Convertible Preferred Stock

9 Months Ended

12 Months Ended

Sep. 30, 2020

Dec. 31, 2019

Temporary Equity Disclosure [Abstract]

Convertible Preferred Stock

Note 8. Convertible Preferred Stock

Preferred Stock

Series A

On June 24, 2019, the Company amended and restated its Certificate of Incorporation (“Certificate”), which authorized the issuance of up to 7,537,269 shares of Series A Preferred Stock with a par value of $0.00001. On June 24, 2019, the Company entered into a Series A Convertible Preferred Stock Purchase Agreement to issue Preferred Stock to investors for cash and in settlement of outstanding SAFEs and Amended Bridge Note.

Series X

On August 24, 2020, the Company entered into the Series X Preferred Stock Purchase Agreement to offer shares of the Company’s Series X Preferred Stock. In August and September of 2020, the Company issued 1,251,971 Preferred Stock for cash at a purchase price of $135.79 per share of Preferred Stock, which generated gross proceeds of approximately $170 million. Accordingly, the Company amended and restated its certificate of incorporation (“Certificate”), which authorized the issuance of up to 1,472,905 shares of Series X Preferred Stock with a par value of $0.00001.

The original issue price and the liquidation value, as of September 30, 2020 and December 31, 2019, of each class of Preferred Stock is as follows:

	As of September 30, 2020						As of December 31, 2019
	Shares Authorized		Shares Issued and Outstanding		Per share Liquidation Preference		Shares Authorized		Shares Issued and Outstanding		Per share Liquidation Preference
Series A		2,228,361		1,660,839	$	43.30		2,228,361		1,660,839	$	43.30
Series A-1		163,306		163,306		15.31		163,306		163,306		15.31
Series A-2		1,322,780		1,322,780		15.12		1,322,780		1,322,780		15.12
Series A-3		223,548		223,548		17.89		223,548		223,548		17.89
Series A-4		49,827		49,827		20.07		49,827		49,827		20.07
Series A-5		137,715		124,068		20.15		137,715		124,068		20.15
Series A-6		247,420		247,420		30.31		247,420		247,420		30.31
Series A-7		1,459,656		1,459,656		34.64		1,459,656		1,459,656		34.64
Series A-8		385,777		385,777		36.81		385,777		385,777		36.81
Series A-9		748,674		748,674		38.97		748,674		748,674		38.97
Series A-10		252,801		252,801		41.14		252,801		252,801		41.14
Series A-11		317,404		317,404		5.27		317,404		317,404		5.27
Series X		1,472,905		1,251,971		135.79		—		—		—

Dividends

Holders of both Series A and Series X Preferred Stock receive non-cumulative dividends at a rate per annum equal to 6% of the applicable original issue price, if and when declared by the Company’s Board of Directors. Preferred Stockholders receive dividends prior to and in preference to any dividends on Common Stockholders. No dividends have been declared or paid as of September 30, 2020 and December 31, 2019.

Liquidation

Holders of both Series A and Series X Preferred Stock are entitled to receive a liquidation preference prior to any distribution to holders of common stock. Upon the occurrence of a liquidation transaction, preferred stock will be redeemed by the Company for the applicable original issue price. Moreover, if the holders of preferred stock would receive a greater amount of consideration had the preferred stock been converted immediately prior to such transaction, the preferred stock shall be deemed to be converted for purposes of the redemption.

Each of the Series A and Series X Preferred Stock are conditionally puttable by the holders upon “deemed liquidation events,” which includes a merger, consolidation, change of control, or a sale of substantially all of the Company’s assets. The Company determined that triggering events that could result in a deemed liquidation are not solely within the control of the Company. Therefore, the preferred stock is classified outside of permanent (i.e., temporary equity). The preferred stock is not being accreted to its liquidation preference, as it is not probable that the preferred stock will become redeemable as of September 30, 2020 and December 31, 2019. The Company continues to monitor circumstances that may cause the Preferred Stock to become probable of becoming redeemable. Subsequent adjustments to the carrying amounts to accrete up to the Preferred Stock redemption values will be made only when the shares become probable of becoming redeemable. The convertible preferred stock is subject to standard protective provisions, none of which provide creditor rights.

