What changed in this filing

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Item 9A. Controls and Procedures

2021-03-12 compared with 2020-03-12 · 1469 added, 664 removed, 172 unchanged (93% of the section changed)

Controls and Procedures.

Definition and limitations of disclosure controls

Our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act, such as this report, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to our management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), as appropriate to allow timely decisions regarding required disclosure.

Our management evaluates these controls and procedures on an ongoing basis.

There are inherent limitations to the effectiveness of any system of disclosure controls and procedures.

These limitations include the possibility of human error, the circumvention or overriding of the controls and procedures and reasonable resource constraints.

In addition, because we have designed our system of controls based on certain assumptions, which we believe are reasonable, about the likelihood of future events, our system of controls may not achieve its desired purpose under all possible future conditions.

Accordingly, our disclosure controls and procedures provide reasonable assurance, but not absolute assurance, of achieving their objectives.

Evaluation of disclosure controls and procedures

The Company has established disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to management, including the principal executive officer (our Chief Executive Officer) and principal financial officer (our Vice President, Finance), to allow timely decisions regarding required disclosure.

The Company’s management, with the participation of the Company’s Chief Executive Officer and Vice President, Finance, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2019.

Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Our disclosure controls and procedures have been designed to provide reasonable assurance of achieving their objectives.

Based on the evaluation of the Company’s disclosure controls and procedures as of December 31, 2019, the Company’s Chief Executive Officer and Vice President, Finance concluded that, as of such date, the Company’s disclosure controls and procedures were effective at the reasonable assurance level.

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting.

Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2019 .

In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework (2013 framework) (COSO).

Based on its assessment, management believes that, as of December 31, 2019, our internal control over financial reporting is effective based on those criteria.

During the preparation of our consolidated financial statements as of and for the years ended December 31, 2020, 2019, and 2018, we identified material weaknesses in our internal control over financial reporting.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, a company’s principal executive and principal financial officers, or persons performing similar functions, and effected by a company’s Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles.

Under standards established by the Public Company Accounting Oversight Board (PCAOB), a material weakness is a deficiency or combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected and corrected on a timely basis.

In connection with the audit of our financial statements as of and for the years ended December 31, 2020, 2019 and 2018, we identified material weaknesses in our internal control over financial reporting.

The material weaknesses we identified were as follows:

we did not design or maintain an effective control environment commensurate with our financial reporting requirements due to lack of a sufficient number of accounting professionals with the appropriate level of experience and training;

we did not design and maintain formal accounting policies, procedures and controls to achieve complete, accurate and timely financial accounting, reporting and disclosures, and monitoring controls maintained at the corporate level were not at a sufficient level of precision to provide for the appropriate level of oversight of activities related to our internal control over financial reporting;

we did not design and maintain effective controls over segregation of duties with respect to the preparation and review of account reconciliations as well as creating and posting manual journal entries;

we did not design and maintain formal accounting policies, processes and controls to analyze, account for and disclose complex transactions.

Our management, including our CEO and our CFO, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2020.

This evaluation is performed to determine if our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure and are effective to provide reasonable assurance that such information is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms.

Due to the material weaknesses described above and the Company’s evaluation, the CEO and CFO have concluded that our disclosure controls and procedures were not effective as of December 31, 2020.

Remediation of Material Weaknesses in Internal Control over Financial Reporting

The material weaknesses that we identified resulted from an insufficient complement of resources with an appropriate level of accounting knowledge, experience, and training to address accounting for complex, non-routine transactions.

We are currently in the process of remediating the material weakness and have taken and continue to take steps that we believe will address the underlying causes of the material weakness, primarily by hiring additional accounting and finance personnel with technical accounting and financial reporting experience, enhancing our training programs within our accounting and finance department, and enhancing our internal review procedures during the financial statement close process.

During the preparation of this Annual Report on Form 10-K, our management has implemented certain additional substantive and analytical review procedures to ensure that information required to be disclosed by us in this report is recorded, processed, summarized, and reported within the time periods specified in the Commission’s rules and forms.

Our management, under the supervision of our CEO and CFO has undertaken a plan to remediate the material weaknesses identified above.

The remediation efforts summarized below, which are either implemented or in the process of being implemented, are intended to address the identified material weaknesses.

As a result of the Merger, we have inherited additional accounting personnel from resTORbio with appropriate experience, certification, education, and training with respect to the U.S.

GAAP and standards issued by the PCAOB;

We have engaged a permanent Vice President, Corporate Controller, whose primary responsibilities include working with third-party consultants to improve the design, implementation, execution, and supervision of our internal controls over financial reporting;

We also appointed a full-time senior manager to oversee all aspects of technical accounting, SEC reporting, and Sarbanes-Oxley (SOX) requirements and compliances, including remediations;

We implemented formal training of our accounting personnel responsible for preparation and review of account reconciliations and the posting and reviewing manual journal entries, to be held on a periodic basis, to ensure appropriate segregation of duties and improve internal controls over financial reporting;

We also implemented a new Enterprise Resource Planning (ERP) system, Microsoft 365 Business Central in January 2021, replacing Quickbooks and providing efficiency and financial controls.

We will ensure appropriate training is offered to all key accounting personnel who are responsible for posting and reviewing journal entries.

Training will be tailored specifically for the biotech industry to the extent applicable.

Trainings will be formalized and held on a periodic basis as the Company hires more accounting personnel.

Changes in Internal Control over Financial Reporting

There was no other change in our internal control over financial reporting that occurred during the fiscal quarter ended December 31, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the year ended December 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

As a result of the COVID-19 pandemic, since March 2020, we have requested that our employees work remotely, as appropriate.

We have not identified any material changes in our internal control over financial reporting as a result of these changes to the working environment.

We are continually monitoring and assessing the COVID-19 situation to determine any potential impacts on the design and operating effectiveness of our internal controls over financial reporting.

Exemption from Management’s Report on Internal Control Over Financial Reporting for 2020

This annual report on Form 10-K does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of our registered public accounting firm due to a transition period established by rules of the SEC for newly-public companies.

Other Information.

Directors, Executive Officers and Corporate Governance.

The information required by this item regarding directors, executive officers and corporate governance will be included in our 2020 Proxy Statement, which we intend to file with the Securities and Exchange Commission within 120 days of the end of our fiscal year pursuant to General Instruction G(3) of Form 10-K, and is incorporated herein by reference.

The information required by this item regarding directors, executive officers and corporate governance will be included in our 2021 Proxy Statement, which we intend to file with the SEC within 120 days of the end of our fiscal year pursuant to General Instruction G(3) of Form 10-K, and is incorporated herein by reference.

We have adopted a code of business conduct and ethics for directors, officers, and employees, known as the Code of Business Conduct and Ethics.

The Code of Business Conduct and Ethics is available on our website at http://www.adicetbio.com under the Corporate Governance section of our Investors page.

We will promptly disclose on our website (i) the nature of any amendment to the policy that applies to our principal executive officer, principal financial officer, or controller, or persons performing similar functions and (ii) the nature of any waiver, including an implicit waiver, from a provision of the policy that is granted to one of these specified individuals, the name of such person who is granted the waiver and the date of the waiver.

Shareholders may request a free copy of the Code of Business Conduct and Ethics from our Compliance Officer, c/o Adicet Bio, Inc., 500 Boylston Street, 13 th Floor, Boston, MA 02116.

Executive Compensation.

The information required by this item regarding executive compensation will be included in our 2020 Proxy Statement, which we intend to file with the Securities and Exchange Commission within 120 days of the end of our fiscal year pursuant to General Instruction G(3) of Form 10-K, and is incorporated herein by reference.

The information required by this item regarding executive compensation will be included in our 2021 Proxy Statement, which we intend to file with the SEC within 120 days of the end of our fiscal year pursuant to General Instruction G(3) of Form 10-K, and is incorporated herein by reference.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required by this item regarding security ownership of certain beneficial owners and management and securities authorized for issuance under equity compensation plans will be included in our 2020 Proxy Statement, which we intend to file with the Securities and Exchange Commission within 120 days of the end of our fiscal year pursuant to General Instruction G(3) of Form 10-K, and is incorporated herein by reference.

The information required by this item regarding security ownership of certain beneficial owners and management and securities authorized for issuance under equity compensation plans will be included in our 2021 Proxy Statement, which we intend to file with the SEC within 120 days of the end of our fiscal year pursuant to General Instruction G(3) of Form 10-K, and is incorporated herein by reference.

Certain Relationships and Related Transactions, and Director Independence.

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Principal Accountant Fees and Services.

The information required by this item regarding principal accounting fees and services will be included in our 2020 Proxy Statement, which we intend to file with the Securities and Exchange Commission within 120 days of the end of our fiscal year pursuant to General Instruction G(3) of Form 10-K, and is incorporated herein by reference.

The information required by this item regarding principal accounting fees and services will be included in our 2021 Proxy Statement, which we intend to file with the SEC within 120 days of the end of our fiscal year pursuant to General Instruction G(3) of Form 10-K, and is incorporated herein by reference.

Exhibits and Financial Statement Schedules.

(a) The following documents are included in this Annual Report on Form 10-K:

The following documents are included in this Annual Report on Form 10-K:

The following Report and Consolidated Financial Statements of the Company are included in this Annual Report:

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All financial statement schedules have been omitted because they are not applicable, not required or the information required is shown in the financial statements or the notes thereto.

(3) Exhibits.

The exhibits filed as part of this Annual Report on Form 10-K are set forth on the Exhibit Index immediately preceding the signature page of this Annual Report on Form 10-K.

The Exhibit Index is incorporated herein by reference.

The Company has elected not to include summary information.

We have elected not to include summary information.

ADICET BIO, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Financial Statements

Consolidated Financial Statements

Consolidated Balance Sheets as of December 31, 2020 and 2019

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Notes to Consolidated Financial Statements

Report of Independent Regis tered Public Accounting Firm

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

resTORbio, Inc.:

Adicet Bio, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of resTORbio, Inc.

and subsidiary (the Company) as of December 31, 2019 and 2018, the related consolidated statements of operations and comprehensive loss, redeemable convertible preferred stock and stockholders’ equity (deficit), and cash flows for each of the years in the three‑year period ended, December 31, 2019, and the related notes (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2019, in conformity with U.S.

We have audited the accompanying consolidated balance sheet of Adicet Bio, Inc.

and subsidiaries (the Company) as of December 31, 2020, the related consolidated statements of operations and comprehensive loss, redeemable convertible preferred stock and stockholders’ equity (deficit), and cash flows for the year then ended, and the related notes (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for the year then ended, in conformity with U.S.

generally accepted accounting principles.

We also have audited the adjustments described in Note 2 to retrospectively apply the exchange ratio to the 2019 and 2018 consolidated financial statements.

In our opinion, such adjustments are appropriate and have been properly applied.

We were not engaged to audit, review, or apply any procedures to the 2019 or 2018 consolidated financial statements of the Company other than with respect to the adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2019 or 2018 consolidated financial statements taken as a whole.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2020 due to the adoption of Accounting Standards Update No.

2016-02, Leases (Topic 842).

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audit provides a reasonable basis for our opinion.

We have served as the Company’s auditor since 2020.

Boston, Massachusetts

March 11, 2021

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Adicet Bio, Inc.

Opinion on the Financial Statements

We have audited the consolidated balance sheet of Adicet Bio, Inc.

and its subsidiary (the “Company”) as of December 31, 2019, and the related consolidated statements of operations and comprehensive loss, of redeemable convertible preferred stock and stockholders’ equity (deficit), and of cash flows for each of the two years in the period ended December 31, 2019, including the related notes (collectively referred to as the “consolidated financial statements”), before the effects of the adjustments to retrospectively reflect the exchange ratio described in Note 2.

In our opinion, the consolidated financial statements, before the effects of the adjustments to retrospectively reflect the exchange ratio described in Note 2, present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America (the 2019 financial statements before the effects of the adjustments discussed in Note 2 are not presented herein).

We were not engaged to audit, review, or apply any procedures to the adjustments to retrospectively reflect the exchange ratio described in Note 2, and accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied.

Those adjustments were audited by other auditors.

Substantial Doubt About the Company’s Ability to Continue as a Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.

As discussed in Note 1 to the consolidated financial statements, the Company has incurred significant net operating losses and negative cash flows from operations since inception that raise substantial doubt about its ability to continue as a going concern.

Management’s plans in regard to these matters are also described in Note 1.

The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements, before the effects of the adjustments described above, based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

We conducted our audits of these consolidated financial statements, before the effects of the adjustments described above, in accordance with the standards of the PCAOB.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

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We believe that our audits provide a reasonable basis for our opinion.

We have served as the Company’s auditor since 2017.

