10-Q 1 atre-20190630x10q.htm 10-Q atre_Current Folio_10Q

 

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 June 30, 2019

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 number 001-38853


ATRECA, INC.

(Exact name of registrant as specified in its charter)


 

 

Deleware

27‑3723255

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

 

500 Saginaw Drive

Redwood City, CA 94063

(Address of principal executive offices)

(Zip Code)

(650)‑595-2595

(Registrant’s telephone number, including area code)

Unchanged

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


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 during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes   No  ☐

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

 

 

 

 

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller 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 Exchange Act). Yes  ☐  No  .

As of August 13, 2019, the registrant had 22,013,578 shares of Class A common stock, $0.0001 par value per share and 5,934,191 shares of Class B common stock, $0.0001 par value per share, outstanding.

 

 

 

TABLE OF CONTENTS

 

 

 

 

 

 

Page

PART I. FINANCIAL INFORMATION  

 

Item 1. 

Condensed Consolidated Financial Statements (Unaudited) 

 

 

Condensed Consolidated Balance Sheets 

3

 

Condensed Consolidated Statements of Operations

4

 

Condensed Consolidated Statements of Loss and Comprehensive Loss 

5

 

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Deficit 

6

 

Condensed Consolidated Statements of Cash Flows 

8

 

Notes to Unaudited Condensed Consolidated Financial Statements 

10

Item 2. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations 

22

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk 

31

Item 4. 

Controls and Procedures 

31

PART II. OTHER INFORMATION  

32

Item 1. 

Legal Proceedings 

32

Item 1A. 

Risk Factors 

32

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds 

74

Item 3. 

Defaults Upon Senior Securities 

75

Item 4. 

Mine Safety Disclosures 

75

Item 5. 

Other Information 

76

Item 6. 

Exhibits 

76

 

 

 

 

PART I --- FINANCIAL INFORMATION

 

Item 1. Condensed Consolidated Financial Statements (Unaudited)

 

Atreca, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

 

    

2019

    

2018

    

 

 

(Unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

154,959

 

$

114,504

 

Investments

 

 

64,703

 

 

 —

 

Prepaid expenses and other current assets

 

 

2,589

 

 

2,721

 

Total current assets

 

 

222,251

 

 

117,225

 

Property and equipment, net

 

 

4,155

 

 

4,143

 

Deposits and other

 

 

974

 

 

316

 

Total assets

 

$

227,380

 

$

121,684

 

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

Accounts payable

 

$

3,942

 

$

1,307

 

Accrued expenses

 

 

4,299

 

 

3,008

 

Other current liabilities

 

 

158

 

 

247

 

Total current liabilities

 

 

8,399

 

 

4,562

 

Capital lease obligations, net of current portion

 

 

77

 

 

100

 

Deferred rent

 

 

22

 

 

 6

 

Preferred stock warrant liability

 

 

 —

 

 

380

 

Total liabilities

 

 

8,498

 

 

5,048

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

Series A convertible preferred stock, $0.0001 par value; 100,000,000 and 32,133,287 shares authorized as of June 30 2019 and December 31, 2018, respectively; zero and 5,305,513 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively (aggregate liquidation preference of $58,892)

 

 

 —

 

 

55,030

 

Series B convertible preferred stock, $0.0001 par value; 100,000,000 and 18,008,749 shares authorized as of June 30 2019 and December 31, 2018, respectively; zero and 3,001,421 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively (aggregate liquidation preference of $35,000)

 

 

 —

 

 

34,333

 

Series C1 convertible preferred stock, $0.0001 par value; 50,000,000 and 54,184,549 shares authorized as of June 30 2019 and December 31, 2018, respectively; zero and 5,007,134 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively (aggregate liquidation preference of $70,000)

 

 

 —

 

 

65,691

 

Series C2 convertible preferred stock, $0.0001 par value; 50,000,000 and 23,605,150 shares authorized as of June 30 2019 and December 31, 2018, respectively; zero and 3,934,191 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively (aggregate liquidation preference of $55,000)

 

 

 —

 

 

54,615

 

Stockholders’ equity (deficit)

 

 

 

 

 

 

 