Conversion

Both Series A and Series X Preferred Stock are convertible at any time, at the option of the holder, into common stock at a conversion rate of 1 to 1 initially, subject to adjustments.

The applicable conversion prices of each series of preferred stock as of September 30, 2020 and December 31, 2019 are as follows: 

	Effective Conversion Price
Series A	$	43.30
Series A-1		15.31
Series A-2		15.12
Series A-3		17.89
Series A-4		20.07
Series A-5		20.15
Series A-6		30.31
Series A-7		34.64
Series A-8		36.81
Series A-9		38.97
Series A-10		41.14
Series A-11		24.30
Series X		135.79

Additionally, all outstanding shares of the preferred stock shall automatically be converted into shares of underlying common stock upon the Company’s sale of its common stock in a firm commitment underwritten public offering pursuant to a registration statement under the Securities Act, the public offering price of which is not less than $64.96 per share and which results in aggregate cash proceeds to the Company of not less than $100 million, net of underwriting discounts and commissions (a “Qualified IPO”).

Voting Rights

Holders of preferred stock are entitled to the same voting rights as the common stockholders and to notice of stockholders’ meeting. The holders of common stock and preferred stock shall vote together as a single class (on an as-converted basis) on all matters. Each holder of preferred stock is entitled to the number of votes equal to the number of shares of common stock into which such shares of preferred stock could be converted.

Beneficial Conversion Features (“BCFs”)

The Company assessed whether BCFs exist for the optional conversion rights that do not require bifurcation as derivatives. If the conversion option is in-the-money as of the commitment date, the preferred stock contains a BCF. The BCF is recognized as a deemed dividend against the carrying amount of the preferred stock. Additionally, the Company continues to monitor for the issuance of additional shares below the conversion price, which could result in a contingent BCF.

The following table summarizes the calculation of the BCF as of the commitment dates of the preferred stock, which continues to be presented in additional paid in capital as of September 30, 2020 and December 31, 2019:

Commitment Date	Series		Type of Consideration received (cash or settlement of other instruments)	Effective Conversion Price		Fair value of the Common Stock		Number of Shares Issuable upon Conversion		BCF
6/24/2019		A	Cash	$	43.30	$	18.59		648,069	$	—
6/24/2019		A	Settlement of SAFEs		43.30		18.59		75,165		—
6/24/2019		A-1	Settlement of SAFEs		15.31		18.59		163,306		536,000
6/24/2019		A-2	Settlement of SAFEs		15.12		18.59		1,322,780		4,590,000
6/24/2019		A-3	Settlement of SAFEs		17.89		18.59		223,548		156,000
6/24/2019		A-4	Settlement of SAFEs		20.07		18.59		49,827		—
6/24/2019		A-5	Settlement of SAFEs		20.15		18.59		124,068		—
6/24/2019		A-6	Settlement of SAFEs		30.31		18.59		247,420		—
6/24/2019		A-7	Settlement of SAFEs		34.64		18.59		1,459,656		—
6/24/2019		A-8	Settlement of SAFEs		36.81		18.59		385,777		—
6/24/2019		A-9	Settlement of SAFEs		38.97		18.59		748,674		—
6/24/2019		A-10	Settlement of SAFEs		41.14		18.59		252,801		—
6/24/2019		A-11	Settlement of Note		24.30		18.59		317,404		—
6/26/2019		A	Cash		43.30		18.59		692,778		—
7/15/2019		A	Cash		43.30		18.59		11,546		—
8/24/2020 to 9/22/2020		X	Cash		135.79		140.78		1,251,971		6,247,000
			Total							$	11,529,000

The Company recorded a total BCF of $5.28 million and $6.25 million from the issuance of preferred stock during the nine months ended September 30, 2019 and 2020, respectively. Because the preferred stock is convertible at any time pursuant to the optional conversion feature, the Company recognized a dividend equal to the BCF at the applicable commitment date. As the Company had an accumulated deficit as of the end of all periods presented, the BCF resulted in an increase and decrease in additional paid-in capital by the same amount.

