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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, 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 001-38935

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.)

835 Industrial Road, Suite 400,

San Carlos, CA 94070

(Address of principal executive offices)

(Zip Code)

(650)-595-2595

(Registrant’s telephone number, including area code)

Not Applicable

(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 August 10, 2023, the registrant had 32,580,220 shares of Class A common stock, $0.0001 par value per share and 6,715,441 shares of Class B common stock, $0.0001 par value per share, outstanding.

PART I --- FINANCIAL INFORMATION

Item 1. Financial Statements

Atreca, Inc.

Balance Sheets

(in thousands, except share and per share data)

June 30, 

December 31, 

    

2023

    

2022

    

(unaudited)

ASSETS

Current Assets

Cash and cash equivalents

$

27,686

$

30,819

Investments

10,849

39,676

Prepaid expenses and other current assets

3,425

7,531

Total current assets

41,960

78,026

Property and equipment, net

35,485

37,972

Operating lease right-of-use assets

35,165

36,056

Deposits and other

2,459

2,976

Total assets

$

115,069

$

155,030

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities

Accounts payable

$

1,142

$

1,741

Accrued expenses

5,974

9,681

Operating lease liabilities, current portion

3,770

3,544

Other current liabilities

1,121

1,327

Total current liabilities

12,007

16,293

Operating lease liabilities, net of current portion

58,388

60,331

Total liabilities

70,395

76,624

Commitment and contingencies (Note 9)

Stockholders’ equity

Class A common stock, $0.0001 par value, 650,000,000 shares authorized as of both June 30, 2023 and December 31, 2022; 32,441,143 and 32,351,950 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively

3

3

Class B common stock, $0.0001 par value, 50,000,000 shares authorized as of both June 30, 2023 and December 31, 2022; 6,715,441 shares issued and outstanding as of both June 30, 2023 and December 31, 2022

1

1

Additional paid-in capital

541,788

535,592

Accumulated other comprehensive income (loss)

2

(266)

Accumulated deficit

(497,120)

(456,924)

Total stockholders’ equity

44,674

78,406

Total liabilities and stockholders’ equity

$

115,069

$

155,030

See accompanying notes to the unaudited financial statements.

- 3 -

Atreca, Inc.

Statements of Operations

(in thousands, except share and per share data)

(unaudited)

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2023

    

2022

    

2023

    

2022

Expenses

Research and development

$

12,915

$

19,953

$

26,367

$

37,017

General and administrative

6,835

8,077

14,914

16,683

Total expenses

19,750

28,030

41,281

53,700

Interest and other income (expense)

Other income

71

163

750

Interest income

493

153

922

197

Net other income (expense)

$

564

$

153

$

1,085

$

947

Loss before income tax expense

(19,186)

(27,877)

(40,196)

(52,753)

Income tax expense

Net loss

$

(19,186)

$

(27,877)

$

(40,196)

$

(52,753)

Net loss per share, basic and diluted

$

(0.49)

$

(0.72)

$

(1.03)

$

(1.38)

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

39,156,584

38,591,436

39,124,553

38,288,831

See accompanying notes to the unaudited financial statements.

- 4 -

Atreca, Inc.

Statements of Loss and Comprehensive Loss

(in thousands)

(unaudited)

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2023

    

2022

    

2023

    

2022

Net loss

$

(19,186)

$

(27,877)

$

(40,196)

$

(52,753)

Other comprehensive income (loss):

Unrealized gain (loss) on available-for-sale debt securities

30

(191)

268

(559)

Comprehensive loss

$

(19,156)

$

(28,068)

$

(39,928)

$

(53,312)

See accompanying notes to the unaudited financial statements.

- 5 -

Atreca, Inc.

