity date, it will pay the Lender a prepayment penalty fee based on a percentage of the outstanding principal balance, equal to 3% if the payment occurs on or before 24 months after the initial funding date,2% if the prepayment occurs more than 24 months after, but on or before 36 months after the initial funding date, or 1% if the prepayment occurs more than 36 months after the initial funding date. The Company was also obligated to pay the Lender a one-time facility fee of $0.2 million (“Facility Fee”) on the initial closing date and will be obligated to pay a 0.7% fee on the amount of the Fourth Tranche Term Loan, if and when funded. The Exit Fee of $0.6 million and the Facility Fee of $0.2 million with respect to the First Tranche Term Loan were recorded as debt discount, and are being accreted using the effective interest method over the term of the First Tranche Term Loan within interest expense in the consolidated statements of operations and comprehensive loss.

The Lender may, at its option, elect to convert any portion of no more than $4.0 million of the then outstanding term loan amount and all accrued and unpaid interest thereon into shares of the Company’s common stock at the Lender’s election, at a conversion price of the lesser of $17.86 per share and the price per share of the next round of stock in the Company’s next equity offering in which the Company receives at least $20.0 million of gross proceeds. The Company determined that the embedded conversion option is not required to be separated from the term loan as it qualifies for the derivative accounting scope exception since the preferred stock is not readily convertible to cash. In February 2024 the Company completed its IPO and the conversion option applies to the Company’s common stock (see Note 1) at a conversion price of $10.49 per share. No amount has been converted into shares of common stock as of December 31, 2024.

The Company’s obligations under the Loan Agreement are secured by a first priority security interest in substantially all of its assets (with an exclusion for intellectual property). The Loan Agreement contains customary representations and warranties, and also includes customary events of default, including payment default, breach of covenants, change of control, and material adverse effects. The Loan Agreement restricts certain activities, such as disposing of the Company’s business or certain assets, incurring additional debt or liens or making payments on other debt, making certain investments and declaring dividends, acquiring or merging with another entity, engaging in transactions with affiliates or encumbering intellectual property, among others. There are no financial covenants associated with the Loan Agreement.

Upon the occurrence of an event of default, a default interest rate of an additional 5% per annum may be applied to the outstanding loan balances, and the Lender may declare all outstanding obligations immediately due and payable and exercise all of its rights and remedies as set forth in the Loan Agreement and under applicable law.

The Company recorded interest expense related to the Loan Agreement of $1.4 million for both the years ended December 31, 2024 and 2023, at a weighted-average rate of 10.5% and 10.4%, respectively.

Future principal debt payments and Exit Fee of the term loans funded as of December 31, 2024 are as follows (in thousands):

On January 13, 2025, the Company amended the Loan Agreement. See Note 18 for additional information. Since the principal amounts due within one year from the balance sheet have been refinanced on a long-term basis after the balance sheet date but before the issuance of these financial statements, the entire amount funded under the Loan Agreement has been classified as non-current as of December 31, 2024.

The Wellcome Trust Limited Convertible Grant Agreement

In July 2024, the Company entered into a convertible loan agreement (the “Convertible Grant Agreement”) with The Wellcome Trust Limited (“Wellcome”). The Convertible Grant Agreement provides for an unsecured convertible loan (the “Convertible Loan”) from Wellcome of up to approximately $11.7 million, payable to Alto insix tranches, of which up to $2.0 million could be funded upon the execution of the Convertible Grant Agreement and the remainder of which will be funded upon the completion of certain milestones as set forth in the Convertible Grant Agreement. As of December 31, 2024, the Company has drawn down $1.3 million of the $2.0 million execution tranche and will continue to access the loan as needed as the ALTO-100 study in bipolar depression progresses. Interest will accrue at an annual rate equal to the Sterling Overnight Index Rate plus 2%, subject to potential adjustment if such annual interest rate equals or exceeds 9% at any time. Proceeds from the Convertible Loan may be used by the Company solely to advance development of ALTO-100 in bipolar depression. The Convertible Grant Agreement also includes customary covenants, representations and warranties, including with respect to the conduct of the Company’s Phase 2b clinical trial evaluating ALTO-100 in patients with bipolar depression and certain information and audit rights of Wellcome in connection therewith, as well as with respect to the Company’s efforts to develop and exploit ALTO-100.

At any time after the second anniversary of the effective date of the Convertible Grant Agreement or in connection with an event of default, Wellcome has the right, at its election, to convert some or all of the Convertible Loan into shares of the Company’s common stock at a price per share equal to a 20% discount to thethirty-day volume-weighted average price of Common Stock on the New York Stock Exchange at the date of such conversion. The Convertible Grant Agreement provides that in no event shall the aggregate number of shares of Common Stock issued pursuant to conversion of the Convertible Loan exceed 5,363,326, which is equal to 19.9% of the number of shares of Common Stock outstanding as of the date of the Convertible Grant Agreement. At any time after the fifth anniversary of the effective date of the Convertible Grant Agreement or in connection with an event of default, Wellcome may require repayment of the Convertible Loan in full, together with accrued interest, to the extent not converted as described above.

Future principal debt payments of the Convertible Grant Agreement funded as of December 31, 2024 are as follows (in thousands):

The Company assessed the terms and features of the Convertible Grant Agreement and determined that the Company was eligible to elect the fair value option under ASC 825, Financial Instruments. The Convertible Grant Agreement contains various embedded features and the election of the fair value option allowed the Company to bypass analysis of potential embedded derivatives and further analysis of bifurcation of any recognized financial liabilities. Under the fair value option, the financial liability is initially measured at its fair value on the issue date and subsequently remeasured at estimated fair value on a recurring basis at each reporting date. Changes in the fair value of the Convertible Grant Agreement, which include accrued interest, if any, are recorded as a component of other income (expense) in the consolidated statements of operations and comprehensive loss. The Company has not elected to present interest expense separately from changes in fair value and therefore will not present interest expense associated with the Convertible Grant Agreement. Any changes in fair value caused by instrument-specific credit risk are presented separately in other comprehensive income or loss.