Furthermore, the preferred stock contains a down-round protection provision that reduces the conversion price if the Company issues shares at less than the conversion price or for no consideration. As such, if this provision is triggered, it could result in the conversion option becoming more beneficial if such adjustment causes the applicable conversion price to decline below the commitment date fair value of the Company’s common stock. If this occurs, a contingent BCF will be recognized at the date of such adjustment.

Note 11. Series A Convertible Preferred Stock

Preferred Stock

As of December 31, 2018, the Company had no shares of Preferred Stock issued or outstanding.

On June 24, 2019, the Company amended and restated its Certificate of Incorporation (“Certificate”), which authorized the issuance of up to 7,537,269 shares of Preferred Stock with a par value of $0.00001.

On June 24, 2019, the Company entered into a Series A Convertible Preferred Stock Purchase Agreement to issue Preferred Stock to investors for cash and in settlement of outstanding SAFEs and Amended Bridge Note. In July 2019, the Company issued an additional 244,827 shares of Series A Preferred Stock for $10.10 million, net of $591,000 of transaction costs.

The original issue price and the liquidation value, as of December 31, 2019, of each class of Preferred Stock is as follows:

	Shares Authorized		Shares Issued and Outstanding		Per Share Liquidation Preference
Series A		2,228,361		1,660,839	$	43.30
Series A-1		163,306		163,306		15.31
Series A-2		1,322,780		1,322,780		15.12
Series A-3		223,548		223,548		17.89
Series A-4		49,827		49,827		20.07
Series A-5		137,715		124,068		20.15
Series A-6		247,420		247,420		30.31
Series A-7		1,459,656		1,459,656		34.64
Series A-8		385,777		385,777		36.81
Series A-9		748,674		748,674		38.97
Series A-10		252,801		252,801		41.14
Series A-11		317,404		317,404	$	5.27
		7,537,269		6,956,100

Dividends

Preferred Stock receive non-cumulative dividends at a rate per annum equal to 6% of the applicable original issue price, if and when declared by the Company’s Board of Directors. Holders of Preferred Stock receive dividends prior to and in preference to any dividends received by holders of Common Stock. No dividends have been declared or paid as of December 31, 2019.

Liquidation

Holders of Preferred Stock are entitled to receive a liquidation preference prior to any distribution to holders of Common Stock. Upon the occurrence of a liquidation transaction, Preferred Stock will be redeemed by the Company for the applicable original issue price. Moreover, if the holders of Preferred Stock would receive a greater amount of consideration had the Preferred Stock been converted immediately prior to such transaction, the Preferred Stock shall be deemed to be converted for purposes of the redemption.

Each of the shares of Preferred Stock is conditionally puttable by the holders upon “deemed liquidation events,” which includes a merger, consolidation, change of control, or a sale of substantially all of the Company’s assets. The Company determined that triggering events that could result in a deemed liquidation are not solely within the control of the Company. Therefore, the Preferred Stock is classified outside of permanent (i.e., temporary equity). The Preferred Stock is not being accreted to its liquidation preference, as it is not probable that the Preferred Stock will become redeemable as of December 31, 2019. The Company continues to monitor circumstances that may cause the Preferred Stock to become probable of becoming redeemable. Subsequent adjustments to the carrying amounts to accrete up to the Preferred Stock redemption values will be made only when the shares become probable becoming redeemable. The Series A Convertible Preferred stock is subject to standard protective provisions, none of which provide creditor rights.

Conversion

Preferred Stock is convertible at any time, at the option of the holder, into Common Stock at a conversion rate of 1-to-1 initially, subject to adjustments.