Statements of Stockholders' Equity

(in thousands, except share data)

(unaudited)

Accumulated

Additional

Other

Total

Three Months Ended June 30, 2022

Common Stock

Paid-In

Comprehensive

Accumulated

Stockholders'

Shares

    

Amount

    

Capital

    

Income (Loss)

    

Deficit

    

Equity

Balances at March 31, 2022

38,591,436

$

4

$

522,893

$

(470)

$

(384,643)

$

137,784

Stock-based compensation

5,487

5,487

Unrealized loss on available-for-sale debt securities

(191)

(191)

Net loss

(27,877)

(27,877)

Balances at June 30, 2022

38,591,436

$

4

$

528,380

$

(661)

$

(412,520)

$

115,203

Accumulated

Additional

Other

Total

Three Months Ended June 30, 2023

Common Stock

Paid-In

Comprehensive

Accumulated

Stockholders'

Shares

    

Amount

    

Capital

    

Income (Loss)

    

Deficit

    

Equity

Balances at March 31, 2023

39,156,584

$

4

$

538,924

$

(28)

$

(477,934)

$

60,966

Stock-based compensation

2,864

2,864

Unrealized gain on available-for-sale debt securities

30

30

Net loss

(19,186)

(19,186)

Balances at June 30, 2023

39,156,584

$

4

$

541,788

$

2

$

(497,120)

$

44,674

See accompanying notes to the unaudited financial statements.

- 6 -

Atreca, Inc.

Statements of Stockholders' Equity

(in thousands, except share data)

(unaudited)

Accumulated

Additional

Other

Total

Six Months Ended June 30, 2022

Common Stock

Paid-In

Comprehensive

Accumulated

Stockholders'

Shares

    

Amount

    

Capital

    

Income (Loss)

    

Deficit

    

Equity

Balances at December 31, 2021

37,758,797

$

4

$

514,794

$

(102)

$

(359,767)

$

154,929

Issuance of common stock through "at-the-market" offering, net of underwriter discount and issuance costs

700,000

3,509

3,509

Issuance of common stock upon exercise of options

16,666

76

76

Issuance of common stock under the Employee Stock Purchase Plan

115,973

177

177

Stock-based compensation

9,824

9,824

Unrealized loss on available-for-sale debt securities

(559)

(559)

Net loss

(52,753)

(52,753)

Balances at June 30, 2022

38,591,436

$

4

$

528,380

$

(661)

$

(412,520)

$

115,203

Accumulated

Additional

Other

Total

Six Months Ended June 30, 2023

Common Stock

Paid-In

Comprehensive

Accumulated

Stockholders'

Shares

    

Amount

    

Capital

    

Income (Loss)

    

Deficit

    

Equity

Balances at December 31, 2022

39,067,391

$

4

$

535,592

$

(266)

$

(456,924)

$

78,406

Issuance of Class A common stock under the Employee Stock Purchase Plan

89,193

110

110

Stock-based compensation

6,086

6,086

Unrealized gain on available-for-sale debt securities

268

268

Net loss

(40,196)

(40,196)

Balances at June 30, 2023

39,156,584

$

4

$

541,788

$

2

$

(497,120)

$

44,674

See accompanying notes to the unaudited financial statements.

- 7 -

Atreca, Inc.

Statements of Cash Flows

(in thousands)

(unaudited)

Six Months Ended June 30, 

    

2023

    

2022

Cash Flows from Operating Activities

Net loss

$

(40,196)

$

(52,753)

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

Depreciation and amortization

2,566

2,719

Amortization of operating right-of-use asset

891

785

Stock-based compensation

6,086

9,824

Amortization of discount or premium on available-for-sale securities

(191)

118

Changes in operating assets and liabilities:

Prepaid expenses and other current assets

4,701

(2,995)

Accounts payable

(586)

(1,298)

Accrued expenses

(3,776)

(3,692)

Other current liabilities

(206)

(59)

Operating lease liabilities

(1,717)

(1,577)

Net cash used in operating activities

(32,428)

(48,928)

Cash Flows from Investing Activities

Purchase of property and equipment

(101)

(496)

Purchase of investments

(14,699)

(51,585)

Proceeds from maturities of investments

43,985

28,951

Net cash provided (used in) by investing activities

29,185

(23,130)

Cash Flows from Financing Activities

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

110

177

Proceeds from exercise of stock options

76

Proceeds from issuance of common shares in "at-the-market" equity offering, net of issuance costs

3,509

Principal payments on capital lease obligations

(4)

Net cash provided by financing activities

110

3,758

Net change in cash, cash equivalents and restricted cash

(3,133)

(68,300)

Cash, cash equivalents and restricted cash, beginning of period

31,934

96,204

Cash, cash equivalents and restricted cash, end of period

$

28,801

$

27,904

See accompanying notes to the unaudited financial statements.

