1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Description of Business—Lexeo Therapeutics, Inc. (the “Company”), together with its consolidated subsidiary, Stelios Therapeutics Inc., until such subsidiary was merged into the Company on December 15, 2022 and ceased to exist, is a clinical stage genetic medicine company with a focus on hereditary and acquired diseases of high unmet need. The Company’s investigational therapies have the potential to offer gene therapy-based treatments to address many diseases that have eluded today’s existing drug delivery platforms. The Company utilizes adeno-associated viruses (“AAV”) that have been engineered to transfer genes to patients. The Company’s therapeutic investigational treatments include gene therapies primarily in the early clinical and late pre-clinical stages of research and development.

The Company is located in New York, NY and was first formed on February 17, 2017, as an LLC under the laws of the State of Delaware under the legal name Lexeo Therapeutics, LLC. The Company filed and executed a certificate of conversion to corporation on November 20, 2020, to convert the LLC to Lexeo Therapeutics, Inc, a Delaware corporation. All of the Company’s tangible assets are held in the United States (“U.S.”).

Basis of Presentation and Principles of Consolidation—The Company’s fiscal year ends on December 31, and its fiscal quarters end on March 31, June 30, and September 30.

These unaudited condensed consolidated financial statements and accompanying notes reflect the operations of the Company and its wholly owned subsidiary that have been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and disclosures required by GAAP for complete financial statements. These unaudited condensed consolidated financial statements and accompanying notes should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2022 (the “Annual Financial Statements”). The unaudited condensed consolidated balance sheet at December 31, 2022 has been derived from the audited consolidated financial statements at that date. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary to present fairly the financial position of the Company and its results of operations and cash flows for the periods presented have been included. Operating results for the three and nine-months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023, for any other interim period, or for any other future year.

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 Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”). The accounts of the wholly owned subsidiary are included in these unaudited condensed consolidated financial statements and accompanying notes. The Company has no unconsolidated subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

A 10.594230-for-1 reverse share split of the Company’s Series A convertible preferred stock, Series B convertible preferred stock, common stock, and options to purchase common stock under the Company’s 2021 Equity Incentive Plan (as defined in Note 10), as well as corresponding adjustments in the respective conversion prices of the Series A convertible preferred stock and Series B convertible preferred stock, was effected on October 13, 2023 as approved by the Company’s board of directors (the "Board of Directors") and its shareholders (the “Stock Split”) (see Note 14). The Stock Split reduced the number of shares of the Company’s authorized, issued and outstanding common stock, as well as the numbers of shares reserved and available for future issuance and underlying outstanding options to purchase common stock under its 2021 Equity Incentive Plan, on a 10.594230-for-1 basis. As such, all references to Series A convertible preferred stock and Series B convertible preferred stock conversion ratios, conversion share and per share amounts, and post- conversion share and per share amounts, as well as common stock option, option per common share, common share and common per share amounts, in these unaudited condensed consolidated financial statements and accompanying notes have been retroactively restated to reflect the Stock Split and the Stock Split’s effect on the respective Series A convertible preferred stock and Series B convertible preferred stock conversion ratios for each series of convertible preferred stock. The Stock Split did not affect the par values per share.

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Need for Additional Capital—Since inception, the Company has incurred net losses and negative cash flows from operations, including net losses of $52,207 and $59,277 during the nine months ended September 30, 2023 and the year ended December 31, 2022, respectively. As of September 30, 2023, the Company had cash and cash equivalents of $35,449 and an accumulated deficit of $167,653 and expects to incur substantial operating losses and negative cash flows from operations for the foreseeable future. During the three and nine-months ended September 30, 2023, and the years ended December 31, 2021 and December 31, 2020, the Company raised $4,000, $51,000 and $100,060 of gross proceeds in connection with the issuance of a convertible Simple Agreement for Future Equity (“SAFE”) note (the "SAFE Note") (see Note 7), Series A convertible preferred stock and Series B convertible preferred stock (see Note 8), respectively. Upon the closing of the Company’s initial public offering (“IPO”) on November 7, 2023 and the subsequent partial exercise of the underwriters’ 30-day option to purchase additional shares, the Company received total net proceeds of approximately $100,049 after deducting underwriting discounts, commissions and estimated offering expenses (the "IPO Proceeds") (see Note 14). As a result of the receipt of the IPO Proceeds, management estimates that there is no substantial doubt about the Company’s ability to continue as a going concern for the one year period following the date that these unaudited condensed consolidated financial statements and accompanying notes were issued or were available to be issued, and the prior substantial doubt about the Company’s ability to continue as a going concern that was alleviated as a result of management’s plans upon the issuance of the Company’s June 30, 2023 unaudited condensed consolidated interim financial statements no longer exists.