Class A common stock, $0.0001 par value, 650,000,000 and 191,398,492 shares authorized as of June 30, 2019 and December 31, 2018, respectively; 22,013,010 and 2,119,872 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively

 

 

 2

 

 

 —

 

Class B common stock, $0.0001 par value, 50,000,000 and 23,605,150 shares authorized as of June 30, 2019 and December 31, 2018, respectively; 5,934,191 and zero shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively

 

 

 1

 

 

 —

 

Additional paid-in capital

 

 

346,915

 

 

3,593

 

Accumulated other comprehensive loss

 

 

86

 

 

(4)

 

Accumulated deficit

 

 

(128,122)

 

 

(96,622)

 

Total stockholders’ equity (deficit)

 

 

218,882

 

 

(93,033)

 

Total liabilities and stockholders’ equity (deficit)

 

$

227,380

 

$

121,684

 

 

-  3  -

Atreca, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 

 

Six Months Ended June 30, 

 

    

2019

    

2018

    

2019

    

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

15,922

 

$

7,419

 

$

27,635

 

$

14,062

General and administrative

 

 

3,537

 

 

1,632

 

 

6,055

 

 

2,932

Total expenses

 

 

19,459

 

 

9,051

 

 

33,690

 

 

16,994

Interest and other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

Other income

 

 

1,021

 

 

347

 

 

1,186

 

 

560

Interest income

 

 

594

 

 

33

 

 

1,139

 

 

90

Interest expense

 

 

(2)

 

 

(2)

 

 

(4)

 

 

(5)

Preferred stock warrant liability revaluation

 

 

(73)

 

 

 7

 

 

(123)

 

 

27

Loss on disposal of property and equipment

 

 

(2)

 

 

(1)

 

 

(7)

 

 

(1)

Loss before income tax expense

 

 

(17,921)

 

 

(8,667)

 

 

(31,499)

 

 

(16,323)

Income tax expense

 

 

 —

 

 

(1)

 

 

(1)

 

 

(1)

Net loss

 

$

(17,921)

 

$

(8,668)

 

$

(31,500)

 

$

(16,324)

Net loss per share, basic and diluted

 

$

(3.67)

 

$

(4.13)

 

$

(8.97)

 

$

(7.79)

Weighted-average shares used in computing net loss per share, basic and diluted

 

 

4,888,987

 

 

2,097,296

 

 

3,512,606

 

 

2,095,363

 

 

-  4  -

Atreca, Inc.

Condensed Consolidated Statements of Loss and Comprehensive Loss

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 

 

Six Months Ended June 30, 

 

    

2019

    

2018

    

2019

    

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(17,921)

 

$

(8,668)

 

$

(31,500)

 

$

(16,324)

Other comprehensive income (loss);

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on fair value of investments

 

 

61

 

 

16

 

 

89

 

 

21

Unrealized gain (loss) on currency translation

 

 

 2

 

 

(17)

 

 

 1

 

 

(24)

Comprehensive loss

 

$

(17,858)

 

$

(8,669)

 

$

(31,410)

 

$

(16,327)

 

 

 

-  5  -

Atreca, Inc.

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders' Deficit

(in thousands, except share data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

Convertible

 

 

 

 

 

 

 

Additional

 

Other

 

 

 

 

Total

Three Months Ended June 30, 2018

 

Preferred Stock

 

 

Common Stock

 

Paid-In

 

Comprehensive

 

Accumulated

 

Stockholders'

 

    

Shares

    

Amount

  

  

Shares

    

Amount

    

Capital

    

Loss

    

Deficit

    

Equity (Deficit)

Balances at March 31, 2018

 

8,306,934

 

$

89,362

 

 

2,093,473

 

$

 —

 

$

2,243

 

$

(16)

 

$

(66,338)

 

$

(64,111)

Issuance of common stock upon exercise of options

 

 —

 

 

 —

 

 

17,067

 

 

 —

 

 

 9

 

 

 —

 

 

 —

 

 

 9

Stock-based compensation

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

377

 

 

 —

 

 

 —

 

 

377

Unrealized gain on fair value of investments

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

16

 

 

 —

 

 

16

Unrealized currency exchange loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(17)

 

 

 —

 

 

(17)

Net loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(8,668)

