UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the Quarterly Period Ended September 30, 2021March 31, 2022

or

For the Transition Period from                     to                     

Commission File Number: 001-33004

Acer Therapeutics Inc.

(Exact name of registrant as specified in its charter)

(844) 902-6100

Registrant’s telephone number, including area code

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 such files).   ☑ Yes    ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.

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 ☑

As of NovemberMay 1, 2021,2022, there were 14,310,24415,310,244 shares of the issuer’s Common Stock outstanding.

ACER THERAPEUTICS INC.

For the three and nine months ended September 30, 2021March 31, 2022

INDEX

PART I - FINANCIAL INFORMATION

ACER THERAPEUTICS INC.

CONDENSED BALANCE SHEETS

(Unaudited)

The accompanying notes are an integral part of these unaudited condensed financial statements.

ACER THERAPEUTICS INC.

CONDENSED STATEMENTS OF OPERATIONS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,MARCH 31, 2022 AND 2021 AND 2020

(Unaudited)

The accompanying notes are an integral part of these unaudited condensed financial statements.

ACER THERAPEUTICS INC.

CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ (DEFICIT) EQUITY

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,MARCH 31, 2022 AND 2021 AND 2020

(Unaudited)

The accompanying notes are an integral part of these unaudited condensed financial statements.

ACER THERAPEUTICS INC.

CONDENSED STATEMENTS OF CASH FLOWS

FOR THE NINETHREE MONTHS ENDED SEPTEMBER 30,MARCH 31, 2022 AND 2021 AND 2020

(Unaudited)

The accompanying notes are an integral part of these unaudited condensed financial statements.

ACER THERAPEUTICS INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

Business

Acer Therapeutics Inc., a Delaware corporation (the “Company”), is a pharmaceutical company focused on the acquisition, development, and commercialization of therapies for serious rare and life-threatening diseases with significant unmet medical needs. The Company’s pipeline includes four programs: ACER-001 (sodium phenylbutyrate) for the treatment of various inborn errors of metabolism, including urea cycle disorders (“UCDs”) and Maple Syrup Urine Disease (“MSUD”); ACER-801 (osanetant) for the treatment of induced vasomotor symptoms (“iVMS”); EDSIVO™ (celiprolol) for the treatment of vascular Ehlers-Danlos syndrome (“vEDS”) in patients with a confirmed type III collagen (COL3A1) mutation; and ACER-2820 (emetine), a host-directed therapy against a variety of infectious diseases,viruses, including cytomegalovirus, zika, dengue, ebola, and COVID-19. TheEach of the Company’s product candidates areis believed to present a comparatively de-risked programs, as evidenced byprofile, having one or more of the following:a favorable safety profile, clinical proof-of-concept data, mechanistic differentiation, and/or accelerated pathspathways for development through specific programs and procedures established by the United States (“U.S.”) Food and Drug Administration (“FDA”).

Since its inception, the Company has devoted substantially all of its efforts to business planning, research and development, recruiting management and technical staff, acquiring operating assets, and raising capital. The Company has generated revenue related to the collaboration and license agreement (the “Collaboration Agreement”) with Relief Therapeutics Holding AG (“Relief”) as described below but has not generated any product revenue to date and may never generate any product revenue in the future.

Liquidity 

The Company had an accumulated deficit of $110.1$123.7 million and cash and cash equivalents of $14.2$20.8 million as of September 30, 2021.March 31, 2022. Net cash provided by operating activities was $1.3 million for the nine months ended September 30, 2021, as compared to net cash used in operating activities of $13.1was $3.0 million for the ninethree months ended September 30, 2020.March 31, 2022.

On November 9, 2018, the Company entered into a sales agreement with Roth Capital Partners, LLC, and on March 18, 2020, an amended and restated sales agreement was entered into with JonesTrading Institutional Services LLC and Roth Capital Partners, LLC. The agreement provides a facility for the offer and sale of shares of common stock from time to time having an aggregate offering price of up to $50.0 million depending upon market demand, in transactions deemed to be an at-the-market (“ATM”) offering. The Company has no obligation to sell any shares of common stock pursuant to the agreement and may at any time suspend sales pursuant to the agreement. Each party may terminate the agreement at any time without liability. During the three months ended September 30, 2021,March 31, 2022, the Company did 0t sell any shares through its ATM facility. During the ninethree months ended September 30,March 31, 2021, during multiple trading days, the Company sold an aggregate of 877,107 shares of common stock at an average gross sale price of $3.1692 per share, resulting infor gross proceeds of $2.8 million. Proceeds, during the nine months ended September 30, 2021, net of $0.2 million of fees and offering costs, were $2.6 million. As of March 31, 2022, $40.0 million remained available under the Company’s ATM facility. (See Note 11 for a discussion of subsequent ATM facility activity.)

On April 30, 2020, the Company entered into an equity line purchase agreement and registration rights agreement pursuant to which Lincoln Park Capital Fund, LLC (“Lincoln Park”) has committed to purchase up to $15.0 million of the Company’s common stock. Under the terms and subject to the conditions of the purchase agreement, the Company has the right, but not the obligation, to sell to Lincoln Park, and Lincoln Park is obligated to purchase up to $15.0 million of the Company’s common stock, with $12.1 million obligation remaining as of September 30, 2021.March 31, 2022. Such sales of common stock by the Company will be subject to certain limitations, and may occur from time to time, at the Company’s sole discretion, over the 36-month period commencing on June 8, 2020. The number of shares the Company may sell to Lincoln Park on any single business day in a regular purchase is 50,000, but that amount may be increased up to 100,000 shares, depending upon the market price of the Company’s common stock at the time of sale and subject to a maximum limit of $1.0 million per regular purchase. The purchase price per share for each such regular purchase will be based on prevailing market prices of the Company’s common stock immediately preceding the time of sale as computed under the purchase agreement. In addition to regular purchases, the Company may also direct Lincoln Park to purchase other amounts as accelerated purchases or as additional accelerated purchases if the closing sale price of the common stock exceeds certain threshold prices as set forth in the purchase agreement. The Company issued 148,148 shares of common stock to Lincoln Park as a commitment fee in connection with entering into the purchase agreement. The $0.4 million fair value of the commitment fee shares was recorded to general and administrative expense along with other costs incurred in connection with entering into the purchase agreement. During the three months ended September 30, 2021,March 31, 2022, the Company did 0t sell any shares of common stock under its purchase agreement with Lincoln Park. During the ninethree months ended September 30,March 31, 2021, the Company sold 200,000 shares of common stock under its purchase agreement with Lincoln Park at a weighted average gross sale price of $2.47 per share, resulting in proceeds of $0.5 million.

On July 24, 2020,January 25, 2021, the Company entered into an option agreement (the “Option Agreement”) with Relief, pursuant to which the Company granted Relief an exclusive option (the “Exclusivity Option”) to pursue a securities purchase agreementpotential collaboration and license arrangement with the Company for the saledevelopment, regulatory approval and issuancecommercialization of an aggregateACER-001 for the treatment of 244,998 shares

various inborn errors of metabolism, including UCDs and MSUD. The Option Agreement provided a period of time up to June 30, 2021, for the parties to perform additional due diligence and to work toward negotiation and execution of a definitive agreement with respect to the potential collaboration for ACER‑001. In consideration for the grant of the Company’s common stock, forExclusivity Option, (i) the Company received from Relief an aggregate purchase priceupfront nonrefundable payment of $0.9$1.0 million, (ii) Relief provided to the Company a 12-month secured loan in the principal amount of $4.0 million, as evidenced by a private placement transaction (“Private Placement”Promissory Note (the “Note”) with certain directors, officers,the Company issued to Relief, and employees(iii) the Company granted Relief a security interest in all of its assets to secure performance of the Note, as evidenced by a Security Agreement (the “Security Agreement”). The Note was repayable in one lump sum within 12 months from issuance and bore interest at a pricerate equal to 6% per share of $3.50. The shares of common stock issued inannum. If a definitive agreement with respect to the Private Placement constitute “restricted securities” underpotential collaboration had not been executed by the federal securities lawsparties on or before June 30, 2021, the Exclusivity Option would have terminated, and were subject to a minimum six-month holding period.the Note would have been repayable by the Company upon maturity.

