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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission File No. 001-35890
Tempest Therapeutics, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware
45-1472564
(State or Other Jurisdiction of
(I.R.S. Employer
Incorporation or Organization)
Identification No.)
7000 Shoreline Court, Suite 275
South San Francisco, California
94080
(Address of Principal Executive Offices)
(Zip Code)
Registrant’s telephone number, including area code: (415) 798-8589
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
Name of each exchange
Symbol(s)
on which registered
Common Stock, $0.001 par valueTPST
The Nasdaq Capital Market
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, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
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 Act).    Yes ☐    No
The number of shares of Registrant’s Common Stock, $0.001 par value per share, outstanding as of November 8, 2021 was 6,910,324.




Table of Contents



INDEX TO FORM 10-Q

Page
                                          PART I — FINANCIAL INFORMATION
Item 1.
                                         PART II — OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.



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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Unless the context suggests otherwise, references in this Quarterly Report on Form 10-Q to “Tempest,” “the Company,” “we,” “us,” and “our” refer to Tempest Therapeutics, Inc. and, where appropriate, its subsidiaries.

This Quarterly Report on Form 10-Q contains forward-looking statements (including within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended (the Securities Act)) about us and our industry that involve substantial risks and uncertainties. These statements may discuss goals, intentions and expectations as to future plans, trends, events, results of operations or financial condition, or otherwise, based on current beliefs of our management, as well as assumptions made by, and information currently available to, our management. Forward-looking statements generally include statements that are predictive in nature and depend upon or refer to future events or conditions, and include words such as “may,” “will,” “should,” “would,” “could”, “expect,” “anticipate,” “plan,” “likely,” “believe,” “estimate,” “intend,” and other similar expressions. Statements that are not historical facts are forward-looking statements. Forward-looking statements are based on current beliefs and assumptions that are subject to risks and uncertainties and are not guarantees of future performance. Actual results could differ materially from those contained in any forward-looking statement as a result of various factors, including, without limitation: our strategies, prospects, plans, expectations or objectives for future operations; the progress, scope or timing of the development of our product candidates; the benefits that may be derived from any future products or the commercial or market opportunity with respect to any of our future products; our ability to protect our intellectual property rights; our anticipated operations, financial position, ability to raise capital to fund operations, revenues, costs or expenses; statements regarding future economic conditions or performance; statements of belief and any statement of assumptions underlying any of the foregoing. These risks and uncertainties include, but are not limited to, the risks included in this Quarterly Report on Form 10-Q under Part II, Item 1A, “Risk Factors.” Other sections of this Quarterly Report on Form 10-Q, as well as our other disclosures and filings, include additional factors that could harm our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ from those contained in, or implied by, any forward-looking statements.

Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our estimates and assumptions only as of the date of this document. You should read this document with the understanding that our actual future results may be materially different from what we expect. Except as required by law, we do not undertake any obligation to update or revise any forward-looking statements contained in this report, whether as a result of new information, future events or otherwise.

Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

our expected future growth and our ability to manage such growth;

our ability to develop, obtain regulatory approval for and commercialize TPST-1495 and TPST-1120 and our future product candidates;

the size and growth potential of the markets for our product candidates, and our ability to serve those markets;

the development, regulatory approval, efficacy and commercialization of competing products;

our ability to establish sales and marketing capabilities or enter into agreements with third parties to market and sell our product candidates;

our ability to retain regulatory approval for our product candidates or future product candidates in the United States and in any foreign countries in which we make seek to do business;

our ability to retain and hire our board of directors, senior management, or operational personnel;

our ability to integrate TempestTx, Inc. and Millendo Therapeutics, Inc. (now the Company) successfully and realize the anticipated benefits of the merger of the two entities, which closed in July 2021;

our expectation regarding the period during which we will qualify as a smaller reporting company under the federal securities laws:

our ability to develop and maintain our corporate infrastructure, including our ability to remediate our existing material weakness and to design and maintain an effective system of internal controls;

our financial performance and capital requirements; and


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our expectations regarding our ability to obtain, maintain and enforce intellectual property protection for our products and technology, as well as our ability to operate our business without infringing, misappropriating or otherwise violating the intellectual property rights of others

You should read this Quarterly Report on Form 10-Q as well as the documents that we reference in, and have filed as exhibits to, this report with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

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PART I – FINANCIAL INFORMATION
Item 1 – Financial Statements
TEMPEST THERAPEUTICS, INC.
Consolidated Balance Sheets
(in thousands except share and per share amounts)
(Unaudited) September 30, 2021December 31,
2020
Assets
Current assets:
Cash and cash equivalents$59,716 $18,820 
Restricted cash45  
Prepaid expenses and other current assets2,796 1,005 
Total current assets62,557 19,825 
Property and equipment — net1,116 1,110 
Operating lease right-of-use assets3,357 1,877 
Other noncurrent assets112 51 
Total assets$67,142 $22,863 
Liabilities and stockholders’ equity (deficit)
Current liabilities:
Accounts payable$2,380 $1,071 
Accrued expenses1,658 665 
Current operating lease liabilities1,411 712 
Accrued compensation664 695
Interest payable89  
Early option exercise liability1 79
Total current liabilities6,203 3,222 
Loan payable (net of discount and issuance costs of $820)
15,005  
Operating lease liabilities2,398 1,727 
Total liabilities23,606 4,949 
Commitments and contingencies (Note 8)
Convertible preferred stock, $0.001 par value; shares 5,000,000 and 135,936,731 shares authorized at September 30, 2021 and December 31, 2020; nil and 114,686,731 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively; liquidation preference of $0 and $100,186,832 at September 30, 2021 and December 31, 2020, respectively
 86,707 
Stockholders’ equity (deficit):
Common stock, $0.001 par value; 100,000,000 shares and 196,000,000 shares authorized at September 30, 2021 and December 31, 2020; 6,900,731 and 527,265 shares issued and outstanding, 136 and 29,041 subject to repurchase at September 30, 2021 and December 31, 2020, respectively
7 15 
Additional paid-in capital135,902 2,953 
Accumulated other comprehensive loss(89) 
Accumulated deficit(92,284)(71,761)
Total stockholders’ equity (deficit)43,536 (68,793)
Total liabilities, convertible preferred stock and stockholders’ equity (deficit)$67,142 $22,863 

See accompanying Notes to unaudited Interim Consolidated Financial Statements


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TEMPEST THERAPEUTICS, INC.
Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
(in thousands except share and per share amounts)