Risks and Uncertainties—The Company is subject to risks and uncertainties common to early-stage companies in the biopharmaceutical industry, including, but not limited to, successful discovery and development of its product candidates, development by competitors of new technological innovations, dependence on key personnel, the ability to attract and retain qualified employees, protection of proprietary technology, compliance with governmental regulations, the ability to secure additional capital to fund operations, and commercial success of its product candidates. Any of the Company’s current product candidates and future product candidates that it may develop will require extensive nonclinical and clinical testing and regulatory approval prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel, infrastructure, and extensive compliance- reporting capabilities. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

There have been no significant changes in the Company’s accounting policies from those disclosed in its Annual Financial Statements.

3. 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. The three levels of inputs that may be used to measure fair value are as follows:

Level 1—Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2—Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.

Level 3—Inputs are unobservable inputs for the asset or liability.

The Company’s cash equivalents consist of investments in a U.S. government money market fund stated at carrying value, which approximates fair value and is based on quoted prices in active markets for identical securities. Cash is stated at carrying value, which approximates fair value due to its short-term nature. The carrying values of the Company’s prepaid expenses, other current assets, accounts payable and accrued expenses approximate their fair values due to the short-term nature of these assets and liabilities. The carrying value of the Company’s convertible SAFE Note, gross of unamortized discount, was estimated using a probability-weighted present value model, which involved the use of significant unobservable inputs (see Notes 7 and 14).

The valuation models used to estimate the fair value of the Company’s convertible SAFE Note considered the estimated probabilities of each of qualified equity financing, public offering, and change of control events, together with corresponding estimated periods of time from each valuation date until the achievements of each such event. Future values were converted to present value using a discount rate appropriate for probability-adjusted cash flows. The ranges of the significant unobservable inputs used in the valuation model to estimate the fair value of the Company’s convertible SAFE Note that was categorized within Level 3 of the fair value hierarchy as of September 30, 2023 and August 24, 2023 (inception) were as follows (not stated in thousands):

4. PROPERTY AND EQUIPMENT

5. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

6. LEASES

Operating Lease Right-of-Use Asset

In January 2022, the Company entered into a lease agreement for an office facility and laboratory space in New York, New York that commenced in April 2022 and ends in July 2029 with an additional five-year option to extend the lease beyond July 2029 at the then-prevailing effective market rental rate. Upon commencement of this lease, the Company recorded operating lease right-of-use assets and operating lease liabilities of $11,585 based on the present value of payments over the lease term using an estimated incremental borrowing rate of 8.53% in accordance with the provisions of ASC Topic 842, Leases (“ASC 842”). In connection with the Company’s lease of office space and laboratory space, the Company provided a security deposit to the landlord in the form of a letter of credit totaling $1,189. The cash collateralizing the letter of credit was included in long-term restricted cash in the Company’s condensed consolidated balance sheets as of September 30, 2023, and December 31, 2022. This lease was classified as an operating lease in accordance with the provisions of ASC 842. The Company did not recognize any right-of-use assets and lease liabilities associated with the potential option to renew or extend. The Company’s operating lease agreement does not contain any significant residual value guarantees or restrictive covenants.

The remaining lease terms and payment terms as of September 30, 2023 and December 31, 2022 were 5.8 years and 6.0 years, respectively. The components of this operating lease were as follows: