Gain Therapeutics, Inc. - Quarter Report: 2021 March (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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(Mark one)

For the quarterly period ended March 31, 2021

or

For the transition period from                      to                     

Commission File Number: 001-40237

GAIN THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

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(301) 500-1556

(Registrant’s telephone number, including area code)

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Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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Securities registered pursuant to Section 12(b) of the Act:

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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   ☒  Yes    ☐  No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    ☒  Yes    ☐  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☒  Yes ☐No

The registrant has the following number of shares outstanding of each of the registrant’s classes of common stock as of April 30, 2021: Common stock: 11,876,640.

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts and are often characterized by the use of words such as “believe,” “can,” “could,” “potential,” “plan,” “predict,” “goals,” “seek,” “should,” “may,” “may have,” “would,” “estimate,” “continue,” “anticipate,” “intend,” “expect” or by discussions of strategy, plans or intentions. Such forward-looking statements involve known and unknown risks, uncertainties, assumptions and other important factors that could cause our actual results, performance or achievements, or industry results, to differ materially from historical results or any future results, performance or achievements expressed, suggested or implied by such forward-looking statements. For more information regarding these risks and uncertainties as well as certain additional risks that we face, refer to “Risk Factors” as well as the factors more fully described in “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” These include, but are not limited to, statements about:

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If one or more of the factors affecting our forward-looking information and statements proves incorrect, our actual results, performance or achievements could differ materially from those expressed in, or implied by, forward-looking information and statements. Therefore, we caution not to place undue reliance on any forward-looking information or statements. The effect of these factors is difficult to predict. Factors other than these also could adversely affect our results, and the reader should not consider these factors to be a complete set of all potential risks or uncertainties. New factors emerge from time to time, and management cannot assess the impact of any such factor on our business or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement. Any forward-looking statements only speak as of the date of this document, and we undertake no obligation to update any forward-looking information or statements, whether written or oral, to reflect any change, except as required by law. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.

You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed with the SEC as exhibits to this Quarterly Report on Form 10-Q with the understanding that our actual future results, levels of activity, performance, and events and circumstances may be materially different from what we expect.

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

GAIN THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

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GAIN THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

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GAIN THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(unaudited)

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GAIN THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited)

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GAIN THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

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GAIN THERAPEUTICS, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Nature of the Business and Basis of Presentation

Gain Therapeutics, Inc. (and together with its subsidiary, the “Company”), was incorporated under the laws of the state of Delaware (U.S.) on June 26, 2020. On July 20, 2020, the Company consummated a Corporate Reorganization pursuant to which all of the issued and outstanding common and preferred stock of GT Gain Therapeutics SA, a Swiss company formed in 2017, were exchanged for common stock or preferred stock, as applicable, of Gain Therapeutics, Inc., reflecting a 10:1 stock split. The Corporate Reorganization is accounted for as a recapitalization for accounting purposes, with GT Gain Therapeutics SA resulting in the predecessor entity. As a result of the Corporate Reorganization, GT Gain Therapeutics SA became a wholly-owned subsidiary of Gain Therapeutics, Inc. For periods and at dates prior to the Corporate Reorganization, the condensed consolidated financial statements presented were prepared based on the historical financial statements of GT Gain Therapeutics SA, adjusted to give retroactive effect to the share exchange transactions.

On March 17, 2021, the Company’s registration statement on Form S-1 relating to its Initial Public Offering (“IPO”) was declared effective by the Securities and Exchange Commission (“SEC”). The IPO closed on March 17, 2021 at the Nasdaq. In conjunction with the IPO the Company completed a reverse stock split of the Company’s outstanding equity instruments. The reverse stock split was approved by the stockholders on March 4, 2021 and became effective on March 17, 2021, based on a 1-for-0.880784 conversion factor.

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The Company is a biotechnology company developing novel therapies to treat diseases caused by protein misfolding, with an initial focus on rare genetic diseases and neurological disorders. We use our licensed platform, SEE-Tx, to discover novel allosteric sites on misfolded proteins and identify proprietary small molecules that bind these sites, potentially restoring protein folding and treating disease. These small molecule binding sites, away from the protein’s active areas, are called allosteric sites. Targeting the allosteric binding site instead of the active binding site provides superior regulation of misfolded enzymes implicated by disease, is non-competitive with the natural substrate, provides superior drug-like properties and ultimately enhances both safety and efficacy.