 

 

(8,668)

Balances at June 30, 2018

 

8,306,934

 

$

89,362

 

 

2,110,540

 

$

 —

 

$

2,629

 

$

(17)

 

$

(75,006)

 

$

(72,394)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

Convertible

 

 

 

 

 

 

 

Additional

 

Other

 

 

 

 

Total

Three Months Ended June 30, 2019

 

Preferred Stock

 

 

Common Stock

 

Paid-In

 

Comprehensive

 

Accumulated

 

Stockholders'

 

 

Shares

    

Amount

  

  

Shares

    

Amount

    

Capital

    

Loss

    

Deficit

    

Equity (Deficit)

Balances at March 31, 2019

 

17,248,259

 

$

209,668

 

 

2,123,257

 

$

 —

 

$

4,383

 

$

23

 

$

(110,201)

 

$

(105,795)

Conversion of convertible preferred stock

 

(17,248,259)

 

 

(209,668)

 

 

17,248,259

 

 

 2

 

 

209,666

 

 

 —

 

 

 —

 

 

209,668

Issuance of common stock upon initial public offering, net

 

 —

 

 

 —

 

 

8,452,500

 

 

 1

 

 

130,785

 

 

 —

 

 

 —

 

 

130,786

Exercise of warrants

 

 —

 

 

 —

 

 

62,936

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Issuance of common stock upon exercise of options

 

 —

 

 

 —

 

 

60,249

 

 

 —

 

 

217

 

 

 —

 

 

 —

 

 

217

Vesting of early exercised stock options

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 2

 

 

 —

 

 

 —

 

 

 2

Reclassification of redeemable convertible preferred stock warrant liability to additional paid-in capital

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

503

 

 

 —

 

 

 —

 

 

503

Stock-based compensation

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

1,359

 

 

 —

 

 

 —

 

 

1,359

Unrealized gain on fair value of investments

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

61

 

 

 —

 

 

61

Unrealized currency exchange loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 2

 

 

 —

 

 

 2

Net loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(17,921)

 

 

(17,921)

Balances at June 30, 2019

 

 —

 

$

 —

 

 

27,947,201

 

$

 3

 

$

346,915

 

$

86

 

$

(128,122)

 

$

218,882

 

 

-  6  -

Atreca, Inc.

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders' Deficit (continued)

(in thousands, except share data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

Convertible

 

 

 

 

 

 

 

Additional

 

Other

 

 

 

 

Total

Six Months Ended June 30, 2018

 

Preferred Stock

 

 

Common Stock

 

Paid-In

 

Comprehensive

 

Accumulated

 

Stockholders'

 

    

Shares

    

Amount

  

  

Shares

    

Amount

    

Capital

    

Loss

    

Deficit

    

Equity (Deficit)

Balances at December 31, 2017

 

8,306,934

 

$

89,362

 

 

2,092,040

 

$

 —

 

$

2,130

 

$

(14)

 

$

(58,682)

 

$

(56,566)

Issuance of common stock upon exercise of options

 

 —

 

 

 —

 

 

18,500

 

 

 —

 

 

 9

 

 

 —

 

 

 —

 

 

 9

Stock-based compensation

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

490

 

 

 —

 

 

 —

 

 

490

Unrealized gain on fair value of investments

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

21

 

 

 —

 

 

21

Unrealized currency exchange loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(24)

 

 

 —

 

 

(24)

Net loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(16,324)

 

 

(16,324)

Balances at June 30, 2018

 

8,306,934

 

$

89,362

 

 

2,110,540

 

$

 —

 

$

2,629

 

$

(17)

 

$

(75,006)

 

$

(72,394)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

Convertible

 

 

 

 

 

 

 

Additional

 

Other

 

 

 

 

Total

Six Months Ended June 30, 2019

 

Preferred Stock

 

 

Common Stock

 

Paid-In

 

Comprehensive

 

Accumulated

 

Stockholders'

 

 

Shares

    

Amount

  

  

Shares

    

Amount

    

Capital

    

Loss

    

Deficit

    

Equity (Deficit)

Balances at December 31, 2018

 

17,248,259

 

$

209,668

 

 

2,119,872

 

$

 —

 