Three Months Ended September 30,Nine Months Ended
September 30,
2021202020212020
Operating expenses:
Research and development$4,630 $4,271 $12,451 $11,392 
General and administrative3,106 1,163 7,197 3,583 
Loss from operations7,736 5,434 19,648 14,975 
Other income (expense):
Interest expense$(437)$ $(944)$ 
Interest income and other income (expense), net63 3 69 87 
Net loss$(8,110)$(5,431)$(20,523)$(14,888)
Net loss per share of common stock, basic and diluted$(1.21)$(11.22)$(7.49)$(31.91)
Weighted-average shares of common stock outstanding, basic and diluted6,717,655 484,085 2,739,602 466,495 
Other comprehensive income (loss):
Foreign currency translation adjustment(89) (89) 
Comprehensive loss$(8,199)$(5,431)$(20,612)$(14,888)

See accompanying Notes to unaudited Interim Consolidated Financial Statements



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TEMPEST THERAPEUTICS, INC.
Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)
(Unaudited)
(in thousands except share amounts)

Three Months Ended September 30, 2021

Series A Convertible
Preferred Stock
Series B Convertible
Preferred Stock
Series B-1 Convertible
Preferred Stock
Common StockAdditional
Paid-In Capital
Accumulated Other Comprehensive LossDeficit
Accumulated
Total Stockholders'
Equity (Deficit)
SharesAmountSharesAmountSharesAmountSharesAmount
BALANCE — June 30, 2021— $— — $— — $— 6,628,314 $7 $132,281 $ $(84,174)$48,114 
Foreign currency translation adjustment— — — — — — — — — (89)— (89)
Exercise of stock options— — — — — — 15,226 — 48 — — 48 
Vesting of early exercised stock options— — — — — — 8,631 — 37 — — 37 
Issuance of common stock for cash, net of issuance cost of $349
— — — — — — 248,424 — 3,513 — — 3,513 
Share-based compensation— — — — — — — — 296 — — 296 
Reverse recapitalization transaction costs— — — — — — — — (346)— — (346)
Issuance of common stock warrants73 — — 73 
Net loss— — — — — — — — — — (8,110)(8,110)
BALANCE — September 30, 2021— $— — $— — $— 6,900,595 $7 $135,902 $(89)$(92,284)$43,536 

Three Months Ended September 30, 2020

Series A Convertible
Preferred Stock
Series B Convertible
Preferred Stock
Series B-1 Convertible
Preferred Stock
Common StockAdditional
Paid-In Capital
Accumulated Other Comprehensive LossDeficit
Accumulated
Total Stockholders'
Equity (Deficit)
SharesAmountSharesAmountSharesAmountSharesAmount
BALANCE — June 30, 202017,000,000 $16,982 25,186,738 $12,235 72,499,993 $57,490 476,967 $ $2,645 $ $(62,010)$(59,365)
Exercise of stock options— — — — — — 2,618 — 13 — — 13 
Vesting of early exercised stock options— — — — — — 8,708 — 37 — — 37 
Share-based compensation— — — — — — — — 92 — — 92 
Net loss— — — — — — — — — — (5,431)(5,431)
BALANCE — September 30, 202017,000,000 $16,982 25,186,738 $12,235 72,499,993 $57,490 488,293 $ $2,787 $ $(67,441)$(64,654)

See accompanying Notes to unaudited Interim Consolidated Financial Statements.









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TEMPEST THERAPEUTICS, INC.
Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)
(Unaudited)
(in thousands except share amounts)

Nine Months Ended September 30, 2021

Series A Convertible
Preferred Stock
Series B Convertible
Preferred Stock
Series B-1 Convertible
Preferred Stock
Common StockAdditional
Paid-In Capital
Accumulated Other Comprehensive LossDeficit
Accumulated
Total Stockholders'
Equity (Deficit)
SharesAmountSharesAmountSharesAmountSharesAmount
BALANCE — December 31, 202017,000,000 $16,982 25,186,738 $12,235 72,499,993 $57,490 498,224 $1 $2,967 $ $(71,761)$(68,793)
Foreign currency translation adjustment(89)(89)
Exercise of stock options— — — — — — 25,880 — 98 — — 98 
Vesting of early exercised stock options— — — — — — 28,860 — 132 — — 132 
Conversion of preferred stock to common stock(17,000,000)(16,982)(25,186,738)(12,235)(72,499,993)(57,490)3,692,912 4 86,703 — — 86,707 
Issuance of common stock for cash, net of issuance cost of $349
— — — — — — 1,385,273 1 33,522 — — 33,523 
Share-based compensation— — — — — — — — 827 — — 827 
Reverse recapitalization transaction costs— — — — — — — — (6,420)— — (6,420)
Issuance of common stock to Millendo shareholders— — — — — — 1,269,446 1 18,000 — — 18,001 
Issuance of common stock warrants73 — — 73 
Net loss— — — — — — — — — — (20,523)(20,523)
BALANCE — September 30, 2021 $  $  $ 6,900,595 $7 $135,902 $(89)$(92,284)$43,536 


Nine Months Ended September 30, 2020

Series A Convertible
Preferred Stock
Series B Convertible
Preferred Stock
Series B-1 Convertible
Preferred Stock
Common StockAdditional
Paid-In Capital
Accumulated Other Comprehensive LossDeficit
Accumulated
Total Stockholders'
Equity (Deficit)
SharesAmountSharesAmountSharesAmountSharesAmount
BALANCE — December 31, 201917,000,000 $16,982 25,186,738 $12,235 28,749,997 $22,755 410,429 $ $2,188 $ $(52,553)$(50,365)
Exercise of stock options— — — — — — 8,750 — 40 — — 40 
Issuance of preferred stock for
cash—net of issuance costs of $265
— — — — 43,749,996 34,735 — — — — — — 
Vesting of early exercised stock options— — — — — — 69,114 — 237 — — 237 
Share-based compensation— — — — — — — — 322 — — 322 
Net loss— — — — — — — — — — (14,888)(14,888)
BALANCE — September 30, 202017,000,000 $16,982 25,186,738 $12,235 72,499,993 $57,490 488,293 $ $2,787 $ $(67,441)$(64,654)

See accompanying Notes to unaudited Interim Consolidated Financial Statements

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TEMPEST THERAPEUTICS, INC.
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
Nine Months Ended September 30,
20212020
Operating activities:
Net loss$(20,523)$(14,888)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense272 255 
Stock-based compensation expense827 321 
Noncash lease expense589 394 
Noncash interest and other expense, net516 (5)
Changes in operating assets and liabilities:
Prepaid expenses and other current assets190 (947)
Accounts payable1,130 (737)
Accrued expenses and other liabilities(363)631 
Interest payable89  
Operating lease liabilities(699)233 
Cash used in operating activities(17,972)(14,743)
Investing activities:
Purchase of property and equipment(108)(45)
Repayment of note receivable38 44 
Cash used in investing activities(70)(1)
Financing activities:
Proceeds from issuance of preferred stock35,000 
Payment of preferred stock issuance costs(469)
Proceeds from the issuance of common stock, net of equity issuance costs of $34933,474  
Borrowings on loan payable15,000  
Payment of loan issuance costs(93) 
Cash acquired in connection with the reverse recapitalization17,045  
Payment of reverse recapitalization transaction costs(6,420) 
Proceeds from option exercises66 38 
Cash provided by financing activities59,072 34,569 
Effect of exchange rate changes on cash(89) 
Net increase in cash and cash equivalents40,941 19,825 
Cash and cash equivalents and restricted cash at beginning of period18,820 3,244 
Cash and cash equivalents and restricted cash at end of period59,761 23,069 
Supplemental disclosure of cash flow information:
Cash paid for interest682  
Supplemental schedule of non-cash investing and financing activities:
Vesting of early exercise stock options135 239 

See accompanying Notes to unaudited Interim Consolidated Financial Statements









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TEMPEST THERAPEUTICS, INC.