The Company determined the fair value of the Convertible Grant Agreement using a probability-weighted income approach and recorded the loan at fair value of $1.3 million in the consolidated balance sheet at issuance. The Company calculated the discounted cash flows of the Convertible Grant Agreement using a discount rate of 11.17% and adjusted for the probability of repayment and conversion scenarios. The Company remeasured the fair value of the Convertible Grant Agreement as of December 31, 2024 using a probability-weighted income approach. The Company calculated discounted cash flows of the Convertible Grant Agreement using a discount rate of 11.57% and adjusted for the probability of various repayment scenarios.

The following table reconciles the change in fair value of the Convertible Grant Agreement during the year ended December 31, 2024 (in thousands):

9. Fair Value

The Company’s financial instruments that are measured at fair value on a recurring basis consist of money market funds and the Convertible Grant Agreement. The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicate the level of the fair value hierarchy used to determine such fair values (in thousands):

The Company classifies its money market funds, which are valued based on quoted market prices in an active market with no valuation adjustment, as Level 1 assets within the fair value hierarchy. The Company’s Convertible Grant Agreement is classified as Level 3 measurements under the fair value hierarchy as the fair values were determined based on significant inputs not observable in the market. See Note 8 for additi onal information on the Convertible Grant Agreement. See Note 14 for additional information regarding the valuation of the preferred stock warrant liability.

10. Asset Purchase and License Agreements

From time to time, the Company enters into asset purchase and license agreements with third parties. During the years ended December 31, 2024 and 2023, the Company was a party to the following significant agreements with certain financial commitments:

Stanford License Agreement

On December 6, 2019, the Company entered into a license agreement with the Board of Trustees of the Leland Stanford Junior University (“Stanford”) covering four inventions to guide treatment of psychiatry patients, some of which are jointly owned by other academic institutions but are exclusively managed by Stanford under certain invention management agreements between Stanford and the other institutions (the “Stanford License Agreement”). The Stanford License Agreement was subsequently amended in May 2020 and December 2023.

In connection with the Stanford License Agreement, as amended, the Company obtained an exclusive, worldwide, royalty-bearing license under certain patent rights infive patent families relating to brain stimulation, electroencephalogram and functional MRI that could be used to guide treatment of psychiatry patients (the “Stanford Licensed Patents”), and under certain technology relating to the inventions covered by the Stanford Licensed Patents (the “Stanford Licensed Technology”), to make, have made, use, sell, offer for sale and import licensed products for use in any indication. The Company's rights under the Stanford Licensed Patents are exclusive until December 2029, at which time it will become non-exclusive, and its rights under the Stanford Licensed Technology are non-exclusive. The Company may terminate the Stanford License Agreement at any time upon specified written notice to Stanford. Stanford may also terminate the agreement upon an uncured material breach of the agreement, including failure to achieved defined milestones related to the development and commercialization of the licensed products, as well as for certain other specified breaches.

As partial consideration to acquire these license rights, Alto paid a nominal upfront fee and reimbursed Stanford a nominal amount of prior patent prosecution expenses related to the licensed patents. Additionally, Alto is required to pay a low five-digit annual maintenance fee beginning on the first anniversary of the effective date through the term of the agreement. Alto also agreed to issue an aggregate of 71,370 shares of Alto’s common stock, or 1% of Alto’s equity on a fully-diluted basis, to Stanford and the other inventors. These shares were issued in April 2020. As additional consideration, the Company granted Stanford and the other inventors antidilution rights, whereby the Company agreed to maintain this collective equity ownership percentageat 1% until such time as the Company completed its initial qualified financing. In connection with this anti-dilution provision, Alto issued a further 32,978 shares of its common stock to Stanford and the other inventors in 2021. Following the initial closing of the Series A convertible preferred stock agreement, which met the definition of such qualified financing, the anti-dilution feature expired and no additional shares were issued.

In further consideration of the rights granted, beginning with the Company’s first commercial sale of the licensed products, the Company will also pay an annual earned royalty in the very low single digits on net sales of licensed products, subject to certain customary reductions. The Company is also required to pay Stanford mid-teen to low-mid double digit percentages of any sublicensing consideration that it receives from third parties to whom the Company sublicenses rights under the Stanford Licensed Patents, depending on the timing of entry into the applicable sublicense. The Company does not have any future milestone payment obligations to Stanford or the other inventors under the Stanford License Agreement other than costs related to maintenance of patents.

Sanofi License Agreement

Effective May 18, 2021, the Company entered into an agreement with Sanofi to obtain an exclusive, worldwide, royalty-bearing license, with the right to grant sublicenses, under certain patent rights and know-how of Sanofi relating to a PDE4 inhibitor compound, now known as ALTO-101, to use, develop, manufacture, commercialize or otherwise exploit ALTO-101 and products incorporating ALTO-101 in all human therapeutic, prophylactic and diagnostic uses. The Company also acquired a worldwide non-exclusive license to use certain know-how licensed to Sanofi by a specified third party to exploit the licensed products solely with respect to Parkinson’s disease.

In exchange for the rights granted to the Company, the Company made a cash payment of $0.5 million which was recorded in research and development expenses during the year ended December 31, 2021 in the consolidated statements of operations and comprehensive loss since the acquired license does not have an alternative future use. The Company is obligated to pay Sanofi up to an aggregate amount in the low-mid double digit millions upon the completion of a combination of development and regulatory approval milestones. If the Company achieves regulatory approval for one or more licensed products, the Company will owe Sanofi certain commercial milestone payments for the achievement of specified levels of aggregate, annual worldwide net sales of all licensed products, up to an aggregate amount of $102.0 million. In addition, if the Company grants sublicenses under the patents and know how licensed to the Company under the agreement, the Company will be required to pay sublicense revenue to Sanofi at tiered percentages ranging from low-mid double-digit percentages down to the very low double-digit percentages, reducing based on the time of entry into the applicable sublicense agreement. No additional milestones or royalties were paid or accrued during the years ended December 31, 2024 or 2023 related to this agreement.