$

3,593

 

$

(4)

 

$

(96,622)

 

$

(93,033)

Conversion of convertible preferred stock

 

(17,248,259)

 

 

(209,668)

 

 

17,248,259

 

 

 2

 

 

209,666

 

 

 —

 

 

 —

 

 

209,668

Issuance of common stock upon initial public offering, net

 

 —

 

 

 —

 

 

8,452,500

 

 

 1

 

 

130,785

 

 

 —

 

 

 —

 

 

130,786

Exercise of warrants

 

 —

 

 

 —

 

 

62,936

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Issuance of common stock upon exercise of options

 

 —

 

 

 —

 

 

63,634

 

 

 —

 

 

231

 

 

 —

 

 

 —

 

 

231

Vesting of early exercised stock options

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 2

 

 

 —

 

 

 —

 

 

 2

Reclassification of redeemable convertible preferred stock warrant liability to additional paid-in capital

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

503

 

 

 —

 

 

 —

 

 

503

Stock-based compensation

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

2,135

 

 

 —

 

 

 —

 

 

2,135

Unrealized gain on fair value of investments

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

89

 

 

 —

 

 

89

Unrealized currency exchange loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 1

 

 

 —

 

 

 1

Net loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(31,500)

 

 

(31,500)

Balances at June 30, 2019

 

 —

 

$

 —

 

 

27,947,201

 

$

 3

 

$

346,915

 

$

86

 

$

(128,122)

 

$

218,882

 

 

 

 

 

 

-  7  -

Atreca, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 

 

    

2019

    

2018

Cash Flows from Operating Activities

 

 

 

 

 

 

Net loss

 

$

(31,500)

 

$

(16,324)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

792

 

 

667

Loss on disposal of property and equipment

 

 

 7

 

 

 1

Stock-based compensation

 

 

2,135

 

 

490

Preferred stock warrant liability revaluation

 

 

123

 

 

(27)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

160

 

 

(400)

Accounts payable

 

 

1,935

 

 

43

Accrued expenses

 

 

(231)

 

 

(598)

Other current liabilities

 

 

(136)

 

 

 —

Deferred rent

 

 

(13)

 

 

24

Net cash used in operating activities

 

 

(26,728)

 

 

(16,124)

Cash Flows from Investing Activities

 

 

 

 

 

 

Purchase of property and equipment

 

 

(810)

 

 

(618)

Purchase of investments

 

 

(84,613)

 

 

 —

Proceeds from maturities of investments

 

 

20,000

 

 

14,899

Change in deposits

 

 

66

 

 

 9

Net cash provided by (used in) investing activities

 

 

(65,357)

 

 

14,290

Cash Flows from Financing Activities

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

248

 

 

 9

Proceeds from the initial public offering, net

 

 

133,618

 

 

 —

Principal payments on capital lease obligations

 

 

(25)

 

 

(23)

Payments of initial offering costs

 

 

(577)

 

 

 —

Net cash provided by (used in) financing activities

 

 

133,264

 

 

(14)

Net change in cash, cash equivalents and restricted cash

 

 

41,179

 

 

(1,848)

Cash, cash equivalents and restricted cash, beginning of period

 

 

114,504

 

 

8,242

Cash, cash equivalents and restricted cash, end of period

 

$

155,683

 

$

6,394

-  8 -

Atreca, Inc.

Condensed Consolidated Statements of Cash Flows (continued)

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 

 

 

    

2019

    

2018

  

Supplemental Disclosure of Cash Flow Information

 

 

 

 

 

 

 

Cash paid for interest

 

$

 3

 

$

 4

 

Cash paid for income taxes

 

$

 1

 

$

 —

 

Supplemental Schedule of Non-Cash Investing and Financing Activities

 

 

 

 

 

 

 

Costs related to initial public offering included in accounts payable and accrued liabilities

 

$

2,271

 

$

 —

 

Conversion of redeemable convertible preferred stock to common stock

 

$

209,669

 

$

 

 

Reclassification of redeemable convertible preferred stock warrant liability to additional paid-in capital

 

$

503

 

$

 —

 

Vesting of early exercised common stock options

 

$

 2

 

$

 —

 

 

 