The applicable conversion prices of each series of Preferred Stock as of December 31, 2019 are as follows:

	Effective conversion price
Series A	$	43.30
Series A-1		15.31
Series A-2		15.12
Series A-3		17.89
Series A-4		20.07
Series A-5		20.15
Series A-6		30.31
Series A-7		34.64
Series A-8		36.81
Series A-9		38.97
Series A-10		41.14
Series A-11		24.30

Additionally, all outstanding shares of the Preferred Stock shall automatically be converted into shares of underlying Common Stock upon the Company’s sale of its Common Stock in a firm commitment underwritten public offering pursuant to a registration statement under the Securities Act, the public offering price of which is not less than $64.96 per share and which results in aggregate cash proceeds to the Company of not less than $100 million, net of underwriting discounts and commissions (a “Qualified IPO”).

Voting Rights

Holders of Preferred Stock are entitled to the same voting rights as the holders of Common Stock and to notice of stockholders’ meetings. The holders of Common Stock and Preferred Stock shall vote together as a single class

(on an as-converted basis) on all matters. Each holder of Preferred Stock is entitled to the number of votes equal to the number of shares of Common Stock into which such shares of Preferred Stock could be converted.

Beneficial Conversion Features (“BCFs”)

The Company assessed whether BCFs exist for the optional conversion rights that do not require bifurcation as derivatives. If the conversion option is in-the-money as of the commitment date, the Preferred Stock contains a BCF. The BCF is recognized as a deemed dividend against the carrying amount of the Preferred Stock. Additionally, the Company continues to monitor for the issuance of additional shares below the conversion price, which could result in a contingent BCF.

The following table summarizes the calculation of the BCF as of the commitment dates of the Preferred Stock, which continues to be presented in additional paid in capital as of December 31, 2019:

Commitment Date	Series		Type of Consideration received (cash or settlement of other instruments)		Effective Conversion Price		Fair value of the Common Stock		Number of Shares Issuable upon Conversion		BCF
6/24/2019		A		Cash	$	43.30	$	18.59		648,069	$	—
		A		Settlement of SAFEs		43.30		18.59		75,165		—
		A-1		Settlement of SAFEs		15.31		18.59		163,306		536,000
		A-2		Settlement of SAFEs		15.12		18.59		1,322,780		4,590,000
		A-3		Settlement of SAFEs		17.89		18.59		223,548		156,000
		A-4		Settlement of SAFEs		20.07		18.59		49,827		—
		A-5		Settlement of SAFEs		20.15		18.59		124,068		—
		A-6		Settlement of SAFEs		30.31		18.59		247,420		—
		A-7		Settlement of SAFEs		34.64		18.59		1,459,656		—
		A-8		Settlement of SAFEs		36.81		18.59		385,777		—
		A-9		Settlement of SAFEs		38.97		18.59		748,674		—
		A-10		Settlement of SAFEs		41.14		18.59		252,801		—
		A-11		Settlement of Note		24.30		18.59		317,404		—
6/26/2019		A		Cash		43.30		18.59		692,778		—
7/15/2019		A		Cash		43.30		18.59		11,546		—
7/22/2019		A		Cash		43.30		18.59		233,281		—
											$	5,282,000

The Company recorded a total BCF of $5.3 million from the issuance of Preferred Stock. Because the Preferred Stock is convertible at any time pursuant to the optional conversion feature, the Company recognized a dividend equal to the BCF at the applicable commitment date. As the Company had accumulated deficit as of the end of all periods presented, the BCF resulted in an increase and decrease in additional paid-in capital by the same amount.

Furthermore, the Preferred Stock contains a down-round protection provision that reduces the conversion price if the Company issues shares at less than the conversion price or for no consideration. As such, if this provision is triggered, it could result in the conversion option becoming more beneficial if such adjustment causes the applicable conversion price to decline below the commitment date fair value of the Common Stock. If this occurs, a contingent BCF will be recognized at the date of such adjustment.