Notes to Unaudited Interim Consolidated Financial Statements

1.ORGANIZATION AND DESCRIPTION OF THE BUSINESS

Description of Business—Tempest Therapeutics, Inc. (“Tempest,” or the “Company”) is a clinical-stage oncology company focused on developing novel, orally available therapies for the treatment of solid tumors. Tempest has three programs currently in development, TPST-1495, TPST-1120 and a TREX-1 antagonist. TPST-1495 is a dual antagonist of the EP2 and EP4 prostaglandin E2 receptors, and to the Company’s knowledge, is the only such dual antagonist in clinical development. TPST-1495 is currently in a Phase 1 trial in solid tumors. Tempest’s second clinical program, TPST-1120, is a selective antagonist of peroxisome proliferator-activated receptor alpha (“PPARα”) and is also in a Phase 1 trial in solid tumors. Similar to TPST-1495, Tempest believes TPST-1120 is the only PPARα antagonist in clinical development. The Company also has a third program in preclinical studies that could be the first to target TREX-1, a cellular enzyme that regulates the innate immune response in tumors. Tempest is headquartered in South San Francisco, California.

Merger with Millendo—On March 29, 2021, TempestTx, Inc. (“Private Tempest”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Millendo Therapeutics, Inc. (“Millendo”).

Concurrent with the execution and delivery of the Merger Agreement, Private Tempest entered into funding agreements with certain investors named therein, pursuant to which the investors agreed to purchase, in the aggregate, $30.0 million of common stock of Private Tempest, convertible into securities of Millendo.

On June 25, 2021, Private Tempest completed the merger with Millendo in accordance with the Merger Agreement. Prior to the effective time of the merger, Millendo effected a 1-for-15 reverse stock split, and right after the merger, Millendo changed its name to Tempest Therapeutics, Inc. Under the terms of the Merger Agreement, immediately prior to the effective time of the merger, each share of Private Tempest’s preferred stock was converted into a share of Private Tempest’s common stock. At closing of the merger, the Company issued an aggregate of approximately 5,365,899 shares of its common stock to Private Tempest stockholders, based on an exchange ratio of 0.0322 shares of the Company’s common stock for each share of Private Tempest common stock outstanding immediately prior to the merger, including those shares of common stock issued upon conversion of the Private Tempest preferred stock, resulting in approximately 6,635,345 shares of the Company’s common stock being issued and outstanding immediately following the effective time of the merger. The Company also assumed all of the outstanding and unexercised stock options and warrants to purchase shares of Private Tempest capital stock. The assumed options continue to be governed by the terms of the 2011 and 2017 Equity Incentive Plans (as discussed more in Note 12) under which the options were originally granted, with such options hence forth representing the right to purchase a number of shares of the Company’s common stock equal to 0.0322 multiplied by the number of shares of Private Tempest common stock previously represented by such options.

The merger was accounted for as a reverse recapitalization in accordance with U.S. generally accepted accounting principles (“GAAP”). Under this method of accounting, Private Tempest was be deemed to be the accounting acquirer for financial reporting purposes. This determination was primarily based on the expectation that, immediately following the merger: (i) Private Tempest stockholders would own a substantial majority of the voting rights; (ii) Private Tempest would designate a substantial majority of the initial members of the board of directors of the combined company; (iii) Private Tempest’s executive management team would become the management of the combined company; and (iv) the combined company would be named Tempest Therapeutics, Inc. Accordingly, for accounting purposes, the merger was treated as the equivalent of Tempest issuing stock to acquire the net assets of Millendo. As a result of the merger, the net assets of Millendo were recorded at their acquisition-date fair value in the financial statements of Private Tempest and the reported operating results prior to the merger will be those of Private Tempest. Historical per share figures of Private Tempest have been retroactively restated based on the exchange ratio of 0.0322.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation—The accompanying unaudited interim financial statements have been prepared in accordance with US generally accepted accounting principles ("US GAAP").

Unaudited Interim Financial Statements—The Company has prepared the accompanying unaudited interim financial statements on the same basis as the audited financial statements, and the unaudited interim financial statements include, in the Company’s opinion, all adjustments, consisting only of normal recurring adjustments that the Company considers necessary for a fair presentation of its financial position and results of operations for these periods. The unaudited interim financial statements, presented herein, do not contain all of the required disclosures under US GAAP for annual financial statements.

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Use of Estimates—The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates and assumptions, including those related to research and development accruals, recoverability of long-lived assets, right-of-use assets, lease obligations, fair value of common stock stock-based compensation and income taxes uncertainties and valuation allowances. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from those estimates.

Risks and Uncertainties—The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, development by competitors of new technological innovations, protection of proprietary technology, dependence on key personnel, reliance on single-source vendors, availability of raw materials, patentability of the Company’s products and processes and clinical efficacy and safety of the Company’s products under development, compliance with government regulations and the need to obtain additional financing to fund operations. Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical studies, clinical trials and regulatory approval, prior to commercialization. These efforts will require significant amounts of additional capital, adequate personnel infrastructure and extensive compliance and reporting. The Company’s product candidates are still in development and, to date, none of the Company’s product candidates have been approved for sale and, therefore, the Company has not generated any revenue from product sales. There can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s intellectual property will be obtained or maintained, that any products developed will obtain necessary government regulatory approval or that any approved products will be commercially viable. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will generate revenue from product sales. The Company operates in an environment of rapid technological change and substantial competition from other pharmaceutical and biotechnology companies. In addition, the Company is dependent upon the services of its employees, consultants and other third parties.

Moreover, the current COVID-19 (“coronavirus”) pandemic, which is impacting worldwide economic activity, poses risk that the Company or its employees, contractors, suppliers, and other partners may be prevented from conducting business activities for an indefinite period of time, including due to shutdowns that may be requested or mandated by governmental authorities. The extent to which the COVID-19 pandemic will impact the Company’s business will depend on future developments that are highly uncertain and cannot be predicted at this time.

