UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023

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: 001-40227

FINCH THERAPEUTICS GROUP, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware	82-3433558
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
75 State Street, Suite 100 Boston, Massachusetts	02109
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (617) 229-6499

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 par value per share	FNCH	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

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 4, 2023 there were 1,604,761 outstanding shares of the registrant’s common stock, par value $0.001 per share.

FINCH THERAPEUTICS, INC.

FORM 10-Q

For the quarterly period ended June 30, 2023

Table of Contents

		Page
	SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS	ii
	SPECIAL NOTE REGARDING COMPANY REFERENCES	iii
	SPECIAL NOTE REGARDING TRADEMARKS	iii
PART I.	FINANCIAL INFORMATION	1
Item 1.	Condensed Consolidated Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022	1
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2023 and 2022	2
	Condensed Consolidated Statements of Stockholders' Equity for the Three and Six Months Ended June 30, 2023 and 2022	3
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2023 and 2022	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	26
PART II.	OTHER INFORMATION	27
Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	27
Item 5.	Other Information	28
Item 6.	Exhibits	29
	Signatures	32

i

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements. In some cases, you can identify forward-looking statements by words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will” or “would,” or the negative of these words or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

•our expectations with respect to our microbiome technology and related portfolio of intellectual property and microbiome assets, and our objectives to realize the value of our intellectual property estate through licensing our technology to collaboration partners and enforcing our patent rights against infringing technologies;

•the initiation, timing, progress and results of any current or future preclinical studies and clinical trials and related preparatory work of product candidates developed using our microbiome technology, including through academic collaborations;

•our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;

•our expectations and projections regarding the sufficiency of our cash on hand to fund our operating expenses and capital expenditure requirements;

•the ability of our current or future partners or collaborators to obtain regulatory approval of product candidates developed using our microbiome technology;

•the ability of our current or future partners or collaborators to advance product candidates into, and successfully complete, preclinical studies and clinical trials;

•the ability of our current or future partners or collaborators to contract with contract research organizations, contract manufacturing organizations, third-party suppliers and manufacturers and other third parties with which they do business and their ability to perform adequately;

•our expectations regarding the potential market size and the rate and degree of market acceptance for any product candidates developed using our microbiome technology;

•our ability to fund our working capital requirements and to service any debt obligations we may incur;

•our intellectual property position, including the scope of protection we are able to establish, maintain and enforce for intellectual property rights covering product candidates developed using our microbiome technology;

•our financial performance; and

•our ability to obtain additional funding for our operations.

These forward-looking statements are based on our management’s current expectations, estimates, forecasts and projections about our business and the industry in which we operate, and management’s beliefs and assumptions and are not guarantees of future performance or development. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022, our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, and in any other reports we file with the Securities and Exchange Commission, including this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, 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 materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

ii

You should read this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance, or events and circumstances reflected in our forward-looking statements will be achieved or occur. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report to conform these statements to new information, actual results or changes in our expectations, except as required by law. We qualify all of our forward-looking statements by these cautionary statements.

SPECIAL NOTE REGARDING COMPANY REFERENCES

Unless the context otherwise requires, references in this Quarterly Report on Form 10-Q to “FTG,” the “Company,” “we,” “us” and “our” refer to Finch Therapeutics Group, Inc., and its subsidiaries.

SPECIAL NOTE REGARDING TRADEMARKS

All trademarks, trade names and service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners.

iii

PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements.

FINCH THERAPEUTICS GROUP, INC.

Condensed Consolidated Balance Sheets

(Unaudited, in thousands, except share and per share data)

	JUNE 30, 2023			DECEMBER 31, 2022
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	34,051		$	71,038
Accounts receivable		—			144
Prepaid expenses and other current assets		2,448			3,369
Total current assets		36,499			74,551
Property and equipment, net		732			15,936
Operating right-of-use assets		27,308			32,752
In-process research and development		—			32,900
Restricted cash, non-current		2,318			2,568
Other assets		—			4,232
TOTAL ASSETS	$	66,857		$	162,939
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	432		$	1,097
Accrued expenses and other current liabilities		7,487			10,161
Operating lease liabilities, current		1,656			3,431
Total current liabilities		9,575			14,689
Deferred tax liability		—			3,461
Loan payable, non-current		—			14,653
Operating lease liabilities, non-current		29,388			34,255
Other liabilities		—			170
Total liabilities		38,963			67,228
COMMITMENTS AND CONTINGENCIES (Note 11)
Preferred stock (undesignated), $0.001 par value; 10,000,000 shares authorized and no    shares issued and outstanding as of June 30, 2023 and December 31, 2022		—			—
STOCKHOLDERS’ EQUITY:
Common stock, $0.001 par value; 200,000,000 shares authorized as of June 30, 2023 and     December 31, 2022; 1,604,761 and 1,601,717* shares issued and outstanding as of     June 30, 2023 and December 31, 2022, respectively		2			2
Additional paid-in capital		372,830			371,350
Accumulated deficit		(344,938	)		(275,641	)
Total stockholders’ equity		27,894			95,711
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	66,857		$	162,939