In further consideration of the rights granted, beginning with the Company’s first commercial sale of the licensed products, the Company will also pay an annual tiered earned royalty ranging from the mid-to-high single digits on net sales of licensed products, subject to certain customary reductions and a customary royalty floor. Royalties are payable, on a licensed products-by-licensed products and a country-by-country basis, until the latest to occur of (a) expiration of the last valid claim of a licensed patent covering such licensed products in such country, (b) the expiration of any regulatory exclusivity for such licensed products in such country, and (c) the 10 th anniversary of the first commercial sale of such licensed product in such country. In addition, if the Company uses specified know-how licensed to Sanofi by the specified third party to exploit the licensed products for Parkinson’s disease, the Company will be required pay an additional premium at a mid-single digit percentage on all fees, milestone payments and royalties payable by the Company to Sanofi under the agreement.

Unless terminated earlier, the license agreement with Sanofi will expire with respect to each licensed product, on a country-by-country basis, upon the expiration of the royalty term set forth above, and with respect to the agreement in its entirety upon the expiry of the royalty term for the last licensed product for which there has been a first commercial sale. Either the Company or Sanofi may terminate the Sanofi Agreement upon written notice for the uncured material breach of the other party. Sanofi also has the right to terminate the agreement for the Company’s insolvency or if the Company brings or otherwise participates in a patent challenge against any licensed patents. The Company may terminate the agreement for any reason upon specified prior written notice to Sanofi.

Cerecor License Agreement

Effective May 28, 2021, the Company entered into an agreement with Cerecor Inc. (n/k/a Avalo Therapeutics, Inc.) (“Cerecor”) to obtain an exclusive, worldwide, royalty-bearing license, with the right to grant sublicenses, under certain patent rights and know-how owned or controlled by Cerecor, relating to an NR2B inhibitor compound now known as ALTO-202, including certain rights licensed to Cerecor by Essex Chemie AG, or Merck, to research, develop, make, have made, use, import, offer for sale and sell ALTO-202 and products incorporating ALTO-202 (“Cerecor Licensed Products”), for the prevention, diagnosis and/or treatment of all diseases in humans.

In exchange for the rights granted to the Company, the Company made a cash payment of $0.5 million, which was recorded in research and development expenses during the year ended December 31, 2021 in the consolidated statements of operations and comprehensive loss since the acquired license does not have an alternative future use. The Company is obligated to make aggregate cash payments of up to $59.1 million per Cerecor Licensed Product if the Company achieves certain development, regulatory approval, and first commercial sale milestones for such Cerecor Licensed Product in up to a specified number of indications. If the Company successfully commercializes Cerecor Licensed Products, it will also be required to pay to Merck sales milestones totaling up to $15.0 million for all Cerecor Licensed Products, for the achievement of certain specified levels of worldwide annual aggregate net sales of all Cerecor Licensed Products. No additional milestones or royalties were paid or accrued during the years ended December 31, 2024 or 2023 related to this agreement.

In further consideration of the rights granted, beginning with the Company’s first commercial sale of a Cerecor Licensed Product, the Company will also pay an annual tiered earned royalty in the high single digits in the aggregate on net sales of Cerecor Licensed Products. Royalties are payable, on a Cerecor Licensed Product-by-Cerecor Licensed Product and a country-by-country basis, until the later of the expiration of the last valid claim of a licensed patent covering such Cerecor Licensed Products in such country or 10 years after the first commercial sale of such Cerecor Licensed Product in such country. If the Company develops and commercializes a companion diagnostic as a standalone product in connection with a Cerecor Licensed Product, the Company will be required to make a one-time milestone payment to Cerecor upon the achievement of a specified level of net sales of such companion diagnostic product, at an amount in the very low single digit millions.

The license agreement with Cerecor will terminate upon the expiration of the royalty term set forth above. Either the Company or Cerecor may terminate the Cerecor license agreement upon written notice for an uncured material breach of the other party, or in the case of an insolvency event of the other party. The Company may terminate the agreement for any reason upon specified prior written notice to Cerecor.

Teva Asset Purchase Agreement

Effective October 4, 2021, the Company entered into an agreement with Teva Pharmaceutical Industries, Ltd to acquire patents, know-how and other rights to ALTO-203 and a specified related compound (the “Teva Acquired Compound”), and assumed all post-acquisition liabilities related thereto.

In exchange for the rights granted to the Company, the Company made a cash payment of $0.5 million which was recorded in research and development expenses during the year ended December 31, 2021 in the consolidated statements of operations and comprehensive loss since the acquired license does not have an alternative future use. The Company is obligated to make aggregate cash payments of up to $27.0 million upon the achievement of certain development and regulatory approval milestones, and up to $35.0 million in the aggregate for the achievement of certain tiered sales milestones for any product that incorporates a Teva Acquired Compound (each, a “Teva Product”). In April 2024, the Company achieved a clinical milestone related to the initiation of its Phase 2 POC clinical trial evaluating ALTO-203, resulting in a cash payment of$0.5 million which was recorded in research and development expenses during the year ended December 31, 2024. No additional milestones or royalties were paid or accrued during the years ended December 31, 2024 or 2023 related to this agreement.

In further consideration of the rights granted, beginning with the Company’s first commercial sale of a Teva Product, the Company will also pay an annual tiered earned royalty ranging from the mid-single-digits to 10 percent on net sales of Teva Products. Royalties are payable, on a Teva Product-by-Teva Product and a country-by-country basis, until the latest to occur of (a) expiration ofthe last valid claim of an acquired patent covering the composition of matter, or use or formulation of the composition of matter of a Teva Acquired Compound incorporated in or comprising such Teva Product in such country, (b) the expiration of new chemical entity data and/or market exclusivity for such Teva Product in such country or (c) the 10 th anni versary of the date of first commercial sale of such Teva Product in such country.

Palisade Asset Purchase Agreement

Effective October 18, 2021, the Company entered into an agreement (the “Palisade Agreement”) with Palisade Bio, Inc. (“Palisade”) to acquire all patent, know-how and other rights to ALTO-100.