-  9 -

Notes to Unaudited Interim Condensed Consolidated Financial Statements

 

1.            Business

Nature of Business

Atreca, Inc. (“the Company”) was incorporated in the State of Delaware on June 11, 2010 (“inception date”), and is located in Redwood City, California. In April 2016, the Company formed a wholly owned subsidiary, Atreca Pte. Ltd., in Singapore. The Company is a biopharmaceutical company utilizing its differentiated platform to discover and develop novel antibody-based immunotherapeutics to treat a range of solid tumor types. The Company's lead product candidate, ATRC-101, is a monoclonal antibody in preclinical development with a novel mechanism of action and target derived from an antibody identified using its discovery platform. The Company operates in a single segment. Since inception, the Company has been primarily engaged in research and development, raising capital, building its management team and building its intellectual property portfolio.

Reverse Stock Split

On June 7, 2019, the Company effected a 1-for-6 reverse stock split of all classes of its capital stock. Upon the effectiveness of the reverse stock split, (i) every one share of the Company’s outstanding capital stock was combined into one-sixth of one share of the same class and series of capital stock, (ii) the number of shares of its Class A common stock and its Series A preferred stock for which each outstanding option or warrant, to purchase its Class A common stock and its Series A preferred stock is exercisable was proportionally decreased on a 1-for-6 basis and (iii) the exercise price of each outstanding option or warrant to purchase its Class A common stock and its Series A preferred stock was proportionately increased on a 1-for-6 basis. The par value per share of its common stock and preferred stock were not adjusted as a result of the reverse stock split.

Initial Public Offering

In June 2019, the Company closed its initial public offering (“IPO”) of 6,452,500 shares of its Class A common stock and 2,000,000 shares of its Class B common stock at an offering price of $17.00 per share, including 1,102,500 shares pursuant to the underwriters’ option to purchase additional shares of the Company’s Class A common stock. The Company received net proceeds of $130.8 million, after deducting underwriting discounts and commissions of $10.1 million and offering expenses of $2.8 million. Immediately prior to the closing of the IPO, all outstanding shares of the Company’s convertible Series A preferred stock, convertible Series B preferred stock and convertible Series C1 preferred stock automatically converted into 13,314,068 shares of the Company’s Class A common stock and all outstanding shares of the Company’s convertible Series C2 preferred stock automatically converted into 3,934,191 shares of the Company’s Class B common stock. Immediately prior to the closing of the IPO, the Company issued 62,936 shares of Class A common stock upon the exercise of an outstanding warrant. The Company reclassified $209.7 million from temporary equity to Class A common stock, Class B common stock, and additional paid-in-capital on its consolidated balance sheet.

 

Deferred Offering Cost

Deferred offering cost of $2.8 million, consisting of legal, accounting and other fees and costs related to the IPO, were reclassified to additional paid-in capital as a reduction of the proceeds upon the closing of the IPO in June 2019. During the six months ended June 30, 2019, $0.6 million of the deferred offering costs were paid.

 

2.           Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and accounts have been eliminated. Certain information and note

-  10 -

disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). Therefore, these unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related footnotes included in the Company’s final prospectus for its IPO dated as of June 19, 2019 and filed with the SEC pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended, on June 20, 2019.

Prior period reclassification

An immaterial reclassification of prior period amounts has been made to conform to the current period presentation.

Principles of Consolidation

The condensed consolidated financial statements include accounts of the Company and its wholly owned subsidiary. All significant intercompany accounts and transactions are eliminated upon consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and reported amounts of income and expenses in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Key estimates in the consolidated financial statements include estimated useful lives of property and equipment, impairment of long-lived assets, accrued expenses, valuation of deferred income tax assets, fair value of warrants issued to purchasers of shares of preferred stock and common stock and fair value of options granted under the Company's stock option plan.

Unaudited Interim Condensed Consolidated Financial Statements

The accompanying condensed consolidated financial statements are unaudited. The unaudited interim condensed financial statements have been prepared on the same basis as the annual consolidated financial statements and reflect, in the opinion of management, all adjustments of a normal and recurring nature that are necessary for the fair statement of the Company’s financial position as of June 30, 2019 and its results of operations and cash flows for the six months ended June 30, 2018 and 2019. The financial data and the other financial information contained in these notes to the condensed consolidated financial statements related to the three-month and six-month periods are also unaudited. The condensed results of operations for the three months ended and six months ended June 30, 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2019 or for any other future annual or interim period. The condensed consolidated balance sheet as of December 31, 2018 included herein was derived from the audited consolidated financial statements as of that date.