* Adjusted for the 1-for-30 reverse stock split

See notes to unaudited condensed consolidated financial statements.

1

FINCH THERAPEUTICS GROUP, INC.

Condensed Consolidated Statements of Operations

(Unaudited, in thousands, except share and per share data)

	THREE MONTHS ENDED JUNE 30,						SIX MONTHS ENDED JUNE 30,
	2023			2022			2023			2022
REVENUE:
Collaboration revenue	$	—		$	361		$	107		$	715
Total revenue		—			361			107			715
OPERATING EXPENSES:
Research and development		203			13,923			7,199			29,453
General and administrative		8,877			8,164			18,494			17,568
Impairment of in-process research and development		—			—			32,900			—
Impairment of long-lived assets		—			—			13,141			—
Restructuring		801			903			4,037			903
Total operating expenses		9,881			22,990			75,771			47,924
Net loss from operations		(9,881	)		(22,629	)		(75,664	)		(47,209	)
OTHER INCOME (EXPENSE), NET:
Interest income (expense), net		420			(65	)		845			(52	)
Gain on lease termination		752			—			752			—
Loss on loan extinguishment		—			—			(1,366	)		—
Gain (loss) on sale and disposal of fixed assets, net		754			(6	)		617			(6	)
Sublease and other income		1,005			—			2,058			—
Total other income (expense), net		2,931			(71	)		2,906			(58	)
Loss before income taxes		(6,950	)		(22,700	)		(72,758	)		(47,267	)
Income tax benefit		—			—			3,461			—
Net loss	$	(6,950	)	$	(22,700	)	$	(69,297	)	$	(47,267	)
Net loss attributable to common stockholders—basic and diluted (Note 15)	$	(6,950	)	$	(22,700	)	$	(69,297	)	$	(47,267	)
Net loss per share attributable to common stockholders—basic and diluted	$	(4.33	)	$	(14.31	)	$	(43.21	)	$	(29.82	)
Weighted-average common stock outstanding—basic and diluted *		1,604,795			1,585,978			1,603,811			1,585,093

* Adjusted for the 1-for-30 reverse stock split

See notes to unaudited condensed consolidated financial statements.

2

FINCH THERAPEUTICS GROUP, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited, in thousands, except share and per share data)

	COMMON STOCK $0.001 PAR VALUE				ADDITIONAL PAID-IN		ACCUMULATED			TOTAL STOCKHOLDERS’
	SHARES*		AMOUNT		CAPITAL		DEFICIT			EQUITY
BALANCE, January 1, 2022		1,583,669	$	2	$	363,217	$	(160,995	)	$	202,224
Exercise of common stock options		680		—		14		—			14
Stock-based compensation		—		—		2,120		—			2,120
Net loss		—		—		—		(24,567	)		(24,567	)
BALANCE, March 31, 2022		1,584,349	$	2	$	365,351	$	(185,562	)	$	179,791
Exercise of common stock options		3,279		—		61		—			61
Issuance of common stock under employee stock purchase plan		1,825		—		110		—			110
Stock-based compensation		—		—		1,830		—			1,830
Net loss		—		—		—		(22,700	)		(22,700	)
BALANCE, June 30, 2022		1,589,453	$	2	$	367,352	$	(208,262	)	$	159,092