On March 19, 2021, the Company entered into the Collaboration Agreement with Relief providing for the development and commercialization of ACER-001 for the treatment of various inborn errors of metabolism, including for the treatment of UCDs and MSUD. The Collaboration Agreement isCompany received a $10.0 million cash payment from Relief (i.e., a $14.0 million “Reimbursement Payment” from Relief to the culminationCompany offset by payment of the option agreement (the “Option Agreement,” together$4.0 million outstanding balance of the “Agreements”) previously entered into betweenNote plus interest earned through the Companydate of the Collaboration Agreement) and Relief on January 25, 2021. Pursuant toreleased its security interest in all of the Agreements, the Company received from Relief an upfront non-refundable payment of $1.0 million and a reimbursement payment of $14.0 million.Company’s assets. Under the terms of the Collaboration Agreement, Relief committed to pay the Company up to an additional $20.0 million infor U.S. development and commercial launch costs for the UCDs and MSUD indications (the “Development Payments”). During the three months ended June 30, 2021, the Company received from Relief the $10.0 million First Development Payment. The Company iswas contractually entitled to receive from Relief an additional $10.0 million Second Development Payment conditioned upon the FDA’s acceptance of a New Drug Application (“NDA”) for ACER-001 in a UCD for filing and review. This acceptance was received on October 4, 2021. On October 6, 2021, the Company entered into a Waiver and Agreement with Relief to amend the timing for the Second Development Payment. The Company received the first $5.0 million tranche of the Second Development Payment in two $5.0 million tranches on each of October 12, 2021.2021 and January 14, 2022. Further, the Company retained development and commercialization rights in the U.S., Canada, Brazil, Turkey, and Japan (“Acer Territory”). The companies will split net profits from the Acer Territory 60%:40% in favor of Relief. Relief licensed the rights for the rest of the world (“Relief Territory”), where the Company is contractually entitled towill receive from Relief an additional $5.0 million second tranche ofa 15% royalty on all net sales received in the Second Development Payment upon the earlier of January 14, 2022 or 15 business days following the Company’s written notice. Should that payment not occur, the Company’s development plans could be affected unless it were able to obtain other funds. There is 0 guarantee that ACER-001 will receive regulatory authority approval in any territory or become commercially available for the indications under investigation.Relief Territory. The Company could also receive a total of $6.0 million in milestone payments based on the first European marketing approvals of ACER-001 for a UCD and MSUD. There is 0 guarantee that ACER-001 will receive regulatory authority approval in any territory or become commercially available for the indications under investigation. The terms of the AgreementsCollaboration Agreement and Option Agreement are further described below in the Revenue Recognition and Accounting for Collaboration Agreements section of Note 2, Significant Accounting Policies. 

On March 4, 2022, the Company entered into a Credit Agreement (the “SWK Credit Agreement”) with the lenders party thereto and SWK Funding LLC (“SWK”), as the agent, sole lead arranger and sole bookrunner, which provided for a senior secured term loan facility in an aggregate amount of $6.5 million in a single borrowing (the “Bridge Loan”). The Bridge Loan funding closed on March 14, 2022. The proceeds of the Bridge Loan are being used to pay fees, costs and expenses related to the SWK Credit Agreement, the Secured Convertible Note Purchase Agreement (as defined and described below) and the Marathon Credit Agreement (as defined and described below) and for other working capital and general corporate purposes.

The Bridge Loan bears interest at an annual rate of the sum of (i) 3-month LIBOR (or such other rate as may be agreed by the Company and SWK following the date on which 3-month LIBOR is no longer available), subject to a 1% floor, plus (ii) a margin of 11%, with such interest payable quarterly in arrears. In the event of default, the interest rate will increase by 3% per annum over the contract rate effective at the time of default, but shall not be higher than the maximum rate permitted to be charged by applicable laws. The Company has the option to capitalize such interest commencing on the date on which the Bridge Loan was funded and continuing until November 15, 2022. Commencing on November 15, 2022, the principal amount of the Bridge Loan will amortize at a rate of $0.7 million payable quarterly. The final maturity date of the Bridge Loan is (a) if full approval by FDA for marketing of ACER-001 (“ACER-001 Approval”) occurs on or before September 30, 2022, then the date which is 12 business days after ACER-001 Approval, or (b) if ACER-001 Approval does not occur on or before September 30, 2022, then March 4, 2024. The Company has the option to prepay the Bridge Loan in whole or in part. Upon the repayment of the Bridge Loan (whether voluntary or at scheduled maturity), the Company must pay an exit fee so that SWK receives an aggregate amount (inclusive of all principal, interest and origination and other fees paid to SWK under the SWK Credit Agreement on or prior to the prepayment date) equal to (a) 1.3 times the outstanding principal amount of the Bridge Loan, plus any and all payment-in-kind interest payments, if ACER-001 Approval or such payment occurs on or prior to September 30, 2022, or (b) 1.5 times the outstanding principal amount of the Bridge Loan, plus any and all payment-in-kind interest amounts, if each of ACER-001 Approval and such payment does not occur until after September 30, 2022. Under the Bridge Loan, the Company is required to maintain a cash balance of not less than $1.5 million while the Bridge Loan is outstanding. If the Company is unable to receive approval of ACER-001 from FDA, the required cash balance would increase to $4.0 million 20 days after the date of the FDA’s Complete Response Letter and to $6.5 million 40 days after the date of FDA’s Complete Response Letter, and would be reduced to $2.0 million in the event of positive safety and efficacy data for ACER-801 from a Phase 2a trial.

The Bridge Loan is secured by a first priority lien on all assets of the Company and any of its future subsidiaries pursuant to a Guarantee and Collateral Agreement entered into on March 4, 2022, between the Company and SWK, as agent (the “SWK Security Agreement”). The SWK Credit Agreement contains customary representations and warranties and affirmative and negative covenants. The Company paid to SWK $0.1 million in origination fees on the date on which the Bridge Loan was funded.

In addition, the Company issued a warrant (the “SWK Warrant”) to purchase 150,000 shares of the Company’s common stock at an exercise price of $2.46 per share. SWK may exercise the SWK Warrant in accordance with the terms thereof for all or any part of such shares of common stock from the date on which the Bridge Loan was funded until and including March 4, 2029.

On March 4, 2022, the Company also entered into a Secured Convertible Note Purchase Agreement with MAM Aardvark, LLC (“Marathon”) and Marathon Healthcare Finance Fund, L.P. (“Marathon Fund” and together with “Marathon” each a “Holder” and collectively the “Holders”) (the “Secured Convertible Note Purchase Agreement”) pursuant to which the Company issued and sold to the Holders secured convertible notes (the “Secured Convertible Notes”) in an aggregate amount of up to $6.0 million (the “Convertible Note Financing”). The Convertible Note Financing closed on March 14, 2022. The proceeds of the Convertible Note Financing are being used to pay fees, costs and expenses related to the SWK Credit Agreement, the Secured Convertible Note Purchase Agreement and the Marathon Credit Agreement and for other working capital and general corporate purposes.

The Secured Convertible Notes bear interest at an annual rate of 6.5%, with such interest payable quarterly; provided, however, that until the first to occur of ACER-001 Approval and the repayment in full of the Bridge Loan, interest will not be payable in cash, but will accrue and be payable in cash upon the earlier of a) the repayment of all obligations under the Bridge Loan and termination of such Bridge Loan or b) within three business days of ACER-001 Approval. Subject to the restrictions set forth in an agreement among each of the Holders and SWK, as agent and lender, and any other intercreditor or subordination agreement entered into in connection with the Term Loan (defined below), each of the Holders has the right, during the 30-day periods beginning 12 months, 18 months and 24 months after the closing date of the Convertible Note Financing, to require the Company to redeem the Convertible Secured Note held by such Holder at a redemption price of the outstanding principal amount plus any accrued but unpaid interest. Each of the Holders also has the right to convert all or any portion of the outstanding principal amount plus any accrued but unpaid interest under the Convertible Secured Note held by such Holder into shares of common stock at a conversion price of $2.50 per share, subject to adjustment. Each Holder has certain rights with respect to the registration by the Company for resale of the shares of common stock issuable upon conversion of the Secured Convertible Note held by such Holder which are forth in the Secured Convertible Note Purchase Agreement. Any outstanding principal, together with all accrued and unpaid interest, will be payable on the earlier of the third anniversary of the date of issuance, or upon a change of control of the Company.

Pursuant to the Secured Convertible Note Purchase Agreement, the Secured Convertible Notes are secured by a lien on collateral representing substantially all assets of the Company, although such security interest is subordinated to the Company’s obligations under the SWK Credit Agreement and may also be subordinated to the Company’s obligations under the Marathon Credit Agreement.

On March 4, 2022, the Company also entered into a Credit Agreement (the “Marathon Credit Agreement”) with the lenders party thereto and Marathon, as the agent, sole lead arranger and sole bookrunner, which provides for a senior secured term loan facility in an aggregate amount of up to $42.5 million in a single borrowing (the “Term Loan”). The Term Loan will be available to be borrowed only following ACER-001 Approval and until December 31, 2022 (i.e., if ACER-001 Approval does not occur on or before December 31, 2022, then the Term Loan will not be available), and funding of the Term Loan is also subject to the satisfaction of conditions as set forth in the Marathon Credit Agreement. The Term Loan, if it becomes available, will be used to refinance certain other indebtedness of the Company (including the Bridge Loan), to pay fees, costs and expenses related to the Marathon Credit Agreement and for other working capital and general corporate purposes. Should the Term Loan become available, the Company will pay Marathon a commitment fee equal to 1.5% of the Term Loan amount. The Marathon Credit Agreement also includes an accordion feature pursuant to which the Company, Marathon and the lenders under the Marathon Credit Agreement may agree to increase the Term Loan commitments by up to an additional $50.0 million dollars for a total commitment of $92.5 million; provided, however, that any such increase is within the sole discretion of each party (i.e., the Company cannot unilaterally trigger such an increase).

