atre_Current Folio_10Q

Table of Contents

 

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 September 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 001-38935


ATRECA, INC.

(Exact name of registrant as specified in its charter)


 

 

Delaware

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)


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

 

 

 

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A Common Stock

BCEL

The Nasdaq Global Select Market

 

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 November 12, 2019, the registrant had 22,026,588 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

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

75

Item 6. 

Exhibits

75

 

 

 

 

Table of Contents

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)

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 

 

December 31, 

 

 

    

2019

    

2018

    

 

 

(Unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

166,144

 

$

114,504

 

Investments

 

 

34,894

 

 

 —

 

Prepaid expenses and other current assets

 

 

5,434

 

 

2,721

 

Total current assets

 

 

206,472

 

 

117,225

 

Property and equipment, net

 

 

4,740

 

 

4,143

 

Deposits and other

 

 

1,506

 

 

316

 

Total assets

 

$

212,718

 

$

121,684

 

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

Accounts payable

 

$

2,757

 

$

1,307

 

Accrued expenses

 

 

4,519

 

 

3,008

 

Other current liabilities

 

 

264

 

 

247

 

Total current liabilities

 

 

7,540

 

 

4,562

 

Capital lease obligations, net of current portion

 

 

65

 

 

100

 

Deferred rent

 

 

118

 

 

 6

 

Preferred stock warrant liability

 

 

 —

 

 

380

 

Total liabilities

 

 

7,723

 

 

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 September 30, 2019 and December 31, 2018, respectively; zero and 5,305,513 shares issued and outstanding as of September 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 September 30, 2019 and December 31, 2018, respectively; zero and 3,001,421 shares issued and outstanding as of September 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 September 30, 2019 and December 31, 2018, respectively; zero and 5,007,134 shares issued and outstanding as of September 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 September 30, 2019 and December 31, 2018, respectively; zero and 3,934,191 shares issued and outstanding as of September 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 September 30, 2019 and December 31, 2018, respectively; 22,025,852 and 2,119,872 shares issued and outstanding at September 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 September 30, 2019 and December 31, 2018, respectively; 5,934,191 and zero shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively

 

 

 1

 

 

 —

 

Additional paid-in capital

 

 

348,942

 

 

3,593

 

Accumulated other comprehensive income (loss)

 

 

43

 

 

(4)

 

Accumulated deficit

 

 

(143,993)

 

 

(96,622)

 

Total stockholders’ equity (deficit)

 

 

204,995

 

 

(93,033)

 

Total liabilities and stockholders’ equity

 

$

212,718

 

$

121,684

 

 

-  3  -

Table of Contents

Atreca, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 

 

Nine Months Ended

September 30, 

 

    

2019

    

2018

    

2019

    

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

12,812

 

$

7,820

 

$

40,447

 

$

21,882

General and administrative

 

 

4,864

 

 

1,875

 

 

10,919

 

 

4,807

Total expenses

 

 

17,676

 

 

9,695

 

 

51,366

 

 

26,689

Interest and other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

Other income

 

 

619

 

 

100

 

 

1,805

 

 

660

Interest income

 

 

1,189

 

 

23

 

 

2,328

 

 

112

Interest expense

 

 

(1)

 

 

(3)

 

 

(5)

 

 

(7)

Preferred stock warrant liability revaluation

 

 

 —

 

 

(57)

 

 

(123)

 

 

(30)

Foreign exchange loss

 

 

(1)

 

 

 —

 

 

(1)

 

 

 —

Loss on disposal of property and equipment

 

 

 —

 

 

 —

 

 

(7)

 

 

(1)

Loss before income tax expense

 

 

(15,870)

 

 

(9,632)

 

 

(47,369)

 

 

(25,955)

Income tax expense

 

 

(1)

 

 

 —

 

 

(2)

 

 

(1)

Net loss

 

$

(15,871)

 

$

(9,632)

 

$

(47,371)

 

$

(25,956)

Net loss per share, basic and diluted

 

$

(0.57)

 

$

(4.56)

 

$

(4.03)

 

$

(12.35)

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

 

 

27,949,682

 

 

2,112,180

 

 

11,747,825

 

 

2,101,030

 

 

-  4  -

Table of Contents

Atreca, Inc.

Condensed Consolidated Statements of Loss and Comprehensive Loss

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 

 

Nine Months Ended September 30, 

 

    

2019

    

2018

    

2019

    

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(15,871)

 

$

(9,632)

 

$

(47,371)

 

$

(25,956)

Other comprehensive income (loss);

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on fair value of investments

 

 

(41)

 

 

 6

 

 

48

 

 

27

Unrealized gain (loss) on currency translation

 

 

(2)

 

 

10

 

 

(1)

 

 

(14)

Comprehensive loss

 

$

(15,914)

 

$

(9,616)

 

$

(47,324)

 

$

(25,943)

 

 

 

-  5  -

Table of Contents

Atreca, Inc.

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

(in thousands, except share data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

Convertible

 

 

 

 

 

 

 

Additional

 

Other

 

 

 

 

Total

Three Months Ended September 30, 2018

 

Preferred Stock

 

 

Common Stock

 

Paid-In

 

Comprehensive

 

Accumulated

 

Stockholders'

 

    

Shares

    

Amount

  

  

Shares

    

Amount

    

Capital

    

Income (Loss)

    

Deficit

    

Equity (Deficit)

Balances at June 30, 2018

 

8,306,934

 

$

89,362

 

 

2,110,540

 

$

 —

 

$

2,629

 

$

(17)

 

$

(75,006)

 

$

(72,394)

Issuance of convertible preferred stock

 

8,941,325

 

 

120,313

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock upon exercise of options

 

 —

 

 

 —

 

 

4,423

 

 

 —

 

 

21

 

 

 —

 

 

 —

 

 

21

Stock-based compensation

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

343

 

 

 —

 

 

 —

 

 

343

Unrealized gain on fair value of investments

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 6

 

 

 —

 

 

 6

Unrealized currency exchange loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

10

 

 

 —

 

 

10

Net loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(9,632)

 

 

(9,632)

Balances at September 30, 2018

 

17,248,259

 

$

209,675

 

 

2,114,963

 

$

 —

 

$

2,993

 

$

(1)

 

$

(84,638)

 

$

(81,646)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

Convertible

 

 

 

 

 

 

 

Additional

 

Other

 

 

 

 

Total

Three Months Ended September 30, 2019

 

Preferred Stock

 

 

Common Stock

 

Paid-In

 

Comprehensive

 

Accumulated

 

Stockholders'

 

 

Shares

    

Amount

  

  

Shares

    

Amount

    

Capital

    

Income (Loss)

    

Deficit

    

Equity (Deficit)

Balances at June 30, 2019

 

 —

 

$

 —

 

 

27,947,201

 

$

 3

 

$

346,915

 

$

86

 

$

(128,122)

 

$

218,882

Issuance of common stock upon exercise of options

 

 —

 

 

 —

 

 

3,610

 

 

 —

 

 

10

 

 

 —

 

 

 —

 

 

10

Vesting of early exercised stock options

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 6

 

 

 —

 

 

 —

 

 

 6

Issuance of common stock under the Employee Stock Purchase Plan

 

 —

 

 

 —

 

 

9,232

 

 

 —

 

 

133

 

 

 —

 

 

 —

 

 

133

Stock-based compensation

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

1,878

 

 

 —

 

 

 —

 

 

1,878

Unrealized loss on fair value of investments

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(41)

 

 

 —

 

 

(41)

Unrealized currency exchange loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(2)

 

 

 —

 

 

(2)

Net loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(15,871)

 

 

(15,871)

Balances at September 30, 2019

 

 —

 

$

 —

 

 

27,960,043

 

$

 3

 

$

348,942

 

$

43

 

$

(143,993)

 

$

204,995

-  6  -

Table of Contents

 

Atreca, Inc.

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

(in thousands, except share data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

Convertible

 

 

 

 

 

 

 

Additional

 

Other

 

 

 

 

Total

Nine Months Ended September 30, 2018

 

Preferred Stock

 

 

Common Stock

 

Paid-In

 

Comprehensive

 

Accumulated

 

Stockholders'

 

    

Shares

    

Amount

  

  

Shares

    

Amount

    

Capital

    

Income (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 convertible preferred stock

 

8,941,325

 

 

120,313

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock upon exercise of options

 

 —

 

 

 —

 

 

22,923

 

 

 —

 

 

30

 

 

 —

 

 

 —

 

 

30

Stock-based compensation

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

833

 

 

 —

 

 

 —

 

 

833

Unrealized gain on fair value of investments

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

27

 

 

 —

 

 

27

Unrealized currency exchange loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(14)

 

 

 —

 

 

(14)

Net loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(25,956)

 

 

(25,956)

Balances at September 30, 2018

 

17,248,259

 

$

209,675

 

 

2,114,963

 

$

 —

 

$

2,993

 

$

(1)

 

$

(84,638)

 

$

(81,646)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

Convertible

 

 

 

 

 

 

 

Additional

 

Other

 

 

 

 

Total

Nine Months Ended September 30, 2019

 

Preferred Stock

 

 

Common Stock

 

Paid-In

 

Comprehensive

 

Accumulated

 

Stockholders'

 

 

Shares

    

Amount

  

  

Shares

    

Amount

    

Capital

    

Income (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

 

 —

 

 

 —

 

 

67,244

 

 

 —

 

 

241

 