- 8 -

Atreca, Inc.

Statements of Cash Flows (continued)

(in thousands)

(unaudited)

Six Months Ended June 30, 

    

2023

    

2022

  

Supplemental Schedule of Non-Cash Investing and Financing Activities

Purchases of property and equipment included in accounts payable and accrued liabilities

$

69

$

42

Reclassification of fixed assets held-for-sale

$

78

$

See accompanying notes to the unaudited financial statements.

- 9 -

Notes to Unaudited Interim Financial Statements

1.            Business

Nature of Business

Atreca, Inc. (the “Company”) was incorporated in the State of Delaware on June 11, 2010 (“inception”), and is located in San Carlos, California. 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. APN-497444 is a Company-discovered antibody targeting a novel, tumor-specific glycan, which displays uniform and tumor-selective binding with high target prevalence in colorectal cancer and exhibits compelling preclinical anti-tumor activity and initial safety when weaponized as an antibody-drug conjugate (“ADC”). In August 2023, the Company announced it will suspend development of ATRC-101, the Company’s former lead product candidate. 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.

2.           Summary of Significant Accounting Policies

Basis of Presentation

The 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. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been or omitted pursuant to the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). Therefore, these unaudited financial statements should be read in conjunction with the audited financial statements and related footnotes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the SEC on March 29, 2023.

Going Concern

In accordance with Accounting Standards Codification (“ASC”) 205-40, Going Concern, we evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the financial statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of our plans that have not been fully implemented as of the date the financial statements are issued. When substantial doubt exists under this methodology, we evaluate whether the mitigating effect of its plans sufficiently alleviates substantial doubt about our ability to continue as a going concern. The mitigating effect of our plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about our ability to continue as a going concern within one year after the date that the financial statements are issued. In performing this analysis, we excluded certain elements of our operating plan that cannot be considered probable.

Our expectation to generate operating losses and negative operating cash flows in the future and the need for additional funding to support our planned operations raise substantial doubt regarding our ability to continue as a going concern for a period of one year after the date that the unaudited financial statements are issued. Management intends to complete additional equity financings and reduce spending in fiscal 2023 and 2024. However, due to several factors, including those outside management’s control, there can be no assurance that we will be able to complete additional equity financings. If we are unable to complete additional financings, management’s plans include further reducing or delaying operating expenses. We have concluded the likelihood that our plan to successfully obtain sufficient funding from one or more of these sources or adequately reduce expenditures, while reasonably possible, is less than probable. Accordingly, we have concluded that substantial doubt exists about our ability to continue as a going concern for a period of at least 12 months from the date of issuance of these unaudited financial statements.

- 10 -

The accompanying unaudited financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The unaudited financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of the uncertainties described above.

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 financial statements and accompanying notes. Actual results could differ from those estimates. Key estimates in the 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 available-for-sale debt securities, incremental borrowing rate used for lease accounting and fair value of options granted under the Company's stock option plan.

Unaudited Interim Financial Statements

The accompanying financial statements are unaudited. The unaudited interim financial statements have been prepared on the same basis as the annual 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, 2023 and its results of operations for the three and six months ended June 30, 2023 and 2022, and statements of cash flows for the six months ended June 30, 2023 and 2022. The financial data and the other financial information contained in these notes to the financial statements related to the three-month and six-month periods ended June 30, 2023 and 2022 are also unaudited. The results of operations for the three and six months ended June 30, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023 or for any other future annual or interim period. The balance sheet as of December 31, 2022 included herein was derived from the audited financial statements as of that date.

Other Income

Other income is comprised of amounts earned from services performed under service agreements. The Company follows the provisions of Accounting Standards Update 2014-09 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.

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.

In March 2022, the Company entered into an agreement with a third party for the assignment of certain non-core intellectual property. The initial consideration was classified as other income and recognized upon completion of the assignment. The agreement provides for additional consideration in the event of commercial exploitation of the intellectual property. The term of the agreement extends to the date of expiration of the last to expire of any of the assigned patents.