In exchange for the rights granted to the Company, the Company made a cash payment of $0.5 million which was recorded in research and development expenses during the year ended December 31, 2021 in the consolidated statements of operations and comprehensive loss since the acquired license does not have an alternative future use. The Company is obligated to make aggregate cash payments of up to $4.5 million upon the achievement of certain development and regulatory approval milestones. In connection with the sale or license by the Company to a third party of any of the patent, know-how or other rights included in the acquired assets prior to the achievement of a specified clinical development milestone, the Company will be required to pay to Palisade a low-double digit percentage of any consideration received by the Company from such license or sale, provided that the maximum aggregate consideration the Company will be required to pay to Palisade under the Palisade Agreement, including the upfront payment and all potential milestones and transaction-related payments, will not exceed $5.0 million. No additional milestones or royalties were paid or accrued during the years ended December 31, 2024 or 2023 related to this agreement.

MedRx License Agreement

On September 25, 2023, the Company entered into a joint development and license agreement (the “MedRx Agreement”) with MedRx Co., Ltd. (“MedRx”), pursuant to which the Company obtained an exclusive, sublicensable, worldwide license, with the right to sublicense, under certain patent rights and know-how of MedRx relating to transdermal drug delivery to develop (excluding any pre-clinical development), manufacture, and commercialize transdermally delivered pharmaceutical products comprising MedRx’s transdermal patch technology and the Company’s ALTO-101 (the “MedRx Licensed Products”) for all therapeutic, prophylactic, and diagnostic uses. The Company granted MedRx an exclusive, sublicensable, worldwide license under certain patent rights and know-how relating to ALTO-101 owned or controlled by the Company, including certain patents and know how licensed to the Company pursuant to the Sanofi Agreement, solely to conduct pre-clinical development and manufacturing of the MedRx Licensed Products for the Company in accordance with the MedRx Agreement and a separate manufacturing and supply agreement to be entered into between the Company and MedRx. During the term of the MedRx Agreement, the Company agreed that it will not, directly or indirectly, develop, manufacture, or commercialize any pharmaceutical product that is a transdermal patch formulation containing similar active pharmaceutical ingredients as ALTO-101 and that is used in the same field and labeled for the same indications as the MedRx Licensed Products (“MedRx Competitive Product”). MedRx agreed that it will not, directly or indirectly, exploit any patch formulations of PDE4-inhibitor drugs for use within central nervous system disorders or exploit any MedRx Competitive Product, provided that if certain specified development or first commercial sale milestones are not achieved by certain specified dates, then MedRx has the right to cause the non-compete restrictions on both parties to lapse.

Under the MedRx Agreement, MedRx will be solely responsible for conducting all pre-clinical development of MedRx Licensed Products to support IND and institutional review board filing, and the Company will be solely responsible for all other development (including non-clinical studies and clinical studies) necessary to obtain regulatory approval for MedRx Licensed Products and subsequent commercialization of Products. The Company is obligated to use commercially reasonable efforts to commercialize MedRx Licensed Products in each of the following countries in which the Company has obtained regulatory approval: the United States; at least two of Germany, Spain, France, Italy or the United Kingdom; and one of China or Japan.

Pursuant to the MedRx Agreement, the Company paid MedRx an upfront fee of less than $0.2 million, which was recorded within research and development expenses during the year ended December 31, 2023 in the consolidated statements of operations and comprehensive loss since the acquired license does not have an alternative future use.

The Company is required to pay MedRx up to an aggregate of $11.0 million for the achievement of certain development and first commercial sale milestones for the first MedRx Licensed Product to achieve such milestones with respect to a first indication, and an additional milestone in the mid single digit millions for each additional approved distinct indication for such first MedRx Licensed Product or a subsequent MedRx Licensed Product. In April 2024, the Company achieved the desired pharmacokinetic profile for ALTO-101 in a Phase 1 trial, resulting in a milestone payment to MedRx comprised of $0.75 million, paid in cash, as well as 46,875 shares of the Company’s common stock. The Company recognized $1.5 million of expense related to this milestone, which was recorded in research and development expenses in the consolidated statements of operations and comprehensive loss during the year ended December 31, 2024.

In addition, the Company will be required to pay MedRx sales milestones based on the achievement of specified thresholds of aggregate annual worldwide net sales of all MedRx Licensed Products of up to $110.0 million in the aggregate, if all such sales thresholds are achieved. Commencing on the first commercial sale of a MedRx Licensed Product, the Company will also be obligated to pay MedRx a mid-single digit royalty on annual, worldwide net sales of all MedRx Licensed Products, subject to certain customary reductions and a royalty floor. Royalties will be payable, on a MedRx Licensed Product-by-MedRx Licensed Product and country-by-country basis, until the latest to occur of (a) expiration of the last valid claim of certain specified patent rights covering such MedRx Licensed Products in such country, (b) the expiration of any regulatory exclusivity for such MedRx Licensed Product in such country, (c) the first approval of a specified generic product referencing such MedRx Licensed Product in such country, and (d) the tenth anniversary of the first commercial sale of such MedRx Licensed Product in such country, or the Royalty Term.

The MedRx Agreement will expire with respect to each MedRx Licensed Product, on a country-by-country basis, upon the expiration of the Royalty Term, and with respect to the entire MedRx Agreement upon the expiry of the last-to-expire Royalty Term for the last MedRx Licensed Product for which there has been a first commercial sale. Either the Company or MedRx may terminate the MedRx Agreement in its entirety or on a MedRx Licensed Product-by-MedRx Licensed Product basis upon an uncured material breach by the other party or in connection with an insolvency event of such party. In addition, if the Company or MedRx bring or otherwise participate in a patent challenge against any patents licensed by the other party, such other party may terminate the MedRx Agreement immediately. The Company has the right to terminate the MedRx Agreement in its entirety or on a MedRx Licensed Product-by-MedRx Licensed Product basis for any reason upon specified prior written notice to MedRx provided that the effective date of such termination will not be earlier than the completion date of a specified development event. The Company also has the right to terminate the MedRx

Agreement with respect to a MedRx Licensed Product immediately upon its reasonable determination of a material safety issue with respect to such MedRx Licensed Product. Except for the$1.5 million milestone discussed above, no additional milestones or royalties were paid or accrued during the years ended December 31, 2024 or 2023 related to this agreement.