Risks and uncertainties

The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, risks associated with completion and success of preclinical studies and clinical testing, dependence on key personnel, protection of proprietary technology, compliance with applicable governmental regulations, development by competitors of new technological innovations, protection of proprietary technology and the ability to secure additional capital to fund operations. Drug candidates currently under development will require significant additional research and development efforts, including preclinical and clinical testing and prior to regulatory approval and commercialization. These efforts require significant amounts of additional capital, adequate personnel, and infrastructure and extensive compliance-reporting capabilities. Even if the Company’s drug development efforts are successful, it is uncertain when, if ever, the Company will realize revenue from product sales.

Going Concern

The Company has evaluated whether there are conditions and events considered in the aggregate that raise substantial doubt about the Company’s ability to continue as a going concern.

The Company’s business model, typical of biotechnology companies developing new therapeutic products that have not reached a balanced income and financial position yet, features negative cash flows. This is due to the fact that, at this stage, costs must be borne in relation to services and personnel, costs are directly connected to research and development activities, and return for these activities is not certain and, in any case, it is expected in forthcoming years. Based on the accounting policies adopted, requiring full recognition of research and development costs in the statement of operations in the year they are incurred, the Company has always reported a loss since its incorporation, and expects to

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continue to incur significant costs for research and development in the foreseeable future. There is no certainty that the Company will become profitable in the long run.

The Company has incurred recurring losses since its inception and has primarily funded these losses through proceeds from capital contributions. Although the Company has incurred recurring losses and expects to continue to incur losses for the foreseeable future, the Company expects that its existing cash and cash equivalents on hand will be sufficient to fund current planned operations and capital expenditure requirements for the foreseeable future. Accordingly, the consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company’s inability to raise capital as and when needed could have a negative impact on its financial condition and ability to pursue its business strategies. There can be no assurance that the current operating plan will be achieved or that additional funding will be available on terms acceptable to the Company, or at all.

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2. Summary of Significant Accounting Policies

Basis of presentation

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

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The accompanying interim financial statements reflect the accounts of Gain Therapeutics, Inc., GT Gain Therapeutics SA and its branch Gain Therapeutics Sucursal en España. All intercompany transactions and balances have been eliminated in the preparation of the interim financial statements. The interim financial statements as of March 31, 2021 reflect, for all periods presented, the retroactive application of the reverse stock split that occurred in March 17, 2021. All amounts in the interim financial statements are expressed in United States Dollars (USD/$) and disclosed within these explanatory notes in United States Dollars (USD/$) or Swiss Franc (CHF), which are the functional currencies of the Company and its operating subsidiary, GT Gain Therapeutics SA, respectively.

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The interim financial statements  have been prepared on the same basis as the audited annual consolidated financial statements as of and for the year ended December 31, 2020, and, in the opinion of management, reflect all adjustments, consisting of normal recurring adjustments, necessary for the fair presentation of the Company’s financial position as of March 31, 2021, and the results of its operations and its cash flows for the three months ended March 31, 2021 and 2020.

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The results for the three months ended March 31, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021, any other interim periods, or any future year or period. These interim financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2020, and the notes thereto, which are included in the Company’s final prospectus for its initial public offering (“IPO”), filed with the Securities and Exchange Commission (“SEC”) pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended, on March 22, 2021 (the “Prospectus”).

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The accompanying condensed consolidated financial statements reflect the application of certain significant accounting policies as described below and elsewhere in these notes. As of March 31, 2021, the Company’s significant accounting policies and estimates, which are detailed in the Company’s consolidated financial statements as of and for the period ended December 31,2020, have not changed.

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Reverse Stock Split

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On March 3, 2021, the Board approved a 1-for-0.880784 reverse stock split of the Company’s outstanding equity instruments. The reverse stock split was approved by the stockholders on March 4, 2021 and became effective on March 17, 2021. Stockholders were no entitled to fractional shares as a result of the reverse stock split. All share and per share data shown in the accompanying interim financial statements and related notes have been retroactively revised to reflect

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the reverse stock split. Shares of common stock underlying outstanding stock options and other equity instruments were proportionately reduced and the respective exercise prices, if applicable, were proportionately increased in accordance with the terms of the agreements governing such securities (please refer to note 12 for further details).