- 11 -

In October, 2022, the Company entered into the Grant Agreement with the Bill & Melinda Gates Foundation under which it was awarded a grant totaling up to $1.2 million for its malaria program. The parties amended the agreement in December 2022 to extend the grant term. During the three months and six months ended June 30, 2023, the Company recognized $71,000 and $163,000 of income related to the Grant Agreement, respectively, and had $1.0 million of unused funds received recorded as deferred revenue within accrued and other current liabilities. The Company recorded no receivables under service and license agreements as of June 30, 2023 and December 31, 2022.

Collaborations

Historically, we have entered into a number of discovery collaborations as we developed our discovery platform. These collaborations have generally focused on identifying novel antibodies in areas of significant unmet medical need.

In July 2020, the Company entered into a Collaboration and License Agreement with Xencor, Inc. (the “Xencor Agreement”), to research, develop and commercialize novel CD3 bispecific antibodies as potential therapeutics in oncology. Under the Xencor Agreement, the Company and Xencor, Inc. will engage in a three-year research program in which the Company will provide antibodies against novel tumor targets through its discovery platform from which Xencor, Inc. will engineer XmAb bispecific antibodies that also bind to the CD3 receptor on T cells. Up to two joint programs are eligible to be mutually selected for further development and commercialization, with each partner sharing 50% of costs and profits. Each company has the option to lead development, regulatory and commercialization activities for one of the joint programs. In addition, the Xencor Agreement allows each partner the option to pursue up to two programs independently, with a mid-to high-single digit percent royalty payable on net sales to the other partner.

The Company evaluated the Xencor Agreement under the provisions of ASC 606 and ASU 2018-18, Collaborative Arrangements (Topic 808) Clarifying the Interaction between Topic 808 and Topic 606. The Company concluded that Xencor, Inc. is not a customer as there are no distinct units of account that are reflective of a vendor-customer relationship or exchange of consideration for the research activities. The Company’s share of any collaboration expense is recognized as an research and development expense on the Company’s statement of operations.

For the cost-sharing related to the research program, the Company will follow the presentation and disclosure guidance of ASC 808, Collaboration Agreements. The Company had a receivable of $330,000 and a payable of $12,000 and under the research cost-sharing provision recorded in prepaid and other current assets and accrued expenses, respectively, on the accompanying balance sheets as of June 30, 2023 and December 31, 2022, respectively.

In-Licensing Arrangements – Development

In April 2022, the Company entered into an Option and License Agreement (the “Option and License Agreement”), by and between the Company and Zymeworks Inc (“Zymeworks”). The Company received a license under certain of Zymeworks’ proprietary drug conjugate patents and know-how to perform preclinical research and development of ADCs. The aggregate consideration for the research license is $5.0 million. The Company also received an option to obtain an exclusive license to research, develop, manufacture, and commercialize certain ADCs for additional license fees and royalties. Unless earlier terminated or extended, the term of the research license and the commercial option is two years from the effective date.

The Company will be required to use commercially reasonable efforts to develop and commercialize at least one licensed product and the Company will pay to Zymeworks an option exercise fee, and lump sum payments upon the achievement of certain development and regulatory milestones and commercial milestones. In addition, with respect to each licensed product, the Company will pay tiered royalties on net sales of licensed products at single-digit royalty rates.

The research license fee of $5.0 million was expensed to research and development expense in April 2022 in accordance with the Company's research and development expense policy.

- 12 -

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 $1.1 million as of both June 30, 2023 and December 31, 2022. These amounts as of June 30, 2023 and December 31, 2022 are included in deposits and other in the accompanying balance sheets and is comprised solely of letter of credit required pursuant to the lease for Company facilities.

The Company’s reconciliation of cash and cash equivalents and restricted cash reported within the balance sheets that sum to the total of the same amounts shown in the statements of cash flows were as follows (in thousands):

    

June 30, 

    

December 31, 

2023

    

2022

Cash and cash equivalents

$

27,686

$

30,819

Restricted cash

1,115

1,115

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

$

28,801

$

31,934

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 debt securities sold is based on specific identification. Interest and dividends on securities classified as available-for-sale are included in interest income.