11. Stock Based Plans

2024 Equity Incentive Plan

In January 2024, the Board adopted, and the Company’s stockholders approved, the 2024 Equity Incentive Plan (the “2024 Plan”), which became effective on the execution of the underwriting agreement related to the IPO. Under the 2024 Plan, the Company may grant incentive stock options to employees, including employees of any parent or subsidiary, and nonstatutory stock options, stock appreciation rights, RSAs, RSUs, performance awards and other forms of stock awards to employees, directors, and consultants, including employees and consultants of the Company’s affiliates. The 2024 Plan is a successor to the 2019 Equity Incentive Plan, which was adopted by the Board of Directors in March 2019 (as amended, the “2019 Plan”). A total of 2,000,000 shares of common stock were approved to be initially reserved for issuance under the 2024 Plan. In addition, the number of shares of the Company’s common stock reserved for issuance under the 2024 Plan will automatically increase on January 1 of each calendar year, starting on January 1, 2025 and continuing through and including January 1, 2034, in an amount equal to 5% of the total number of shares of the Company’s common stock outstanding on the last day of the calendar month before the date of each automatic increase, or a lesser number of shares determined by the Board. On January 1, 2025, the number of shares of common stock reserved for issuance under the 2024 Plan increased by 1,349,328 shares. No future issuances were made under the 2019 Plan upon the effectiveness of the 2024 Plan.

As of December 31, 2024, the total number of shares authorized to be issued under the 2024 Plan was 2,000,000. As of December 31, 2023, the total number of shares authorized to be issued under the 2019 Plan was 4,078,285. As of December 31, 2024 there were 198 shares of common stock reserved and available for issuance under the 2024 Plan. As of December 31, 2023 there were 251,450 shares of common stock reserved and available for issuance under the 2019 Plan.

Employee Stock Purchase Plan

In January 2024, the Board adopted, and the Company’s stockholders approved, the 2024 Employee Stock Purchase Plan (the “ESPP”), which became effective on the execution of the underwriting agreement related to the IPO. A total of 250,000 shares of common stock were approved to be initially reserved for issuance under the ESPP. In addition, the number of shares of common stock reserved for issuance under the ESPP will automatically increase on January 1 of each calendar year, beginning on January 1, 2025 and continuing through, and including, January 1, 2034, by the lesser of (1)1% of the total number of shares of the Company’s common stock outstanding on the last day of the calendar month before the date of the automatic increase, and (2)750,000 shares; provided, that before the date of any such increase, the Board may determine that such increase will be less than the amount set forth in clauses (1) and (2). On January 1, 2025, the number of shares of common stock reserved for issuance under the ESPP increased by 269,865 shares. As of December 31, 2024, the Company had not opened the ESPP for enrollment, and therefore there were no purchases or share issuances during this period.

Stock Options

The options have a 10-year life and generally vest over a period offour years, with the first 25% of the award vesting afterone year and then monthly thereafter, subject to continuous service. Once the options are exercised, the shares are subject to transfer restrictions under the terms of the Company’s amended and restated certificate of incorporation.

The fair value of each option award is estimated using the Black-Scholes option-pricing model which involves the use of certain subjective assumptions. These assumptions and estimates are as follows:

Fair Value of Common Stock. As the Company’s common stock was not publicly traded prior to its IPO, the fair value was determined by the Board, with input from management and valuation reports prepared by independent third-party valuation firms. After the completion of the Company's IPO, the fair value of common stock is based on the closing price of the Company’s common stock on the New York Stock Exchange as reported on the date of the grant.

Risk-Free Interest Rate. The risk-free interest rate for the expected term of the options was based on the U.S. Treasury yield curve in effect at the time of the grant.

Expected Term. The expected term of options represents the period of time that options are expected to be outstanding. The Company’s historical stock option exercise experience does not provide a reasonable basis upon which to estimate an expected term due to a lack of sufficient data. The Company estimated the expected term by using the simplified method, using the average of the time-to-vesting and the contractual life of the options.

Expected Volatility. As the Company does not have sufficient trading history to estimate the volatility of its common stock, the expected volatility was estimated by taking the average historic price volatility for industry peers, consisting of several public companies in the Company’s industry which are either similar in size, stage of life cycle, or financial leverage, over a period equivalent to the expected term of the awards, where available.

Expected Dividend Yield. The Company has never declared or paid any cash dividends and do not presently plan to declare or pay cash dividends in the foreseeable future. As a result, an expected dividend yield ofzero percent was used.

The weighted-average grant date fair value of options granted during 2024 and 2023 for awards subject only to service-based vesting conditions were $9.50 and $4.85 per share, respectively, which were based on the following weighted-average assumptions:

The table below summarizes activity related to stock options subject only to service-based vesting conditions (amounts in thousands, except per share amounts):

As of December 31, 2024, there was approximately $19.9 million ofunrecognized stock-based compensation expense related to these service-based unvested stock options which is expected to be recognized over a weighted-average period of 2.9 years.

Restricted Stock Units

The table below summ arizes activity related to RSUs subject only to service-based vesting conditions (in thousands, except per share amounts):

On March 1, 2024, the Company issued 53,864 RSUs under the 2024 Plan;50% of the shares of common stock underlying the RSUs vest after 18 months and the remainder vest after 24 months from the grant date. The RSUs are subject only to a service-based vesting condition. Such shares are not accounted for as outstanding until they vest. As of December 31, 2024, the total unrecognized compensation related to unvested RSUs granted was $0.5 million which is expected to be amortized on a straight-line basis over the weighted-average remaining vesting period of approximately 1.2 years.

Performance Option Awards

The Board granted options to purchase common stock to certain employees and consultants that vest upon the achievement of certain performance conditions (“Performance Awards”), such as the completion of a future financing event or upon the achievement of defined clinical milestones or outcomes. During the year ended December 31, 2023, the Company issued 194,835 Performance Awards with an exercise price of$5.30 per share. The Performance Awards have a contractual term often years. The aggregate grant date fair value of the Performance Awards granted during the years ended December 31, 2023 is $0.9 million. The Company did not issue Performance Awards during the year ended December 31, 2024.