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Initial Public Offering

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On March 17, 2021, the Company’s registration statement on Form S-1 relating to its IPO was declared effective by the Securities and Exchange Commission (“SEC”). The IPO closed on March 17, 2021 and the Company issued and sold 3,636,364 common shares at a public offering price of $11.00 per share for net proceeds of $37,050 thousand after deducting underwriting discounts and commissions of $2,950 thousand and other offering expenses of approximately $2,024 thousand. Simultaneously, on March 22, 2021, the Company issued and sold 545,454 additional common shares, pursuant to the full exercise of the underwriters’ option to purchase additional shares, for net proceeds of $5,580 thousand after deducting underwriting discounts and commissions of $420 thousand. Thus, the aggregate net proceeds to the Company from the IPO, after deducting underwriting discounts commissions, were $42,630 thousand. After deducting other IPO offering expenses amounting to $2,024 thousand, the net cash proceeds resulting from the IPO are $40,606 thousand, which are reflected in the statement of stockholders’ equity as Issuance of Common Stock in IPO, net of issuance costs. Upon the closing of the IPO, series A convertible preferred stock (the “Series A Preferred Stock”) and series B convertible preferred stock (the “Series B Preferred Stock”, and together with the Series A Preferred Stock, are collectively referred to as the “Preferred Stock”) were converted into shares of common stock at ratio of 1-for-1 (please refer to note 12 for further details).

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Foreign currency transactions

The Company is incorporated in the United States of America and has operations in Switzerland and Spain. The Company’s functional currency is the USD. The functional currencies of the Company’s foreign operations are the local currencies (Swiss Franc in Switzerland and Euro in Spain). Assets and liabilities reported in the Consolidated Balance Sheets are translated into U.S. dollars (the currency in which these financial statements are presented) at the exchange rates applicable at the balance sheet dates and for the Consolidated Statement of Operations accounts at the average exchange rates for the three months ended March 31, 2021 and 2020. Items representing the share capital and additional paid-in capital are presented at the historical exchange rates. Adjustments resulting from the translation of the financial statements of the Company’s foreign operations into U.S. dollars are excluded from the determination of net income and are recorded in accumulated other comprehensive income/(loss), a separate component of shareholders’ equity.

Use of Estimates

The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and judgments, including those related to recognition of grant funds, accrued expenses, defined benefit pension liability, warrants and stock-based compensation. 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. Actual results may differ materially and adversely from these estimates. Changes in estimates are recorded in the period in which they become known. To the extent that material differences arise between the estimates and actual results, the Company’s future results of operations will be affected. The COVID-19 pandemic did not have a significant impact on the Company’s estimates.

Segment information

Operating segments are defined as components of an enterprise for which separate discrete information is available for evaluation by the chief operating decision-maker in deciding how to allocate resources and assess performance. The Company’s chief operating decision-maker, the Chief Executive Officer, oversees the Company’s operations and manages the business as a single operating segment, which is research and development in the

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pharmaceutical sector with a focus on developing novel therapeutics to treat diseases caused by protein misfolding, such as rare genetic diseases and neurological disorders. Geographically, the research and development activities are mainly performed in Switzerland and Spain. The Company does not consider these geographies to be separate segments.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of less than 90 days to be cash equivalents. Cash and cash equivalents include cash held in banks and amounts held in interest-bearing money market accounts. Cash equivalents are carried at face value, which approximates their fair market value due to their short-term maturities.

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Concentrations of Credit Risk

The Company has no significant off-balance sheet risk, such as foreign exchange contracts, option contracts, or other foreign hedging arrangements. Financial instruments that may expose the Company to concentrations of credit risk consist primarily of cash, cash equivalents which are deposited in accredited financial institutions in excess of federally insured limits. The Company deposits its cash and cash equivalents in financial institutions that it believes have high credit quality and has not experienced any losses on such accounts and does not believe it is exposed to any unusual credit risk beyond the normal credit risk associated with commercial banking relationships.

Deferred Issuance Costs

The Company capitalizes certain legal, professional accounting and other third-party fees that are directly associated with in-process equity financings as deferred issuance costs until such financings are consummated. After consummation of the equity financing, these costs are recorded as a reduction of the proceeds generated as a result of the offering. Should the planned equity financing be abandoned, the deferred issuance costs will be expensed immediately as a charge to operating expenses in the consolidated statements of operations. There were nil and $1,217,988 deferred issuance costs as of March 31, 2021 and December 31, 2020.