 

Other Income

Other income is comprised of amounts earned from services performed under service agreements. Beginning January 1, 2018, the Company follows the provisions of Accounting Standards Update 2014-09 Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“Topic 606”). The guidance provides a unified model to determine how income is recognized.

In determining the appropriate amount of other income to be recognized as it fulfills its obligations under the agreements, the Company performs the following steps: (i) identifies the promised goods or services in the contract; (ii) determines whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measures the transaction price, including the constraint on variable consideration;

-  11 -

(iv) allocates the transaction price to the performance obligations based on estimated selling prices; and (v) recognizes other income when (or as) the Company satisfies each performance obligation.

Upon adoption of Topic 606, there was no change to the units of accounting previously identified with respect to existing service agreements under legacy Generally Accepted Accounting Principles (“GAAP”), which are now considered performance obligations under Topic 606, and there was no change to the revenue recognition pattern for the performance obligations. Accordingly, the adoption of the new standard resulted in no cumulative effect change to the Company's opening accumulated deficit balance.

The Company generally allocates the transaction price to distinct performance obligations at their stand-alone selling prices, determined by their estimated costs plus some margin. Performance obligations are generally delivered over time and recognized based upon observable inputs as the related research services are performed, which are recorded as research and development expenses. Amounts due under service agreements are generally billed monthly as services are delivered and do not generally result in contract liabilities or assets. Receivables under service agreements of $440,000 and $282,000 are included in prepaid expenses and other current assets as of June 30, 2019 and December 31, 2018, respectively. Contract liabilities of $64,000 and $200,000 are included in other current liabilities as of June 30, 2019 and December 31, 2018, respectively.

Cash, Cash Equivalents and Restricted Cash

Cash and cash equivalents include all cash balances and highly liquid investments purchased with an original maturity of three months or less.

The Company maintained restricted cash of $724,000 and $0 as of June 30, 2019 and December 31, 2018, respectively. This amount as of June 30, 2019 is included in deposits and other in the accompanying condensed consolidated balance sheets and is comprised solely of a letter of credit required pursuant to a lease for Company facilities.

The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same amounts shown in the condensed consolidated statements of cash flows.

 

 

 

 

 

 

 

 

 

    

June 30, 

    

December 31, 

 

 

 

2019

    

2018

 

Cash and cash equivalents

 

$

154,959

 

$

114,504

 

Restricted cash

 

 

724

 

 

 —

 

Cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows

 

$

155,683

 

$

114,504

 

 

Investments

The Company considers securities purchased with original maturities greater than three months to be investments. The Company’s policy is to protect the value of its investment portfolio and minimize principal risk by earning returns based on current interest rates. The Company’s intent is to convert all investments into cash to be used for operations and has classified them as available for sale. For purposes of determining realized gains and losses, the cost of securities sold is based on specific identification. Interest and dividends on securities classified as available-for-sale are included in interest income.

Convertible Preferred Stock Warrants

The Company issued convertible preferred stock warrants, which were exercisable into series A preferred stock with liquidation preference. The conversion feature was evaluated under ASC Topic 480 Distinguishing liabilities from

-  12 -

equity and the warrants were determined to be debt instruments and classified prior to the IPO as liabilities on the consolidated balance sheets. The Company recorded these warrant liabilities at fair value and adjusted the carrying value to their estimated fair value at each reporting date with the increases or decreases in the fair value recorded as a gain (loss) on revaluation of the warrant liability in the consolidated statements of operations. Upon the IPO, the 49,997 preferred stock warrants were converted to common stock warrants of Class A shares and the warrant liability of $0.5 million was reclassified to additional paid-in capital as a result of the conversion. The warrants were not subject to further remeasurement for fair value.