During the years ended December 31, 2024 and 2023, financing and clinical milestones were met, which resulted in the vesting of 194,835 shares and 187,714 Performance Awards, respectively and the recognition of $0.9 million and $0.9 million of stock-based compensation expense, respectively. As of December 31, 2024, there were 592,748 Performance Awards still outstanding, with a weighted-average exercise price of $4.63 per share, of which none remain unvested. The remaining contractual life of the Performance Awards was 7.8 years as of December 31, 2024. There isno unrecognized stock-based compensation expense related to these Performance Awards as of December 31, 2024.

Stock-based Compensation Expense

Non-cash stock-based compensation expense recognized in the accompanying consolidated statements of operations and comprehensive loss for the years ended December 31, 2024 and 2023 was as follows (in thousands):

Restricted Stock Awards

In June 2020, the Company granted a restricted stock award of 202,329 common shares to the Company’s Chief Executive Officer with a grant date fair value per share of $0.58. The restricted stock award vests over four years, or upon a change in the control of the Company, subject to continued employment with the Company. In the event of a change in control, the unvested restricted stock award will be accelerated and fully vested immediately prior to the change in control. There are no performance-based features or market conditions associated with this award. The fair value of the restricted stock award is determined based on the number of restricted shares granted and the fair value of the Company’s stock on the date of grant. The Company issued this award in exchange for cash proceeds of approximately $0.1 million, which was representative of the fair value of the shares at the grant date, and therefore there was no stock-based compensation expense associated with this equity award. As of December 31, 2024 and 2023, there were zero and 21,075 shares of unvested restricted stock outstanding, respectively.

12. Loss Per Share

Basic net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period. The Company’s unvested restricted common stock is not included in the determination of loss per share until the award vests. Diluted net loss per common share excludes the potential impact of the Company’s convertible preferred stock and warrants because their effect would be anti-dilutive due to the Company’s net loss. Since the Company had a net loss in each of the periods presented, basic and diluted net loss per common share are the same.

The following outstanding potentially dilutive common stock equivalents were excluded from the computation of diluted net loss per share for the periods presented because including them would have been antidilutive (in thousands):

13. Income Taxes

Provision for Income Taxes

There isno provision for income taxes because the Company has historically incurred operating losses and maintains a full valuation allowance against its net deferred tax assets. In 2024 and 2023, substantially all of the Company’s net losses were generated in the United States.

The effective tax rate of the Company’s provision (benefit) for income taxes differs from the U.S. federal statutory rate as follows:

Deferred Tax Assets and Valuation Allowance

Deferred tax assets reflect the tax effects of net operating losses (“NOLs”), and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The most significant item of deferred tax assets is derived from the Company’s federal NOLs.

The most significant components of the Company’s deferred tax assets (liabilities) are as follows (in thousands):

A valuation allowance is provided when it is more likely than not that the deferred tax assets will not be realized. The Company has established a valuation allowance to offset the gross deferred tax assets as of December 31, 2024 and 2023 due to the uncertainty of realizing future tax benefits from its NOL carryforwards and other deferred tax assets. The valuation allowance increased by $14.4 million and $11.2 million during the years ended December 31, 2024 and 2023, respectively.

At December 31, 2024, the Company had U.S. federal gross NOL carryforwards of $42.2 million, state gross NOL carryforwards of $33.6 million, foreign gross NOL carryforwards of $3.0 million, and tax credit carryforwards of $4.3 million. State NOL carryforwards begin to expire in 2039 and tax credit carryforwards will begin to expire in 2042 with $0.1 million of tax credit carryforwards having no expiration. US federal and foreign gross NOL carryforwards have no expiration.

The Company’s NOL and tax credit carryforwards could be subjected to a limitation pursuant to a cumulative change in substantial ownership as identified in Sections 382 and 383 of the Internal Revenue Code and similar state provisions. These ownership changes may limit the amount of NOL and tax credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. The Company completed a study and determined that historical changes, under Section 382 and 383, have occurred and as a result approximately $24.0 million of the NOLs and tax credits carryforwards are subjected to the limitation. These related gross federal NOLs are subject to a full valuation allowance as of December 31, 2024. The Company will continue to monitor equity movement and its impact on the utilization of the NOLs and credits as the Company could experience subsequent ownership changes which may result in additional limitations on the utilization of NOL and credit carryforwards.

The Company is subject to income taxes in the U.S. federal jurisdiction, various state and local jurisdictions and in one foreign tax jurisdiction. The Company’s tax years from inception through 2024 are subject to examination by the U.S., state, and foreign tax authorities due to the carryforward of unutilized NOLs and research and development credits. The Company is not currently under examination in any tax jurisdictions.

14. Common Stock, Convertible Preferred Stock and Preferred Stock Warrants

Upon closing of the IPO in February 2024, all of the outstanding convertible preferred stock automatically converted into 13,664,261 shares of common stock. Subsequent to the closing of the IPO, there wereno shares of convertible preferred stock outstanding.

At December 31, 2023, convertible preferred stock consisted of the following (amounts in thousands, except per share amounts):

Series Seed Preferred Stock

On September 13, 2019, the Company entered into a purchase agreement, as amended, with a number of investors for a private placement of 3,708,682 shares of Series Seed Preferred Stock. The Series Seed Preferred Stock was sold at a price of $2.0822 per share for gross proceeds of $7.7 million. The shares were issued across multiple dates between late 2019 and early 2020 for the same price per share.

Series A Preferred Stock

On May 3, 2021, the Company entered into a purchase agreement (the “Series A Purchase Agreement”) with a number of investors for a private placement of 6,785,075 shares of Series A Preferred Stock. The Series A Preferred Stock was sold at a price of $4.6996 per share for gross proceeds of $31.9 million. The shares were issued across multiple dates between May and August 2021 for the same price per share.