Property and equipment

Property and equipment are stated at cost, including any accessory and direct costs that are necessary to make the assets fit for use, and adjusted by the corresponding accumulated depreciation. The depreciation rates recorded in the consolidated financial statements of operations have been calculated by taking into consideration the use, purpose and financial-technical duration of the assets, on the basis of their estimated useful economic lives. The Company believes the above criteria to be represented by the following depreciation rates:

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Ordinary maintenance costs are entirely attributed to the consolidated statements of operations in the year in which they are incurred. Extraordinary maintenance costs, the purpose of which is to extend the useful economic life of the asset, to technologically upgrade it and/or to increase its productivity or safety for the purposes of the economic productivity of the Company, are attributed to the asset to which they refer and depreciated on the basis of its estimated useful economic life. Amortization of leasehold improvements is computed using the straight-line method based upon the terms of the applicable lease or estimated useful life of the improvements, whichever is less.

Leases

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016 02, “Leases” (“ASC 842”) to enhance the transparency and comparability of financial reporting related to leasing arrangements. Under this new lease standard, most leases are required to be recognized on the balance sheet as

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right-of-use assets and lease liabilities. Disclosure requirements have been enhanced with the objective of enabling financial statement users to assess the amount, timing, and uncertainty of cash flows arising from leases. Prior to January 1, 2019, GAAP did not require lessees to recognize assets and liabilities related to operating leases on the balance sheet. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to recognize an ROU asset and corresponding lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement as well as the reduction of the right of use asset.

Effective January 1, 2018, we adopted Accounting Standards Codification 842, Leases (“ASC 842”) using the additional transition method option provided by ASU 2018-11. Under this transition method, we applied the new accounting guidance as of the date of adoption. Upon adoption, a cumulative effect adjustment was not required.

Subsequent to the adoption, we determine if an arrangement contains a lease at inception based on whether or not the Company has the right to control the asset during the contract period and other facts and circumstances. The Company is the lessee in a lease contact when it obtains the right to control the asset. Operating lease right of use (“ROU”) assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease, both of which are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. Leases with a term of 12 months or less at inception are expensed on a straight-line basis over the lease term in the statement of operations. We determine the lease term by assuming the exercise of renewal options that are reasonably certain.

Impairment of long-lived assets

In accordance with ASC Topic 360-10-20, ‘‘Property, Plant and Equipment,’’ the Company performs an impairment test whenever events or circumstances indicate that the carrying value of long-lived assets with finite lives may be impaired. Impairment is measured by comparing the carrying value of the long-lived assets to the estimated undiscounted pre-tax cash flows expected to result from the use of such assets and their ultimate disposition. In circumstances where impairment is determined to exist, the Company will write down the asset to its fair value based on the present value of estimated cash flows. To date, no impairments have been identified by management as of and for all periods presented.

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Patents

Patent-related costs, refer to legal fees incurred in connection with filing and prosecuting patent applications and are expensed as incurred due to uncertainty about the recovery of the expenditure. Amounts incurred are classified as general and administrative expenses.

Accrued expenses

As part of the process of preparing our financial statements, we are required to estimate our accrued expenses as of each balance sheet date. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. We make estimates of our accrued expenses as of each balance sheet date based on facts and circumstances known to us at that time at the date of the preparation of the financial statements. There may be instances in which payments made to our vendors exceed the level of services provided, and result in a prepayment reported under other current assets, which are subsequently expenses in the statement of operations when the related activity has been performed rather than when the payment is made. To date, there have been no material differences between our estimates of accrued expenses reported at each balance sheet date and the amounts actually incurred.

Pension obligations

We operate defined benefit pension plans and defined contribution pension plans in accordance with local regulations and practices. These plans are funded by regular contribution made by the employer and the employees. For

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defined benefit pension plans, the liability recognized in the balance sheets is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets. The overfunded or underfunded status of the defined benefit plans is calculated as the difference between plan assets and the projected benefit obligations. Estimates are used in determining the assumptions incorporated in the calculation of the pension obligations, which is supported by input from independent actuaries. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognized in “Accumulated Other Comprehensive Income (Loss)” in the statements of equity and are charged or credited to income over the employees’ expected average remaining working lives. For defined contribution pension plans, we pay contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. We have no further payment obligations once the contributions have been paid. The contributions are recognized as employee benefit expenses on an accrual basis. The measurement date used for our employee benefit plans is December 31. The funding policies of our plans are consistent with the local government and tax requirements.