Boston, Massachusetts

March 12, 2020

resTORbio, Inc.

/s/ PricewaterhouseCoopers LLP

San Jose, California

June 23, 2020

We served as the Company's auditor from 2016 to 2020.

Adicet Bio, Inc.

Consolidated Balance Sheets

(In thousands, except share and per share data)

(in thousands, except share and per share amounts)

Current assets:

Cash and cash equivalents

Marketable securities

Prepaid expenses

Other current assets

Short-term marketable debt securities

Prepaid expenses and other current assets

Total current assets

Restricted cash

Property and equipment, net

Liabilities and stockholders’ equity

Operating lease right-of-use asset

In-process research and development

Restricted cash

Long-term marketable debt securities

Other non-current assets

Liabilities, redeemable convertible preferred stock, and stockholders’ equity (deficit)

Current liabilities:

Accounts payable

Accrued liabilities

Contract liabilities—related party, current

Accrued and other current liabilities

Operating lease liability

Total current liabilities

Other liabilities

Contract liabilities—related party, net of current portion

Deferred rent, net of current portion

Operating lease liability, net of current portion

Redeemable convertible preferred stock warrant liability

Contingent consideration liability

Deferred tax liability

Total liabilities

Commitments and contingencies (see Note 12)

Stockholders’ equity:

Preferred stock, $0.0001 par value, 10,000,000 shares authorized as of December 31, 2019 and 2018;

none issued and outstanding as of December 31, 2019 and 2018

Common stock, $0.0001 par value, 150,000,000 shares authorized as of December 31, 2019 and 2018;

36,444,732 and 28,055,344 shares issued and outstanding as of December 31, 2019 and 2018, respectively;

36,444,732 and 28,054,344 shares vested as of December 31, 2019 and 2018, respectively

Commitments and contingencies (Note 12)

Redeemable convertible preferred stock, $ 0.0001 par value;

none and 99,363,444 shares

authorized as of December 31, 2020 and 2019, respectively;

none and 97,166,921 shares

issued and outstanding as of December 31, 2020 and 2019, respectively;

liquidation preference $ 0 and $ 128,195 as of December 31, 2020 and 2019, respectively

Stockholders’ equity (deficit):

Preferred stock, $ 0.0001 par value, 10,000,000 shares authorized as of

December 31, 2020 and 2019, respectively;

none issued and outstanding as of

December 31, 2020 and 2019, respectively

Common stock, $ 0.0001 par value;

150,000,000 and 140,200,938 shares

authorized as of December 31, 2020 and 2019, respectively;

19,677,249 and 2,155,578 shares issued and outstanding as of

December 31, 2020 and 2019, respectively

Additional paid-in capital

Accumulated deficit

Other comprehensive income (loss)

Total stockholders’ equity

Total liabilities and stockholders’ equity

See accompanying notes to these consolidated financial statements.

resTORbio, Inc.

Accumulated other comprehensive income

Total stockholders’ equity (deficit)

Total liabilities, redeemable convertible preferred stock, and

stockholders’ equity (deficit)

The accompanying notes are an integral part of these consolidated financial statements.

Adicet Bio, Inc.

Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share data)

(in thousands, except share and per share amounts)

Year ended December 31,

Revenue—related party

Operating expenses:

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Interest income

Other expense, net

Loss before income taxes

Income tax expense

Net loss per share, basic and diluted

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

Other comprehensive loss:

Net unrealized gains (losses) on marketable securities

Interest expense

Other income (expense), net

Loss before income tax benefit

Income tax expense (benefit)

Net loss per share attributable to common stockholders, basic and diluted

Weighted-average shares used in computing net loss per share

attributable to common stockholders, basic and diluted

Other comprehensive income (loss):

Unrealized gain (loss) on marketable debt securities, net of tax

Total other comprehensive income (loss)

Comprehensive loss

See accompanying notes to these consolidated financial statements.

resTORbio, Inc.

The accompanying notes are an integral part of these consolidated financial statements.

Adicet Bio, Inc.

Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(In thousands, except share data)

Series A Redeemable

Convertible Preferred Stock

Series B Redeemable

Convertible Preferred Stock

(in thousands, except share amounts)

Redeemable Convertible

Preferred Stock

Comprehensive

Shareholders'

Stockholders’

Income (Loss)

Balance at December 31, 2016

Issuance of common shares to PureTech

Issuance of Series A redeemable convertible preferred stock, net of tranche liability

Issuance of Series B redeemable convertible preferred stock, net of issuance costs of $54

Vesting of restricted stock

Balance at January 1, 2018

Issuance of Series A redeemable convertible

preferred stock

Exercise of the redeemable convertible

preferred stock tranche liability

Issuance of common stock upon exercise of stock

Vesting of early exercised stock options

Stock-based compensation expense

Unrealized loss on marketable securities

Balance at December 31, 2018

Conversion of convertible preferred stock into common stock upon the closing of initial public offering

Issuance of common stock upon closing of initial public offering, net of issuance costs of $8,379

Vesting of restricted stock

Exercise of stock options

Issuance of Series A redeemable convertible

preferred stock related to TRDF liability

Issuance of Series B redeemable convertible

preferred stock, net of issuance cost of $ 5,216

Termination of redeemable convertible preferred

stock tranche liability

Issuance of common stock upon exercise of stock

Vesting of early exercised stock options

Stock-based compensation expense

Net unrealized losses on marketable securities

Unrealized gain on marketable securities

Balance at December 31, 2019

Issuance of common stock upon closing of public offering, net of issuance costs of $3,683

Issuance of common stock pursuant to the at-the-market offering, net of issuance costs of $285

Vesting of restricted stock

Vesting of restricted stock units, net of shares withheld for taxes

Exercise of stock options

Issuance of common stock upon exercise of stock options

Stock-based compensation expense

Net unrealized gains on marketable securities

Conversion of shares of redeemable convertible preferred stock

to shares of common stock in connection with the Merger

Exchange of common stock in connection with the Merger

Issuance of common stock upon accelerated vesting of

restricted stock units in connection with the Merger

Conversion of redeemable convertible preferred stock

warrants to common stock warrants

Unrealized gain on marketable securities

Balance at December 31, 2020

See accompanying notes to these consolidated financial statements.

resTORbio, Inc.

The accompanying notes are an integral part of these consolidated financial statements.

Adicet Bio, Inc.

Consolidated Statements of Cash Flows

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Year ended December 31,

Operating activities:

Cash flows from operating activities

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

Accretion on marketable securities

Depreciation and amortization expense

Loss on disposal of property and equipment

Noncash lease expense

Stock-based compensation expense

Change in fair value of tranche liability

Expense related to acquisition of intellectual property

Gain on disposal of property and equipment

Net amortization of premiums and accretion of discounts on investments

Change in fair value of redeemable convertible preferred stock tranche liability and TRDF liability

Change in fair value of redeemable convertible preferred stock warrant liability

Impairment of in-process research and development

Remeasurement of contingent consideration liability

Amortization of deferred debt issuance costs

Changes in operating assets and liabilities:

Prepaid expenses and other current assets

Other non-current assets

Accounts payable

Accrued liabilities

Other liabilities

Contract liabilities—related party

Deferred rent

Operating lease liabilities

Accrued and other current liabilities

Deferred tax liability

Net cash used in operating activities

Investing activities:

Purchases of property and equipment

Maturities of marketable securities

Purchase of marketable securities

Cash flows from investing activities

Cash and restricted cash acquired in connection with the Merger

Purchases of marketable debt securities

Proceeds from maturities of marketable debt securities

Proceeds from sale of property and equipment

Purchase of property and equipment

Net cash provided by (used in) investing activities

Financing activities:

Proceeds from issuance of Series A redeemable convertible preferred stock

Proceeds from issuance of Series B redeemable convertible preferred stock, net

Proceeds from public offering, net of issuance costs

Proceeds from at-the-market offering, net of issuance costs

Deferred offering costs

Taxes paid related to net share settlement of restricted stock units

Cash flows from financing activities

Proceeds from issuance of redeemable convertible preferred stock, net of issuance costs

Proceeds from exercise of stock options

Payment of debt issuance costs

Net cash provided by financing activities

Net increase (decrease) in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash at beginning of period

Cash, cash equivalents and restricted cash at end of period

Supplemental disclosure of non-cash investing and financing activities:

Net change in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash, at the beginning of the period

Cash, cash equivalents and restricted cash, at the end of the period

Reconciliation of cash, cash equivalents and restricted cash to consolidated balance sheets:

Cash and cash equivalents

Restricted cash

Cash, cash equivalents and restricted cash in consolidated balance sheets

Supplemental cash flow information

Cash paid for income taxes

Cash received for income tax refunds

Supplemental disclosures of noncash investing and financing activities

Purchase of property and equipment included in accounts payable

Right-of-use assets recognized upon adoption of ASC 842

Operating lease right-of-use asset obtained in exchange for operating lease liability

Issuance of redeemable convertible preferred stock warrants in connection with the Loan Agreement

Redeemable convertible preferred stock warrants issued in connection with issuance of

Series B redeemable convertible preferred stock, net of issuance costs

Conversion of redeemable convertible preferred stock into common stock

See accompanying notes to these consolidated financial statements.

resTORbio, Inc.

Conversion of redeemable convertible preferred stock warrants into common stock warrants

Fair value of net assets acquired in Merger

Measurement period adjustment to goodwill

Vesting of early exercised stock options

Exercise of redeemable convertible preferred stock tranche liability

Termination of redeemable convertible preferred stock tranche liability

Settlement of TRDF liability

The accompanying notes are an integral part of these financial statements.

Adicet Bio, Inc.

Notes to Consolidated Financial Statements

resTORbio, Inc.

( collectively referred to with its wholly-owned, controlled subsidiary, resTORbio Securities Corp.

as “resTORbio” or the “the Company”) was incorporated in the State of Delaware on July 5, 2016.

The Company is a clinical-stage biopharmaceutical company developing innovative medicines that target the biology of aging to prevent or treat aging-related diseases with the potential to extend healthy lifespan .

The Company’s principal operations are located in Boston, Massachusetts.

In November 2019, the Company announced that top line data from the PROTECTOR 1 Phase 3 study, evaluating the safety and efficacy of RTB101 in preventing clinically symptomatic respiratory illness in adults age 65 and older, did not meet its primary endpoint and the Company has stopped the development of RTB101 for clinically symptomatic respiratory illness.

In addition, in February 2020, the Company retained JMP Securities LLC as a financial advisor to assist it in its evaluation of a broad range of strategic alternatives to enhance stockholder value, including additional capital raising transactions, an acquisition, merger, business combination, licensing and/or other strategic transaction involving the Company.

There is no assurance that the review of strategic alternatives will result in the Company changing its business plan, pursuing any particular transaction, or, if it pursues any such transaction, that it will be completed.

Since inception, the Company has been primarily involved in research and development activities.

The Company devotes substantially all of its efforts to product research and development, initial market development and raising capital.

The Company has not generated any product revenue related to its primary business purpose to date and is subject to a number of risks similar to those of other early stage companies, including dependence on key individuals, competition from other companies, the need for development of commercially viable products and the need to obtain adequate additional financing to fund the development of its product candidates.

The Company is also subject to a number of risks similar to other companies in the life sciences industry, including regulatory approval of products, uncertainty of market acceptance of products, competition from substitute products and larger companies, the need to obtain additional financing, compliance with government regulations, protection of proprietary technology, dependence on third parties, product liability and dependence on key individuals.

Public Offering

On March 22, 2019, the Company completed an underwritten public offering, whereby the Company sold 7,200,000 shares of its common stock at a price of $6.95 per share.

The aggregate net proceeds received by the Company from the offering were approximately $46.6 million, after deducting underwriting discounts and commissions and other offering expenses payable by the Company of $3.5 million.

In addition, the Company granted the underwriters a 30-day option to purchase up to an additional 1,080,000 shares of common stock at the public offering price, less underwriting discounts and commissions.

On April 10, 2019, the Company sold an additional 487,934 shares of its common stock at a price of $6.95 per share.

The aggregate net proceeds received by the Company were approximately $3.2 million, after deducting underwriting discounts and commissions and other offering expenses payable by the Company of $0.2 million.

The remainder of the option expired unexercised.

At-the-Market Offering

On February 1, 2019, the Company filed a Registration Statement on Form S-3 (the “Shelf”) with the Securities and Exchange Commission (the “SEC”) in relation to the registration of common stock, preferred stock, warrants and/or units of any combination thereof (collectively, the “Securities”).

The Company also simultaneously entered into a Controlled Equity Offering Sales Agreement (the “Sales Agreement”) with SVB Leerink LLC and Cantor Fitzgerald & Co.