The Term Loan will bear interest at an annual rate of 13.5% and will be payable quarterly in arrears. The Company has the option to capitalize up to 4% of such interest commencing on the date on which the Term Loan is funded (the “Term Loan Funding Date”) and continuing until the third anniversary of the Term Loan Funding Date. Commencing on the third anniversary of the Term Loan Funding Date, the principal outstanding amount of the Term Loan will amortize at a rate of 2.78%, payable monthly. The final maturity date of the Term Loan is the earlier of six years after the Term Loan Funding Date or December 31, 2028. The Company has the option to prepay the Term Loan in whole or in part at any time, subject to a prepayment fee equal to (a) if the prepayment is made prior to March 4, 2025, then the greater of 5% or the amount of interest that would have accrued from the date of prepayment until March 4, 2025, (b) if the prepayment is made on or after March 4, 2025, but prior to March 4, 2026, then 3%, (c) if the prepayment is made on or after March 4, 2026, but prior to March 4, 2027, then 2%, or (d) if the prepayment is made on or after March 4, 2027, then 1%.

The Term Loan is secured by a first priority lien on all assets of the Company and any of its future subsidiaries pursuant to a Guarantee and Collateral Agreement to be entered into on the Term Loan Funding Date between the Company and Marathon, as agent (the “Marathon Security Agreement”). The Marathon Credit Agreement contains customary representations and warranties and affirmative and negative covenants. The Company paid $0.2 million in commitment fees to Marathon in connection with obtaining the commitments in respect of the Term Loan and will pay $0.6 million in additional commitment fees to Marathon following ACER-001 Approval or any change of control of the Company or sale or transfer of the ACER-001 product.

In connection with the Marathon Credit Agreement, on March 4, 2022, the Company, Marathon and the Marathon Fund also entered into a Synthetic Royalty Agreement (the “Royalty Agreement”) pursuant to which, in the event of the funding of the Term Loan, the Company will pay Marathon and the Marathon Fund, on a quarterly basis, 2% of certain aggregate revenue from ACER-001 during that quarter (i.e., 2% of the net sales and of the amount of certain other payments), subject to a cap on the aggregate amount of such payments of $15.0 million. Upon a change of control of the Company or the sale of the ACER-001 business to a third party, the Company would pay Marathon and the Marathon Fund the difference between $15.0 million and the aggregate amount of the payments previously made by the Company to Marathon and the Marathon Fund pursuant to the Royalty Agreement.

The Company’s existing cash and cash equivalents available at September 30, 2021, plus the $10.0 million Second Development Payment in 2 tranches following the FDA’s acceptance for filing and review of an NDA for ACER-001 in a UCD per the Collaboration Agreement with Relief,March 31, 2022 are expected to be sufficient to fund its currently anticipated operating and capital requirements into mid-2022, excluding support for planned ACER-801 and EDSIVO^TM clinical trials. See Note 9 to these unaudited condensed interim financial statements.the third quarter of 2022.

Management expects to continue to finance operations through the issuance of additional equity or debt securities, non-dilutive funding, and/or through strategic collaborations. Any transactions which occur may contain covenants that restrict the ability of management to operate the business and any securities issued may have rights, preferences, or privileges senior to the Company’s common stock and may dilute the ownership of current stockholders of the Company.

Going Concern

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the U.S. (“GAAP”), which contemplate continuation of the Company as a going concern. The Company has not established a source of commercial product revenues and, as such, has been dependent on funding operations through the sale of equity securities, and through a collaboration agreement.agreement, and through debt instruments. Since inception, the Company has experienced significant losses and incurred negative cash flows from operations. The Company has an accumulated deficit of $110.1 million as of September 30, 2021 and expects to incur further losses for the foreseeable future as it develops its business. The Company has spent, and expects to continue to spend, a substantial amount of funds in connection with implementing its business strategy, including its planned product development efforts and potential precommercial activities.

As of September 30, 2021,March 31, 2022, the Company had cash and cash equivalents of $14.2$20.8 million and current liabilities of $30.4$27.6 million, which include $17.8$17.2 million associated with deferred collaboration funding (see Revenue Recognition and Accounting for Collaboration Agreements below in Note 2, Significant Accounting Policies), as well as a $9.2$0.8 million liability related to the securities class action and stockholder derivative actions settlements and legal costs, for which the Company has also recorded a receivablean asset of an equal amount representing the recovery from its insurance carriers. The Company’s cash and cash equivalents available at September 30, 2021, plus the $10.0 million Second Development Payment in 2 tranches following the FDA’s acceptance for filing and review of an NDA for ACER-001 in a UCD per the Collaboration Agreement with Relief,March 31, 2022 are expected to be sufficient to fund its currently anticipated operating and capital requirements into mid-2022, excluding support for planned ACER-801 and EDSIVO^TM clinical trials.the third quarter of 2022.

The Company will need to raise additional capital to fund continued operations beyond mid-2022the third quarter of 2022 because neither FDA approval of ACER-001 nor subsequent product revenues are assured. The Company may not be successful in its efforts to raise additional funds or achieve profitable operations. The Company continues to explore potential opportunities and alternatives to obtain the additional resources that will be necessary to support its ongoing operations beyond mid-2022,the third quarter of 2022, including raising additional capital through either private or public equity or debt financing or non-dilutive funding, as well as using its ATM facility which has $40.0 million available as of March 31, 2022 and/or its remaining $12.1 million available under the equity line facility entered into on April 30, 2020 with Lincoln Park. (See At-the-Market Facility and Common Stock Purchase Agreement below in Note 9.) Due to the SEC’s “baby shelf rules,” which prohibit companies with a public float of less than $75 million from issuing securities under a shelf registration statement in excess of one-third of such company’s public float in a 12-month period, the Company is currently only able to issue a limited number of shares under its ATM facility which aggregate to no more than one-third of its public float. Additionally, there can be no assurance that the Company will be able to receive the entire obligation amount from Lincoln Park which is subjectbecause the purchase agreement contains limitations, restrictions, requirements, events of default, and other provisions that could limit the Company’s ability to certain limitations and conditions.cause Lincoln Park to buy common stock from the Company. As noted above, the Company also has available to it the $42.5 million Term Loan conditional upon the approval of ACER-001 by FDA. The Company has no commitments for any additional financing, except for the agreement with Lincoln Park, and the Collaboration Agreement with Relief.Relief, and the Marathon Credit Agreement for the Term Loan. Any amounts raised will be used for further development of its product candidates, precommercial activities, potential acquisitions of additional product candidates, and for other working capital purposes.

If the Company is unable to obtain additional funding to support its current or proposed activities and operations, it may not be able to continue its operations as proposed, which may require it to suspend or terminate any ongoing development activities, modify

its business plan, curtail various aspects of its operations, cease operations, or seek relief under applicable bankruptcy laws. In such event, the Company’s stockholders may lose a substantial portion or even all of their investment.

These factors individually and collectively raise substantial doubt about the Company’s ability to continue as a going concern.concern for at least 12 months from the date these financial statements are available, or May 16, 2023. The accompanying unaudited condensed financial statements do not include any adjustments or classifications that may result from the possible inability of the Company to continue as a going concern. See Note 9 to these unaudited condensed interim financial statements.

Basis of Presentation

The accompanying condensed financial statements are unaudited and have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Regulation S-X. The unaudited condensed financial statements have been prepared on the same basis as the audited annual financial statements and reflect, in the opinion of management, all adjustments of a normal and recurring nature that are necessary for the fair presentation of the Company’s financial position, results of operations, stockholders’ (deficit) equity and cash flows for the periods presented. The results of operations for the three and nine months ended September 30, 2021March 31, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 20212022 or for any other future annual or interim period. The condensed balance sheet as of December 31, 2020,2021, included herein, was derived from the audited financial statements as of that date but does not include all disclosures required by GAAP. These unaudited financial statements should be read in conjunction with the Company’s audited financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2020.2021.

Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”).

The Company’s significant accounting policies are described in Note 2, “Significant Accounting Policies,” in its Annual Report on Form 10-K for the year ended December 31, 2020.2021.

Use of Estimates

The Company’s accounting principles require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of assets and liabilities at the date of the condensed financial statements and reported amounts of revenues and expenses during the reporting period. From time to time, estimates having relatively higher significance include determination of stand-alone selling price and variable consideration estimates for purposes of revenue recognition, stock-based compensation, inputs to fair value for debt, contract manufacturing and clinical trial accruals, and income taxes. Actual results could differ from those estimates and changes in estimates may occur.