Cash and Cash Equivalents—The Company considers all highly liquid investments purchased with original maturities of 90 days or less at acquisitions to be cash equivalents. As of September 30, 2021 and December 31, 2020, the Company’s cash and cash equivalents consisted of bank deposits and money market funds.

Property and Equipment—Property and equipment is recorded at cost and depreciated over the estimated useful lives of the related assets using the straight-line method. Upon disposal of an asset, the related cost and accumulated depreciation are removed from the asset accounts and any resulting gain or loss is included in the statement of operations and comprehensive loss. Repair and maintenance costs are expensed as incurred, whereas major improvements are capitalized as additions to property and equipment. The estimated useful lives of the Company’s respective assets are as follows:

Computer equipment and software
3 years
Furniture and fixtures
7 years
Laboratory equipment
5 years
Leasehold improvements
Shorter of the useful life of the asset or the life of the lease

Impairment of Long-Lived Assets—Long-lived assets are reviewed for impairment if events or circumstances indicate the carrying amount of these assets may not be recoverable. If this review indicates that these assets will not be recoverable, based on the forecasted undiscounted future operating cash flows expected to result from the use of long-lived assets and their eventual disposition, the Company’s carrying value of the long-lived assets is reduced to fair value based on a discounted future cash flow approach or quoted market values. For the nine months ended September 30, 2021 and 2020, there were no events or circumstances which required an impairment test of long-lived assets.

Convertible Preferred Stock—The Company records convertible preferred stock at fair value on the dates of issuance, net of issuance costs. The convertible preferred stock is recorded outside of stockholders’ deficit because the shares contain

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liquidation features that are not solely within the Company’s control. The Company has elected not to adjust the carrying values of the convertible preferred stock to the liquidation preferences of such shares because it is uncertain whether or when an event would occur that would obligate the Company to pay the liquidation preferences to holders of shares of convertible preferred stock. Subsequent adjustments to the carrying values to the liquidation preferences will be made only when it becomes probable that such a liquidation event will occur.

Comprehensive Loss—Comprehensive loss includes net loss as well as other changes in stockholders’ deficit that results from transactions and economic events other than those with stockholders.

Research and Development Expenses and Accrued Research and Development—Research and development expenses are charged to expense as incurred. Research and development expenses include certain payroll and personnel expenses, laboratory supplies, consulting costs, external contract research and development expenses and facility or lease expenses. In-licensing fees and other costs to acquire technologies that are utilized in research and development, and that are not expected to have alternative future use, are expensed when incurred. Advance payments for goods or services for future research and development activities are deferred and expensed as the goods are delivered or the related services are performed.

The Company estimates preclinical studies and clinical trial expenses based on the services performed pursuant to contracts with research institutions and clinical research organizations that conduct and manage preclinical studies and clinical trials on the Company’s behalf. In accruing service fees, the Company estimates the time period over which services will be performed and the level of effort to be expended in each period. These estimates are based on communications with the third-party service providers, the Company’s estimates of accrued expenses and on information available at each balance sheet date. If the actual timing of the performance of services or the level of effort varies from the estimate, the Company will adjust the accrual accordingly. The estimates are trued up to reflect the best information available at the time of the financial statement issuance. Although the Company does not expect its estimates to be materially different from amounts actually incurred, the Company’s estimate of the status and timing of services performed relative to the actual status and timing of services performed may vary.

Patent Costs—Costs related to filing and pursuing patent applications are expensed as incurred, as recoverability of such expenditures is uncertain. These patent-related legal costs are reported as a component of general and administrative expense.

General and Administrative Expense—General and administrative costs are expensed as incurred and include employee-related expenses including salaries, benefits, travel and stock-based compensation for the Company’s personnel in executive, finance and accounting, and other administrative functions, as well as fees paid for legal, accounting and tax services, consulting fees and facilities costs not otherwise included in research and development expense. Legal costs include general corporate legal fees and patent costs.

Fair Value Measurements—Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. The carrying amounts of the Company’s financial instruments approximate fair value due to their short-term maturities.

Stock-Based Compensation Expense—The Company accounts for stock-based compensation by measuring and recognizing compensation expense for all share-based payments made to employees, directors and non-employees based on estimated grant-date fair values. The Company uses the straight-line method to allocate compensation cost to reporting periods over each optionee’s requisite service period, which is generally the vesting period.

The Company estimates the fair value of stock options to employees, directors and non-employees using the Black-Scholes option-valuation model. The Black-Scholes model requires the input of subjective assumptions, including expected volatility, expected dividend yield, expected term, risk-free rate of return, and the estimated fair value of the underlying common stock on the date of grant. Due to the lack of company-specific historical and implied volatility data, the Company has based its estimate of expected volatility on the historical volatility of a group of similar companies that are publicly traded. The historical volatility is calculated based on a period of time commensurate with the expected term assumption. The group of representative companies have characteristics similar to the Company, including stage of product development and focus on the life science industry. The Company uses the simplified method to calculate the expected term for options granted to employees as it does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term. The simplified method is based on the vesting period and the contractual term for each grant, or for each vesting tranche for awards with graded vesting. The mid-point between the vesting date and the maximum contractual expiration date is used as the expected term under this method. For awards with multiple vesting-tranches, the times from grant until the mid-points for each of the tranches may be averaged to provide an overall expected term. The risk-free interest

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rate is based on a treasury instrument whose term is consistent with the expected term of the stock options. The Company uses an assumed dividend yield of zero as the Company has never paid dividends and has no current plans to pay any dividends on its common stock.

The Company accounts for forfeitures as they occur. The fair value of restricted stock awards granted to employees are valued as of the grant date using the estimated fair value of the Company’s common stock.

Net Loss per Share Attributable to Common Stockholders—The Company follows the two-class method when computing net loss per share as the Company has issued shares that meet the definition of participating securities. The two-class method determines net loss per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income available to common stockholders for the period to be allocated between common and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed.

Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted net loss attributable to common stockholders is computed by adjusting net loss attributable to common stockholders to reallocate undistributed earnings based on the potential impact of dilutive securities.

Diluted net loss per share attributable to common stockholders is computed by dividing the diluted net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period, including potential dilutive common shares. For purpose of this calculation, outstanding stock options, convertible preferred stock and warrants to purchase shares of convertible preferred stock are considered potential dilutive common shares.

Income Taxes—The Company accounts for income taxes using the asset and liability method. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

In evaluating the ability to recover its deferred income tax assets, the Company considers all available positive and negative evidence, including its operating results, ongoing tax planning and forecasts of future taxable income on a jurisdiction-by-jurisdiction basis. In the event the Company determines that it would be able to realize its deferred income tax assets in the future in excess of their net recorded amount, it would make an adjustment to the valuation allowance that would reduce the provision for income taxes. Conversely, in the event that all or part of the net deferred tax assets are determined not to be realizable in the future, an adjustment to the valuation allowance would be charged to earnings in the period when such determination is made. As of September 30, 2021 and December 31, 2020, the Company has recorded a full valuation allowance on its deferred tax assets.