Leases

The Company determines if an arrangement is, or contains, a lease at inception. The Company measures lease liabilities based on the present value of lease payments over the lease term. As the Company’s leases generally do not provide an implicit discount rate, the net present value of future minimum lease payments is determined using the Company’s incremental borrowing rate. Options in the lease terms to extend or terminate the lease are not reflected in the lease liabilities unless it is reasonably certain that any such option will be exercised.

The Company measures right-of-use assets at the lease commencement date based on the corresponding lease liabilities adjusted for (i) prepayments made to the lessor at or before the commencement date, (ii) initial direct costs incurred and (iii) certain tenant incentives under the lease. The Company evaluates the recoverability of the right-of-use assets for possible impairment in accordance with the long-lived assets policy. The Company has elected not to recognize right-of-use assets or lease liabilities for leases with an initial lease term of twelve months or less.

The Company’s lease agreements do not contain residual value guarantees or covenants. Lease expense is recognized on a straight-line basis over the terms of the leases. Incentives granted under the Company’s facilities lease, including rent holidays, are recognized as adjustments to lease expense on a straight-line basis over the terms of the leases.

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

- 13 -

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 included in prepaid and other current assets. Cash and cash equivalents are held at three financial institutions and were in excess of the Federal Deposit Insurance Corporation insurable limit at June 30, 2023 and December 31, 2022. Any loss incurred or a lack of access to such funds could have a significant adverse impact on the Company’s financial condition, result of operations, and cash flows. Additionally, cash and cash equivalents and investments are maintained at brokerage firms for which amounts are insured by the Securities Investor Protection Corporation subject to legal limits. The Company does not require collateral or other security for other receivables.

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, and other costs associated with preclinical and clinical development.

A substantial portion of the Company’s ongoing research and development activities are conducted by third-party service providers in connection with preclinical and clinical 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. For restricted stock units, fair value is based on the closing price of the Company’s Class A common stock on the grant date. 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 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 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.

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses, or Topic 326: Measurement of Credit Losses on Financial Instruments and subsequent amendments to the initial guidance under ASU

- 14 -

2018-19, ASU 2019-04, ASU 2019-05, ASU 2020-03, and ASU 2020-02 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 adopted this accounting standard as of January 1, 2023. The adoption of this standard did not have any impact to the Company’s financial statements as credit losses at the transition date were not expected, based on the evaluation of the Company’s available-for-sale debt securities.

3.           Fair Value of Financial Instruments

The fair value of the Company's assets and liabilities, which qualify as financial instruments under FASB ASC 820, Fair Value Measurements and Disclosures, approximates their carrying value represented in the balance sheets. 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 (in thousands):

June 30, 2023

    

Level 1

    

Level 2

    

Level 3

    

Total

Assets

  

  

  

  

Money market funds

$

18,633

$

$

$

18,633

U.S. Treasury securities

12,834

12,834

Total

$

31,467

$

$

$

31,467

December 31, 2022

    

Level 1

    

Level 2

    

Level 3

    

Total

Assets

  

  

  

  

Money market funds

$

29,658

$

$

$

29,658

Certificates of deposit

483

483

Corporate debt securities

1,996

1,996

U.S. Treasury securities

37,197

37,197

Total

$

67,338

$

1,996

$

$

69,334

The Company utilized the market approach and Level 1 valuation inputs to value its money market funds, certificates of deposit, and U.S. government treasury securities because published fair market values were readily available. The Company measured the fair value of corporate debt securities using Level 2 valuation inputs, which are based on quoted prices and market observable data of similar instruments. As of both June 30, 2023 and December 31, 2022, the remaining contractual maturity of all marketable securities was less than one year.