(collectively, the “Sales Agents”), to provide for the offering, issuance and sale by the Company of up to an aggregate of $50.0 million of its common stock from time to time in “at-the-market” offerings under the Shelf and subject to the limitations thereof.

The Company will pay to the Sales Agents cash commissions of 3.0 percent of the gross proceeds of sales of common stock under the Sales Agreement.

Beginning in June 2019 through September 19, 2019, based on settlement date, the Company sold approximately 688,000 shares of common stock at a weighted-average selling price of $10.18 per share in accordance with the Sales Agreement for aggregate net proceeds of $6.7 million, after payment of cash commissions of 3.0 percent of the gross proceeds to the Sales Agent and incurred issuance costs of approximately $75,000 related to legal, accounting, and other fees in connection with the sale.

As of December 31, 2019, $43.0 million remained available for sale under the Sales Agreement.

In the course of its development activities, the Company has sustained operating losses and expects such losses to continue over the next several years.

The Company’s ultimate success depends on the outcome of its research and development activities.

The Company has incurred net losses from operations since inception and has an accumulated deficit of $154.1 million as of December 31, 2019.

As of December 31, 2019, the Company had $91.5 million of cash, cash equivalents, and marketable securities, which the Company believes will be sufficient to fund the Company’s current operating plan through at least the next twelve months from the date of filing this Annual Report on Form 10-K.

Organization and Nature of the Business

Adicet Bio, Inc.

(formerly resTORbio, Inc.

(resTORbio)), together with its subsidiaries, (the Company) is a biotechnology company discovering and developing allogeneic gamma delta T cell therapies for cancer and other diseases.

The Company is advancing a pipeline of off-the-shelf gamma delta T cells, engineered with chimeric antigen receptors (CARs) and T cell receptor-like antibodies to enhance selective tumor targeting, facilitate innate and adaptive anti-tumor immune response, and improve persistence for durable activity in patients.

The Company believes its approach has potentially significant advantages over alpha beta T cells, which are the basis of standard CAR-T cell therapies.

The Company was incorporated in November 2014 in Delaware.

The principal executive offices are located in Boston, Massachusetts.

The Company also has another office in Menlo Park, California.

Adicet Bio, Inc.

(when referred to prior to the Merger (as defined below), (Former Adicet)) was incorporated in November 2014 in Delaware and was headquartered in Menlo Park, CA.

Adicet Bio Israel Ltd.

(formerly Applied Immune Technologies Ltd.) (Adicet Israel) is a wholly owned subsidiary of Former Adicet and is located in Haifa, Israel.

Adicet Israel was founded in 2006.

During 2019, Former Adicet consolidated its operations, including research and development activities, in the U.S.

and as a result substantially reduced its operations in Israel.

Merger with resTORbio

Prior to September 15, 2020, the Company was a clinical-stage biopharmaceutical company known as resTORbio that had historically focused on developing innovative medicines that target the biology of aging, to prevent or treat age-related diseases with the potential to extend healthy lifespans.

On April 28, 2020 , resTORbio entered into a definitive Merger Agreement with Former Adicet.

Under the terms of the Merger Agreement, Former Adicet agreed to merge with a wholly owned subsidiary of resTORbio in an all-stock transaction with Former Adicet surviving as a wholly owned subsidiary of resTORbio and changing its name to “Adicet Therapeutics, Inc.” (such transactions, the Merger).

Under the exchange ratio formula in the Merger Agreement, immediately following the Effective Time of the Merger, the securityholders of Former Adicet as of immediately prior to the Effective Time of the Merger owned approximately 75 % of the outstanding shares of the Company’s common stock on a fully-diluted basis and securityholders of resTORbio as of immediately prior to the Effective Time of the Merger owned approximately 25 % of the outstanding shares of the Company’s common stock on a fully-diluted basis (in each case excluding equity incentives available for grant).

The Company concluded that the transaction represented a business combination pursuant to Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 805, Business Combinations .

Further, Former Adicet was determined to be the accounting acquirer based upon the terms of the Merger and other factors including:

(i) Former Adicet’s securityholders own approximately 75% of the voting rights of the combined company (on a fully-diluted basis excluding equity incentives available for grant);

(ii) Former Adicet designated a majority (five of seven) of the initial members of the Board of Directors of the combined company;

and (iii) the terms of the exchange of equity interests based on the exchange ratio at the announcement of the Merger factored in an implied premium to resTORbio’s stockholders.

The composition of senior management of the combined company was determined to be a neutral factor in the accounting acquirer determination, as the combined company will leverage the expertise of the senior management of both companies.

Accordingly, the reported operating results prior to the business combination are those of Former Adicet.

On September 15, 2020, the Company completed the Merger pursuant to the Merger Agreement (the Effective Time).

In connection with the Merger, and immediately prior to the Effective Time, resTORbio effected a reverse stock split of its common stock at a ratio of 1-for-7 (the Reverse Stock Split).

Also, in connection with the Merger, the Company changed its name from “resTORbio, Inc.” to “Adicet Bio, Inc.” (the Name Change), Former Adicet changed its name from “Adicet Bio, Inc.” to “Adicet Therapeutics, Inc.” and the business conducted by the Company became primarily the business, which was previously conducted by Former Adicet, which is a biotechnology company discovering and developing allogeneic gamma delta T cell therapies for cancer and other diseases.

At the Effective Time, each outstanding share of Former Adicet capital stock was converted into the right to receive 0.1240 (the Exchange Ratio) shares of Company’s common stock, as set forth in the Merger Agreement.

The Exchange Ratio was determined based on the total number of outstanding shares of Company’s common stock and Former Adicet capital stock, each on a fully diluted basis, and the respective valuations of Former Adicet and resTORbio at the time of execution of the Merger Agreement.

In connection with the Merger, the Company also assumed certain outstanding Former Adicet warrants and Former Adicet stock options under Former Adicet’s 2015 Stock Incentive Plan (the 2015 Adicet Stock Incentive Plan) and Former Adicet’s 2014 Share Option Plan (the 2014 Share Option Plan and, together with the 2015 Adicet Stock Incentive Plan, the Former Adicet Plans), with such stock options and warrants henceforth representing the right to purchase a number of shares of Company’s common stock equal to the Exchange Ratio multiplied by the number of shares of Former Adicet’s capital stock previously represented by such stock options and warrants, as applicable, with a proportionate adjustment in exercise price.

Adicet Bio, Inc.

Notes to Consolidated Financial Statements

Immediately following the Effective Time, there were approximately 19,589,828 shares of the Company’s common stock outstanding (post Reverse Stock Split), with the former equity holders of Former Adicet holding approximately 75 % of the outstanding shares of Company’s common stock on a fully-diluted basis and the former equity holders of resTORbio holding approximately 25 % of the outstanding shares of Company’s common stock on a fully-diluted basis (in each case excluding equity incentives available for grant).

Please refer to Note 3 “Business Combinations” for further discussions of the Merger.

Liquidity and Going Concern

The Company has incurred significant net operating losses and negative cash flows from operations since inception and had an accumulated deficit of $ 106.5 million as of December 31, 2020.

The Company has historically financed its operations primarily through a collaboration and licensing arrangement, the private placement of equity securities and debt, and cash received in the Merger.

To date, none of the Company’s product candidates have been approved for sale and therefore the Company has not generated any revenue from product sales.

Management expects operating losses and negative cash flows to continue for the foreseeable future, until such time, if ever, that it can generate significant sales of its product candidates currently in development.

As of June 23, 2020, the issuance date of the Company’s consolidated financial statements for the year ended December 31, 2019, the Company had concluded that there was substantial doubt about its ability to continue as a going concern.

As of December 31, 2020, the Company had $ 94.6 million in cash, cash equivalents, and marketable debt securities.

In February 2021, the Company completed an underwritten public offering of 10,575,513 shares of its common stock, including the exercise in full by the underwriters of their option to purchase up to an additional 1,344,743 shares of common stock at a public offering price of $ 13.00 per share.

The company received aggregate gross proceeds from the offering, before deducting underwriting discounts and commissions and offering expenses of approximately $ 137.5 million.

In connection with the offering, the Company also entered into a stock purchase agreement with certain existing investors for $ 15.0 million of shares of the Company’s common stock at a price per share equal to the public offering price, with an initial closing for certain investors held simultaneously with the closing of the offering and a subsequent closing for certain additional investors.

These two recent events have alleviated the substantial doubt about the Company’s ability to continue as a going concern.

The Company expects that its cash, cash equivalents and marketable debt securities, including the gross proceeds it received in February 2021 from its underwritten public offering and the proceeds received from a stock purchase agreement with certain existing investors, will be sufficient to fund its forecasted operating expenses, capital expenditure requirements and debt service payments for at least the next twelve months from the issuance of these annual consolidated financial statements.

All of the Company’s revenue to date is generated from the Regeneron Agreement, which is a collaboration and license agreement with Regeneron Pharmaceuticals, Inc.

The Company does not expect to generate any significant product revenue until it obtains regulatory approval of and commercialize any of the Company’s product candidates or enter into additional collaborative agreements with third parties, and it does not know when, or if, either will occur.

The Company expects to continue to incur significant losses for the foreseeable future, and it expects the losses to increase as the Company continues the development of, and seek regulatory approvals for, its product candidates and begin to commercialize any approved products.

The Company is subject to all of the risks typically related to the development of new product candidates, including, but not limited to, raising additional capital, development by its competitors of new technological innovations, risk of failure in preclinical and clinical studies, safety and efficacy of its product candidates in clinical trials, the risk of relying on external parties such as contract research organizations (CROs) and contract manufacturing organizations (CMOs), the regulatory approval process, market acceptance of the Company’s products once approved, lack of marketing and sales history, dependence on key personnel and protection of proprietary technology and it may encounter unforeseen expenses, difficulties, complications, delays, and other unknown factors that may adversely affect its business.

Until such time as the Company can generate significant revenue from product sales, if ever, the Company expects to finance its operations through the sale of equity, debt financings, collaborative or other arrangements with corporate or other sources of financing.

Adequate funding may not be available to the Company on acceptable terms or at all.

The Company’s failure to raise capital as and when needed could have a negative impact on its financial condition and the Company’s ability to pursue its business strategies.

Although the Company continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient funding on terms acceptable to the Company to fund continuing operations, if at all.

Summary of Significant Accounting Policies

Basis of Presentation and Use of Estimates

The accompanying consolidated financial statements have been prepared in accordance with U.S.

generally accepted accounting principles (“U.S.

The Company’s fiscal year end is December 31 st .

Any reference in these notes to applicable guidance is meant to refer to the authoritative United States generally accepted accounting principles as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASUs”) of the Financial Accounting Standards Board (“FASB”).

The preparation of financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities, as of the date of the consolidated financial statements, and the reported amounts of any expenses during the reporting period.

On an ongoing basis, management evaluates its estimates, including those related to accrued liabilities stock-based compensation expense.

Management bases its estimates on historical experience, and on various other market-specific relevant assumptions that management believes to be reasonable, under the circumstances.

Actual results may differ from those estimates or assumptions.

The consolidated financial statements include the accounts of resTORbio, Inc.

and its wholly owned subsidiary, resTORbio Securities Corp.

All inter-company transactions and balances have been eliminated in consolidation.

Marketable securities

The Company classifies marketable securities with remaining maturities when purchased of greater than three months as available-for-sale.

Marketable securities with a remaining maturity date greater than one year are classified as non-current.

Available-for-sale securities are maintained by investment managers and consist of U.S.

treasury securities and U.S.

government agency securities.

Available-for-sale securities are carried at fair value with the unrealized gains and losses included in other comprehensive income (loss) as a component of stockholders’ equity until realized.

Any premium or discount arising at purchase is amortized and/or accreted to interest income and/or expensed over the life of the instrument.

If any adjustment to fair value reflects a decline in the value of the investment, the Company considers all available evidence to evaluate the extent to which the decline is “other-than-temporary” and, if so, marks the investment to market through a change to the Company’s statement of operations and comprehensive loss.

Restricted Cash

The Company maintains a letter of credit for the benefit of the landlord in connection with the Company’s office lease.

As of December 31, 2019 and 2018, restricted cash (non-current) related to this letter of credit consisted of $245,000 and $84,000, respectively.

Fair Value Measurements

Fair value is defined as the price at which an asset could be exchanged in a current transaction between knowledgeable, willing parties.

A liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor.

Where available, fair value is based on observable market prices, or parameters derived from such prices.

Where observable prices or inputs are not available, valuation models are applied.

These valuation techniques involve some level of management estimation and judgment.

The degree of management estimation and judgment is dependent on the price transparency for the instruments, or market, and the instruments’ complexity.