Risks and Uncertainties

The Company is subject to a number of risks associated with companies at a similar stage, including dependence on key individuals, competition from similar services and larger companies, volatility of the industry, ability to obtain regulatory clearance, ability to obtain adequate financing to support growth, the ability to attract and retain additional qualified personnel to manage the anticipated growth of the Company and general economic conditions.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentration of credit risk consist of cash and cash equivalents, investments and other receivables. Cash and cash equivalents are held at one financial institution and were in excess of the Federal Deposit Insurance Corporation insurable limit at June 30, 2019 and December 31, 2018. Additionally, cash and cash equivalents and investments are maintained at a brokerage firm for which amounts are insured by the Securities Investor Protection Corporation subject to legal limits. The Company has not experienced any losses on its deposits to date.

The Company does not require collateral or other security for other receivables; however, credit risk is mitigated by the Company’s ongoing evaluations of its debtors’ credit worthiness.

Research and Development Costs

Research and development costs are expensed as incurred. Research and development costs consist primarily of salaries and benefits, consultant fees, stock-based compensation, certain facility costs, legal costs and other costs associated with preclinical development.

A substantial portion of the Company’s ongoing research and development activities are conducted by third-party service providers in connection with preclinical development activities and contract manufacturing organizations in connection with the production of materials for clinical trials. At the end of the reporting period, the Company compares payments made to third-party service providers to the estimated progress toward completion of the research or development objectives. Such estimates are subject to change as additional information becomes available. Depending on the timing of payments to the service providers and the progress that the Company estimates has been made as a result of the service provided, the Company may record net prepaid or accrued expense relating to these costs.

Stock‑Based Compensation

The Company generally grants stock options to its employees for a fixed number of shares with an exercise price equal to the fair value of the underlying shares at the date of grant. The Company accounts for stock option grants using the fair value method. The fair value of options is calculated using the Black‑Scholes option pricing model. Stock‑based compensation is recognized as the underlying options vest using the straight‑line attribution approach, and forfeitures are recorded as they occur.

Emerging Growth Company Status

The Company is an “emerging growth company,” (“EGC”) as defined in the Jumpstart Our Business Startups Act, (“JOBS Act”), and may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not EGCs. The Company may take advantage of these exemptions until it

-  13 -

is no longer an EGC under Section 107 of the JOBS Act, which provides that an EGC can take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards. The Company has elected to use the extended transition period for complying with new or revised accounting standards, and as a result of this election, the Company’s condensed consolidated financial statements may not be comparable to companies that comply with public company Financial Accounting Standards Board (“FASB”) standards’ effective dates. The Company may take advantage of these exemptions up until the last day of the fiscal year following the fifth anniversary of the IPO or such earlier time that the Company is no longer an EGC.

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU 2016‑02 and subsequent amendments to the initial guidance under ASU 2017-13, ASU 2018-10 and ASU 2018-11 (collectively, “Topic 842”), which modifies the accounting by lessees for all leases with a term greater than 12 months. This standard will require lessees to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Topic 842 is effective for the Company as of January 1, 2020. Early adoption is permitted. The Company’s most significant lease is its operating lease for its corporate headquarters, and, while the Company has not yet estimated the amounts by which its financial statements will be affected by the adoption of this guidance, it expects that the overall recognition of expense will be similar to current guidance, but that there will be a significant change in the balance sheet due to the recognition of right of use assets and the corresponding lease liabilities.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses  (“Topic 326”): Measurement of Credit Losses on Financial Instruments and subsequent amendments to the initial guidance under ASU 2018-19, ASU 2019-04 and ASU 2019-05, which amends the current approach to estimate credit losses on certain financial assets, including trade and other receivables. The amendment replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. For available-for-sale debt securities, credit losses should be recorded through an allowance for credit losses. The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements and related disclosures.

In August 2016, the FASB issued ASU 2016‑15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments  (“Topic 230”). The standard clarifies how certain cash receipts and cash payments will be presented and classified in the statement of cash flows. Topic 230 is effective for the Company as of January 1, 2019. The adoption of this update had no material effect on the Company’s consolidated financial statements.

 

-  14 -

3.           Fair Value of Financial Instruments

The Company’s financial assets and liabilities subject to fair value measurements on a recurring basis and the level of inputs used for such measurements were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2019

 

    

Level 1

    

Level 2