	COMMON STOCK $0.001 PAR VALUE				ADDITIONAL PAID-IN		ACCUMULATED			TOTAL STOCKHOLDERS’
	SHARES*		AMOUNT		CAPITAL		DEFICIT			EQUITY
BALANCE, January 1, 2023		1,601,717	$	2	$	371,350	$	(275,641	)	$	95,711
Vesting of restricted stock units		3,044		—		—		—			—
Stock-based compensation		—		—		1,180		—			1,180
Net loss		—		—		—		(62,347	)		(62,347	)
BALANCE, March 31, 2023		1,604,761	$	2	$	372,530	$	(337,988	)	$	34,544
Stock-based compensation		—		—		300		—			300
Net loss		—		—		—		(6,950	)		(6,950	)
BALANCE, June 30, 2023		1,604,761	$	2	$	372,830	$	(344,938	)	$	27,894

* Adjusted for the 1-for-30 reverse stock split

See notes to unaudited condensed consolidated financial statements.

3

FINCH THERAPEUTICS GROUP, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited, in thousands)

	SIX MONTHS ENDED JUNE 30,
	2023			2022
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net loss	$	(69,297	)	$	(47,267	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense		1,424			2,694
Stock-based compensation expense		1,480			3,950
Impairment of in-process research and development		32,900			—
Loss on loan extinguishment		1,366			—
Impairment of long-lived assets		13,141			—
Gain on lease termination		(752	)		—
(Gain) loss on sale and disposal of property and equipment		(617	)		6
Non-cash operating lease and interest cost		1,939			1,003
Benefit for deferred income taxes		(3,461	)		—
Changes in operating assets and liabilities:
Accounts receivable		144			320
Prepaid expenses and other current assets		921			(4,858	)
Other non-current assets		4,033			308
Accounts payable		(664	)		(2,431	)
Accrued expenses and other current liabilities		(2,676	)		(506	)
Other non-current liabilities		(50	)		50
Operating lease liabilities		(2,369	)		5,246
Net cash used in operating activities		(22,538	)		(41,485	)
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Proceeds on sale of property and equipment		1,270			—
Purchases of property and equipment		(14	)		(1,803	)
Net cash provided by (used in) investing activities		1,256			(1,803	)
CASH FLOWS (USED IN) PROVIDED BY FINANCING ACTIVITIES:
Proceeds from exercise of stock options, net		—			185
Proceeds from borrowings under loan agreement, net		—			14,738
Repayment of loan		(15,000	)		—
Payment of loan terminal fee obligation and prepayment fee		(1,155	)		—
Principal payments on finance lease obligation					(11	)
Payment of deferred offering costs		—			(132	)
Net cash (used in) provided by financing activities		(16,155	)		14,780
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH		(37,437	)		(28,508	)
Cash, cash equivalents and restricted cash at beginning of period		73,805			135,965
Cash, cash equivalents and restricted cash at end of period	$	36,369		$	107,457
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Property and equipment in accounts payable and accrued liabilities	$	—		$	88
Right-of-use assets obtained in exchange for new operating lease liability	$	—		$	37,094
Prepaid rent reclassified to right-of-use assets	$	—		$	7,736

The following table provides a reconciliation of the cash, cash equivalents and restricted cash as of each of the periods shown above:

	AS OF JUNE 30,
	2023		2022
Cash and cash equivalents	$	34,051	$	104,673
Restricted cash		2,318		2,784
Total cash, cash equivalents and restricted cash	$	36,369	$	107,457

See notes to unaudited condensed consolidated financial statements.

4

FINCH THERAPEUTICS GROUP, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Business

Finch Therapeutics Group, Inc. (the “Company” or “FTG”) was incorporated in 2017 as a Delaware corporation. The Company was formed as a result of a merger and recapitalization of Finch Therapeutics, Inc. (“Finch”) and Crestovo Holdings LLC (“Crestovo”) in September 2017 (the “Merger”), in which the former owners of Finch and Crestovo were issued equivalent stakes in the newly formed company, FTG. Crestovo was renamed Finch Therapeutics Holdings LLC in November 2020 (“Finch Holdings”). Finch and Finch Holdings are both wholly-owned subsidiaries of FTG.

The Company is a microbiome technology company with a portfolio of intellectual property and microbiome assets. In January 2023, the Company announced the decision to wind down its development efforts and focus on realizing the value of its intellectual property estate and other assets.

