Convertible preferred stock and stockholders' deficit	9 Months Ended
Sep. 30, 2020
Convertible preferred stock and stockholders' deficit
Convertible preferred stock and stockholders' deficit	10. Convertible preferred stock and stockholders’ deficit Series A convertible preferred stock During the year ended December 31, 2019, the Company sold 512,826 shares of its Series A Preferred at $9.00 per share in exchange for $4.6 million in gross proceeds and incurred $35,000 of related issuance costs. In November 2019, the Company issued 821,657 shares of Series A Preferred in connection with the conversion of the promissory notes of $6.8 million (see Note 6). In June 2020, the Company sold an additional 1,226,925 shares of Series A Preferred at $9.00 per share for $11.0 million in gross proceeds and incurred $27,000 of related issuance costs. In addition to the shares of Series A Preferred, the Company issued warrants to purchase 1,035,196 shares of the Company’s Series A Preferred. The warrants are exercisable at any time and have an exercise price of $9.00 per share and will terminate at the earlier of (i) three years from the date of issuance, (ii) upon liquidation or deemed liquidation of the Company and (iii) upon the Company’s securities trading at $27.00 per share for at least 10 days out of a consecutive 20 day trading period beginning after the first anniversary of an initial public offering of the Company’s common stock. The Company allocated $1.5 million of the gross proceeds from the June 2020 sale of the Series A Preferred to the warrant liability (see Note 11, Warrants to acquire shares of Series A convertible preferred stock), which represents the fair value of the warrants as of the date of grant. The Series A convertible preferred stock has the following key terms: Dividends — The holders of Series A Preferred shall be entitled to receive, when, as, and if declared by the Board of Directors, such dividends as may be declared from time to time by the Board of Directors. No cash dividends shall be declared and/or paid with respect to common stock until all declared but unpaid dividends on the preferred stock have been paid in full. Additionally, in the event that the Company declares, pays or sets aside any dividends on shares of common stock, the holders of Series A Preferred participate in such dividends on an as-converted basis. No dividends had been declared through September 30, 2020. Voting Rights — Holders of preferred stock have voting rights equal to the number of shares of common stock on a converted basis and have certain protective voting rights as a class. Liquidation — In the event of any liquidation, dissolution, or winding up of the Company, either voluntary or involuntary, or any deemed liquidation event, each holder of Series A Preferred shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Company to the holders of common stock by reason of their ownership thereof, in respect of each share of Series A Preferred owned by such holder, an amount per share equal to the greater of the following: (i) the sum of (A) $9.00, being the original purchase price for such share (as adjusted for any stock splits, stock dividends, reverse stock splits, stock combinations, and other similar capitalization changes) plus (B) any dividends declared but unpaid thereon or (ii) such amount per share of Series A Preferred as would have been payable had all shares of Series A Preferred been converted into common stock immediately prior to such liquidation, dissolution or deemed liquidation event. Conversion Rights — The Series A Preferred is convertible at any time at the option of the holder into shares of common stock at a conversion price equal to $9.00 per share. Upon an event specified by vote or consent by the requisite holders or upon a public offering meeting the criteria specified in the certificate, the shares of Series A Preferred will be automatically converted into shares of common stock. The conversion price is subject to adjustment for certain events, including traditional dilutive events as well as weighted average down-round protection. Redemption — Upon the occurrence of a deemed liquidation event which does not result in the dissolution of the Company, as defined in the Company’s articles of incorporation, the Series A Preferred may be redeemed at the greater of (i) the original issuance price plus any declared but unpaid dividends and (ii) the estimated fair value of the Company’s common stock into which the Series A Preferred would convert into immediately prior to redemption. The Company classifies Series A Preferred as temporary equity in the accompanying balance sheets as certain deemed liquidation events are outside the Company’s control. Future Tranche Right Feature — In connection with the Company’s initial offering of its Series A Preferred in 2015, a future milestone closing provision (the Future Milestone) was included requiring the Company to sell, on the same terms and conditions as the initial offering, an aggregate of $3.5 million of additional Series A Preferred upon achievement of certain development and strategic milestones, as defined in the purchase agreement and at $9.00 per share, or 388,888 shares of Series A Preferred. The Future Milestone was not achieved as of September 30, 2020, and the Company’s obligations to sell the shares terminated upon completion of the Company’s IPO. The Company determined that the Future Tranche Right did not meet the definition of a freestanding financial instrument as it was not legally detachable. The Future Tranche Right was also evaluated as an embedded derivative and the Company determined it did not meet the definition of a derivative instrument for which bifurcation would be required. As discussed in Note 1, all of the Company’s outstanding Series A Preferred converted into 5,670,184 shares of common stock upon the closing of the IPO on October 6, 2020. Common stock The holders of common stock are entitled to one vote for each share of common stock. Subject to the approval of the majority of Series A Preferred stockholders, and payment in full of all preferential dividends to which the holders of the Series A Preferred are entitled, the holders of common stock shall be entitled to receive dividends out of funds legally available. In the event of any voluntary or involuntary liquidation, dissolution, or winding up of the Company, after the payment or provision for payment of all debts and liabilities of the Company and all preferential amounts to which the holders of Series A Preferred are entitled with respect to the distribution of assets in liquidation, the holders of common stock shall be entitled to share ratably in the remaining assets of the Company available for distribution. At September 30, 2020, the Company had reserved 10,146,643 shares of common stock for conversion of Series A Preferred and warrants and exercise of stock options.