Tax benefits related to uncertain tax positions are recognized when it is more likely than not that a tax position will be sustained during an audit.

Interest and penalties related to unrecognized tax benefits are included within the provision for income tax.

Recently Issued Accounting Pronouncements—From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, or FASB, or other standard setting bodies and adopted by the Company as of the specified effective date.

In August 2020, the FASB issued ASU 2020-06, Debt-Debt With Conversions and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40). The ASU simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. Under the new ASU, convertible instruments will now more frequently accounted for as a single unit of account. That is, a conversion feature and the host instrument in which it is embedded now generally will be treated as a single unit of account unless the conversion feature requires bifurcation under Topic 815. The ASU is effective for fiscal years beginning after December 15, 2021 for public business entities, and for fiscal years beginning after December 15, 2023 for all other entities. Early adoption is permitted. The Company is in the process of evaluating the impact of this new guidance on its financial statements and related disclosures.

3. MILLENDO MERGER


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As described in Note 1, Private Tempest merged with the Company on June 25, 2021. The merger was accounted for as a reverse recapitalization with Private Tempest as the accounting acquirer. The primary pre-combination assets of Millendo were cash, cash equivalents and restricted cash. Under reverse recapitalization accounting, the assets and liabilities of Millendo were recorded at their fair value which approximated book value due to the short-term nature of the instruments. No goodwill or intangible assets were recognized. Consequently, the consolidated financial statements of Tempest reflect the operations of Millendo for accounting purposes together with a deemed issuance of shares, equivalent to the shares held by the former stockholders of the legal acquirer and a recapitalization of the equity of the accounting acquirer.

As part of the reverse recapitalization, the Company obtained approximately $17.0 million of cash, cash equivalents and restricted cash. The Company also obtained prepaids and other assets of approximately $1.4 million and assumed payables and accruals of approximately $0.5 million. The Company also acquired operating lease right-of-use asset of $2.1 million and the related operating lease liability of $2.1 million. All of the development programs and associated collaboration arrangements were terminated prior to the merger and were deemed to have no value at the transaction date and the Company is winding down the legacy Millendo operations.

In addition, the Company incurred approximately $0.2 million in share-based compensation expense as a result of the acceleration of vesting of stock options at the time of merger. This amount was recorded in general and administrative expense in the accompanying consolidated statements of operations for the three and nine months ended September 30, 2021 . The Company also incurred transaction costs of approximately $6.4 million and this amount is recorded in additional paid-in capital in the accompanying consolidated statements of convertible preferred stock and stockholders’ equity (deficit) for the three and nine months ended September 30, 2021 .

4. FAIR VALUE MEASUREMENTS

The following tables present the Company’s fair value hierarchy for assets and liabilities measured at fair value on a recurring basis (in thousands):

September 30, 2021
Level 1Level 2Level 3Total
Cash and cash equivalents$59,716 $ $ $59,716 
Short-term restricted cash45   45 
Total $59,761 $ $ $59,761 
December 31, 2020
Level 1Level 2Level 3Total
Cash and cash equivalents$18,820 $ $ $18,820 
Total $18,820 $ $ $18,820 

5.TRANSACTIONS WITH RELATED PARTIES (AMOUNTS IN THOUSANDS)

Inception Sciences Service Agreements—Inception Sciences, Inc. (Inception Sciences US) and Inception Sciences Canada, Inc. (Inception Sciences Canada) are subsidiaries of Versant Ventures, affiliates of which, together, are a holder of more than 5% of our capital stock. The Company has service agreements with Inception Sciences US, and Inception Sciences Canada whereby research and support services are provided to the Company. On June 30, 2020, the Company terminated these Inception Sciences service agreements. Total expenses under the service agreements consist of charges for services, equipment usage, lab supplies and other out of pocket expenses as incurred. For the nine months ended September 30, 2021 and 2020, the Company incurred nil and $1,315, respectively, in expenses under the Inception Sciences service agreements.

Related Party Notes Receivable—On November 19, 2017, the Company loaned three employees a total of $353 pursuant to promissory notes in order for such employees to early exercise certain stock options which had a total exercise cost of $652. Two employees paid $298 which represents 50% of the exercise cost and the other 50% totaling $298 was recorded as notes receivable. The other employee did not pay any portion of the exercise cost and $55 was recorded as note receivable. The three notes receivable accrue interest at 2% per year and will mature on November 29, 2022. The notes receivable vest over time until maturity in conjunction with the vesting of the early-exercised stock options.


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In February 2020, one of the employees left the Company in May 2019 and repaid her note balance of $44, of which $43 was the vested portion of the note receivable and $1 was accrued interest. In August 2021, another employee left the Company and repaid her note balance of $38, of which $35 was the vested portion of the note receivable and $3 was accrued interest. On June 25, 2021, prior to the closing of the Merger Agreement, one of the employees’ note receivable plus accrued interest totaling $278 was forgiven by the Company. This amount was recognized as compensation included in general and administrative expense in the accompanying consolidated statements of operations for the nine months ended September 30, 2021 and 2020. As of September 30, 2021 and December 31, 2020, the balance of the vested notes receivable and accrued interest was nil and $260, respectively.

6.BALANCE SHEET ITEMS (AMOUNTS IN THOUSANDS)

Prepaid expenses and other current asset consist of the following as of September 30, 2021 and December 31, 2020:

September 30,December 31,
20212020
Prepaid expenses$1,300 $245 
Prepaid research and development costs795 441 
Notes and interest receivable 260 
Other current assets701 59 
Total$2,796 $1,005 

Property and equipment, net, consists of the following as of September 30, 2021 and December 30, 2020:

September 30,December 31,
20212020
Computer equipment and software$122 $85 
Furniture and fixtures193 135 
Lab equipment684 600 
Leasehold improvements840 746 
Property and equipment1,839 1,566 
Less accumulated depreciation(723)(456)
Property and equipment—net$1,116 $1,110 


Depreciation expense for the three and nine months ended September 30, 2021 were $107 and $272, respectively. Depreciation expense for the three and nine months ended September 30, 2020 were $81 and $255, respectively.