Liquidity and Capital Resources

Management believes that the Company’s cash and cash equivalents of $34.1 million as of June 30, 2023 will be sufficient to fund its operating expenses and capital expenditure requirements for at least twelve months beyond the date of these condensed consolidated financial statements. However, due to the consideration of certain qualitative factors, including the Company's recurring losses from operations incurred since inception, the expectation of continuing operating losses for the foreseeable future, and uncertainty around its ability to successfully realize the full value of its intellectual property estate and other assets, the Company has concluded that there is substantial doubt regarding the Company’s ability to continue as a going concern within one year after the date that these consolidated financial statements are issued. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The Company does not currently expect to progress any product candidate through clinical trials or commercial approval and it does not currently expect to generate any revenue from product sales. The Company may never succeed in realizing the value of its intellectual property estate and other assets and, even if it does, it may never generate revenue that is significant or large enough to achieve profitability.

The Company has significantly scaled back its expenses by winding down its development efforts, including by liquidating certain of its assets, terminating vendor contracts and reducing headcount. The Company may need additional funding to support its operating activities as it seeks to realize value from its intellectual property estate and other assets. Until such time, if ever, that the Company can generate substantial revenue, the Company expects to finance its cash needs through equity offerings, debt financings or other capital sources, including collaborations, licenses or similar arrangements. However, the Company may be unable to raise additional funds or enter into such other arrangements when needed or on favorable terms, if at all. If the Company is unable to obtain funding as needed, it may decide to pursue a dissolution and liquidation.

Reverse Stock Split

On June 9, 2023, the Company filed a Certificate of Amendment to its Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware to effect a reverse stock split of the Company’s issued and outstanding common stock, par value $0.001, at a ratio of 1-for-30 (the “Reverse Stock Split”). The Reverse Stock Split was reflected on the Nasdaq Global Select Market beginning with the opening of trading on June 12, 2023. Pursuant to the Reverse Stock Split, every 30 shares of the Company's issued and outstanding shares of common stock were automatically combined into one issued and outstanding share of common stock, without any change in the par value per share of the common stock. The Reverse Stock Split did not change the total number of shares the Company is authorized to issue. The Reverse Stock Split affected all issued and outstanding shares of the Company's common stock, and the respective numbers of shares of common stock underlying the Company’s outstanding stock options, outstanding restricted stock units (“RSU”) and the Company's equity incentive plans were proportionately adjusted. All share and per share amounts of the common stock included in the accompanying financial statements have been retrospectively adjusted to give effect to the Reverse Stock Split for all periods presented.

5

Reclassifications

Certain reclassifications have been made to conform the prior period consolidated financial statements to the current period.

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements have been prepared by the Company in conformity with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and, pursuant to the rules and regulations of Article 10 of Regulation S-X of the Securities Act of 1933, as amended, published by the Securities and Exchange Commission (“SEC”) for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. However, the Company believes the disclosures are adequate. These unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K, filed with the SEC on March 23, 2023.

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited financial statements. In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements contain all adjustments that are necessary for a fair presentation of the Company’s condensed consolidated balance sheets as of June 30, 2023 and December 31, 2022, condensed consolidated statements of operations for the three and six months ended June 30, 2023 and 2022, condensed consolidated statements of stockholders’ equity (deficit) for the three and six months ended June 30, 2023 and 2022, and condensed consolidated cash flows for the six months ended June 30, 2023 and 2022. Such adjustments are of a normal and recurring nature. The results of operations for the six months ended June 30, 2023 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2023. The consolidated balance sheet as of December 31, 2022 has been derived from the audited consolidated financial statements of the Company but does not include all disclosures required by U.S. GAAP.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Significant Accounting Policies

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board or other accounting standard setting bodies that the Company adopts as of the specified effective date. Unless otherwise discussed below, the Company does not believe that the adoption of recently issued standards have or may have a material impact on the condensed consolidated statements or disclosures.

The significant accounting policies and estimates used in preparation of the unaudited interim condensed consolidated financial statements are described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 23, 2023. There have been no material changes to the Company’s significant accounting policies during the six months ended June 30, 2023.

Goodwill and Acquired In-Process Research and Development

Goodwill and in-process research and development (“IPR&D”) are evaluated annually for impairment on October 1, or more frequently if events or changes in circumstances indicate that the asset might be impaired. To conduct impairment tests of goodwill, the fair value of the Company’s single reporting unit is compared to its carrying value. If the reporting unit’s carrying value exceeds its fair value, the Company records an impairment loss to the extent that the carrying value of goodwill exceeds its fair value.