Research grants

Under the terms of the research and development grants awarded (such as those awarded by the The Michael J. Fox Foundation for Parkinson’s Research (MJFF) and The Silverstein Foundation for Parkinson’s and from Innosuisse – Swiss Innovation Agency), we are entitled to receive reimbursement of our allowable direct expenses. Contributions from research and development activities under the grants are recorded based on management’s best estimate of the periods in which the related expenditures are incurred and activities performed and are classified in the statement of operations as a reduction to research and development expenses, measuring according to the time periods during which the research and development activities are carried out and related costs sustained.

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Research and Development Expenses

The Company expenses all costs incurred in performing research and development activities. Research and development expenses include salaries and other related costs, materials and supplies, preclinical expenses, manufacturing expenses, contract services and other third-party expenses. As part of the process of preparing the consolidated financial statements, the Company is required to estimate accruals for research and development expenses incurred, but not yet invoiced. The Company makes estimates of the accrued expenses as of each balance sheet date in the consolidated financial statements based on facts and circumstances known at that time. In addition, there may be instances in which payments made to the Company’s vendors will exceed the level of services provided and result in a prepayment of the expense, in which case such amounts are reflected as prepaid expenses and other current assets. In accruing service fees, the Company estimates the time period over which services will be performed and the costs to be recognized in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, the Company adjusts the accrual or the amount of prepaid expenses accordingly.

General and administrative expenses

General and administrative expenses consist primarily of salaries, benefits and other related costs, for personnel and consultants in the Company’s executive and finance functions. General and administrative expenses also include professional fees for legal, finance, accounting, intellectual property, auditing, tax and consulting services, travel expenses and facility-related expenses, which include allocated expenses for rent and maintenance of facilities and other operating costs not otherwise included in research and development expenses.

Income Tax

The Company account for income taxes under the liability method. Under this method deferred income tax liabilities and assets are determined based on the difference between the financial statement carrying amounts and tax basis of assets and liabilities and for operating losses and tax credit carried forward, using enacted tax rates in effect in the years in which the associated tax benefits are expected to be used. A valuation allowance is recorded if it is “more likely than not” that a portion or all of a deferred tax asset will not be realized.

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As of each reporting date, the Company considers existing evidence, both positive and negative, that could impact its view with regards to future realization of deferred tax assets. In consideration of the start-up status of the Company, a full valuation allowance has been established to offset the deferred tax assets, as the related realization is currently uncertain. In the future, should management conclude that it is more likely than not that the deferred tax assets are partially or fully realizable, the valuation allowance will be reduced to the extent of such expected realization, and the corresponding amount will be recognized as income tax benefit in the Company’s consolidated statement of operations.

The Company recognizes tax liabilities from an uncertain tax position if it is more likely than not that the tax position will not be sustained upon examination by the taxing authorities, based on the technical merits of the tax position. There are no uncertain tax positions that have been recognized in the accompanying consolidated financial statements.

Fair Value Measurement

The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels based on their observability in the market and degree of judgment involved:

In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and consider counterparty credit risk in their assessment of fair value.

Equity-based Compensation

The Company applies the fair value method of measuring equity-based compensation, which requires an entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The Company issues stock-based awards with only service-based vesting conditions and record the expense for these awards using the straight-line method. The Company has not issued any stock-based awards with performance- or market-based vesting conditions.

The related cost is recognized in the consolidated statement of operations and as additional paid in capital in the consolidated statement of shareholders’ equity in accordance with the vesting period during which the award recipients are required to provide services in exchange for the awards. Forfeitures are accounted for as they occur.

Before being a public company, given the absence of an active market for our common stock, we and the board of directors determined the estimated fair value of our equity instruments based on a number of factors, including prices paid for our convertible preferred stock, which we had sold to outside investors in arm’s-length transactions; our stage of development; the fact that the grants of stock-based awards involved illiquid securities in a private company.

The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing model. Given the absence of an active public market for the Company’s common stock prior to March 19, 2021, which was the first day of trading, the Company determined the volatility and the expected term for awards granted based on an analysis of reported data for a peer group of similar biopharmaceuticals companies that issued options with substantially similar terms. We expect to continue to do so until such time as we have reliable historical data regarding the volatility of our traded stock price and expected term of exercise patterns. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. We have not paid, and do not anticipate paying, cash dividends on our common stock; therefore, the expected dividend yield is assumed to be zero.

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The assumptions used in calculating the fair value of share-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and management uses different assumptions, share-based compensation expense could be materially different.