The authoritative accounting guidance describes a fair value hierarchy based on three levels of inputs that may be used to measure fair value, of which the first two are considered observable and the last is considered unobservable.

These levels of inputs are as follows:

Level 1—Observable inputs such as unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2—Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability.

These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

Level 3—Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.

Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

The following table summarizes assets measured at fair value on a recurring basis at December 31, 2019 (in thousands):

Money market funds (included in cash and cash equivalents)

treasury securities (included in marketable securities)

The following table summarizes assets measured at fair value on a recurring basis at December 31, 2018 (in thousands):

Money market funds (included in cash and cash equivalents)

treasury securities (included in cash and cash equivalents)

treasury securities (included in marketable securities)

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment.

Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

An entity may elect to measure many financial instruments and certain other items at fair value at specified election dates.

Subsequent unrealized gains and losses on items for which the fair value option has been elected will be reported in net loss.

The Company did not elect to measure any additional financial instruments or other items at fair value.

There have been no changes to the valuation methods utilized by the Company during the years ended December 31, 2019 and 2018.

The Company evaluates transfers between levels at the end of each reporting period.

There were no transfers of financial instruments between levels during the years ended December 31, 2019 and 2018.

Basis of Presentation

The consolidated financial statements and related disclosures have been prepared in conformity with accounting principles generally accepted in the United States of America (U.S.

GAAP or GAAP).

Adicet Bio, Inc.

Notes to Consolidated Financial Statements

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.

All intercompany accounts and transactions have been eliminated in consolidation.

dollar is the functional and reporting currency of the Company and its subsidiaries.

Exchange Ratio

Accordingly, all shares and per share amounts for all periods presented in the accompanying consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect the Exchange Ratio.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent liabilities at the date of the consolidated financial statements as well as the reported amounts of revenues and expenses during the reporting period.

Such estimates include the valuation of the intangible assets acquired in business combinations, redeemable convertible preferred stock warrant liability, redeemable convertible preferred stock tranche liability, the Technion Research and Development Foundation liability (TRDF Liability), contingent consideration liability for contingent value right (CVR), deferred tax assets, useful lives of property and equipment, accruals for research and development activities, revenue recognition and stock-based compensation and the Company’s incremental borrowing rate.

Actual results could differ from those estimates.

Business Combination

Business combinations are accounted for under the acquisition method.

The Company recognizes the assets acquired and liabilities assumed in business combinations on the basis of their fair values at the date of acquisition.

The Company assesses the fair value of assets acquired, including intangible assets, and liabilities assumed using a variety of methods.

Each asset acquired and liability assumed is measured at fair value from the perspective of a market participant.

The method used to estimate the fair values of intangible assets incorporates significant estimates and assumptions regarding the estimates a market participant would make in order to evaluate an asset, including a market participant’s use of the asset, future cash inflows and outflows, probabilities of success, asset lives, and the appropriate discount rates.

Acquired in-process research and development (IPR&D) is recognized at fair value and initially characterized as an indefinite-lived intangible asset, irrespective of whether the acquired IPR&D has an alternative future use.

Any excess purchase price over the fair value of the net tangible and intangible assets acquired is allocated to goodwill.

Transaction costs and restructuring costs associated with a business combination are expensed as incurred.

During the measurement period, which extends no later than one year from the acquisition date, the Company may record certain adjustments to the carrying value of the assets acquired and liabilities assumed with the corresponding offset to goodwill.

After the measurement period, all adjustments are recorded in the consolidated statements of operations as operating expenses or income.

Contingent Consideration Liability (CVR)

The estimated fair value of the CVR, initially measured and recorded on the acquisition date, is considered to be a Level 3 instrument.

The contingent consideration liability is recorded at fair value at the end of each reporting period with changes in estimated fair values recorded in research and development expenses in the consolidated statements of operations and comprehensive loss.

The Company performed a remeasurement of the fair value of the CVR as of December 31, 2020 and recognized a gain of $ 1.9 million in research and development expense in the statements of operations and comprehensive loss for the year ended December 31, 2020.

Goodwill represents the excess of the purchase price over the fair value of net tangible and identified intangible assets acquired in a business combination.

Goodwill is not amortized but is evaluated at least annually for impairment or when a change in facts and circumstances indicate that the fair value of the goodwill may be below the carrying value.

Adicet Bio, Inc.

Notes to Consolidated Financial Statements

Goodwill is tested for impairment at the reporting unit level annually in the fourth quarter, or more frequently when events or changes in circumstances indicate that the asset might be impaired.

Examples of such events or circumstances include, but are not limited to, a significant adverse change in legal or business climate, an adverse regulatory action or unanticipated competition.

The Company has determined that it operates in a single operating segment and has a single reporting unit.

Prior to performing the impairment test, the Company assesses qualitative factors to determine whether the existence of events or circumstances would indicate that it is more likely than not that the fair value of the reporting unit was less than the carrying amount.

If after assessing the totality of events or circumstances, the Company were to determine that it is more likely than not that the fair value of the reporting unit is less than the carrying amount, then the Company would perform a quantitative impairment test.

The quantitative impairment test involves comparing the fair value of the reporting unit to the carrying value.

If the fair value of the reporting unit exceeds the carrying value of the net assets, goodwill is not impaired, and no further testing is required.

If the fair value of the reporting unit is less than the carrying value, the Company measures the amount of impairment loss, if any, as the excess of the carrying value over the fair value of the reporting unit.

The Company performed an annual test for goodwill impairment in the fourth quarter of the fiscal year ended December 31, 2020 and determined that goodwill was no t impaired.

Intangible Assets

In connection with the Merger, the Company acquired certain IPR&D assets, which were classified as indefinite-lived intangible assets.

Acquired IPR&D represents the fair value assigned to research and development assets that the Company acquires and have not been completed at the acquisition date.

The fair value of IPR&D acquired in a business combination is recorded on the Company’s consolidated balance sheets at the acquisition-date fair value and is determined by estimating the costs to develop the technology into commercially viable products, estimating the resulting revenue from the products, and discounting the projected net cash flows to present value.

IPR&D is not amortized, but rather is reviewed for impairment on an annual basis or more frequently if indicators of impairment are present, until the project is completed, abandoned, or transferred to a third party.

The Company performed an annual review for impairment of IPR&D in the fourth quarter of the year ended December 31, 2020 and recognized an impairment charge of $ 2.3 million as of December 31, 2020, which was recorded as research and development expenses in the consolidated statement of operations and comprehensive loss.

The Company operates and manages its business as one reportable and operating segment, which is the business of research and development of allogeneic immunotherapies for cancer and other diseases.

The Company’s Chief Executive Officer, who is the chief operating decision maker, reviews financial information on an aggregate basis for purposes of allocating resources and evaluating financial performance.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cash equivalents and marketable securities.

The Company’s cash, cash equivalents and marketable securities are held by financial institutions in the United States.

Amounts on deposit may at times exceed federally insured limits.

Management believes that the financial institution is financially sound, and accordingly, minimal credit risk exists with respect to the financial institution.

Concentration of Manufacturing Risk

As of December 31, 2019, the Company had manufacturing arrangements with vendors for the supply of materials for use in preclinical and clinical studies.

If the Company were to experience any disruptions in either party’s ability or willingness to continue to provide manufacturing services, the Company may experience significant delays in its product development timelines and may incur substantial costs to secure alternative sources of manufacturing.

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation.

Depreciation is recorded using the straight-line method over the estimated useful lives of the respective assets.

Depreciation begins at the time the asset is placed in service.

Maintenance and repairs that do not improve or extend the lives of the respective assets are expensed to operations as incurred.

Upon sale or retirement of assets, the cost and related accumulated depreciation are removed from the consolidated balance sheets and the resulting gain or loss is reflected in the consolidated statements of operations and comprehensive loss.

The estimated useful lives of property and equipment are as follows:

Leasehold improvements

Lesser of useful life or

remaining lease term

Machinery and equipment

Furniture and fixtures

Office equipment

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and cash equivalents, and marketable debt securities.

The Company’s cash and cash equivalents are held at two financial institutions in the U.S.

and one financial institution in Israel and such amounts may, at times, exceed insured limits.

The Company invests its cash equivalents and marketable debt securities in money market funds, U.S.

government securities, commercial paper, corporate bonds, and asset-backed securities.

The Company limits its credit risk associated with cash equivalents and marketable debt securities by placing them with banks and institutions it believes are highly creditworthy and in highly rated investments.

The Company has not experienced any losses on its deposits of cash and cash equivalents and marketable debt securities to date.

The Company has one customer, Regeneron Pharmaceuticals, Inc.

(Regeneron), which represents 100 % of the Company’s total revenue during the years ended December 31, 2020, 2019 and 2018 (see Note 10).

Risks and Uncertainties

The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, development by competitors of new technological innovations, protection of proprietary technology, dependence on key personnel, compliance with government regulations and the need to obtain additional financing to fund operations.

Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical studies, clinical trials, and regulatory approval, prior to commercialization.

These efforts require significant amounts of additional capital, adequate personnel infrastructure and extensive compliance and reporting.

Adicet Bio, Inc.

Notes to Consolidated Financial Statements

The Company’s product candidates are still in development and, to date, none of the Company’s product candidates have been approved for sale and, therefore, the Company has not generated any revenue from product sales.

There can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s intellectual property will be obtained or maintained, that any products developed will obtain necessary government regulatory approval or that any approved products will be commercially viable.

Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will generate revenue from product sales.

The Company operates in an environment of rapid change in technology and substantial competition from other pharmaceutical and biotechnology companies.

The current COVID-19 (coronavirus) pandemic, which is impacting worldwide economic activity, poses risk that the Company or its employees, contractors, suppliers, and other partners may be prevented from conducting business activities for an indefinite period of time, including due to shutdowns that may be requested or mandated by governmental authorities.

The extent to which the coronavirus impacts the Company’s operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information that will emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others.

COVID-19 may impact the timing of regulatory approval of the INDs for clinical trials, the enrollment of any clinical trials that are approved, the availability of clinical trial materials and regulatory approval and commercialization of our products.

COVID-19 may also impact the Company’s ability to access capital, which could negatively impact short-term and long-term liquidity.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with maturities of three months or less from the purchase date to be cash equivalents.

As of December 31, 2020 and 2019, cash and cash equivalents consist of cash deposited with banks and investments in money market funds with maturities of three months or less from the date of purchase.

Marketable Debt Securities

Marketable debt securities are investments in marketable debt securities with maturities greater than three months at the time of purchase.

The Company determines the appropriate classification of its investments in marketable debt securities at the time of purchase and reevaluates such designation at each balance sheet date.

The Company has classified and accounted for its marketable debt securities as available-for-sale.

The Company classifies highly liquid securities with maturities beyond 12 months as long-term marketable debt securities in the consolidated balance sheet.

These securities are carried at fair value as determined based upon quoted market prices or pricing models for similar securities.

Unrealized gains and losses, if any, are excluded from earnings and are reported as a component of accumulated other comprehensive income (loss).

The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity, which is included in interest income on the consolidated statements of operations and comprehensive loss.

Realized gains and losses, if any, on available-for-sale securities are included in other income (expense), net.

The cost of securities sold is based on the specific identification method.

Interest and dividends on securities classified as available-for-sale are included in interest income.

The Company did not identify any of its marketable debt securities as other-than-temporarily impaired as of December 31, 2020 and 2019.

Restricted Cash

Restricted cash is comprised of cash that is restricted as to withdrawal or use under the terms of certain contractual agreements.

Restricted cash for years ended December 31, 2020 and 2019 consists of collateral for letters of credit issued in connection with the real estate leases (see Note 12).

Fair Value of Financial Instruments

The carrying amounts of certain financial instruments of the Company, including cash equivalents, restricted cash, accounts payable and accrued and other current liabilities approximate fair value due to their relatively short maturities.

The Company’s marketable debt securities, CVR, redeemable convertible preferred stock warrant liability, redeemable convertible preferred stock tranche liability and TRDF Liability are carried at fair value (see Notes 4 and 5).

Redeemable Convertible Preferred Stock

The Company recorded all shares of redeemable convertible preferred stock at their respective fair values on the dates of issuance, net of issuance costs, if applicable.

The redeemable convertible preferred stock was recorded outside of permanent equity because while it was not mandatorily redeemable, in certain events considered not solely within the Company’s control,

Adicet Bio, Inc.

Notes to Consolidated Financial Statements

such as a merger, acquisition or sale of all or substantially all of the Company’s assets (each, a deemed liquidation event), the redeemable convertible preferred stock became redeemable at the option of the holders of at least a majority of the then outstanding shares.