Revenue Recognition and Accounting for Collaboration Agreements

The Company’s revenues are generated from a single collaboration agreement which included the sale of a license of intellectual property. The Company analyzes its collaboration agreements to assess whether they are within the scope of ASC Topic 808,Collaborative Arrangements, (ASC 808) to determine whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards that are dependent on the commercial success of such activities. To the extent the arrangement is within the scope of ASC 808, the Company assesses whether aspects of the arrangement between the Company and the collaboration partner are within the scope of other accounting literature. If the Company concludes that some or all aspects of the arrangement represent a transaction with a customer, the Company accounts for those aspects of the arrangement within the scope of ASC Topic 606, Revenue from Contracts with Customers (ASC 606). If the Company concludes that some or all aspects of the arrangement are within the scope of ASC 808 and do not represent a transaction with a customer, the Company recognizes the Company’s share of the allocation of the shared costs incurred with respect to the jointly conducted activities as a component of the related expense in the period incurred. Pursuant to ASC 606, a customer is a party that has contracted with an entity to obtain goods or services that are an output of the entity’s ordinary activities in exchange for consideration. Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. If the Company concludes a counter-party to a transaction is not a customer or otherwise not within the scope of ASC 606 or ASC 808, the Company considers the guidance in other accounting literature as applicable or by analogy to account for such transaction.

The Company determines the units of account within the collaborative arrangement utilizing the guidance in ASC 606 to determine which promised goods or services are distinct. In order for a promised good or service to be considered “distinct” under ASC 606, the customer can benefit from the good or service either on its own or together with other resources that are readily

available to the customer (i.e., the good or service is capable of being distinct), and the entity’s promise to transfer the good or

service to the customer is separately identifiable from other promises in the contract (i.e., the promise to transfer the good or service is distinct within the context of the contract).

For any units of account that fall within the scope of ASC 606, where the other party is a customer, the Company evaluates the separate performance obligation(s) under each contract, determines the transaction price, allocates the transaction price to each performance obligation considering the estimated stand-alone selling prices of the services and recognizes revenue upon the satisfaction of such obligations at a point in time or over time dependent on the satisfaction of one of the following criteria: (1) the customer simultaneously receives and consumes the economic benefits provided by the vendor’s performance; (2) the vendor creates or enhances an asset controlled by the customer; and (3) the vendor’s performance does not create an asset for which the vendor has an alternative use;use and (4) the vendor has an enforceable right to payment for performance completed to date.

Variable consideration is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

Revenue for a sales-based or usage-based royalty promised in exchange for a license of intellectual property is recognized only when (or as) the later of the following events occurs: (i) the subsequent sale or usage occurs; or (ii) the performance obligation to which some or all of the sales-based or usage-based royalty has been allocated has been satisfied (or partially satisfied).

On January 25, 2021, the Company entered into the Option Agreement with Relief pursuant to which the Company granted Relief an exclusive option (the “Exclusivity Option”)the Exclusivity Option to pursue a potential collaboration and license arrangement with the Company for the development, regulatory approval and commercialization of ACER-001 for the treatment of various inborn errors of metabolism, including UCDs and MSUD. The Option Agreement provided a period of time up to June 30, 2021 for the parties to perform additional due diligence and to work toward negotiation and execution of a definitive agreement with respect to the potential collaboration for ACER‑001. In consideration for the grant of the Exclusivity Option, (i) the Company received from Relief an upfront nonrefundable payment of $1.0 million, (ii) Relief provided to the Company a 12-month secured loan in the principal amount of $4.0 million, as evidenced by a Promissorythe Note (the “Note”) issued by the Company to Relief, and (iii) the Company granted to Relief a security interest in all of its assets to secure performance of the Note, as evidenced by athe Security Agreement (the “Security Agreement”).Agreement. The Note was repayable in one lump sum within 12 months from issuance and bore interest at a rate equal to 6% per annum. If a definitive agreement with respect to the potential collaboration had not been executed by the parties on or before June 30, 2021, the Exclusivity Option would have terminated and the Note would have been repayable by the Company upon maturity.

On March 19, 2021, the Company entered into the Collaboration Agreement with Relief providing for the development and commercialization of ACER-001 for the treatment of various inborn errors of metabolism, including for the treatment of UCDs and MSUD. The Company received thea $10.0 million cash payment from Relief ($14.0(i.e., a $14.0 million “Reimbursement Payment,” butPayment” from Relief to the Company offset by repayment of the $4.0 million outstanding balance of the Note, plus interest earned through the date of the Collaboration Agreement, fromAgreement), and Relief toreleased its security interest in all of the Company).Company’s assets. Under the terms of the Collaboration Agreement, Relief committed to pay the Company up to an additional $20.0 million for U.S. development and commercial launch costs for the UCDs and MSUD indications (the “Development Payments”).indications. During the three months ended June 30, 2021, the Company received from Relief the $10.0 million First Development Payment. The Company iswas contractually entitled to receive from Relief an additional $10.0 million Second Development Payment conditioned upon the FDA’s acceptance of an NDA for ACER-001 in a UCD for filing and review. This acceptance was received on October 4, 2021. On October 6, 2021, the Company entered into a Waiver and Agreement with Relief to amend the timing for the Second Development Payment. The Company received the first $5.0 million tranche of the Second Development Payment in two $5.0 million tranches on each of October 12, 2021. The Company is contractually entitled to receive from Relief an additional $5.0 million second tranche of the Second Development Payment upon the earlier of2021 and January 14, 2022 or 15 business days following the Company’s written notice. Should that payment not occur, the Company’s development plans could be affected unless it were able to obtain other funds. There is no guarantee that ACER-001 will receive regulatory authority approval in any territory or become commercially available for the indications under investigation.2022. Further, the Company retained development and commercialization rights in the U.S., Canada, Brazil, Turkey and Japan (“Acer Territory”). The companies will split net profits from the Acer Territory 60%:40% in favor of Relief. Relief licensed the rights for the rest of the world (“Relief Territory”), where the Company will receive from Relief a 15% royalty on all net sales received in the Relief Territory. The Company could also receive a total of $6.0 million in milestone payments based on the first European (EU) marketing approvals for a UCD and MSUD. There is no guarantee that ACER-001 will receive regulatory authority approval in any territory or become commercially available for the indications under investigation.

The Company assessed these agreements in accordance with the authoritative literature and concluded that they meet the definition of a collaborative arrangement per ASC 808. For certain parts of the collaborative arrangement,Collaboration Agreement, the Company concluded that Relief represented a customer while, for other parts of the agreementCollaboration Agreement, Relief did not represent a customer. The units of account of the collaborative arrangementCollaboration Agreement where Relief does not represent a customer are outside of the scope of ASC 606. The Company also determined that the development and commercialization services and Relief’s right to 60% profit in the Acer Territory is within the scope of ASC 730, with regard to funded research and development arrangements.

The Company concluded the promised goods and services contained in the Collaboration Agreement, represented two distinct units of account consisting of a license in the Relief Territory, and a combined promise for the development and commercialization

of ACER-001 in the Acer Territory and the payment of 60% net profit from that territory (together, the “Services”). The stand-alone selling price was estimated for each distinct unit of account.account utilizing an estimate of discounted cashflows associated with each.

The Company determined that the transaction price at the outset of the Collaboration Agreement iswas $25.0 million, including the Option Fee of $1.0 million, the Reimbursement Payment of $14.0 million, and the First Development Payment of $10.0 million. The Company concluded that consistent with the evaluation of variable consideration, using the most likely amount approach, the Second Development Payment as well as the milestone payments for EU marketing approvals, should be fully constrained until the contingency associated with each payment has been resolved and the Company’s NDA is accepted for review by the FDA, and Relief receives EU marketing approval, respectively.

Since ASC 808 does not provide recognition and measurement guidance for collaborative arrangements, the Company applied the principles of ASC 606 for those units of account where Relief is a customer and ASC 730-20 for the funded research and development activities. The license revenue was recognized at the point where the Company determined control was transferred to the customer. The combined unit of account for the Services associated with the allocation of the initial transaction price will be recognized over the service period through the anticipated date of first commercial sale of the ACER-001 approved product in the U.S. The Company also determined that the Services associated with the allocation of the initial transaction price would be satisfied over time as measured using actual costs as incurred by the Company toward the identified development and commercialization services agreed to between the parties up to the point of first commercial sale of the ACER-001 product. Research and development expenseexpenses and general and administrative expense,expenses, as they relate to activities governed by the Collaboration Agreement, incurred in satisfying the Services unit-of-account will be recognized as contra-expense within their respective categories, consistent with the presentation guidance in ASC 730.Topic 730, Research and Development (ASC 730).

The Company recognizes asa receivable under the Collaboration Agreement when the consideration whichto be received is deemed unconditional, or when only the passage of time is required before payment of that consideration is due. Amounts receivable under the Collaboration Agreement plus payments received from Relief, net of the amountamounts recorded as license revenue and as offsets to research and development expenses and to general and administrative expenses, are reported as deferred collaboration funding.