Net loss per share

Basic net loss per share is computed by dividing the reported net loss by the weighted average number of shares of common stock outstanding during the period. The Company gives consideration to all potentially dilutive impacts, except where the effect of including such securities would be antidilutive. As of March 31, 2021, common stock equivalents consisted of stock options and warrants while as of December 31, 2020, common stock equivalents consisted of the Series A preferred Stock. Because the Company has reported net losses since inception, these potential impacts would be anti-dilutive, and therefore common stock equivalents have been excluded from the computation, resulting in basic and diluted net loss per share being the same for all periods presented.

Recently Issued Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) or other standard setting bodies that we adopt as of the specified effective date. There were no new standards effective January 1, 2021 which had a significant impact on the Company’s interim financial statements.

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3. Cash, cash equivalents and restricted cash

The Company considers all short-term, highly liquid investments, with an original maturity of three months or less, to be cash equivalents. The Company’s cash and cash equivalents include short-term highly liquid investments which are readily convertible into cash. These investments include money market securities with maturities of three months or less when acquired. The Company’s institutional money market accounts permit daily redemption and the fair values of these investments are based upon the quoted prices in active markets provided by the holding financial institutions, which are considered Level 1 inputs in the fair value hierarchy. Given their short-term maturities, their face value amount approximates the related fair market value.

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The Company has not experienced any losses in these accounts and does not believe it is exposed to any significant credit risk on cash and cash equivalents.

Cash, cash equivalents and restricted cash are broken down as follows:

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Restricted cash refers to amounts required under our Lugano offices lease agreements and deposited into a restricted bank accounts as a guarantee for expenses to be incurred in case of damage to the premises noted at the termination of the lease. The original lease expires in August 2021, and the deposit has been classified as current asset while the new office lease, for which we have already paid the deposit in advance will commence in June 2021 and expire in May 2026.

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Details of the cash and cash equivalents balances as of March 31, 2021 and December 31, 2020, broken down by currency in which the funds are denominated, are reported in the following table:

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4. Prepaid expenses and other current assets

Prepaid expenses and other current assets consist of the following:

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Tax credits mainly relate to value added tax (“VAT”) applicable in both Switzerland and in Spain.

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Prepaid expenses refers to pre-payments made to vendors for future services. Deferred expenses mainly refer to research and collaboration agreements entered into with third parties for research projects that will be recognized as expenses throughout the research period.

Prepaid D&O insurance costs relate to insurance premium which will be recognized in the statement of operations on a monthly basis through the twelve months insurance period.

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5. Property and Equipment, net

Property and equipment consist of the following:

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Property and equipment consist of computers, furniture and fixture, lab instruments and set-up of a conference room in our Spanish office. No disposals, nor impairments occurred during the periods. Depreciation has been calculated by taking into consideration the use, purpose and financial-technical duration of the assets, based on their estimated economic lives.

Depreciation expense for the periods ended March 31, 2021 and 2020 was $3,403 and $2,101, respectively.

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6. Operating lease. Right of use (“ROU”) assets

Our leased assets include offices in Lugano and Barcelona and a lab in Barcelona. Our current lease portfolio consists of leases with remaining terms ranging from one year to five years. These leases contain options under which we can extend the term from two to five years. Renewal options are excluded from our calculation of lease liabilities unless we are reasonably certain that we will exercise the renewal option. Our lease agreements do not contain residual value guarantees or material restrictive covenants.

The breakdown of the significant components of lease accounting as of March 31, 2021 and December 31, 2020 is reported in the table below, together with the discount rate used in order to calculate the net present value of the lease liabilities as of those periods.

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The components of lease expense were as follows:

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Future minimum lease payments required under lease agreements with remaining non-cancelable lease terms are disclosed in Note. 16 Commitments.

7. Accounts Payable

Accounts payable are reported at their nominal value. Accounts payable refer to amounts due to third parties on outstanding invoices received for services already provided. As of March 31, 2021, and December 31, 2020, accounts payable amounted to $881,753 and $961,516, respectively. All accounts payable are due in less than 12 months. Details of the vendor outstanding payables as of March 31, 2021 and December 31, 2020, broken down by currencies in which they are denominated, are reported in the following table:

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8. Other current liabilities and deferred income

Other current liabilities and deferred income consist of the following as of March 31, 2021 and December 31, 2020:

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Accrued expenses as of March 31, 2021 and December 31, 2020 amounted to $764,220 and $379,270, respectively, and refer to invoices to be received from vendors for services performed and not yet billed. The increase relates to services rendered by professional firms in conjunction with the IPO and not yet billed as of March 31, 2021.