The Company has not adjusted the carrying values of the redeemable convertible preferred stock to its liquidation preference because a deemed liquidation event obligating the Company to pay the liquidation preferences to holders of shares of redeemable convertible preferred stock was not probable of occurring.

All outstanding shares of redeemable convertible preferred stock converted into common stock upon Effective Time of the Merger.

Redeemable Convertible Preferred Stock Tranche Liability

The Company determined that its obligations to issue additional shares of redeemable convertible preferred stock upon the achievement of certain milestones or at the option of the respective holders of such shares represent freestanding financial instruments.

These instruments were initially measured at fair value and were subject to remeasurement with changes in fair value recognized in other income (expense), net in the consolidated statements of operations and comprehensive loss until they were exercised, terminated, or settled (see Note 14).

Redeemable Convertible Preferred Stock Warrants

The Company’s redeemable convertible preferred stock warrants required liability classification and accounting as the underlying redeemable convertible preferred stock was considered contingently redeemable and could have obligated the Company to transfer assets to the holders at a future date upon occurrence of a deemed liquidation event.

The warrants were initially recorded at fair value upon issuance and were subject to remeasurement to fair value at each balance sheet date, with any changes in fair value recognized in other income (expense), net in the consolidated statements of operations and comprehensive loss.

Upon the closing of the Merger, pursuant to the Merger Agreement, all of the outstanding redeemable convertible preferred stock was converted to shares of the Company’s common stock and the redeemable convertible preferred stock warrants converted to warrants for the purchase of the shares of the Company’s common stock.

Upon the closing of the Merger, the warrant liability was reclassified to additional paid-in capital (see Note 1).

Property and Equipment, Net

Property and equipment are stated at cost less accumulated depreciation and amortization.

Depreciation is computed on a straight-line basis over the estimated useful lives of the related assets, generally three years.

Leasehold improvements are amortized using the straight-line method over the shorter of the assets’ estimated useful lives or the remaining term of the lease.

Maintenance and repairs are charged to operations as incurred.

When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the consolidated balance sheet and any resulting gain or loss is reflected in the consolidated statements of operations and comprehensive loss in the period realized.

Impairment of Long-Lived Assets

The Company evaluates its long-lived assets, including property and equipment, for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable.

Recoverability of these assets is measured by comparison of the carrying amount of each asset to the future undiscounted cash flows the asset is expected to generate over its remaining life.

If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset.

The Company has recorded no impairment during any of the periods presented.

Accrued Research and Development Costs

The Company accrues for estimated costs of research and development activities conducted by third-party service providers, which include the conduct of preclinical studies and clinical trials, and contract manufacturing activities.

The Company records the estimated costs of research and development activities based upon the estimated amount of services provided and includes these costs in accrued liabilities in the consolidated balance sheets and within research and development expenses in the consolidated statements of operations and comprehensive loss.

These costs are a significant component of the Company’s research and development expenses.

The Company accrues for these costs based on factors such as estimates of the work completed and in accordance with agreements established with its third-party service providers.

The Company estimates the amount of work completed by its third-party service providers through discussions with internal personnel and external service providers as to the progress or stage of completion of the services and the agreed-upon fee to be paid for such services.

The majority of the Company’s service providers invoice in arrears for services performed, on a pre-determined schedule or when contractual milestones are met;

however, some require advance payments.

The Company makes significant judgments and estimates in determining the accrued balance in each reporting period based on the facts and circumstances known at that time.

As actual costs become known, the Company adjusts its accrued estimates.

Although the Company does not expect its estimates to be materially different from amounts actually incurred, its understanding of the status and timing of services performed, the number of patients enrolled, and the rate of patient enrollment may vary from its estimates and could result in it reporting amounts that are too high or too low in any particular period.

The Company’s accrued expenses are dependent, in part, upon the receipt of timely and accurate reporting from clinical research organizations, or CROs, clinical manufacturing organizations, or CMOs, and other third-party service providers.

To date, there have been no material differences between estimated costs of research and development activities accrued by the Company each reporting period and amounts actually incurred.

Research and Development Costs

Research and development costs are expensed as incurred and consist of personnel costs, lab supplies and other costs, as well as fees paid to third parties to conduct research and development activities on the Company’s behalf.

Amounts incurred in connection with license agreements are also included in research and development expenses.

The Company records payments made to outside vendors for services performed or goods being delivered for use in research and development activities as either prepaid expenses or accrued expenses, depending on the timing of when services are performed or goods are delivered.

Equity-Based Compensation Expense

The Company recognizes equity-based compensation expense for awards of equity instruments to employees and non-employees based on the grant date fair value of those awards in accordance with FASB ASC Topic 718, Stock Compensation (“ASC 718”).

ASC 718 requires all equity-based compensation awards to employees and non-employee directors, including grants of restricted stock, restricted stock units, and stock options, to be recognized as expense in the consolidated statements of operations and comprehensive loss based on their grant date fair values.

The Company estimates the fair value of stock options using the Black-Scholes option pricing model.

The Company uses the value of its common stock to determine the fair value of restricted stock and restricted stock units.

The Company accounts for restricted stock and common stock options issued to non-employees under FASB ASC Topic 505-50, Equity- Based Payments to Non-Employees (“ASC 505-50”).

As such, the value of such awards is periodically remeasured and income or expense is recognized over their vesting terms.

Compensation cost related to awards with service-based vesting schedules is recognized using the straight-line method.

The Company determines the fair value of the restricted stock and common stock granted to non-employees as either the fair value of the consideration received or the fair value of the equity instruments issued.

The Black-Scholes option pricing model requires the input of certain subjective assumptions, including (i) the expected share price volatility, (ii) the expected term of the award, (iii) the risk-free interest rate and (iv) the expected dividend yield.

Due to the lack of company-specific historical and implied volatility data, the Company has based its estimate of expected volatility on the historical volatility of a group of similar companies that are publicly traded.

The historical volatility is calculated based on a period of time commensurate with the expected term assumption.

The group of representative companies have characteristics similar to the Company, including stage of product development and focus on the life science industry.

The Company uses the simplified method, which is the average of the final vesting tranche date and the contractual term, to calculate the expected term for options granted to employees as it does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term.

For options granted to non-employees,

the Company utilizes the contractual term of the arrangement as the basis for the expected term assumption.

The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected term of the stock options.

The Company uses an assumed dividend yield of zero as the Company has never paid dividends and has no current plans to pay any dividends on its common stock.

The Company expenses the fair value of its equity-based compensation awards granted to employees on a straight-line basis over the associated service period, which is generally the period in which the related services are received.

The Company measures equity-based compensation awards granted to non-employees at fair value as the awards vest and recognizes the resulting value as compensation expense at each financial reporting period.

The Company accounts for award forfeitures as they occur.

The Company uses the asset and liability method of accounting for income taxes in accordance with FASB ASC Topic 740, Income Taxes .

Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and the tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

The Company must then assess the likelihood that the resulting deferred tax assets will be realized.

A valuation allowance is provided when it is more likely than not that some portion, or all of a deferred tax asset will not be realized.

Due to the Company’s lack of earnings history, the net deferred tax assets have been fully offset by a valuation allowance.

The Company recognizes benefits of uncertain tax positions if it is more likely than not that such positions will be sustained upon examination based solely on their technical merits, as the largest amount of benefit that is more likely than not to be realized upon the ultimate settlement.

The Company’s policy is to recognize interest and penalties related to the underpayment of income taxes as a component of income tax expense or benefit.

To date, the Company has no uncertain tax positions and there have been no interest charges or penalties related to unrecognized tax benefits.

Net Loss per Share

Basic net loss per share is calculated by dividing the net loss by the weighted average number of shares of common stock outstanding during the period without consideration of common stock equivalents.

Diluted net loss per common share is the same as basic net loss per common share for all periods presented, since the effects of potentially dilutive securities are antidilutive.

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable.

Recoverability is measured by comparison of the carrying amount of the asset or asset group to the future net cash flows which the asset or asset group is expected to generate.

If such asset or asset group is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset or asset group exceeds the fair value of the asset or asset group.

There has been no such impairment of long-lived assets during the years ended December 31, 2020 and 2019.

Revenue Recognition

Under ASC 606, Revenue from Contracts with Customers (ASC 606), the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services.

To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps as prescribed by ASC 606:

identify the contract(s) with a customer;

identify the performance obligations in the contract;

determine the transaction price;

allocate the transaction price to the performance obligations in the contract;

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recognize revenue when (or as) the Company satisfies a performance obligation.

A contract with a customer exists when (i) the Company enters into a legally enforceable contract with a customer that defines each party’s rights regarding the products or services to be transferred and identifies the payment terms related to these products or services, (ii) the contract has commercial substance and (iii) the Company determines that collection of substantially all consideration for products or services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration.

At contract inception, once the contract is determined to be within the scope of ASC 606, the Company identifies the goods or services promised and determines the performance obligations by assessing whether each promised good or service is distinct.

Goods or services that are not distinct are bundled with other goods or services in the contract until a bundle of goods or services that is distinct is created.

The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

All of the Company’s revenues are derived through a license and collaboration agreement (see Note 10).

For revenue recognition purposes, the Company determines the term of its license or collaboration agreements by evaluating the period during which present and enforceable rights and obligations exist.

This determination is impacted by the existence of substantive termination penalties, among other factors.

The Company recognizes revenue under the Company’s license or collaboration agreements that are within the scope of ASC 606.

These agreements include promises related to licenses to intellectual property and research and development services.

If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenue from non-refundable, up-front fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license.

For licenses that are bundled with other promises, the Company utilizes judgement to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front fees.

Accordingly, the transaction price is generally comprised of a fixed fee due at contract inception and at specified future dates, variable consideration in the form of milestone payments due upon the achievement of specified events and tiered royalties earned when customers recognize net sales of licensed products.

The Company measures the transaction price based on the amount of consideration to which it expects to be entitled in exchange for transferring the promised goods and/or services to the customer.

The Company utilizes the “most likely amount” method to estimate the amount of variable consideration to which it will be entitled for the contract.

Amounts of variable consideration are included in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

At the inception of each arrangement that includes development and regulatory milestone payments, the Company evaluates whether the associated event is considered most likely to be achieved and estimates the amount to be included in the transaction price.

Payments or reimbursements for the Company’s research and development efforts where such efforts are considered part of or a single performance obligation are recognized over time using a measure of progress that best reflects the Company’s performance in satisfying the obligation.

Upfront payments are recorded as contract liabilities upon receipt or when due and may require deferral of revenue recognition to a future period until the Company performs its obligation under these arrangements.

Amounts payable to the Company are recorded as accounts receivable when the Company’s right to consideration is unconditional.

The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of the promised goods or services to the customer will be one year or less.

For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

To date, the Company has not recognized any royalty revenue resulting from its collaboration arrangement.

Research and Development Expenses

Research and development expenses include costs directly attributable to the conduct of research and development programs, including payroll and related expenses, costs for CMOs, costs for CROs, materials, supplies, depreciation on and maintenance of research equipment, consulting costs, and the allocated portions of facility costs, such as rent, utilities,

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insurance, repairs and maintenance, depreciation, information technology costs and general support services.

All costs associated with research and development are expensed within the consolidated statements of operations and comprehensive loss as incurred.

Costs incurred in obtaining technology licenses are charged to research and development expense as acquired in-process research and development if the technology licensed has not reached technological feasibility and has no alternative future use.

Accrued CRO, CMO, and Research and Development Expenses

The Company has entered into various agreements with CMOs and CROs.

The Company’s research and development accruals are estimated based on the level of services performed, progress of the studies, including the phase or completion of events, and contracted costs.

The estimated costs of research and development provided, but not yet invoiced are included in accrued and other current liabilities on the consolidated balance sheets.

If the actual timing of the performance of services or the level of effort varies from the original estimates, the Company will adjust the accrual accordingly.

Payments made to CMOs and CROs under these arrangements in advance of the performance of the related services are recorded as prepaid expenses and other current assets on the consolidated balance sheets until the services are rendered.

Through December 31, 2020 there had been no material adjustments to the Company’s prior period estimates of accrued research and development expenses.

Effective January 1, 2020, the Company adopted ASC Topic 842, “Leases” (ASC 842), using the modified retrospective approach and utilizing the effective date as its date of initial application, for which prior periods are presented in accordance with the previous guidance in ASC Topic 840, “Leases” (ASC 840).

Prior to January 1, 2020, the Company met the requirements to account for these leases as operating leases under ASC 840.

The Company recognized rent expense on a straight-line basis over the non-cancelable lease term.

Where leases contained escalation clauses, rent abatements or concessions, such as rent holidays and landlord or tenant incentives or allowances, the Company applied them in the determination of straight-line rent expense over the lease term.