At September 30, 2021,March 31, 2022, the amount of deferred collaboration funding associated with unsatisfied promises under the Collaboration Agreement amounted to $17.8$19.1 million. The Company has recorded $17.2 million as a current liability, which equates to the Company’s estimate of remaining spending under the Collaboration Agreement and which the Company estimates will be recognized within the next 12 months up to the point of the first commercial sale of ACER-001. The remaining balance of $2.0 million is recorded as a non-current liability and represents the estimated amount that would be taken against future net profit payments made to Relief should they occur. The Company expects to recognize this deferred collaboration funding as it incurs expenses associated with performing the Services up to the date of first commercial sale in the Acer Territory and through the end of the effective date of the Collaboration Agreement. At September 30, 2021,March 31, 2022, deferred collaboration funding was composed of $25.0$35.0 million received from Relief, offset by $0.9$1.3 million recognized as license revenue during the year ended December 31, 2021 and $4.8$9.1 million recorded as an offset to research and development expenses and $1.6$5.6 million recorded as an offset to general and administrative expenses duringsubsequent to signing the nine months ended September 30, 2021.Collaboration Agreement and through the date of this report.

Cash and Cash Equivalents and Fair Value of Financial Instruments

The Company considers all highly liquid investments with maturities of three months or less at the date of purchase to be cash equivalents.

The Financial instruments that potentially subject the Company followsto concentration of credit risk consist principally of cash deposits. Accounts at each institution are insured by the provisions of ASC Topic 820, Fair Value Measurement, which establishes a fair value hierarchy that prioritizes the inputsFederal Deposit Insurance Corporation (“FDIC”) up to valuation techniques used to measure fair value. The Company considers its investments in money market funds of $12.9 million and $5.3 million as of September 30, 2021$250,000. At March 31, 2022 and December 31, 2020,2021, the Company had $20.6 million and $12.5 million, respectively, included in excess of the FDIC insured limit.

Under the Bridge Loan, the Company is required to maintain a cash and cash equivalents balance of not less than $1.5 million while the Bridge Loan is outstanding. If the Company is unable to be Level 1, which are based on unadjusted quoted prices in active markets for identical assets or liabilities accessiblereceive approval of ACER-001 from the FDA, the required cash balance would increase to $4.0 million 20 days after the reporting entity at the measurement date. The estimated fair valuedate of the Company’s financial instruments, which include cashFDA’s Complete Response Letter and cash equivalents, accounts receivable, accounts payable,to $6.5 million 40 days after the date of the FDA’s Complete Response Letter, and loans payable recordedwould be reduced to $2.0 million in other current liabilitiesthe event of positive safety and other non-current liabilities approximates their carrying value, based upon their short-term maturities or prevailing interest rates.efficacy data for ACER-801 from a Phase 2a trial.

The Company recognized a $4.0 million non-cash reduction in a secured loan from Relief during the ninethree months ended September 30,March 31, 2021, since the Reimbursement Payment from Relief was received net of the amount of principal and interest due in connection with the secured loan.

Fair Value of Financial Instruments

ASC Topic 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 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 among the following:

•Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.

•Level 2—Valuations based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and models for which all significant inputs are observable, either directly or indirectly.

•Level 3—Valuations based on inputs that are unobservable and significant to the overall 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.

Financial instruments consist of cash equivalents, collaboration receivable, accounts payable, accrued expenses, and debt instruments. These financial instruments are stated at their respective historical carrying amounts, which approximate fair value due to their short-term nature, except for cash equivalents and debt instruments, which were marked to market at the end of each reporting period. See Note 7 for additional information on the fair value of the debt liabilities.

The Company elected the fair value option for both its Bridge Loan and its Secured Convertible Notes dated March 14, 2022 (see Note 7). The Company adjusts both the Bridge Loan and the Secured Convertible Notes to fair value through the change in fair value of debt in the accompanying unaudited condensed statements of operations. Subsequent unrealized gains and losses on items for which the fair value option is elected are reported in earnings.

Debt

Convertible notes are regarded as compound instruments, consisting of a liability component and an equity component. The Company determined that it is eligible for the fair value option election in connection with the Bridge Loan and the Secured Convertible Notes. Each instrument met the definition of a “recognized financial liability” which is an acceptable financial instrument eligible for the fair value option under ASC 825-10-15-4 and do not meet the definition of any of the financial instruments found within ASC 825-10-15-5 that are not eligible for the fair value option. At the date of issuance, the fair value for each instrument is derived from the instrument’s implied discount rate at inception.

Research and Development Expenses

Research and development costs are expensed as incurred and include compensation and related benefits, license fees and third-party contracted research and manufacturing consultants. The Company sometimes makes nonrefundable advance payments for goods and services that will be used in future research and development activities. These payments are capitalized and recorded as an expense in the period that the goods are received or that the services are performed. From time to time, in connection with the Collaboration Agreement with Relief, the Company may recognize “contra-expense” for the research and development activities which were funded by the Collaboration Agreement. These contra-expense amounts are disclosed parenthetically on the face of the financial statements.

General and Administrative Expenses

General and administrative expenses consist primarily of employee-related expenses, including salaries, benefits, and stock-based compensation; precommercial costs; and professional fees for legal, business consulting, auditing, and tax services. The Company expects that general and administrative expenses will be substantial in the future. From time to time, in connection with the Collaboration Agreement with Relief, the Company may recognize “contra-expense” for the general and administrative activities

which were funded by the Collaboration Agreement. These contra-expense amounts are disclosed parenthetically on the face of the financial statements.

Clinical Trial and Preclinical Study Expenses

The Company makes estimates of prepaid and/or accrued expenses as of each balance sheet date in its financial statements based on certain facts and circumstances at that time. The Company’s accrued expenses for preclinical studies and clinical trials are based on estimates of costs incurred for services provided by contract research organizations (“CROs”), manufacturing organizations, and for other trial- and study-related activities. Payments under the Company’s agreements with external service providers depend on a number of factors such as site initiation, patient screening, enrollment, delivery of reports, and other events. In accruing for these activities, the Company obtains information from various sources and estimates the level of effort or expense allocated to each period. Adjustments to research and development expenses may be necessary in future periods as the Company’s estimates change. As these activities are generally material to the Company’s financial statements, subsequent changes in estimates may result in a material change in the Company’s accruals. No material changes in estimates were recognized in either of the three months ended March 31, 2022 or 2021. Accounts payable and accrued expenses include costs associated with preclinical or clinical studies of $0.8 million and $0.2 million at March 31, 2022 and December 31, 2021, respectively.

Stock-Based Compensation

The Company records stock-based payments at fair value. The measurement date for compensation expense related to awards is generally the date of the grant. The fair value of awards is recognized as an expense in the condensed statements of operations over the requisite service period, which is generally the vesting period. The fair value of options is calculated using the Black-Scholes option pricing model. For a limited number of option grants to non-employee contractors, the Company utilizes the simplified method to value these awards. This option valuation model requires the use of assumptions including, among others, the volatility of stock price, the expected term of the option, and the risk-free interest rate.

The following assumptions were used to estimate the fair value of stock options granted during the three months ended March 31, 2022 and 2021 using the Black-Scholes option pricing model:

Due to its limited operating history and a limited trading history of its common stock in relation to the life of its standard option grants, the Company estimates the volatility of its stock in consideration of a number of factors including the Company’s available stock price history and the stock price volatility of comparable public companies. The expected term of a stock option granted to employees and directors (including non-employee directors) is based on the average of the contractual term (generally ten years) and the vesting period. For other non-employee options, the expected term is the contractual term. The assumed dividend yield is based upon the Company’s expectation of not paying dividends in the foreseeable future.  The Company recognizes forfeitures related to employee stock-based awards as they occur. The risk-free rate for periods within the expected life of the option is based upon the U.S. Treasury yield curve in effect at the time of grant. Option awards are granted at an exercise price equal to the closing market price of the Company’s common stock on the Nasdaq Capital Market on the date of grant.

Goodwill

Goodwill represents the excess of the purchase price (consideration paid plus net liabilities assumed) of an acquired business over the fair value of the underlying net tangible and intangible assets. The Company evaluates the recoverability of goodwill according to ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350) annually, or more frequently if events or changes in circumstances indicate that the carrying value of goodwill might be impaired. The Company may opt to perform a qualitative

assessment or a quantitative impairment test to determine whether goodwill is impaired. The Company’s goodwill is allocated to athe Company’s single reporting unit. If the Company were to determine based on a qualitative assessment that it was more likely than not that the fair value of the reporting unit was less than its carrying value, a quantitative impairment test would then be performed. The quantitative impairment test compares the fair value of the reporting unit with its carrying amount, including goodwill. If the estimated fair value of the reporting unit is less than its carrying amount, a goodwill impairment would be recognized for the difference. The COVID-19 pandemic involving a respiratory illness caused by a novel coronavirus affected the worldwide economy and triggered decline in the stock markets in 2020.markets. The Company considered potential triggering events related to COVID-19 and concluded that there was not a triggering event that would require the Company to perform further impairment analysis.

Stock-Based Compensation

The Company records stock-based payments at fair value. The measurement date for compensation expense related to awards is generally the dateperformed a qualitative

analysis of the grant. The fair valuegoodwill as of awards is recognized as an expenseDecember 31, 2021, in the condensed statement of operations over the requisite service period, which is generally the vesting period. The fair value of options is calculated using the Black-Scholes option pricing model. This option valuation model requires the use of assumptions including, among others, the volatility of stock price, the expected term of the option, and the risk-free interest rate. The risk-free rate for periods within the expected life of the option is based on the U.S Treasury yield curve in effect at the time of the grant. Due to its limited operating history and a limited trading history of its common stock in relation to the life of its standard option grants, the Company estimates the expected volatility of its stock in consideration of a number of factors including the volatility of comparable public companies. The Company recognizes forfeitures related to employee stock-based awards as they occur.

The following assumptions were used to estimatemanagement concluded that it was more likely than not that the fair value of stock options granted during the nine months ended September 30, 2021reporting unit was greater than its carrying amount.

Foreign Currency Transaction Gain/(Loss)

Gains and 2020 using the Black-Scholes option pricing model:

Researchlosses arising from transactions and Development Expenses

Research and development costsrevaluation of balances denominated in currencies other than U.S. dollars are expensed as incurred and include compensation and related benefits, license fees and outside contracted research and manufacturing consultants. The Company sometimes makes nonrefundable advance payments for goods and services that will be usedrecorded in future research and development activities. These payments are capitalized and recorded as an expense in the period that the goods are received or when the services are performed. From time to time, in connection with the Collaboration Agreement with Relief, the Company may recognize “contra-expense” for the research and development activities which were funded by this agreement. These contra-expense amounts will be disclosed parentheticallyforeign currency transaction gain/(loss) on the facestatements of the financial statements.

General and Administrative Expenses

General and administrative expenses consist primarily of employee-related expenses, including salaries, benefits, and stock-based compensation; precommercial costs; and professional fees for legal, business consulting, auditing, and tax services. We expect that general and administrative expenses will be substantial in the future. From time to time, in connection with the Collaboration Agreement with Relief, the Company may recognize “contra-expense” for the general and administrative activities which were funded by this agreement. These contra-expense amounts will be disclosed parenthetically on the face of the financial statements.

Clinical Trial and Preclinical Study Expenses

The Company makes estimates of prepaid and/or accrued expenses as of each balance sheet date in its financial statements based on certain facts and circumstances at that time. The accrued expenses for preclinical studies and clinical trials are based on estimates of costs incurred for services provided by contract research organizations (“CRO”), manufacturing organizations, and for other trial- and study-related activities. Payments under the Company’s agreements with external service providers depend on a number of factors such as site initiation, patient screening, enrollment, delivery of reports, and other events. In accruing for these activities, the Company obtains information from various sources and estimates the level of effort or expense allocated to each period. Adjustments to research and development expenses may be necessary in future periods as the Company’s estimates change. As these activities are generally material to the Company’s overall financial statements, subsequent changes in estimates may result in a material change in the

Company’s accruals. No material changes in estimates were recognized in each of the three and nine months ended September 30, 2021 and 2020. At September 30, 2021, accounts payable and accrued expenses did 0t include any costs associated with preclinical or clinical study expense. At December 31, 2020, accounts payable and accrued expenses included $1.8 million for costs associated with preclinical or clinical study expense.

Use of Estimates

The Company’s accounting principles require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of assets and liabilities at the date of the condensed financial statements and reported amounts of revenues and expenses during the reporting period. From time to time, estimates having relatively higher significance include revenue recognition, determination of stand-alone selling price, stock-based compensation, contract manufacturing and clinical trial accruals, and income taxes. Actual results could differ from those estimates and changes in estimates may occur.operations.

Income Taxes

The Company is primarily subject to U.S. federal and Massachusetts state income taxes. The Company’s tax returns for years 2015 through present are open to tax examinations by U.S. federal and state tax authorities; however, carryforward attributes that were generated prior to January 1, 2015 remain subject to adjustment upon examination if they either have been utilized or will be utilized in a future period. For federal and state income taxes, deferred tax assets and liabilities are recognized based upon temporary differences between the financial statement and the tax basis of assets and liabilities. Deferred income taxes are based upon prescribed rates and enacted laws applicable to periods in which differences are expected to reverse. The Company recorded 0 income tax expense or benefit during the three and nine months ended September 30,March 31, 2022 and 2021, and 2020, due to a full valuation allowance recognized against its net deferred tax assets. A valuation allowance is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Accordingly, the Company provides a valuation allowance, if necessary, to reduce deferred tax assets to amounts that are realizable. Utilization of net operating losses may be subject to substantial annual limitations due to the “change in ownership” provisions of the Internal Revenue Code of 1986, and similar state provisions. The annual limitations may result in the expiration of net operating losses before utilization.

The tax positions taken or expected to be taken in the course of preparing the Company’s tax returns are required to be evaluated to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet a more-likely-than-not threshold would be recorded as a tax expense in the current year. There were 0 uncertain tax positions that require accrual or disclosure in the financial statements as of March 31, 2022 and 2021. The Company’s policy is to recognize interest and penalties related to income tax, if any, in income tax expense. As of March 31, 2022 and 2021, the Company had 0 accruals for interest or penalties related to income tax matters.

The Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was enacted in the U.S. on March 27, 2020. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property. The Company is required to recognize the effects of tax law changes in the period of enactment. The enactment of the CARES Act did not result in material adjustments for the income tax provision for the three and nine months ended September 30, 2021March 31, 2022 or to the Company’s assessment of the realizability of deferred tax assets as the carry back of net operating losses was used as a source of income. There were no other effects to the Company’s tax provision as a result of the CARES Act as of September 30, 2021.March 31, 2022.

Basic and Diluted Net Loss per Common Share

Basic and diluted net loss per common share is computed by dividing net loss in each period byusing the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed using the sum of the weighted average number of common shares outstanding during the period and, if dilutive, the weighted average number of potential shares of common stock, including the assumed exercise of stock options, warrants, and the impact of unvested restricted stock. Basic and diluted shares outstanding during such period. Forare the periodssame for each period presented as all common stock equivalents, consisting of stock-based awards, were not included inincluding potential shares from convertible debt and warrants, would be antidilutive due to the calculation ofnet losses incurred.

The Company applied the two-class method to calculate basic and diluted net loss per share becauseattributable to common stockholders as its warrants to purchase common stock are participating securities. The two-class method is an earnings allocation formula that treats a participating security as having rights to earnings that otherwise would have been available to common stockholders. However, the two-class method does not impact the net loss per share of common stock as the Company has been in a net loss position and the warrant holders do so would be anti-dilutive.not participate in losses. Diluted net income per share is computed using the more dilutive of (a) the two-class method or (b) the if-converted method or treasury stock method, as applicable, to the potentially dilutive instruments.

Recently Adopted Accounting Pronouncements

In August 2020, the FASB issued ASU No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40), which simplifies the accounting for convertible instruments by removing, in certain cases, the need for models that required separate accounting for embedded conversion features and also amends the guidance for the derivatives scope exceptions for contracts in an entity’s own equity. This ASU also requires expanded disclosures, including additional information related to the terms and features of convertible instruments and information about events or conditions that cause conversion contingencies to be met or conversion terms to be significantly changed. The Company early adopted ASU No. 2020-06 in the first quarter of 2021. See Note 6 regarding the Secured Convertible Notes which were recognized in the first quarter of 2022 consistent with the adoption of this guidance.

In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force), which clarifies and reduces diversity in issuers’ accounting for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after modification or exchange. The Company adopted ASU No. 2021-04 in the first quarter of 2022. There was no impact on the Company’s financial statements or disclosures as a result of the adoption of this guidance.

In November 2021, the FASB issued ASU No. 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance, which requires annual disclosures regarding transactions with a government that are accounted for by applying a grant or contribution accounting model. The Company adopted ASU No. 2021-10 in the fourth quarter of 2021. There was no impact on the Company’s financial statements or disclosures as a result of the adoption of this guidance.

Property and equipment consisted of the following at September 30, 2021March 31, 2022 and December 31, 2020:2021:

Accrued expenses consisted of the following at September 30, 2021March 31, 2022 and December 31, 2020:2021:

On March 6, 2018, the Company entered into a lease agreement (the “Newton Lease”), commencing on October 1, 2018, for certain premises which consist of 2,760 square feet of office space located in Newton, Massachusetts (the “Newton Premises”) to serve as its corporate headquarters.Massachusetts. On March 5, 2019, the Company entered into an amendmenta modified lease agreement (the “Additional Newton Lease”) to the Newton Lease to addlease an additional 1,600 square feet of office space, commencing on June 1, 2019, located in Newton, Massachusetts (the “AdditionalMassachusetts. The Newton Premises”) to serve as additional space for its corporate headquarters. The term of the leases for the Newton Premises and the Additional Newton PremisesLease expires on May 31, 2022. In addition,On October 15, 2021, the Company entered into a lease amendment extending the Additional Newton Lease through December 31, 2022. Effective with the expiration of the Newton Lease and the extension of the Newton Additional Lease, the space leased by the Company in Newton will be reduced to 1,600 square feet as of June 1, 2022. The Company is required to share in certain taxes and operating expenses ofassociated with the Newton PremisesLease and the Additional Newton Premises.Lease.