Convertible preferred stock and stockholders' deficit

9 Months Ended

Sep. 30, 2020

Convertible preferred stock and stockholders' deficit

Convertible preferred stock and stockholders' deficit

10. Convertible preferred stock and stockholders’ deficit

Series A convertible preferred stock

During the year ended December 31, 2019, the Company sold 512,826 shares of its Series A Preferred at $9.00 per share in exchange for $4.6 million in gross proceeds and incurred $35,000 of related issuance costs. In November 2019, the Company issued 821,657 shares of Series A Preferred in connection with the conversion of the promissory notes of $6.8 million (see Note 6). In June 2020, the Company sold an additional 1,226,925 shares of Series A Preferred at $9.00

per share for $11.0 million in gross proceeds and incurred $27,000 of related issuance costs. In addition to the shares of Series A Preferred, the Company issued warrants to purchase 1,035,196 shares of the Company’s Series A Preferred. The warrants are exercisable at any time and have an exercise price of $9.00 per share and will terminate at the earlier of (i) three years from the date of issuance, (ii) upon liquidation or deemed liquidation of the Company and (iii) upon the Company’s securities trading at $27.00 per share for at least 10 days out of a consecutive 20 day trading period beginning after the first anniversary of an initial public offering of the Company’s common stock. The Company allocated $1.5 million of the gross proceeds from the June 2020 sale of the Series A Preferred to the warrant liability (see Note 11, Warrants to acquire shares of Series A convertible preferred stock), which represents the fair value of the warrants as of the date of grant.

The Series A convertible preferred stock has the following key terms:

Dividends — The holders of Series A Preferred shall be entitled to receive, when, as, and if declared by the Board of Directors, such dividends as may be declared from time to time by the Board of Directors. No cash dividends shall be declared and/or paid with respect to common stock until all declared but unpaid dividends on the preferred stock have been paid in full. Additionally, in the event that the Company declares, pays or sets aside any dividends on shares of common stock, the holders of Series A Preferred participate in such dividends on an as-converted basis. No dividends had been declared through September 30, 2020.

Voting Rights — Holders of preferred stock have voting rights equal to the number of shares of common stock on a converted basis and have certain protective voting rights as a class.

Liquidation — In the event of any liquidation, dissolution, or winding up of the Company, either voluntary or involuntary, or any deemed liquidation event, each holder of Series A Preferred shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Company to the holders of common stock by reason of their ownership thereof, in respect of each share of Series A Preferred owned by such holder, an amount per share equal to the greater of the following: (i) the sum of (A) $9.00, being the original purchase price for such share (as adjusted for any stock splits, stock dividends, reverse stock splits, stock combinations, and other similar capitalization changes) plus (B) any dividends declared but unpaid thereon or (ii) such amount per share of Series A Preferred as would have been payable had all shares of Series A Preferred been converted into common stock immediately prior to such liquidation, dissolution or deemed liquidation event.

Conversion Rights — The Series A Preferred is convertible at any time at the option of the holder into shares of common stock at a conversion price equal to $9.00 per share. Upon an event specified by vote or consent by the requisite holders or upon a public offering meeting the criteria specified in the certificate, the shares of Series A Preferred will be automatically converted into shares of common stock. The conversion price is subject to adjustment for certain events, including traditional dilutive events as well as weighted average down-round protection.

Redemption — Upon the occurrence of a deemed liquidation event which does not result in the dissolution of the Company, as defined in the Company’s articles of incorporation, the Series A Preferred may be redeemed at the greater of (i) the original issuance price plus any declared but unpaid dividends and (ii) the estimated fair value of the Company’s common stock into which the Series A Preferred would convert into immediately prior to redemption. The Company classifies Series A Preferred as temporary equity in the accompanying balance sheets as certain deemed liquidation events are outside the Company’s control.

Future Tranche Right Feature — In connection with the Company’s initial offering of its Series A Preferred in 2015, a future milestone closing provision (the Future Milestone) was included requiring the Company to sell, on the same terms and conditions as the initial offering, an aggregate of $3.5 million of additional Series A Preferred upon achievement of certain development and strategic milestones, as defined in the purchase agreement and at $9.00 per share, or 388,888 shares of Series A Preferred. The Future Milestone was not achieved as of September 30, 2020, and the Company’s obligations to sell the shares terminated upon completion of the Company’s IPO.

The Company determined that the Future Tranche Right did not meet the definition of a freestanding financial instrument as it was not legally detachable. The Future Tranche Right was also evaluated as an embedded derivative and

the Company determined it did not meet the definition of a derivative instrument for which bifurcation would be required.

As discussed in Note 1, all of the Company’s outstanding Series A Preferred converted into 5,670,184 shares of common stock upon the closing of the IPO on October 6, 2020.

Common stock

The holders of common stock are entitled to one vote for each share of common stock. Subject to the approval of the majority of Series A Preferred stockholders, and payment in full of all preferential dividends to which the holders of the Series A Preferred are entitled, the holders of common stock shall be entitled to receive dividends out of funds legally available. In the event of any voluntary or involuntary liquidation, dissolution, or winding up of the Company, after the payment or provision for payment of all debts and liabilities of the Company and all preferential amounts to which the holders of Series A Preferred are entitled with respect to the distribution of assets in liquidation, the holders of common stock shall be entitled to share ratably in the remaining assets of the Company available for distribution.

At September 30, 2020, the Company had reserved 10,146,643 shares of common stock for conversion of Series A Preferred and warrants and exercise of stock options.