As of December 31, 2019, the Company recorded the difference between the rent paid and the straight-line rent as a deferred rent liability.

The leasehold improvements funded by landlord incentives or allowances were recorded as leasehold improvement assets and a corresponding deferred rent liability.

The leasehold improvement asset was amortized over the lesser of the term of the lease or life of the asset.

The deferred rent liability was amortized on a straight-line basis as a reduction to rent expense over the term of the lease agreement.

Upon adoption of ASC 842, as described below under Recently Adopted Accounting Pronouncements, the Company determined if an arrangement is a lease, or contains a lease, at inception.

Leases with a term greater than 12 months are recognized on the balance sheet as Right-of-Use (ROU) assets and current and long-term operating lease liabilities, as applicable.

The Company has elected not to recognize on the balance sheet leases with terms of 12 months or less.

The Company typically only includes an initial lease term in its assessment of a lease arrangement.

Options to renew a lease are not included in the Company’s assessment unless there is reasonable certainty that the Company will renew.

The Company monitors its plan to renew its leases no less than on a quarterly basis.

In addition, the Company’s lease agreements generally do not contain any residual value guarantees or restrictive covenants.

In accordance with ASC 842, the ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term.

As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate (IBR), which is the estimated rate the Company would be required to pay for a fully collateralized borrowing equal to the total lease payments over the term of the lease, to determine the present value of future minimum lease payments.

Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

For lease agreements entered into or reassessed after the adoption of ASC 842, the Company does not combine lease and non-lease components.

Variable lease payments are expenses as incurred.

Assumptions made by the Company at the commencement date are re-evaluated upon occurrence of certain events, including a lease modification.

A lease modification results in a separate contract when the modification grants the lessee an additional right of use not included in the original lease and when lease payments increase commensurate with the standalone price for the additional right of use.

When a lease modification results in a separate contract, it is accounted for in the same manner as a new lease.

Upon the adoption of ASC 842, the Company recognized an ROU asset of $1.4 million and lease liabilities of $1.8 million as of January 1, 2020, primarily related to office leases based on the present value of future lease payments.

As of December 31, 2020, the Company has recorded an ROU asset of $23.1 million and lease liabilities of $21.6 million on its consolidated

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balance sheets .

There was no impact to retained earnings upon the adoption of ASC 842.

As of December 31, 2020, t he Company ha d no finance lease s .

Fair Value of Common Stock

Prior to the Merger the fair value of the Company’s common stock was determined by its Board of Directors with input from management and third-party valuation specialists.

The Company’s approach to estimate the fair value of the Company’s common stock is consistent with the methods outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held- Company Equity Securities Issued as Compensation .

Determining the best estimated fair value of the Company’s common stock requires significant judgement and management considers several factors, including the Company’s stage of development, equity market conditions affecting comparable public companies, significant milestones and progress of research and development efforts.

Subsequent to the Merger, the fair value of the Company’s common stock is determined based on its closing market price.

Stock-Based Compensation

The Company accounts for stock-based compensation arrangements with employees and non-employees using a fair value method which requires the recognition of compensation expense for costs related to all stock-based payments including stock options.

The fair value method requires the Company to estimate the fair value of stock-based payment awards on the date of grant using an option-pricing model.

The Company uses the Black-Scholes option-pricing model to estimate the fair value of options granted that are expensed on a straight-line basis over the requisite service period, which is generally the vesting period.

The Company accounts for forfeitures as they occur.

Option valuation models, including the Black-Scholes option-pricing model, require the input of several assumptions.

Changes in the assumptions used can materially affect the grant-date fair value of an award.

These assumptions include the risk-free rate of interest, expected dividend yield, expected volatility and the expected life of the award.

The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences attributable to differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax reporting purposes and for operating loss and tax credit carryforwards.

Changes in deferred tax assets and liabilities are recorded in the provision for income taxes.

The Company’s deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which these temporary differences are expected to be recovered or settled.

A valuation allowance is recorded to reduce deferred tax assets if it is determined that it is more likely than not that all or a portion of the deferred tax asset will not be realized.

The Company considers many factors when assessing the likelihood of future realization of deferred tax assets, including recent earnings results, expectations of future taxable income, carryforward periods available and other relevant factors.

The Company records changes in the required valuation allowance in the period that the determination is made.

The Company assesses its income tax positions and records tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances and information available as of the reporting date.

For those tax positions where it is more likely than not that a tax benefit will be sustained, the Company records the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority having full knowledge of all relevant information.

For those income tax positions where it is not more likely than not that a tax benefit will be sustained, the Company does not recognize a tax benefit in the consolidated financial statements.

The Company records interest and penalties related to uncertain tax positions, if applicable, as a component of income tax expense (benefit).

Comprehensive Income (Loss)

Comprehensive income (loss) is defined as a change in equity of a business enterprise during a period, resulting from transactions from non-owner sources.

The other comprehensive loss disclosed in the Company’s consolidated statements of operations and comprehensive loss for the years ended December 31, 2020, 2019 and 2018 consists of changes in unrealized gains and losses on marketable debt securities.

Net Loss per Share Attributable to Common Stockholders

Basic net loss per common share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of common stock outstanding during the period, without consideration of potentially dilutive securities.

Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-

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Notes to Consolidated Financial Statements

average number of common stock and potentially dilutive securities outstanding for the period.

For purposes of the diluted net loss per share calculation, the redeemable convertible preferred stock, redeemable convertible preferred stock warrants, redeemable convertible preferred stock tranche liability, common stock subject to repurchase and stock options are considered to be potentially dilutive securities.

Basic and diluted net loss per share attributable to common stockholders is presented in conformity with the two-class method required for participating securities as the redeemable convertible preferred stock and early exercised stock options are considered to be participating securities.

The two-class method determines net income (loss) per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings.

The two-class method requires income (loss) available to common stockholders for the period to be allocated between common and participating securities based upon their respective rights to share in undistributed earnings as if all income (loss) for the period had been distributed.

The Company’s participating securities do not have a contractual obligation to share in the Company’s losses.

As such, the net loss is attributed entirely to common stockholders.

Since the Company has reported a net loss for all periods presented, diluted net loss per common share is the same as basic net loss per common share for those periods.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the FASB under its ASC or other standard setting bodies and adopted by the Company as of the specified effective date, unless otherwise discussed below.

Recently Adopted Accounting Pronouncements

In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718):

Scope of Modification Accounting (“ASU 2017-09”).

ASU 2017-09 provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718.

The guidance is effective for annual periods beginning after December 15, 2017, with early adoption permitted, including adoption in any interim period for which financial statements have not yet been issued.

The Company adopted the provisions of ASU 2017-09 on January 1, 2018.

No modifications of share-based payment awards have occurred as of December 31, 2019.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (“ASU 2016-18”), which requires that amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows.

ASU 2016-18 is effective for fiscal years beginning after December 15, 2018 and interim periods in fiscal years beginning after December 15, 2019, with early adoption permitted.

The Company adopted ASU 2016-18 on December 31, 2019.

Upon adoption of ASU 2016-18, the Company applied the retrospective transition method for each period presented and included $0 and $84,000 of restricted cash in the beginning-of-period and end-of-period cash, cash equivalents and restricted cash balance, respectively, in the consolidated statement of cash flows for the year ended December 31, 2018.

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”), which requires a lessee to recognize a right-of-use asset and a lease liability for operating leases, initially measured at the present value of the future lease payments, in the balance sheet.

ASU 2016-02 also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, generally on a straight-line basis.

This new guidance is effective for fiscal years beginning after December 15, 2020.

In February 2016, the FASB issued Accounting Standards Update (ASU) No.

2016-02, Leases (Topic 842) (ASC 842), which sets out the principles for the recognition, measurement, presentation, and disclosure of leases for both parties to a contract (i.e.

lessees and lessors).

In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases , which provides clarification to ASU 2016-02.

In March 2019, the FASB issued ASU 2019-01, which provides clarification on implementation issues associated with adopting ASU 2016-02.

These ASUs (collectively the new leasing standard) requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee.

This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively.

A lessee is also required to record a ROU and a lease liability for all leases with a term of greater than 12 months regardless of their classification.

ASC 842 provides a lessee with an option to not account for leases with a term of 12 month or less as leases in the scope of ASC 842.

ASC 842 supersedes the previous leases standard, ASC 840 Leases .

The new leasing standard is effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, and should be applied through a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements.

Early adoption is permitted.

The adoption of this standard is expected to have an impact on the amount of the Company’s assets and liabilities presented.

The Company expects to utilize the new transition method described in ASU No.

2018-11 and use the effective date as the Company’s date of initial application for the new standard.

The Company expects to elect the available package of practical expedients in transition which would allow it to not re-assess whether existing or expired arrangements contain a lease, the lease classification of existing or expired leases, or whether previous initial direct costs would qualify for capitalization under the new lease standard.

As of December 31, 2019, the Company has not elected to early adopt the guidance and is currently evaluating the impact that the adoption of ASU 2016-02 will have on its consolidated financial statements.

In July 2018, the FASB issued ASU No.

2018-11, Leases (Topic 842):

Targeted Improvements, which allows entities to elect an optional transition method where entities may continue to apply the existing lease guidance during the comparative periods and apply the new lease requirements through a cumulative effect adjustment in the period of adoptions rather than in the earliest period presented.

In June 2020, the FASB issued ASU 2020-05, which delays the adoption dates for ASU 2016-02 for non-public entities to fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022.

Early application continues to be allowed.

The Company adopted ASC 842 effective January 1, 2020, using the modified retrospective approach to recognize a cumulative-effect adjustment as of the adoption date.

Results for reporting periods beginning after January 1, 2020 are presented under ASC 842, while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historical accounting under ASC 840.

The Company elected the package of practical expedients permitted under the transition guidance within ASC 842, which allowed the Company to carry forward the historical lease classification, retain the initial direct costs for any leases that existed prior to the adoption of the standard and not reassess whether any contracts entered into prior to the adoption are leases.

The Company also elected to account for lease and non-lease components in the Company’s lease agreements as a single lease component in determining lease assets and liabilities.

In addition, the Company elected not to recognize the ROU assets and liabilities for leases with lease terms of 12 months or less.

Upon the adoption of ASC 842, the Company recognized an ROU asset of $ 1.4 million and lease liabilities of $ 1.8 million as of January 1, 2020, primarily related to office leases based on the present value of future lease payments.

The adoption of the new leasing standard during 2020 resulted in the recognition of ROU asset of $ 23.1 million and operating lease liability of $ 21.6 million and derecognition of deferred rent of $ 0.4 million related to the operating leases on the consolidated balance sheets as of December 31, 2020 with no material impact to the consolidated statements of operations and comprehensive loss, consolidated statements of redeemable convertible preferred stock and stockholder’s deficit or consolidated statements of cash flows.

The additional disclosures required by the new standard have been included in Note 12, Commitments and Contingencies.

In August 2018, the FASB issued ASU No.

2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement , which modifies the disclosure requirements on fair value measurements.

The new disclosure requirements include disclosure related to changes in unrealized gains or losses

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included in other comprehensive income (loss) for recurring Level 3 fair value measurements held at the end of each reporting period and the explicit requirement to disclose the range and weighted-average of significant unobservable inputs used for Level 3 fair value measurements.

This ASU removes the requirement to disclose:

the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy;

the policy for timing of transfers between levels;

and the valuation processes for Level 3 fair value measurements.

For all entities, this ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.

Early adoption is permitted.

The Company adopted this ASU effective January 1, 2020.

The adoption of this ASU did not have a material effect on the Company’s consolidated financial statements and related disclosures.

Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments” .

This ASU requires that credit losses be reported using an expected losses model rather than the incurred losses model that is currently used, and establishes additional disclosures related to credit risks.

For available-for-sale debt securities with unrealized losses, this standard now requires allowances to be recorded instead of reducing the amortized cost of the investment.

ASU 2016-13 limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and requires the reversal of previously recognized credit losses if fair value increases.

ASU 2016-13 will be effective for fiscal years beginning after December 15, 2020 with early adoption permitted , and requires adoption using a modified retrospective approach, with certain exceptions.

Based on the composition of the Company’s investment portfolio as of December 31, 2019, current market conditions and historical credit loss activity, the adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

In July 2017, the FASB issued ASU 2017-11, Accounting for Certain Financial Instruments with Down Round Features (“ASU 2017-11”), which updates the guidance related to the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features.

Under ASU 2017-11, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock.

As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature.

For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (“EPS”) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered.

That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS.

ASU 2017-11 is effective for public entities for all annual and interim periods beginning after December 15, 2019.