The Company entered into a Triple Net Leasetriple net lease (the “Bend Lease”) effective April 1, 2018 for certain premises consisting of 2,288 square feet of office space located in Bend, Oregon (the “Bend Premises”) to serve as a satellite facility.Oregon. On April 23, 2019, the Company entered into an amendmenta modified lease agreement (the “Additional Bend Lease”) to the Bend Lease to addlease an additional 1,389 square feet of office space, commencing on May 1, 2019, located in Bend, Oregon (the “Additional Bend Premises”). TheOregon. On November 17, 2021, the Company entered into a lease agreement to extend the term of the lease for the Bend PremisesLease and the Additional Bend Premises expires on May 31,Lease to June 30, 2022 (the “Bend Term”). The Company has an optionand to further extend the Bend Term for up to 2 additional periodsterm either (1) until June 30, 2027 if FDA approval of three years and a rightACER-001 is received in June 2022, or (2) until June 30, 2025 if FDA approval of first refusal to lease an additional suiteACER-001 is not received in the same building.June 2022.

The leases for the Newton Premises, the Additional Newton Premises, theand Bend Premises, and the Additional Bend Premisesoffice space are classified as operating leases. The leases contain immaterial provisions for rent holidays and rent escalations over the term of the leases, which have been included in the Company’s right of use asset and lease liabilities. In the first quarter of 2019,year ended December 31, 2021, the Company adopted ASU 2016-02 and recorded a non-cash transaction to recognize a right-of-use asset ofan additional $0.4 million in other non-current assets, as well as aright of use asset and lease liability of $0.2 million in other current liabilities and $0.2 million in other non-current liabilities. Since the adoption of ASU 2016-02, the Company has recognized additional right-of-use assets totaling $0.3 million as well as additional lease liabilities totaling $0.1 million in other current liabilities and $0.2 million in other non-current liabilities in conjunction with the commencement ofmodifications to the leases for the Additional Newton Premises and the Additional Bend Premises.leases. The Company’s lease liability as of March 31, 2022 and December 31, 2021 represents the net present value of future lease payments utilizing a discount raterates of 8% for each of the three and nine months ended September 30, 2021 and 2020,to 10%, which correspondscorrespond to the Company’s incremental borrowing rate.rates as of the effective dates of the leases. As of September 30, 2021,March 31, 2022, the weighted average remaining lease term was 0.72.8 years. The Company recorded expense of $0.1 million related to the leases for each of the three months ended September 30, 2021March 31, 2022 and 2020, and recorded expense of $0.2 million related to the leases for each of the nine months ended September 30, 2021 and 2020. The2021.The Company made cash payments for amounts included in the measurement of lease liabilities of $0.1 million, and $0.2 million, respectively, during each

of the three and nine months ended September 30, 2021March 31, 2022 and 2020.2021. The Company is reportingreported a right-of-use asset of $0.2$0.3 million in Other non-current assets and lease liabilities totaling $0.2$0.3 million in Other current liabilities and Other non-current liabilities as of September 30, 2021.March 31, 2022.

The following table reconciles the undiscounted lease liabilities to the total lease liabilities recognized on the unaudited condensed balance sheet as of September 30, 2021:March 31, 2022:

The Company’s lease liabilities are reported on the unaudited condensed balance sheets as follows:

SWK Credit Agreement

On March 4, 2022, the Company entered into the SWK Credit Agreement with the lenders party thereto and SWK, as the agent, sole lead arranger and sole bookrunner, which provides for a senior secured term loan facility in an aggregate amount of $6.5 million in a single borrowing (the “Bridge Loan”). The Bridge Loan closed on March 14, 2022, after consummation of the Convertible Note Financing (as defined and described below) as well as the satisfaction of other closing conditions as set forth in the SWK Credit Agreement. The proceeds of the Bridge Loan are being used to pay fees, costs and expenses related to the SWK Credit Agreement, the

Secured Convertible Note Purchase Agreement (as defined and described below) and the Marathon Credit Agreement (as defined and described below) and for other working capital and general corporate purposes.

The Bridge Loan bears interest at an annual rate of the sum of (i)3-month LIBOR (or such other rate as may be agreed by the Company and SWK following the date on which 3-month LIBOR is no longer available), subject to a 1% floor, plus (ii) a margin of 11%, with such interest payable quarterly in arrears. In the event of default, the interest rate will increase by 3% per annum over the contract rate effective at the time of default, but shall not be higher than the maximum rate permitted to be charged by applicable laws. For the period ended March 31, 2022, the current interest rate applicable to the Bridge Loan is 12%. The Company has the option to capitalize such interest commencing on the date on which the Bridge Loan was funded and continuing until November 15, 2022. Commencing on November 15, 2022, the principal amount of the Bridge Loan will amortize at a rate of $0.7 million payable quarterly. The final maturity date of the Bridge Loan is (a) if full approval by FDA for marketing of the Company’s product known as ACER-001 (sodium phenylbutyrate) (“ACER-001 Approval”) occurs on or before September 30, 2022, then the date which is 12 business days after ACER-001 Approval, or (b) if ACER-001 Approval does not occur on or before September 30, 2022, then March 4, 2024. The Company has the option to prepay the Bridge Loan in whole or in part. Upon the repayment of the Bridge Loan (whether voluntary or at scheduled maturity), the Company must pay an exit fee so that SWK receives an aggregate amount (inclusive of all principal, interest and origination and other fees paid to SWK under the SWK Credit Agreement on or prior to the prepayment date) equal to (a) 1.3 times the outstanding principal amount of the Bridge Loan, plus any and all paid-in-kind interest amounts, if ACER-001 Approval or such payment occurs on or prior to September 30, 2022, or (b) 1.5 times the outstanding principal amount of the Bridge Loan, plus any and all paid-in-kind interest amounts, if each of ACER-001 Approval and such payment does not occur until after September 30, 2022. The Bridge Loan contains a provision for the establishment of an alternative rate of interest if LIBOR were to no longer be available at any point while the Bridge Loan is outstanding. Under the Bridge Loan, the Company is required to maintain a cash balance of not less than $1.5 million while the Bridge Loan is outstanding. If the Company is unable to receive approval of ACER-001 from the FDA, the required cash balance would increase to $4.0 million 20 days after the date of the FDA’s Complete Response Letter and to $6.5 million 40 days after the date of the FDA’s Complete Response Letter, and would be reduced to $2.0 million in the event of positive safety and efficacy data for ACER-801 from a Phase 2a trial.

The Bridge Loan is secured by a first priority lien on all assets of the Company and any of its future subsidiaries pursuant to the SWK Security Agreement. The SWK Credit Agreement contains customary representations and warranties and affirmative and negative covenants. The Company paid to SWK $0.1 million in origination fees on the date on which the Bridge Loan was funded. The Bridge Loan contains certain provisions which could accelerate the maturity date of the outstanding loan should the Company be out of compliance with any of the stated covenants. At March 31, 2022, the Company did not deem probable any events that would give rise to such an acceleration. The Company classified the principal amortization payments of $1.3 million due within twelve months from the date of this report as current in the unaudited condensed balance sheet as of March 31, 2022.

In addition, the Company issued the SWK Warrant to purchase 150,000 shares of the Company’s common stock at an exercise price of $2.46 per share. SWK may exercise the SWK Warrant in accordance with the terms thereof for all or any part of such shares of common stock from the date on which the Bridge Loan was funded until and including March 4, 2029.

The Company recognized the fair value of the SWK Warrant for $0.3 million as additional paid in capital as of the date of the closing of the transaction.

Secured Convertible Notes

On March 4, 2022, the Company also entered into the Secured Convertible Note Purchase Agreement with MAM Aardvark, LLC (“Marathon”) and Marathon Healthcare Finance Fund, L.P. (“Marathon Fund” and together with “Marathon” each a “Holder” and collectively the “Holders”) pursuant to which the Company issued and sold to the Holders the Secured Convertible Notes in an aggregate amount of $6.0 million (the “Convertible Note Financing”). The Convertible Note Financing closed on March 14, 2022 after satisfaction of closing conditions as set forth in the Secured Convertible Note Purchase Agreement. The proceeds of the Convertible Note Financing are being used to pay fees, costs and expenses related to the SWK Credit Agreement, the Secured Convertible Note Purchase Agreement and the Marathon Credit Agreement and for other working capital and general corporate purposes.