Accrued liabilities as of September 30, 2021 and December 31, 2020 consist of the following:

September 30,December 31,
20212020
Accrued other liabilities$1,246 $441 
Accrued clinical trial liability412 224 
$1,658 $665 
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7.EARLY OPTION EXERCISE LIABILITY (AMOUNTS IN THOUSANDS)

The recorded amount of the early option exercise liability relates to restricted stock awards and stock options granted to certain employees and contractors that were early-exercised before they became vested. The early option exercise liability decreases as the restricted stock awards and stock options vest over time or if the Company decides to repurchase them, and the amount of decrease is recorded in common stock and additional paid-in capital. As of September 30, 2021 and December 31, 2020, the early option exercise liability was $1 and $79, respectively, which represents unvested shares of 136 and 29,041. The unvested shares purchased by the employees are not deemed, for accounting purposes, to be issued and outstanding.

8. COMMITMENTS AND CONTINGENCIES (AMOUNTS IN THOUSANDS)

Facilities Lease Agreements—In February 2019, the Company entered into a 5-year office lease agreement for a 9,780 square feet facility in South San Francisco, California (“SSF Lease”). The remaining lease term of the SSF Lease is two years and five months as of September 30, 2021. The Company has no other leases as of September 30, 2021 and December 31, 2020.

As a result of the merger with Millendo, the Company assumed Millendo’s noncancelable operating leases for office space which have remaining lease terms of approximately 2.7 years. In February 2019 and October 2018, Millendo entered into two noncancellable operating leases for office space in Ann Arbor, Michigan (“Ann Arbor Leases”) of which one that Millendo took possession of in April 2019 and the other that Millendo took possession of in July 2019, respectively. One of its leases in Ann Arbor, Michigan expires in June 2024 and the other expires in March 2024. There were no other leases assumed by the Company as of September 30, 2021.

As of September 30, 2021 and December 31, 2020, the balance of the operating lease right of use assets on the SSF Lease were $1,463 and $1,877, respectively, and the related operating lease liability were $1,909 and $2,439, respectively, as shown in the accompanying consolidated balance sheets.

As of September 30, 2021, the balance of the operating lease right of use assets on the Ann Arbor Leases was $1,894 and the related operating lease liability was $1,900 as shown in the accompanying consolidated balance sheet.

Rent expense was $680 and $492 for the nine months ended September 30, 2021 and 2020, respectively.

As of September 30, 2021, future minimum annual lease payments under the Company’s operating lease liabilities for the SSF Lease and Ann Arbor Leases were as follows:
Total Commitment
Year Ending(in thousands)
2021 (excluding the nine months ended September 30, 2021)393 
20221,604 
20231,647 
2024443 
2025 
Total minimum lease payments4,087 
Less: imputed interest(278)
Present value of operating lease obligations3,809 
Less: current portion(1,411)
Noncurrent operating lease obligations2,398 

Guarantees and Indemnifications—In the normal course of business, the Company enters into agreements that contain a variety of representations and provide for general indemnification. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations. As of September 30, 2021 and December 31, 2020, the Company does not have any material indemnification claims that were probable or reasonably possible and consequently has not recorded related liabilities.

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Legal Proceedings—Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties, and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated.

As a result of the merger with Millendo, the Company is party to various litigation matters given Millendo’s role as successor to OvaScience, Inc. (“OvaScience”). OvaScience merged with Millendo in 2018. Prior to the merger with Millendo, OvaScience was sued in three matters that are disclosed below.

On November 9, 2016, a purported shareholder derivative action was filed in Massachusetts State court (Cima v. Dipp) against certain former officers and directors of OvaScience and OvaScience alleging breach of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement and waste of corporate assets for purported actions related to OvaScience’s January 2015 follow-on public offering. No material proceedings have occurred since the case was filed; in April 2021, the Company filed a unilateral request to continue a stay of the case, which the court has not yet ruled on.

On March 24, 2017, a purported shareholder class action lawsuit was filed in Massachusetts Federal court (Dahhan v. OvaScience, Inc.) OvaScience and certain former officers of OvaScience alleging violations of Sections 10(b) and 20(a) of the Exchange Act (the “Dahhan Action”). Defendants have answered and the case is currently in discovery.

On July 27, 2017, a purported shareholder derivative complaint was filed in Massachusetts Federal court (Chiu v. Dipp) against OvaScience and certain former officers and directors of OvaScience alleging breach of fiduciary duties, unjust enrichment and violations of Section 14(a) of the Exchange Act. related to OvaScience’s January 2015 follow-on public offering and other public statements concerning OvaScience’s AUGMENT treatment. Following the Court’s dismissal of an amended complaint, the parties agreed that plaintiffs could file a second amended complaint and that the case would be stayed pending the resolution of the Dahhan Action. In May 2018, the court entered an order staying this case pending the resolution of the Dahhan Action.

With respect to each of the three OvaScience matters described above, the Company is unable to estimate potential losses, if any. However, the Company believes the matters are without merit, and that in light of applicable insurance, any material exposure to the Company is remote.

9.LOAN PAYABLE (AMOUNTS IN THOUSANDS)

On January 15, 2021, the Company entered into a loan agreement with a lender to borrow a term loan amount of $35,000 to be funded in three tranches. Tranche A of $15,000 was wired to the Company on January 15, 2021. Tranche B of $10,000 will be available through March 31, 2022 contingent upon achievement of each of the following: i) receipt of at least $50,000 in Series C equity capital, ii) initiation of the Phase 1 combination study of TPST-1495 or monotherapy expansion study, and iii) initiation of Phase 2 trial of TPST-1120 or the 1L Triplet Collaboration study. And Tranche C of $10,000 is available at lender’s option. The term loan matures on August 1, 2025 and has an annual floating interest rate of 7.15% which is an Index Rate plus 7%. Index Rate is the greater of (i) 30-day US LIBOR or (ii) 0.15%. Monthly principal payments of $500 will begin on March 1, 2023. Related to this borrowing, the Company recorded loan discounts totaling $898 and paid $96 of debt issuance costs. These amounts would be amortized as additional interest expense over the life of the loan. As of September 30, 2021, the balance of the loan payable (net of debt issuance costs) was $15,005. The carrying value of the loan approximates fair value.

For the three and nine months ended September 30, 2021 , total interest expense were $437 and $944, respectively.

10. CONVERTIBLE PREFERRED STOCK

As of September 30, 2021, the Company was authorized to issue up to 5,000,000 shares of preferred stock at a par value of $0.001 as a result of Private Tempest completing the merger with Millendo on June 25, 2021. As of December 31, 2020, Private Tempest was authorized to issue up to 135,936,731 shares of preferred stock at par value of $0.001.

In October 2011, Private Tempest received a commitment from its venture investor for a Series A Preferred Stock financing totaling $10 million to be taken down in two tranches of $5 million each. Upon execution of the stock purchase agreement, Private Tempest received the first tranche of $5 million, which included $2,399 in cash proceeds and the conversion of notes payable and accrued interest totaling $2,601 for issuing 5,000,000 shares of its Series A Preferred Stock. In June 2012, Private Tempest received cash proceeds of $5 million related to the second tranche of the Series A Preferred Stock financing from the issuance of 5,000,000 shares of Series A Preferred Stock.