 

 —

 

 

 —

 

 

241

Vesting of early exercised stock options

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 8

 

 

 —

 

 

 —

 

 

 8

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

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

503

 

 

 —

 

 

 —

 

 

503

Issuance of common stock under the Employee Stock Purchase Plan

 

 —

 

 

 —

 

 

9,232

 

 

 —

 

 

133

 

 

 —

 

 

 —

 

 

133

Stock-based compensation

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

4,013

 

 

 —

 

 

 —

 

 

4,013

Unrealized gain on fair value of investments

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

48

 

 

 —

 

 

48

Unrealized currency exchange loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(1)

 

 

 —

 

 

(1)

Net loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(47,371)

 

 

(47,371)

Balances at September 30, 2019

 

 —

 

$

 —

 

 

27,960,043

 

$

 3

 

$

348,942

 

$

43

 

$

(143,993)

 

$

204,995

 

 

 

 

 

-  7  -

Table of Contents

Atreca, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 

 

    

2019

    

2018

Cash Flows from Operating Activities

 

 

 

 

 

 

Net loss

 

$

(47,371)

 

$

(25,956)

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

 

 

 

 

 

 

Depreciation and amortization

 

 

1,218

 

 

1,027

Loss on disposal of property and equipment

 

 

 7

 

 

 1

Stock-based compensation

 

 

4,013

 

 

832

Preferred stock warrant liability revaluation

 

 

123

 

 

30

Accretion of discount on investments

 

 

(686)

 

 

 —

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(2,714)

 

 

(61)

Accounts payable

 

 

1,450

 

 

508

Accrued expenses

 

 

1,511

 

 

(328)

Other current liabilities

 

 

(11)

 

 

205

Deferred rent

 

 

141

 

 

16

Net cash used in operating activities

 

 

(42,319)

 

 

(23,726)

Cash Flows from Investing Activities

 

 

 

 

 

 

Purchase of property and equipment

 

 

(1,822)

 

 

(1,326)

Purchase of investments

 

 

(84,160)

 

 

 —

Proceeds from maturities of investments

 

 

50,000

 

 

22,397

Change in deposits

 

 

92

 

 

(3)

Net cash provided by (used in) investing activities

 

 

(35,890)

 

 

21,068

Cash Flows from Financing Activities

 

 

 

 

 

 

Proceeds from issuance of convertible preferred stock, net

 

 

 —

 

 

120,312

Proceeds from the issuance of common stock under the Employee Stock Purchase Plan

 

 

133

 

 

 —

Proceeds from exercise of stock options

 

 

249

 

 

30

Proceeds from initial public offering, net

 

 

133,633

 

 

 —

Principal payments on capital lease obligations

 

 

(36)

 

 

(40)

Payments of initial offering costs

 

 

(2,848)

 

 

 —

Net cash provided by financing activities

 

 

131,131

 

 

120,302

Net change in cash, cash equivalents and restricted cash

 

 

52,922

 

 

117,644

Cash, cash equivalents and restricted cash, beginning of period

 

 

114,504

 

 

8,242

Cash, cash equivalents and restricted cash, end of period

 

$

167,426

 

$

125,886

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Atreca, Inc.

Condensed Consolidated Statements of Cash Flows (continued)

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 

 

 

    

2019

    

2018

  

Supplemental Disclosure of Cash Flow Information

 

 

 

 

 

 

 

Cash paid for interest

 

$

 5

 

$

 7

 

Cash paid for income taxes

 

$

 1

 

$

 1

 

Supplemental Schedule of Non-Cash Investing and Financing Activities

 

 

 

 

 

 

 

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

 

$

 8

 

$

 —

 

 

 

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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 nine months ended September 30, 2019, $2.8 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

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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 September 30, 2019 and its results of operations and cash flows for the nine months ended September 30, 2019 and 2018. The financial data and the other financial information contained in these notes to the condensed consolidated financial statements related to the three-month and nine-month periods are also unaudited. The condensed results of operations for the three months ended and nine months ended September 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; (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.

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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 $356,000 and $282,000 are included in prepaid expenses and other current assets as of September 30, 2019 and December 31, 2018, respectively. Contract liabilities of $92,000 and $200,000 are included in other current liabilities as of September 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 $1,282,000 and $0 as of September 30, 2019 and December 31, 2018, respectively. This amount as of September 30, 2019 is included in deposits and other in the accompanying condensed consolidated balance sheets and is comprised solely of letters of credit required pursuant to leases 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.

 

 

 

 

 

 

 

 

 

    

September 30, 

    

December 31, 

 

 

 

2019

    

2018

 

Cash and cash equivalents

 

$

166,144

 

$

114,504

 

Restricted cash

 

 

1,282

 

 

 —

 

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

 

$

167,426

 

$

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 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

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