Series B Preferred Stock

On April 6, 2022, the Company entered into a purchase agreement, as amended, with a number of investors, including a majority investor party to the Series A Purchase Agreement, for a private placement of 3,512,787 shares of Series B Preferred Stock. The Series B Preferred Stock was sold at a price of $6.00 per share for gross proceeds of $21.1 million. Following the initial close of the Series B Preferred Stock, additional closings occurred throughout 2022 which resulted in the sale of an incremental 2,197,501 shares of Series B Preferred Stock at the same price per share for gross proceeds of $13.2 million. In January 2023, the Company sold 4,166,667 shares of Series B Preferred Stock to a new investor for gross proceeds of $25.0 million.

In January 2023, the Board approved a 1.1156 for 1 forward stock split of the Company’s issued and outstanding shares of Series B Preferred Stock, and a proportional adjustment to the existing conversion ratio, as well as the exercise price of the then-outstanding K2 Warrant. Accordingly, all Series B share and per share amounts for all periods presented in the financial statements have been adjusted retroactively, where applicable, to reflect this stock split and adjustment of the preferred stock conversion ratio.

Series C Preferred Stock

On November 20, 2023, the Company entered into a purchase agreement (the “Series C Purchase Agreement”), pursuant to which the Company sold 9,547,802 shares of Series C convertible preferred stock at a price of $4.7132 per share for gross proceeds of $45.0 million. The majority of investors that participated in the Series C Purchase Agreement were new investors.

In connection with the closing of the Series C Purchase Agreement, the Board authorized an increase to the number of authorized shares of common stock to 52,000,000.

Preferred Stock Warrants

Series A Preferred Stock Warrants

In May 2021, in connection with the closing of the Series A Preferred Stock Agreement, the Company issued warrants to the lead Series A investor to purchase an aggregate of 465,917 shares of Series A Preferred Stock (“Series A Preferred Stock Warrants”) at a price of $4.6996 per share (“Exercise Price”). The Series A Preferred Stock Warrants expire, and if not earlier exercised, will be automatically net exercised, on the earliest to occur of (i) the closing of a deemed liquidation event; (ii) the closing of the sale of shares of common stock in a public offering resulting in at least $75.0 million of gross proceeds and a share price of at least $15.68 per share (one and one half times the Exercise Price as adjusted by the reverse stock split discussed in Note 2); (iii) immediately prior to the consummation of a SPAC transaction in which the combined company, immediately following the closing of the SPAC transaction, holds at least $75.0 million in unrestricted cash; or (iv) May 3, 2026. The Company completed its IPO in February 2024 at $16.00 per share, resulting in a net exercise of the Series A Preferred Stock Warrants.

The Company determined the estimated fair value of the Series A Preferred Stock Warrants at the date of issuance to be $1.2 million, which was derived using weighted outcomes. As of December 31, 2023, the Company remeasured the fair value of the Series A Preferred Stock Warrants where the significant assumptions included an expected life of 2 years, a risk free rate of 4.5% and an expected volatility of 99%. The remeasured fair value of the Series A Preferred Stock Warrants resulted in a non-cash gain of $0.5 million during the year ended December 31, 2023.

In February 2024, in connection with the IPO, the Series A Preferred Stock Warrants were exercised and net settled for shares of the Company’s common stock, which resulted in the issuance of 72,631 shares of common stock. The Company remeasured the fair value of the Series A Preferred Stock Warrants immediately prior to their exercise, resulting in an insignificant change in fair value during the year ended December 31, 2024. The resulting warrant liability was then extinguished upon the net exercise.

K2 Warrant

In December 2022, in connection with the closing of the Loan Agreement, the Company issued a warrant to the Lender to purchase a number of shares of the Company’s Series B convertible preferred stock, or at Lender’s election, next round stock (“K2 Warrant”). The number of shares of convertible preferred stock issuable upon exercise of the warrant is equal to (a) (i)0.0375, multiplied by (ii) the aggregate principal amount of term loans actually funded under the Loan Agreement, divided by (b) the warrant price then in effect. Following the sale and issuance of the Series C Preferred Stock in November 2023 and as of December 31, 2023, the exercise price of the warrants is $4.7132 per share, which would result in the issuance of an aggregate of 79,564 shares of Series C Preferred Stock. Following the conversion of Series C Preferred Stock to common stock upon the completion of the IPO in February 2024, the K2 Warrant became a warrant to purchase up to an aggregate of 35,773 shares of the Company’s common stock at an exercise price of $10.49 per share. The K2 Warrant was remeasured to fair value immediately prior to the conversion to a common stock warrant, and the change in fair value since December 31, 2023 was $0.2 million. The Company determined that the K2 Warrant is equity-classified, and therefore the resulting warrant liability was reclassified to permanent equity, and is not subject to future remeasurement. On January 13, 2025, the Company amended the Loan Agreement and the K2 Warrant. See Note 18 for additional information.

The following table summarizes the change in fair value of the preferred stock warrant liability, a Level 3 recurring fair value measurement, for the years ended December 31, 2024 and 2023 (in thousands):

(1) Following the Company’s IPO, the warrant liability was reclassified to equity.

Common Stock and Authorized Shares

As of December 31, 2024 and 2023, the Company had 500,000,000 and 52,000,000 authorized shares of common stock, respectively, with a par value of $0.0001 per share, of which 26,986,560 and 3,832,134 shares, respectively, were legally issued and outstanding. On February 6, 2024, the Company amended its certificate of incorporation such that the total number of shares of common stock authorized to be issued was increased to 500,000,000, and the total number of shares of new preferred stock authorized to be issued was 10,000,000 with a par value per share of $0.0001. As of December 31, 2024, no shares of preferred stock were issued or outstanding.

As of December 31, 2024 and 2023, the Company had reserved common stock, on an as-if converted basis, for issuance as follows (in thousands):

15. Commitments and Contingencies

From time to time, the Company is subject to occasional lawsuits, investigations and claims arising out of the normal conduct of business. The Company has no significant pending or threatened litigation as of December 31, 2024.

In the normal course of business, the Company enters into contracts that contain a variety of indemnifications with its employees, licensors, suppliers, and service providers. Further, the Company indemnifies its directors and officers who are, or were, serving at the Company’s request in such capacities. The Company’s maximum exposure under these arrangements is unknown at December 31, 2024. The Company does not anticipate recognizing any significant losses relating to these arrangements.