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Deferred income for the period ended March 31, 2021 and year ended December 31, 2020 amounted to $178,418 and $239,483, respectively, and refers to research grants received from The Michael J Fox Foundation for Parkinson’s Research (MJFF) and Eurostar. Deferred income will be recognized in the condensed consolidated statement of operations in accordance with the costs sustained.

9. Pension obligations

Net pension obligations related to the Company’s defined pension plan refer only to Swiss employees and as of March 31, 2021 and December 31, 2020, can be summarized as follows:

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10. Loans

In March 2020, the Company obtained a CHF 14,600 ($16,165) five-year loan. The loan has zero interest and originally was due on March 31, 2025. In 2021, the maturity has been postponed to March 31, 2028. The loan is guaranteed through joint and several sureties by the Swiss government. The loan is part of the infrastructure put in place by the Federal Council and Swiss Parliament in view of the economic consequences of the coronavirus.

In August 2020, the Company obtained a CHF 638,000 ($706,377) nine-year loan. The loan has zero interest. The loan is due in quarterly installments of CHF 20,000, with payments commencing on December 31, 2021 and ending on September 30, 2029. The loan is part of the infrastructure put in place by the Federal Council and Swiss Parliament in view of the economic consequences of the coronavirus.

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Loans granted do not bear interest and no issuance costs have been borne. As such they have been accounted for at face value, which is deemed to approximate the related fair value.

11. Fair value measurement

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability.

The carrying amounts of the Company’s cash and cash equivalents, including money market funds, restricted cash and financial liabilities are considered to be representative of their respective fair values because of the short-term nature and the contractual terms of those instruments. The fair values of money market funds are based upon the quoted prices in active markets provided by the holding financial institution, which are considered Level 1 inputs in the fair value hierarchy according to ASC820.

There have been no changes to the valuation methods utilized by the Company, nor were there transfers between levels of the fair value hierarchy.

For financial instruments represented by short-term receivables and payables, for which the present value of future cash flows does not differ significantly from the carrying value, the Company assumes that carrying value is a reasonable approximation of the fair value.

12. Common and Preferred Stock

As of March 31, 2021 and December 31, 2020, the authorized capital stock of the Company included 50,000,000 shares of common stock, $0.0001 par value and 10,000,000 shares of preferred stock, $0.0001 par value. As of March 31, 2021 and December 31, 2020, 11,876,460 and 7,694,642 shares of common stock, $0.0001 par value, were issued and outstanding.

No preferred stocks were outstanding as of March 31, 2021. There were 1,346,390 (1,185,879 after the 1-for-0.880784 stock split) shares of Series A Preferred Stock, par value $ 0.0001 and 3,366,999 (2,965,000 after the 1-for-0.880784 stock split) shares of Series B Preferred Stock, par value $0.0001, issued and outstanding as of December 31, 2020.

The stock split did not result in any change of the original par value of the Company common and preferred stock.

Upon closing of the IPO, the Preferred Stock, were converted to common stock at a ratio of 1-for1.The holders of the Company’s Preferred Stock had certain voting, dividend, and redemption rights, as well as liquidation preferences and conversion privileges. All rights, preferences, and privileges associated with the preferred stock were terminated at the time of the Company’s IPO in conjunction with the conversion of all outstanding shares of Preferred Stock into shares of common stock.

13. Equity Incentive Plan

The Company’s Equity Incentive Plan, adopted by the Board in September 2020, consists of the 2020 Omnibus Incentive Plan (the “2020 Omnibus Plan”). The 2020 Omnibus Plan provides for the granting of equity-based awards to our named executive officers, other employees, consultants, and non-employee directors at a price to be determined by the Board of Directors. The 2020 Omnibus Plan is intended to encourage ownership of stock by employees and consultants of the Company and to provide additional incentives for them to promote the success of the Company’s business. The maximum number of shares available to be issued under the 2020 Omnibus Plan is 1,310,000. The 2020 Omnibus Plan expires after ten years, unless terminated prior to that date by the Board of Directors. The Board of Directors is responsible for determining the individuals to be granted options, the number of options each individual will receive, the option price per share, and the exercise period of each option. No option will have a term in excess of 10 years. The exercise price for

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a stock option awarded under the 2020 Omnibus Plan shall not be less than the fair market value of the Company’s common stock on the date of the grant.