The Secured Convertible Notes bear interest at an annual rate of 6.5%, with such interest payable quarterly; provided, however, that until the first to occur of ACER-001 Approval and the repayment in full of the Bridge Loan, interest will not be payable in cash, but will accrue and be payable in cash upon the earlier of a) the repayment of all obligations under the Bridge Loan and termination of such Bridge Loan or b) within three business days of ACER-001 Approval. Subject to the restrictions set forth in an agreement among each of the Holders and SWK, as agent and lender, and any other intercreditor or subordination agreement entered into in connection with the Term Loan (defined below), each of the Holders has the right, during the 30-day periods beginning 12 months, 18 months and 24 months after the closing date of the Convertible Note Financing, to require the Company to redeem the Convertible Secured Note held by such Holder at a redemption price of the outstanding principal amount plus any accrued but unpaid interest. In the event of default, interest on the Secured Convertible Notes will increase to the lower of 11.5% per annum or the highest rate permitted by law.

Each of the Holders also has the right to convert all or any portion of the outstanding principal amount plus any accrued but unpaid interest under the Convertible Secured Note held by such Holder into shares of common stock at a conversion price of $2.50 per share, subject to adjustment. Each Holder has certain rights with respect to the registration by the Company for resale of the shares of common stock issuable upon conversion of the Secured Convertible Note held by such Holder which are forth in the Secured Convertible Note Purchase Agreement. Any outstanding principal, together with all accrued and unpaid interest, will be payable on the earlier of the third anniversary of the date of issuance, or upon a change of control of the Company.

Pursuant to the Secured Convertible Note Purchase Agreement, the Secured Convertible Notes are secured by a lien on collateral representing substantially all assets of the Company, although such security interest is subordinated to the Company’s obligations under the SWK Credit Agreement and may also be subordinated to the Company’s obligations under the Marathon Credit Agreement.

Marathon Credit Agreement

On March 4, 2022, the Company also entered into the Marathon Credit Agreement with the lenders party thereto and Marathon, as the agent, sole lead arranger and sole bookrunner, which provides for a senior secured term loan facility in an aggregate amount of up to $42.5 million in a single borrowing (the “Term Loan”). The Term Loan will be available to be borrowed only following ACER-001 Approval and until December 31, 2022 (i.e., if ACER-001 Approval does not occur on or before December 31, 2022, then the Term Loan will not be available), and funding of the Term Loan is also subject to the satisfaction of conditions as set forth in the Marathon Credit Agreement. The Term Loan, if it becomes available, will be used to refinance certain other indebtedness of the Company (including the Bridge Loan), to pay fees, costs and expenses related to the Marathon Credit Agreement and for other working capital and general corporate purposes. Should the Term Loan become available, the Company will pay Marathon a commitment fee equal to 1.5% of the term loan amount. The Marathon Credit Agreement also includes an accordion feature pursuant to which the Company, Marathon and the lenders under the Marathon Credit Agreement may agree to increase the Term Loan commitments by up to an additional $50.0 million dollars for a total commitment of $92.5 million; provided, however, that any such increase is within the sole discretion of each party (i.e., the Company cannot unilaterally trigger such an increase).

The Term Loan will bear interest at an annual rate of 13.5% and will be payable quarterly in arrears. The Company has the option to capitalize up to 4% of such interest commencing on the Term Loan Funding Date and continuing until the third anniversary of the Term Loan Funding Date. Commencing on the third anniversary of the Term Loan Funding Date, the principal outstanding amount of the Term Loan will amortize at a rate of 2.78%, payable monthly. The final maturity date of the Term Loan is the earlier of six years after the Term Loan Funding Date or December 31, 2028. The Company has the option to prepay the Term Loan in whole or in part at any time, subject to a prepayment fee equal to (a) if the prepayment is made prior to March 4, 2025, then the greater of 5% or the amount of interest that would have accrued from the date of prepayment until March 4, 2025, (b) if the prepayment is made on or after March 4, 2025, but prior to March 4, 2026, then 3%, (c) if the prepayment is made on or after March 4, 2026, but prior to March 4, 2027, then 2%, or (d) if the prepayment is made on or after March 4, 2027, then 1%.

The Term Loan will be secured by a first priority lien on all assets of the Company and any of its future subsidiaries pursuant to a Guarantee and Collateral Agreement to be entered into on the Term Loan Funding Date between the Company and Marathon, as agent (the “Marathon Security Agreement”). The Marathon Credit Agreement contains customary representations and warranties and affirmative and negative covenants. The Company will pay $0.2 million in commitment fees to Marathon in connection with obtaining the commitments in respect of the Term Loan and will pay $0.6 million in additional commitment fees to Marathon following ACER-001 Approval or any change of control of the Company or sale or transfer of the ACER-001 product.

In connection with the Marathon Credit Agreement, on March 4, 2022, the Company, Marathon and the Marathon Fund also entered into the Royalty Agreement pursuant to which, in the event of the funding of the Term Loan, the Company will pay Marathon and the Marathon Fund, on a quarterly basis, 2% of certain aggregate revenue from ACER-001 during that quarter (i.e., 2% of the net sales and of the amount of certain other payments), subject to a cap on the aggregate amount of such payments of $15.0 million. Upon a change of control of the Company or the sale of the ACER-001 business to a third party, the Company would pay Marathon and the Marathon Fund the difference between $15.0 million and the aggregate amount of the payments previously made by the Company to Marathon and the Marathon Fund pursuant to the Royalty Agreement.

As of March 31, 2022, the Company had not triggered the conditions in order to draw on the Term Loan, and as such had not triggered the associated Royalty Agreement.

The Company engaged an exclusive financial advisor with respect to the financings contemplated by the SWK Credit Agreement, the Secured Convertible Note Purchase Agreement and the Marathon Credit Agreement. In connection with the funding of the Bridge Loan and the Convertible Note Financing, the Company paid its financial advisor a fee of $0.5 million for its services. In connection with a funding of the Term Loan, the Company expects to pay the same financial advisor an additional fee of approximately $0.7 million for its services.

The Company is eligible to elect the fair value option under ASC 815 and bypass analysis of potential embedded derivatives and further analysis of bifurcation of any such financial instruments and has elected such option. The Company recognized the SWK Warrant at fair value as of the date of the close of the transaction and recorded it in equity. The Bridge Loan and Secured Convertible Notes met the definition of a “recognized financial liability” which is an acceptable financial instrument eligible for the fair value option under ASC 825-10-15-4 and do not meet the definition of any of the financial instruments found within ASC 825-10-15-5 that are not eligible for the fair value option. Therefore, both the Bridge Loan and Secured Convertible Notes are recorded at their fair value upon issuance and subsequently re-measured at each reporting period until their maturity, prepayment or conversion. Additionally, all issuance costs incurred in connection with a debt instrument that is measured at fair value pursuant to the election of the fair value option are expensed during the period the debt is acquired. The Bridge Loan was recorded at fair value of $6.2 million after allocating the fair value of the SWK Warrant of $0.3 million.

The Company incurred $1.2 million of debt issuance costs, which were expensed as incurred due to the election of the fair value option and were included in interest expense in the accompanying unaudited condensed statement of operations for the three months ended March 31, 2022. Debt issuance costs were comprised of $0.5 million that related to the costs and expense paid directly to SWK and the Holders, $0.7 million of costs and expenses paid to the Company’s financial advisor, and other legal and accounting costs. The fee of $0.2 million paid in connection with obtaining the commitments in respect of the Term Loan was paid to Marathon through gross proceeds received from the Secured Convertible Notes. Since this fee is for a future commitment to lend, the Company capitalized the commitment fee paid and is amortizing it over the period in which the Term Loan will be available to be borrowed by the Company, which is until December 31, 2022. Additionally, the Company capitalized $0.2 million associated with the Marathon commitment fee, which is being amortized through the commitment period.

7.FAIR VALUE MEASUREMENTS

In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

The 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. At each reporting period, the Company reviews the assets and liabilities that are subject to ASC 815-40. At each reporting period, all assets and liabilities for which the fair value measurement is based on significant unobservable inputs or instruments which trade infrequently and therefore have little or no price transparency are classified as Level 3. The valuation methodologies used for the Company’s financial instruments measured on a recurring basis at fair value, including the general classification of such instruments pursuant to the valuation hierarchy, is set forth in the tables below.

The following table presents the Company’s assets and liabilities that are measured and recognized at fair value on a recurring basis classified under the appropriate level of the fair value hierarchy as of March 31, 2022.

A lattice-based model was used to estimate the fair value of the Secured Convertible Notes at March 31, 2022. The lattice model utilizes a “decision tree,” whereby future movement in the Company’s common stock price is estimated based on a volatility factor. The Company classified the fair value of the Secured Convertible Notes as a Level 3 measurement due to the lack of observable market data. The lattice model requires the development and use of assumptions, including the Company’s stock price volatility returns, an appropriate risk-free interest rate, default intensity rate, and expected recovery rate given default.

The Company evaluated the inputs that would be required to estimate the fair value of the Bridge Loan at March 31, 2022. The Company concluded that, given the short time period between issuance and March 31, 2022 and the fact that no identified inputs would have changed between March 14, 2022 and March 31, 2022, there would be no underlying change in fair value recognized

during the period. The significant unobservable inputs used in calculating the fair value of the Secured Convertible Notes and Bridge Loan represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. Any significant changes in the inputs described herein may result in significantly higher or lower fair value measurements.