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In August 2015, Private Tempest issued an additional 2,000,000 shares of Series A Preferred Stock to its venture investor for cash proceeds of $2 million. In September 2016, Private Tempest issued an additional 5,000,000 shares of Series A Preferred Stock to its venture investor for cash proceeds of $5 million.

In February 2018, Private Tempest issued 25,186,738 shares of Series B Preferred Stock for $1.00 per share in connection with the closing of the Series B Preferred Stock Purchase Agreement. Private Tempest’s convertible notes of $8.0 million and accrued interest were converted as part of the Series B offering.

In February 2019, Private Tempest issued 28,749,997 shares of Series B-1 preferred stock for $0.80 per share for total cash proceeds of $23 million. In January 2020, Private Tempest issued 43,749,996 shares of Series B-1 preferred stock for $0.80 per share for total cash proceeds of $35 million.

On June 25, 2021, Private Tempest completed the merger with Millendo in accordance with the Merger Agreement. Under the terms of the Merger Agreement, immediately prior to the effective time of the merger, each share Private Tempest’s preferred stock was converted into a share of Private Tempest’s common stock. At closing of the merger, the Company issued an aggregate of approximately 5,365,899 shares of its common stock to Private Tempest stockholders, based on an exchange ratio of 0.0322 shares of the Company’s common stock for each share of Private Tempest common stock outstanding immediately prior to the merger, including those shares of common stock issued upon conversion of the Private Tempest preferred stock.

The authorized, issued and outstanding shares of the convertible preferred stock and liquidation preferences December 31, 2020 were as follows (in thousands except share and per share amounts):

December 31, 2020
Series Shares AuthorizedShares Issued and OutstandingPer Share Liquidation PreferenceAggregate Liquidation AmountProceeds Net of Issuance Cost Net Carrying Value
Series A17,000,000 17,000,000 $1.00 $17,000 $16,982 $16,982 
Series B25,186,738 25,186,738 1.00 25,187 24,943 12,235 
Series B-193,749,993 72,499,993 0.80 58,000 57,489 57,489 
135,936,731 114,686,731 $100,187 $99,414 $86,706 

The significant rights, preferences, and privileges of the convertible preferred stock as of September 30, 2021 were as follows:

Dividends—The holders of the Company’s convertible preferred stock are entitled to receive noncumulative dividends of 8% per share (as adjusted for stock splits, combinations, and reorganizations) per annum on each outstanding share of Series convertible preferred stock. Such dividends shall be payable only when and if declared by the Board of Directors. As of September 30, 2021 and December 31, 2020, the Company’s Board of Directors had not declared any dividends. Dividends on convertible preferred stock shall be payable in preference to and prior to any payments of any dividends on common stock. No dividends have been declared to date.

Voting Rights—The holders of preferred stock are entitled to one vote for each share of common stock into which such preferred stock could then be converted; and with respect to such vote, such holder shall have full voting rights and powers equal to the voting rights and powers of the holders of common stock.

Liquidation—The holders of preferred stock are entitled to receive liquidation preferences at an amount per share of preferred stock equal to the original price plus all declared and unpaid dividends on the preferred stock. Liquidation payments to the holders of preferred stock have priority and are made in preference to any payments to the holders of common stock. After full payment of the liquidation preference to the holders of the preferred stock, the remaining assets, if any, will be distributed ratably to the holders of the common stock and preferred stock on an as-if-converted to common stock basis.

Redemption and Balance Sheet Classification— The convertible preferred stock is recorded within mezzanine equity because while it is not mandatorily redeemable, it will become redeemable at the option of the stockholders upon the occurrence of certain deemed liquidation events that are considered not solely within the Company’s control.

11.COMMON STOCK

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Upon completion of the merger on June 25, 2021, the Company issued an aggregate of approximately 5,365,899 shares of its common stock to Private Tempest stockholders, based on an exchange ratio of 0.0322 shares of the Company’s common stock for each share of Private Tempest common stock outstanding immediately prior to the merger, including those shares of common stock issued upon conversion of the Private Tempest preferred stock (3,692,912 common shares) and those shares of common stock issued with its pre-merger financing of $30.0 million (1,136,849 common shares).

As of September 30, 2021, the Company was authorized to issue 196,000,000 shares of common stock at a par value of $0.001. Of the 196,000,000 common stock shares authorized, 6,900,731 are legally issued and outstanding at September 30, 2021, with 136 shares subject to repurchase due to remaining vesting requirements. Common stockholders are entitled to dividends as declared by the Board of Directors, subject to rights of holders of all classes of stock outstanding having priority rights as to dividends. There have been no dividends declared to date. The holders of each share of common stock are entitled to one vote. Except for effecting or validating certain specific actions intended to protect the preferred stockholders, the holders of common stock vote together with preferred stockholders and have the right to elect one member of the Company’s Board of Directors.

On July 23, 2021, the Company entered into a sales agreement (the “Sales Agreement”) with Jefferies LLC (the “Agent”), pursuant to which the Company may sell, from time to time, up to an aggregate sales price of $100,000,000 of its common stock through the Agent.

The common stock sold in the offering will be issued pursuant to a prospectus supplement filed with the Securities and Exchange Commission (the “SEC”) on July 23, 2021, and the accompanying base prospectus dated July 23, 2021, forming part of the Company’s registration statement on Form S-3 (Registration No. 333-257990), which was declared effective on July 23, 2021.

Sales of the common stock, if any, made pursuant to the Sales Agreement may be sold in negotiated transactions or transactions that are deemed to be an “at the market offering”, as defined in Rule 415(a)(4) of the Securities Act of 1933, as amended (the “Securities Act”), including sales made directly on or through the Nasdaq Capital Market, on or through any other existing trading market for the common stock or by any other method permitted by law, at market prices prevailing at the time of sale, at prices related to prevailing market prices or at negotiated prices, or as otherwise agreed between the Company and the Agent. The Agent will be entitled to compensation equal to 3.0% of the gross proceeds from the sale of all shares of common stock sold through it as Agent under the Sales Agreement.

12. STOCK COMPENSATION

In 2011 Private Tempest adopted the 2011 Equity Incentive Plan, and in 2017, Private Tempest adopted the 2017 Equity Incentive Plan, together “the Tempest Equity Plans”. Upon adoption of the 2017 Equity Incentive Plan, the 2011 Equity Incentive Plan was terminated.