On March 3, 2021, the Board approved a 1-for-0.880784 reverse stock split of the Company’s outstanding equity instruments. The reverse stock split was approved by the stockholders on March 4, 2021 and became effective on March 17, 2021. Shares of common stock underlying outstanding stock options and other equity instruments were proportionately reduced from 588,000 to 517,902 and the respective exercise prices, if applicable, were proportionately increased from $2.97 to $3.38 in accordance with the terms of the agreements governing such securities.

The stock split did not impact the fair value of the stock option previously recorded and no modification accounting is required because all the three following conditions were met:  (i) the fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified; (ii) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified and (iii) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified.

Stock Option Grants

The following table summarizes the Company’s stock option activity for the three months ended March 31, 2021:

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The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the underlying stock options and the market price of the Company’s common stock on March 31, 2021.

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As of March 31, 2021, the total unrecognized compensation cost related to non-vested stock options granted was $998,877 and is expected to be recognized over a period of approximately 4 years.

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The Company uses the Black-Scholes option pricing model to estimate the fair value of stock options as of the grant date. The Black-Scholes option pricing model takes into account variables such as volatility, dividend yield rate, and risk-free interest rate. The computation of expected volatility is based on the volatility of a representative group of companies with similar characteristics, including stage of product development and life science industry focus. In estimating the expected term of an award, we use the simplified method as allowed by the SEC Staff Accounting Bulletin No. 107, Share‑Based Payment, as we do not have sufficient historical exercise data to provide a reasonable basis, and also considered relevant peer group data that we believe is a representative sample of similar companies as a comparative measure. The risk‑free interest rate is based on a treasury instrument whose term is consistent with the expected term of the stock options. The expected dividend yield is assumed to be zero as we have never paid dividends and have no current plans to pay any dividends on our common stock. The Company’s policy is to account for forfeitures when they occur.

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Because at the time option were granted there was no public market for our common stock, the Board of Directors determined the fair value of the common stock at the grant date based on prices paid for the Company’s Series B Preferred Stock, which the Company sold to outside investors in an arm’s-length transaction, pursuant to which 3,366,999 shares of Series B Preferred Stock were issued at a price per share of $2.97 and gross proceeds amounted to $9.9 million.

The assumptions that the Company used to determine the grant-date fair value of stock options granted to employees and directors were as follows, presented on a weighted-average basis:

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Each of these inputs is subjective and generally requires significant judgment to determine. The weighted average grant-date fair value per share of options granted in the three-month period ended March 31, 2021 was $1.52.

Total stock-based compensation expense is recognized for stock options granted to employees and non-employees and has been reported in the Company’s condensed consolidated statements of operations and comprehensive loss as follows:

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14. Net loss per common share

Basic net loss per common share is computed by dividing the net loss available to common stockholders by the weighted-average number of shares of common stock outstanding during the period. The other outstanding qualifying securities had no impact on the computations for the periods ended March 31, 2021 and 2020, since such instruments would have resulted in antidilutive impacts given the net losses reported for those periods.

The following potentially dilutive common stock equivalents, presented based on amounts outstanding at each period end, were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an antidilutive effect:

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15. Related Parties

Related Parties

Dr. Khalid Islam, the Chairman of our Board of Directors, shareholders and founder of the Company, is currently the Chairman of the board of directors of Minoryx, and therefore Minoryx is considered a related party. In December 2017, the Company entered into an exclusive worldwide, royalty-bearing, assignable, transferable license agreement with Minoryx Therapeutics SL to use and exploit Minoryx’s IP and into an exclusive worldwide, royalty-bearing, assignable, transferable sublicense agreement with Universitat de Barcelona and Institucio Catalana Recerca Estudis Avancats in order

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to be able to develop its business, directly or indirectly, through sub-licensing to third parties or any other way of operation. According to the Minoryx License Agreement,  the Company shall pay to Minoryx as royalties:

In addition to royalties, the Company shall pay Minoryx certain milestones payments of 1.25% of any consideration received in the event of a sale of the Company or substantially all of the assets, including by merger, change of control, or reorganization.

As of March 31, 2021 and 2020, there were no receivables and payables, revenues or expenses with Minoryx.

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16. Commitments

The following table summarizes our obligations as of March 31, 2021 by contractual maturity:

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