16. Retirement Plan

The Company has established a defined contribution 401(k) plan (the “401(k) Plan”) for the benefit of its employees. All of the full-time employees of the Company are eligible to participate in the 401(k) Plan which permits employees to make voluntary contributions up to the dollar limit allowed under the Internal Revenue Code. The 401(k) Plan also provides for matching contributions as defined by the Company of up to a combined total of 3% of an employee’s eligible annual compensation. The Company recorded matching contributions of $0.3 million and $0.2 million for the years ended December 31, 2024 and 2023, respectively.

`

17. Segments

The Company’s operations are managed and reported to its President and CEO, the Company’s CODM, on a consolidated basis. The Company is a clinical-stage biopharmaceutical company advancing psychiatry through its proprietary Precision Psychiatry Platform, which leverages advanced data science and neurobiology to develop personalized treatments. The CODM assesses performance and allocates resources based on the Company’s consolidated net loss, as the integrated approach to neurobiologically driven drug development requires the CODM to manage and evaluate the results of the business in a consolidated manner to drive efficiencies and develop uniform strategies. Accordingly, key components and processes of the Company’s operations are managed centrally, including clinical studies and personnel. Asset information is not used by the CODM to allocate resources. Under this organizational and reporting structure, the Company hasone reportable segment.

As a single reportable segment entity, the Company’s segment performance measure is consolidated net loss. Certain significant segment expenses below loss from operations are presented in the Company’s consolidated statements of operations and are therefore not presented below. Additional disaggregated significant segment expenses on a functional basis, that are not separately presented on the Company’s consolidated statements of operations, are presented below:

(a) Other research and development expenses primarily consists of license fees, facility charges, third party consultant costs, early research costs related to other product candidates, and other unallocated costs.

(b) General and administrative costs include professional fees, insurance, consultant fees and facility charges.

18. Subsequent Events

Equity Grants

Across January, February and March 2025, the Company granted options for the purchase of 0.8 million shares of common stock at a weighted-average exercise price of $4.21, which are expected to vest over a weighted average term of 3.7 years.

Amended Loan Agreement

In January 2025, the Company amended the Loan Agreement (as amended, the “Amended Loan Agreement”) to, among other things, extend the Term Loan (as defined below) maturity date and increase the maximum available amount of term loans. The Amended Loan Agreement provides for up to an aggregate term loan in the principal amount of $75.0 million (“Term Loan”), consisting of a first tranche term loan of $20.0 million, a second tranche term loan of up to an additional $30.0 million available at the Company’s request until December 15, 2025, subject to certain time-based, clinical milestones, and an additional third tranche term loan of up to an additional$25.0 million available at the Company’s request subject to the Lender’s approval. The Company drew $20.0 million upon entry into the Amendment(approximately $10.0 million of which was used to refinance obligations under the Original Loan Agreement and pay fees and expenses incurred in connection with the Amendment).

As of December 31, 2024, the Company had an outstanding principal balance of $10.0 million under the Original Loan Agreement. As of the date of the Amendment, and following the related refinancing, the Company had an outstanding principal balance of $20.0 million under the Term Loan. Since the principal amounts due within one year from the balance sheet have been refinanced on a long-term basis after the balance sheet date but before the issuance of these financial statements, the entire amount funded under the Loan Agreement has been classified as non-current as of December 31, 2024.

The Term Loan matures on January 1, 2029. The Amended Loan Agreement provides for an interest only period until January 1, 2027, which may be extended to January 1, 2028, subject tothe funding of at least $20.0 million of the second tranche term loan, following which the Term Loan shall be repaid in equal monthly payments through the Term Loan maturity date.

Borrowings under the Amended Loan Agreement bear interest at (i) a variable per annum cash pay rate equal to the Prime Rate plus 1.45% (subject to a floor of 8.45% per annum) and (ii) a fixed per annum paid-in-kind rate equal to 1.0%. Interest is due and payable monthly in arrears. Upon final payment or prepayment of the Term Loan, the Company is required to pay a final payment equal to 5.95% of the amount borrowed.

The Company’s obligation under the Original Loan Agreement to pay the Lender a one-time fee of $625,000 on the earlier of December 1, 2026 or earlier prepayment of the Term Loan remains outstanding.

Loan Conversion Feature: Under the terms of the Amended Loan Agreement, the Lender may, at its option, elect to convert up to $9.0 million of the then outstanding Term Loan (the “Conversion Amount”) ($4.0 million of which was reflected in the Original Loan Agreement and $5.0 million of which is reflected in the Amendment) into shares of the Company’s common stock (the “Conversion Shares”). The number of shares to be issued upon conversion is determined by dividing (a) the portion of the term loan amount converted, by (b) the Applicable Conversion Price. Applicable Conversion Price means (i) with respect to any conversion of up to $4.0 million of the Conversion Amount, $10.49, and (ii) with respect to any conversion of the remaining $5.0 million of the Conversion Amount, $4.8259, in each case subject to certain adjustments set forth in the Amended Loan Agreement.

Warrants: In connection with the Original Loan Agreement, the Company issued to the Lender a warrant (the “Original Warrant”), which Original Warrant is exercisable for 35,773 shares of the Company’s common stock and expires on December 15, 2032. In connection with the Amendment, the Original Warrant was amended and restated (the “Amended and Restated Warrant”) to lower the exercise price to $3.7122 per share (the “Exercise Price”). Further, in connection with the Amendment, the Company issued an additional warrant (the “New Warrant”, together with the Amended and Restated Warrant, the “Warrants”) to purchase a number of shares of the Company’s common stock calculated as follows: (a) (i)0.025, multiplied by (ii) the aggregate principal amount of the term loans actually funded under the Amended Loan Agreement, divided by (b) the Exercise Price. The New Warrant expires on January 13, 2035. The exercise of the Warrants is subject to the same beneficial ownership and overall share issuance limitations set forth above under “Loan Conversion Feature.”

The Company is continuing to evaluate the accounting for the Amended Loan Agreement to determine whether the transaction should be accounted for as a debt modification or a loss on debt extinguishment.