Measurement of Credit Losses on Financial Instruments , which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost.

This ASU replaces the existing incurred loss impairment model with an expected loss model.

It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities.

These changes will result in earlier recognition of credit losses.

For public business entities that meet the definition of a Securities and Exchange Commission (SEC) filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, adoption is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

For SEC filers that are eligible to be smaller reporting companies and for all other entities, this ASU is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years.

Early adoption is permitted.

The Company does not expect the impact of ASU 2017-11 to be material to its consolidated financial statements.

In June 2018, the FASB issued ASU No.

2018-07, Compensation – Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”), which intends to simplify aspects of share-based compensation issued to non-employees by making the guidance consistent with the accounting for employee share-based compensation.

For public entities, ASU 2018-07 is required to be adopted for annual periods beginning after December 15, 2018, including interim periods within those fiscal years.

For non-public entities and emerging growth companies that choose to take advantage of the extended transition period, ASU 2018-07 is effective for annual periods beginning after December 15, 2019.

Early adoption is permitted for all entities but no earlier than the Company’s adoption of ASC 606.

The Company does not expect the impact of ASU 2018-07 to be material to its consolidated financial statements.

Marketable Securities

As of December 31, 2019, the fair value of marketable securities by type of security was as follows (in thousands):

government agency treasuries and securities

As of December 31, 2018, the fair value of marketable securities by type of security was as following (in thousands):

government agency treasuries and securities

The estimated fair value and amortized cost of the Company’s available-for-sale securities by contractual maturity are summarized as follows:

The Company is currently evaluating the impact the adoption of this ASU will have on its consolidated financial statements and related disclosures.

In November 2018, FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808):

Clarifying the Interaction Between Topic 808 and Topic 606 , which is intended to clarify the circumstances under which certain transactions in collaborative arrangements should be accounted for under the revenue recognition standard.

Certain transactions between collaboration arrangement participants should be accounted for as revenue under ASC Topic 606 when the collaborative arrangement participant is a customer in the context of a unit of account.

For public business entities, this ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.

For all other entities, this ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2020.

Early adoption is permitted.

The Company is currently evaluating the impact the adoption of this ASU will have on its consolidated financial statements and related disclosures.

In December 2019, the FASB issued ASU No.

2019-12, Income Taxes (Topic 740)—Simplifying the Accounting for Income Taxes , which simplify various aspects related to the accounting for income taxes.

This ASU removes exceptions to the general principles in Topic 740 related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences.

For public companies, this ASU is effective for interim and annual reporting periods beginning after December 15, 2020.

For all other entities, the amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022.

Early adoption is permitted.

The Company is currently evaluating the impact the adoption of this ASU will have on its consolidated financial statements and related disclosures.

In March 2020, the FASB issued ASU No.

2020-04, Reference Rate Reform (Topic 848) (ASU 2020-04).

The amendments in ASU 2020-04 provide optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.

The amendments in ASU 2020-04 are effective for all entities as of March 12, 2020 through December 31, 2022.

An entity may elect to apply the amendments for contract modifications by Topic or Industry Subtopic as of any date from the beginning an interim period that includes or is subsequent to March 12, 2020, or prospectively from the date that the financial statements are available to be issued.

Once elected for a Topic or an Industry Subtopic, the amendments must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic.

The Company may elect to apply ASU 2020-04 as its contracts referenced in London Interbank Offered Rate (LIBOR) are impacted by reference rate reform.

The Company is currently evaluating the impact of the adoption of this ASU on the Company’s consolidated financial statements.

Business Combination

On September 15, 2020, Former Adicet completed its merger with resTORbio.

Based on the Exchange Ratio of 0.1240 , immediately following the Merger, resTORbio stockholders and holders of resTORbio restricted stock units and options to acquire resTORbio common stock owned approximately 25.0 % of the outstanding capital stock of the combined company on a fully diluted basis, and Former Adicet stockholders, holders of options or warrants to acquire Former Adicet capital stock owned approximately 75.0 % of the outstanding capital stock of the combined company on a fully diluted basis.

Adicet Bio, Inc.

Notes to Consolidated Financial Statements

resTORbio’s stockholders continued to own and hold their existing shares of the Company’s common stock (after giving effect to the 1-for-7 reverse stock split).

Pursuant to the terms of the Merger, the vesting of all outstanding resTORbio stock options was accelerated in full as of immediately prior to the Effective Time.

All out-of-the-money resTORbio stock options were cancelled for no consideration.

All in-the-money resTORbio stock options remained outstanding after the completion of the Merger in accordance with their terms.

For accounting purposes, the Company assumed 81,370 in-the-money resTORbio stock options after giving effect to reverse stock split.

In addition, 91,309 unvested resTORbio restricted stock units outstanding and unsettled, after giving effect to reverse stock split, as of immediately prior to the Effective Time of the Merger, were accelerated in full and the holders of such restricted stock units received 54,553 shares of the Company’s common stock (after reduction by the number of shares of resTORbio common stock necessary to satisfy applicable tax withholding obligations at the maximum statutory rate).

The fair value of these modified stock options and restricted stock units attributable to pre-combination services was recorded as a component of consideration transferred and the fair value of these modified stock options and restricted stock units attributable to post-combination services was recognized as stock compensation expense in the Company’s consolidated statements of operations and comprehensive loss.

At the closing of the Merger, all shares of Former Adicet common stock and Former Adicet redeemable convertible preferred stock then outstanding were converted to Former Adicet’s common stock under their original terms and were then exchanged for the Company’s common stock.

In connection with the Merger, the Company entered into a Contingent Value Rights Agreement (the CVR Agreement) with Computershare Inc.

and Computershare Trust Company, N.A.

as joint rights agent.

Per the terms of the Merger, each holder of resTORbio common stock as of immediately prior to the completion of the Merger is entitled to one contractual contingent value right, subject to and in accordance with the terms and conditions of the CVR Agreement, for each share of resTORbio common stock held by such holder as of immediately prior to the Effective Time.

The CVR holders are entitled to receive net proceeds from the commercialization, if any, from a third-party commercial partner of RTB101, resTORbio’s small molecule product candidate that is a potent inhibitor of target of rapamycin complex 1 (TORC1), for a COVID-19 related indication.

The total purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed of resTORbio based on their fair values as of the completion of the Merger, with the excess allocated to goodwill.

The purchase price is calculated based on the fair value of resTORbio common stock that the resTORbio stockholders owned as of the closing date of the Merger because, with no active trading market for shares of Former Adicet, the fair value of the resTORbio’s common stock represented a more reliable measure of the fair value of consideration transferred in the Merger.

The following summarizes the purchase price in the Merger (in thousands, except share and per share amounts):

Fair value of common stock shares of the combined company

owned by resTORbio stockholders (1)

Fair value of contingent consideration liability with respect to CVR (2)

Purchase price

Represents the share consideration of the combined company that the resTORbio stockholders own as of the closing of the Merger calculated as follows:

Number of shares of the combined company owned by resTORbio

stockholders (a)

Multiplied by the fair value per share of resTORbio common

Acquisition date fair value of resTORbio common shares

Acceleration of 54,553 shares of restricted stock units upon merger (3)

portion of the fair value to be distributed as CVR (c)

Fair value of shares of the combined company owned by resTORbio

Adicet Bio, Inc.

Notes to Consolidated Financial Statements

Represents the number of shares of common stock of the combined company that the resTORbio stockholders owned as of the closing of the Merger.

This amount is calculated as 5,207,695 shares (post-reverse stock split) of resTORbio common stock outstanding as of September 15, 2020.

The fair value of shares of the combined company owned by resTORbio stockholders is based on the closing price of resTORbio common stock on September 14, 2020.

The fair value of resTORbio common stock was further adjusted to remove the estimated fair value of the CVR embedded within the closing price, as each holder of resTORbio stock received one contractual CVR immediately prior to the Merger.

Each holder of resTORbio common stock as of immediately prior to the completion of the Merger was entitled to one CVR issued by resTORbio, subject to and in accordance with the terms and conditions of the CVR Agreement, for each share of resTORbio common stock held by such holder as of immediately prior to the Effective Time of the Merger.

Based on the capitalization of resTORbio as of September 15, 2020, 91,309 outstanding unvested resTORbio restricted stock units were accelerated in connection with the Merger and holders of the restricted stock units were issued approximately 54,553 shares of resTORbio common stock on a net settlement basis.

Similarly, in connection with the Merger, vesting of outstanding resTORbio stock options was accelerated in full and the stock options that were not in the in-the-money on the close of the Merger were canceled, resulting in approximately 81,370 surviving stock options.

The acquisition date fair value of these modified resTORbio restricted stock units and resTORbio stock options attributable to the pre-combination services is included in the estimated purchase price.

The Merger was accounted for as a business combination which requires that assets acquired, and liabilities assumed be recognized at their fair value as of the acquisition date.

While the Company uses its best estimates and assumptions as part of the purchase price allocation process to value the assets acquired and liabilities assumed on the acquisition date, its estimates and assumptions are subject to refinement.

Fair value estimates are based on a complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions.

The judgments used to determine the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact the Company’s results of operations.

During the fourth quarter of 2020, the Company identified and recorded measurement period adjustments of $ 0.7 million to its preliminary purchase price allocation that was disclosed in prior periods based on the facts and circumstances existing as of the acquisition date.

The following summarizes the allocation of the purchase price to the net tangible and intangible assets acquired at the date of acquisition both as disclosed in the Company’s quarterly report on Form 10-Q as of September 30, 2020 and as adjusted for measurement period adjustments identified during the fourth quarter of 2020 (in thousands):

As of September 15, 2020 (preliminary)

Measurement Period Adjustments

As of December 31, 2020 (as adjusted)

Net assets acquired:

Cash and cash equivalents

Prepaid expenses and other current assets

Property and equipment

Restricted cash

Accounts payable

Accrued and other current liabilities

Other liabilities

Deferred tax liability

Purchase price

The goodwill of $ 20.1 million is not tax deductible and represents the excess of the consideration paid over the fair value of assets acquired and liabilities assumed.

Goodwill is mainly attributable to the enhanced value of the combined company, as reflected in the increase in market value of the resTORbio common shares following the announcement of the Merger with Former Adicet.

The fair value of acquired IPR&D related to the research and development of RTB101 for a COVID-19 related indication.

The RTB101 compound IPR&D project was valued using an income approach, specifically a projected discounted cash flow method, adjusted for the probability of technical success (PTS).

The projected discounted cash flow models used to estimate

Adicet Bio, Inc.

Notes to Consolidated Financial Statements

the Company’s IPR&D reflect significant assumptions regarding the estimates a market participant would make in order to evaluate a drug development asset, including the following:

Estimates of potential cash flows to be generated by the project and resulting asset, which was developed utilizing estimates of total patient population, market penetration rates, demand risk adjustment factors, and product pricing;

Estimates regarding the timing of and the expected costs of goods sold, research and development expenses, selling, general and administrative expenses to advance the clinical programs to commercialization, cash flow adjustments and partner profit split;

The projected cash flows were then adjusted using PTS factors that were selected considering both the current state of clinical development and the nature of the proposed indication, (i.e., respiratory therapeutics);

Finally, the resulting probability adjusted cash flows were discounted to a present value using a risk-adjusted discount rate, developed considering the market risk present in the forecast and the size of the asset.

This IPR&D intangible asset is not amortized, but rather are reviewed for impairment on an annual basis or more frequently if indicators of impairment are present, until the project is completed, abandoned, or transferred to a third party.

The contingent consideration for the CVR was valued using an income approach, leveraging the probability adjusted discounted cash flow used in the valuation of the IPR&D and then deducting the administrative fee to be retained by the combined company and other permitted deductions in order to arrive at the net cash expected to be paid out to the CVR holders.

The probability adjusted cash flow includes significant estimates and assumptions pertaining to commercialization events and cash consideration received by the Company for the grant of rights to commercialize RTB101 during the term of the CVR Agreement (as discussed above).

These cash flows were then discounted to present value using the same discount rate applied in the valuation of the IPR&D.

Transaction costs for the Merger were $ 7.1 million for the year ended December 31, 2020 and were expensed as incurred in general and administrative expenses in the consolidated statements of operations and comprehensive loss.

The following supplemental unaudited pro forma information represents the Company’s financial results as if the acquisition of resTORbio had occurred on January 1, 2019 (in thousands).

For the Year Ended December 31,

Revenue - related party

The above unaudited pro forma information was determined based on the historical GAAP results of the Company and resTORbio.

The unaudited pro forma consolidated results are not necessarily indicative of what the Company’s consolidated results of operations would have been if the acquisition was completed on January 1, 2019.