To conduct impairment tests of IPR&D, the fair value of the IPR&D asset is compared to its carrying value. If the carrying value exceeds its fair value, we record an impairment loss to the extent that the carrying value of the IPR&D asset exceeds its fair value. We estimate the fair value for our IPR&D asset using discounted cash flow valuation models, which require the use of significant estimates and assumptions, including, but not limited to, estimating the timing of and expected costs to complete in-process projects, projecting regulatory approvals, estimating future cash flows from product sales resulting from completed projects and in-process projects, and developing appropriate discount rates.

6

In January 2023, the Company made the decision to wind down its development efforts, which management concluded was an impairment indicator requiring the Company to perform an interim impairment test of IPR&D. Management's assessment for the impairment of IPR&D indicated that there are no future cash flow projections associated with its IPR&D asset and the fair value of the IPR&D asset was zero. This resulted in an impairment charge of $32.9 million during the six months ended June 30, 2023.

Recently Issued Accounting Pronouncements

On January 1, 2023, the Company adopted Accounting Standards Update No. 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires measurement and recognition of expected credit losses for financial assets. In April 2019, the Financial Accounting Standards Board (“FASB”) issued clarification to ASU 2016-13 within ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, or ASU 2016-13. The guidance is effective for fiscal years beginning after December 15, 2022. The adoption of the standard was immaterial to the accompanying condensed consolidated financial statements.

3. ADJUSTMENT TO PRIOR INTERIM UNAUDITED FINANCIAL STATEMENTS

During the preparation of the second quarter financial statements of fiscal year 2023, the Company identified an error in the accrual of certain costs for the fiscal quarter ended March 31, 2023, which resulted in an overstatement of accounts payable and research and development expenses for that quarter. The correction of this error impacted the unaudited condensed consolidated financial statements for the first quarter of fiscal year 2023. The Company assessed the applicable guidance issued by the SEC and the FASB and concluded this misstatement was not material, individually or in the aggregate, to its unaudited condensed consolidated financial statements for the aforementioned interim period. In the table below, the Company adjusted its previously issued first quarter unaudited condensed consolidated financial information to correct the error by decreasing accounts payable and research and development expenses by $1.6 million for the quarter ended March 31, 2023. The financial statements will be adjusted in subsequent filings with the Securities and Exchange Commission that include such statements, including when the first quarter Form 10-Q is filed for fiscal year 2024.

Accumulated deficit as of March 31, 2023 in the accompanying statement of stockholders’ equity for the quarter ended June 30, 2023 was made smaller by $1.6 million due to the effects of the decreased expense accruals for the first quarter of fiscal year 2023. The following are selected line items from the financial statements also impacted by the $1.6 million, or $1,592 thousand, illustrating the effect of the error correction for the quarter ended March 31, 2023 (in thousands):

	As Previously Reported			As Revised
Research and development	$	8,588		$	6,996
Total operating expenses		(67,482	)		(65,890	)
Net loss from operations		(67,375	)		(65,783	)
Loss before income taxes		(67,400	)		(65,808	)
Net loss		(63,939	)		(62,347	)
Net loss per share attributable to common stockholders—basic and diluted	$	(39.89	)	$	(39.19	)

7

4. FAIR VALUE MEASUREMENTS

The Company has no financial liabilities measured at fair value on a recurring basis. The following table presents information about the Company’s financial assets measured at fair value on a recurring basis and indicates the level of the fair value hierarchy utilized to determine such fair values (in thousands):

DESCRIPTION	JUNE 30, 2023		QUOTED PRICES IN ACTIVE MARKETS FOR IDENTICAL ASSETS (LEVEL 1)		SIGNIFICANT OBSERVABLE INPUTS (LEVEL 2)		SIGNIFICANT OBSERVABLE INPUTS (LEVEL 3)
Money market funds	$	5,349	$	5,349	$	—	$	—

DESCRIPTION	DECEMBER 31, 2022		QUOTED PRICES IN ACTIVE MARKETS FOR IDENTICAL ASSETS (LEVEL 1)		SIGNIFICANT OBSERVABLE INPUTS (LEVEL 2)		SIGNIFICANT OBSERVABLE INPUTS (LEVEL 3)
Money market funds	$	69,991	$	69,991	$	—	$	—

There were no transfers between fair value levels during the six months ended June 30, 2023 and the year ended December 31, 2022. The carrying values of accounts receivable, 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.

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