- 15 -

4.           Cash, Cash Equivalents and Investments

The fair value and the amortized cost of cash, cash equivalents and available-for-sale investments by major security type consist of the following (in thousands):

Gross

Gross

Estimated

Cash and

 

Amortized

Unrealized

Unrealized

Fair

Cash

Short-term

 

June 30, 2023

    

Cost

    

Gains

    

Losses

    

Value

    

Equivalents

Investment

 

Cash, cash equivalents and money market funds

$

27,686

$

$

$

27,686

$

27,686

$

Available-for-sale:

U.S. Treasury securities

 

10,847

2

10,849

10,849

Total

$

38,533

$

2

$

$

38,535

$

27,686

$

10,849

Gross

Gross

Estimated

Cash and

 

Amortized

Unrealized

Unrealized

Fair

Cash

Short-term

 

December 31, 2022

    

Cost

    

Gains

    

Losses

    

Value

    

Equivalents

Investment

 

Cash, cash equivalents and money market funds

$

30,819

$

$

$

30,819

$

30,819

$

Available-for-sale:

U.S. Treasury securities

 

37,458

(261)

37,197

37,197

Corporate debt securities

1,999

(3)

1,996

1,996

Certificates of deposit

485

 

 

(2)

 

483

 

 

483

Total

$

70,761

$

$

(266)

$

70,495

$

30,819

$

39,676

The Company evaluated the securities for other-than-temporary impairment and considered the decline in market value for the securities to be primarily attributable to current economic and market conditions. It is not more likely than not that the Company will be required to sell the securities, and the Company has no intention to do so prior to the recovery of the amortized cost basis. Based on this analysis, these marketable securities were not considered to be other-than-temporarily impaired as of June 30, 2023.

5.           Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following (in thousands):

    

June 30,

December 31,

    

2023

    

2022

    

Vendor prepayments and deposits

$

1,831

$

2,010

Prepaid insurance

740

1,026

Prepaid facility maintenance fee

 

343

 

336

Other receivables

 

330

 

3,985

Interest receivables and other current assets

181

174

Total prepaid expenses and other current assets

$

3,425

$

7,531

- 16 -

6.           Property and Equipment, net

Property and equipment, net consists of the following (in thousands):

June 30, 

    

December 31, 

    

2023

    

2022

 

Laboratory equipment

$

12,345

$

13,191

Furniture and fixtures

 

1,929

 

1,929

Computer hardware and software

 

1,579

 

1,518

Leasehold improvements

 

37,908

 

37,908

Construction in process

 

270

 

178

 

54,031

 

54,724

Less accumulated depreciation and amortization

 

(18,546)

 

(16,752)

Total property and equipment, net

$

35,485

$

37,972

Depreciation and amortization expense was $1.3 million and $1.4 million for the three months ended June 30, 2023 and 2022, respectively, and $2.6 million and $2.7 million for the six months ended June 30, 2023 and 2022, respectively.

In December 2022, the Company identified certain long-lived assets no longer utilized under current or expected future operations. Accordingly, the Company recognized impairment expense of $0.4 million in 2022. In January 2023, certain long-lived assets with carrying value of $0.1 million met the criteria to be classified as held for sale and classified as current assets included in prepaid and other current assets.

7.           Accrued Expenses

Accrued expenses consist of the following (in thousands):

    

June 30,

    

December 31,

2023

    

2022

Compensation and related benefits

$

2,527

$

3,789

License fees

3,000

Contract research fees

3,011

2,201

Professional fees

120

128

Other

316

563

Total accrued expenses

$

5,974

$

9,681

8.           Leases

The Company leases its office facilities under a non-cancellable operating lease agreement that expires in April 2033. Under the terms of the leases, the Company is responsible for certain insurance, property taxes and maintenance expenses. The office facilities lease agreements contain scheduled increases over the lease term. The Company was not party to any finance leases as of June 30, 2023.

The Company's future lease payments as of June 30, 2023, which are presented as current portion of operating lease liabilities, and operating lease liabilities, net of current portion on the Company's balance sheets (in thousands, except weighted-average data) are as follows:

- 17 -

Operating

Leases

Periods

2023 - remainder

$

3,843

2024

 

7,846

2025

 

8,064

2026

8,288

2027

8,519

Thereafter

48,771

Total lease payments

$

85,331

Less: imputed interest

 

(23,173)

Present value of lease liabilities

$

62,158

Lease liabilities, current

3,770

Lease liabilities, noncurrent

58,388

Total lease liabilities

$

62,158

Weighted-average remaining lease term (in years)

9.9

Weighted-average discount rate

6.64%

Lease expenses under the Company’s operating leases were $1.5 million for each of the three months ended June 30, 2023 and 2022, and $3.0 million and $