The Board of Millendo adopted the 2019 Equity Incentive Plan (the “2019 Plan”) and 2019 Employee Stock Purchase Plan (the “2019 ESPP,” and together with the 2019 Plan, the “Millendo Equity Plans”) on April 29, 2019, subject to approval by the Company’s stockholders, and became effective with such stockholder approval on June 11, 2019. As a result of the merger, the Tempest Equity Plans and Millendo Equity Plans were assumed by the Company.

Both the Tempest Equity Plans and the 2019 Plan allow the Company to grant stock awards to employees, directors and consultants of the Company, including incentive stock options (“ISOs”), nonqualified stock options (“NSOs”), stock appreciation rights, restricted stock awards, restricted stock unit awards and other stock awards. The 2019 ESPP enables employees to purchase shares of the Company’s common stock through offerings of rights to purchase the Company’s common stock to all eligible employees.

The number of shares of the Company's common stock reserved for issuance under the 2019 Plan will automatically increase on January 1st of each year, for a period of ten years, from January 1, 2020 continuing through January 1, 2029, by 4% of the total number of shares of the Company's common stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares as may be determined by the Board.

The number of shares of the Company's common stock reserved for issuance under the 2019 ESPP will automatically increase on January 1st of each year, for a period of up to ten years, from January 1, 2020 continuing through January 1, 2029, by the lesser of (i) 1% of the total number of shares of the Company's capital stock outstanding on December 31 of the preceding calendar year, or (ii) 133,580 shares of the Company's common stock, unless a lesser number of shares is determined by the Board.

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The Company measures employee and nonemployee stock-based awards at grant date fair value and records compensation expense on a straight-line basis over the vesting period of the award.

As of September 30, 2021, a total of 469,202 shares are available for future grant under the Tempest Equity Plans and the Millendo Equity Plans.

Options to purchase the Company’s common stock may be granted at a price not less than the fair market value in the case of both NSOs and ISOs, except for an employee or non-employee with options who owns more than 10 percent of the voting power of all classes of stock of the Company, in which case the exercise price shall be no less than 110 percent of the fair market value per share on the grant date. Stock options granted under the Plans generally vest over four years and expire no later than ten (10) years from the date of grant. Vested options can be exercised at any time.

The grant date fair market value of the shares of common stock underlying stock options has historically been determined by the Company’s Board of Directors. Because there has been no public market for the Company’s common stock, the Board of Directors exercises reasonable judgment and considers a number of objective and subjective factors to determine the best estimate of the fair market value, which include valuations performed by an independent third-party, important developments in the Company’s operations, sales of convertible preferred stock, actual operating results, financial performance, the conditions in the life sciences industry, the economy in general, the stock price performance and volatility of comparable public companies, and the lack of liquidity of the Company’s common stock.

Stock option activity under the Plans is set forth below:
Shares Available for GrantTotal Options OutstandingWeighted-Average Exercise Price
Balance—January 1, 2021489,797 452,165 $5.35 
Assumed in reverse recapitalization116,509 177,591 179.79 
Granted(232,669)232,669 19.09 
Exercised— (25,871)3.77 
Cancelled and forfeited95,488 (100,459)107.77 
Balance—September 30, 2021469,125 736,095 37.47 

The following table summarizes information about stock options outstanding at September 30, 2021:

SharesWeighted Average Remaining Contractual Life (In Years)Weighted Average Exercise PriceAggregate Intrinsic Value
Options outstanding736,0958.62$37.47$4,124,738
Vested and expected to vest735,9348.62$37.48$4,123,358
Exercisable306,9988.07$72.78$1,792,906

Employee Stock Options—During the nine months ended September 30, 2021, the Company granted employees stock options to purchase 218,034 shares of common stock with a weighted-average grant date fair value of $11.83 per share. As of September 30, 2021, there was total unrecognized compensation costs related to unvested employee stock options of $2,935.0. These costs are expected to be recognized over a weighted-average period of approximately 1.4 years.

The Company estimated the fair value of stock options using the Black-Scholes option pricing valuation model. The fair value of employee stock options is being amortized on the straight-line basis over the requisite service period of the awards. The fair value of employee stock options was estimated using the following assumptions for the nine months ended September 30, 2021:

Expected term (in years)
5.8 - 6.1
Expected volatility
67% - 68%
Risk-free interest rate
0.9% - 1.1%
Dividends %
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Expected Term—The expected term of options granted represents the period of time that the options are expected to be outstanding. Due to the lack of historical exercise history, the expected term of the Company’s employee stock options has been determined utilizing the simplified method for awards that qualify as plain-vanilla options.

Expected Volatility—The expected stock price volatility assumption was determined by examining the historical volatilities for industry peers, as the Company did not have any trading history for the Company’s common stock. The Company will continue to analyze the historical stock price volatility and expected term assumption as more historical data for the Company’s common stock becomes available.

Risk-Free Interest Rate—The risk-free interest rate assumption is based on the U.S. Treasury instruments whose term was consistent with the expected term of the Company’s stock options.

Dividends—The Company has not paid any cash dividends on common stock since inception and does not anticipate paying any dividends in the foreseeable future. Consequently, an expected dividend yield of zero was used.

Non-Employee Stock Options— During the nine months ended September 30, 2021, the Company granted non-employees stock options to purchase 14,635 shares of common stock with a weighted-average grant date fair value of $8.02 per share. As of September 30, 2021, there was total unrecognized compensation costs related to unvested non-employee stock options of $85.0. These costs are expected to be recognized over a weighted-average period of approximately 1.5 years.

The Company estimated the fair value of stock options using the Black-Scholes option pricing valuation model. The fair value of non-employee stock options is being amortized on the straight-line basis over the requisite service period of the awards. The fair value of non-employee stock options was estimated using the following assumptions for the nine months ended September 30, 2021:

Expected term (in years)10.0
Expected volatility
66% - 67%
Risk-free interest rate1.5 %
Dividends %

Expected Term—The expected term of options granted represents the period of time that the options are expected to be outstanding. The Company has valued its non-employee stock options using the contractual term as the expected term.

Expected Volatility—The expected stock price volatility assumption was determined by examining the historical volatilities for industry peers, as the Company did not have any trading history for the Company’s common stock. The Company will continue to analyze the historical stock price volatility and expected term assumption as more historical data for the Company’s common stock becomes available.

Risk-Free Interest Rate—The risk-free interest rate assumption is based on the U.S. Treasury instruments whose term was consistent with the expected term of the Company’s stock options.

Dividends—The Company has not paid any cash dividends on common stock since inception and does not anticipate paying any dividends in the foreseeable future. Consequently, an expected dividend yield of zero was used.

Stock-Based Compensation Expense—The following table summarizes the components of stock-based compensation expense recognized in the

Company’s statement of operations and comprehensive loss for the three and nine months ended September 30, 2021 :

Three Months Ended September 30, Nine Months Ended September 30,
2021202020212020
Research and development$105 $59 $227 $