The unaudited pro forma consolidated net loss includes pro forma adjustments of $ 15.6 million primarily relating to the reclassification of transaction costs, severance payments and stock-based compensation expense directly related to the closing of the Merger from the year ended December 31, 2020 to the year ended December 31, 2019.

The unaudited proforma information include proforma adjustments to eliminate the impact of the change in the fair value of the TRDF liability during the year ended December 31, 2019, and the redeemable convertible preferred stock tranche liability and redeemable convertible warrant liability during the years ended December 31, 2020 as the redeemable convertible preferred stock tranche liability, TRDF liability, and redeemable convertible warrant liability did not exist once the redeemable convertible preferred stock were converted to common stock in the Merger.

The unaudited proforma information also includes proforma adjustments to reclassify stock compensation expense related to the conversion of resTORbio stock options and restricted stock units and the modification of stock option awards to Former Adicet CEO in connection with the Merger to January 1, 2019.

Further, stock compensation expense related to resTORbio stock options and restricted stock units recognized in the books of resTORbio prior to the Merger in 2019 and 2020 was reversed in the proforma information.

Former Chief Executive Officer’s Transition Agreement

On April 28, 2020, in connection with the Merger the Company entered into a transition agreement with Anil Singhal, Former Adicet’s Chief Executive Officer and President, pursuant to which Dr.

Singhal transitioned from his role as Chief Executive Officer and President to an advisory role immediately after the closing of the Merger.

In accordance with such agreement, Dr.

Singhal was entitled to the following compensation:

(1) cash payments of (i) $ 470,000 within 60 days

Adicet Bio, Inc.

Notes to Consolidated Financial Statements

following the closing of the Merger, (ii) an amount equal to his pro-rated bonus of $ 212,000 for the 2020 calendar year payable within 60 days following the closing of the Merger, (iii) $ 250,000 payable in one lump sum on January 1, 2021 and (iv) $ 24,000 payable within 60 days following the closing of the Merger, (2) 12 months’ of accelerated vesting of his unvested options to purchase the Company’s common stock upon completion of the Merger, and (3) a 12-month post-termination exercise period following termination of his independent contractor services agreement, dated April 28, 2020 (the ICSA), subject to any earlier expiration of the options to purchase the Company’s common stock by their terms.

In addition, Dr.

Singhal is entitled to reimbursement of up to $ 15,000 of his reasonable and documented legal expenses incurred in connection with such transition agreement.

Pursuant to such agreement, subject to Dr.

Singhal’s continued service through the completion of the Merger and contingent on completion of the Merger, Dr.

Singhal’s continued service for purposes of vesting of his options to purchase the Company’s common stock will continue until the earlier of (i) May 7, 2021 or (ii) termination of the ICSA, provided, however, if the ICSA is terminated early without cause, Dr.

Singhal is entitled to accelerated vesting of unvested options that would have vested from the date of such termination through May 7, 2021.

In addition, Dr.

Singhal’s existing options acceleration provisions will terminate.

Pursuant to the ICSA, Dr.

Singhal will provide certain advisory services to the Company for a term of 12 months following the closing of the Merger and is entitled to payments of $ 12,500 per month for such services.

The ICSA was terminated without cause in February 2021.

Fair Value Measurements

The Company determines the fair value of financial and non-financial assets and liabilities using the fair value hierarchy which establishes three level of inputs that may be used to measure fair value, as follows:

Level 1 — Observable inputs, such as quoted prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 — Unobservable inputs which reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.

Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value.

Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability.

The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values (in thousands):

December 31, 2020

Amortized Cost

(In thousands)

Due in one year or less

Money market funds (1)

Marketable debt securities

Asset-backed securities

Corporate debt securities

Commercial paper

Marketable debt securities

Total fair value of assets

Contingent consideration

Total fair value of liabilities

Adicet Bio, Inc.

Notes to Consolidated Financial Statements

December 31, 2019

Amortized Cost

(In thousands)

Due in one year or less

Money market funds (1)

Marketable debt securities

Asset-backed securities

Corporate debt securities

Commercial paper

Government agency bonds

Marketable debt securities

Total fair value of assets

Redeemable convertible preferred stock warrant

Total fair value of liabilities

Included in cash and cash equivalents in the consolidated balance sheets

Money market funds are included within Level 1 of the fair value hierarchy because they are valued using quoted market prices.

Corporate debt securities, U.S.

government agency bonds, commercial paper and asset-backed securities are classified within Level 2 of the fair value hierarchy as they take into consideration valuations obtained from third-party pricing services.

The pricing services utilize industry standard valuation models, including both income-based and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate the fair value.

These inputs include reported trades of and broker/dealer quotes on the same or similar securities, issuer credit spreads, benchmark securities, prepayment/default projections based on historical data and other observable inputs.

The following table presents a summary of the changes in the fair value of the Company’s Level 3 financial instrument (in thousands):

Preferred Stock

Tranche Liability

TRDF Liability

Preferred Stock

Warrant Liability

Consideration Liability

Fair value as of January 1, 2018

Change in the fair value included in other income (expense), net

Fair value as of December 31, 2018

Recognition of preferred stock warrant liabilities

Change in the fair value included in other income (expense), net

Fair value as of December 31, 2019

Recognition of preferred stock warrant liability

Recognition of contingent consideration liability

Change in the fair value included in other income (expense), net

Change in the fair value included in research and

development expense

Conversion of convertible preferred stock warrant into

common stock warrant in connection with Merger

Fair value as of December 31, 2020

Adicet Bio, Inc.

Notes to Consolidated Financial Statements

The fair value of the redeemable convertible preferred stock tranche liability, TRDF Liability, the redeemable convertible preferred stock warrant liability is based on significant unobservable inputs, which represent Level 3 measurements within the fair value hierarchy.

The Company determined that the obligations to issue additional shares of Series A redeemable convertible preferred stock at the Milestone Closing and Additional Closing were freestanding instruments that are required to be accounted as a liability initially recorded and subsequently remeasured at fair value until such instruments are exercised or expire.

The Milestone Closing liability and Additional Closing liability were initially recorded at $ 6.2 million and $ 5.0 million, respectively.

The Milestone Closing liability was settled in November 2018 upon the Milestone Closing and the related TRDF liability was settled in March 2019.

In July 2019, as part of the Series B redeemable convertible preferred stock purchase agreement the Additional Closing liability and the related TRDF liability were terminated.

The Company recorded $ 2.0 million gain from the remeasurement of the redeemable convertible preferred stock tranche liability associated with the Additional Closing and termination in other income (expense), net in its consolidated statements of operations and comprehensive loss during the year ended December 31, 2019.

There were no warrants outstanding for the purchase of redeemable convertible preferred stock as of December 31, 2020, as all such warrants were converted to warrants for the purchase of shares of common stock upon the Merger.

The fair value of the TDRF Liability was determined based on the fair value of the Company’s Series A redeemable Preferred stock.

As part of the acquisition of resTORbio, the Company entered into a CVR Agreement and recorded the fair value of the CVR as part of consideration transferred.

The Company considers the contingent consideration liability a Level 3 instrument (one with significant unobservable inputs) in the fair value hierarchy.

In November 2020, management terminated the nursing home study due to poor enrollment and consequently lowered the probability of finding a partner due to the delay in time to commercialization of RTB101.

As a result, the fair value of the CVR liability decreased by $ 1.9 million to $ 1.0 million.

Marketable Debt Securities

The following tables summarize the Company’s marketable debt securities (in thousands):

December 31, 2020

Asset-backed securities

Corporate debt securities

Commercial paper

December 31, 2019

Asset-backed securities

Corporate debt securities

Commercial paper

Government agency bonds

The following table summarizes the Company’s marketable debt securities by contractual maturity (in thousands):

Adicet Bio, Inc.

Notes to Consolidated Financial Statements

December 31, 2020

Within one year

After one year through five years

After five years

The following table summarizes the classification of the Company’s marketable debt securities in the consolidated balance sheets (in thousands):

Short-term marketable debt securities

Long-term marketable debt securities

Prepaid Expenses and Other Current Assets

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

Prepaid maintenance and other

Prepaid insurance

Tax receivable

Interest receivable

Other current assets

Property and Equipment, net

Property and equipment, net consists of the following:

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

As of December 31,

(In thousands)

Useful life (years)

Laboratory equipment

Leasehold improvements

Machinery and equipment

Lesser of useful life

or lease term

Furniture and fixtures

Office equipment

Total property and equipment

accumulated depreciation

Construction in progress

Computer equipment

Accumulated depreciation and

Property and equipment, net

Depreciation expense was $0.1 million, $80,000, and $5,000 for the years ended December 31, 2019, 2018, and 2017, respectively.

Accrued Liabilities

Accrued liabilities consist of the following:

As of December 31,

(In thousands)

Accrued payroll and related expenses

Accrued restructuring cost (see Note 15)

Adicet Bio, Inc.

Notes to Consolidated Financial Statements

Depreciation and amortization expense for each of the years ended December 31, 2020, 2019 and 2018 was $ 1.2 million .

All of the Company’s property and equipment as of December 31, 20 20 and 2019 is located in the U.S.

Accrued and Other Current Liabilities

Accrued and other current liabilities consisted of the following (in thousands):

Accrued compensation

Accrued research and development expenses

Total accrued liabilities

License Agreements

Accrued professional services

Accrued other liabilities

On April 28, 2020, the Company entered into a Loan and Security Agreement with Pacific Western Bank for a term loan not exceeding $ 12.0 million (the Loan Agreement) to finance leasehold improvements for the facilities in Redwood City, CA and other purposes permitted under the Loan Agreement, with an interest rate equal to the greater of 0.25 % above the Prime Rate (as defined in the Loan Agreement) or 5.00 %.

The Loan Agreement granted to Pacific Western Bank a security interest on substantially all of the Company’s assets other than intellectual property to secure the performance of the Company’s obligations under the Loan Agreement, and contains a variety of affirmative and negative covenants, including required financial reporting, limitations on certain dispositions of assets or distributions, limitations on the incurrence of additional debt or liens and other customary requirements.

As of December 31, 2020, the Company was in compliance with such covenants and had no indebtedness outstanding under the Loan Agreement.

In connection with the entrance into the Loan Agreement, the Company issued Pacific Western Bank a warrant to purchase shares of its Series B redeemable convertible preferred stock at an exercise price of $ 1.4034 per share (the Existing PacWest Warrant).

The Existing PacWest Warrant was initially exercisable for 42,753 shares of the Company’s Series B redeemable convertible preferred stock (not adjusted for the Exchange Ratio).

Pursuant to the terms of the Existing PacWest Warrant and the Merger agreement (see Note 3), at the Effective Time of the Merger, the Company issued a new common stock warrant to Pacific Western Bank (the New PacWest Warrant) which replaced the Existing PacWest Warrant.

The New PacWest Warrant is initially exercisable solely for 5,301 shares of the Company’s common stock and will be exercisable for an additional number of shares of the Company’s common stock equal to 1.00% of the aggregate original principal amount of all term loans made pursuant to the Loan Agreement (up to an aggregate maximum of 15,903 shares of the Company’s common stock).

Any restriction on the exercise set forth in the Existing PacWest Warrant are in full force and effect in the New PacWest Warrant and the term, exercisability, vesting schedule and other provisions of the Existing PacWest warrant otherwise remain unchanged in the New PacWest Warrant.

Further, the New PacWest Warrant to purchase 5,301 shares of the Company’s common stock is immediately exercisable.

See Note 15 for further discussion regarding terms of warrants.

The New PacWest Warrant was exercised in February 2021.

The Company may request to draw upon the term loan at any time through the date eighteen months after the date of the Loan Agreement (Availability End Date), which is October 28, 2021 .

As of December 31, 2020, no amounts have been drawn under the Loan Agreement.

At issuance, the Company accounted for the fair value of the Existing PacWest Warrant, determined to be $ 0.1 million, as a liability and as a corresponding deferred debt issuance cost which was amortized on a straight-line basis until the Availability End Date in interest expenses.

The liability was adjusted to fair value each reporting period through earnings.

Upon issuance of the New PacWest Warrant, the liability was reclassified to additional paid-in capital and is no longer subject to remeasurement at fair value.

The fair value of the New PacWest Warrant was equal to the fair value of the Existing PacWest Warrant on the Merger date.

Accordingly, no incremental expense was recognized at the Merger date.

Upon each draw of the term loan, the Company will derecognize the proportionate unamortized amount of the deferred asset and account for it as a debt discount to the drawn term loan.

The debt discount will be presented in the consolidated balance sheet as a direct adjustment to the carrying value of the term loan.

The debt discount will be amortized using the effective interest rate method over the term of the debt and recorded as an interest expense.

Adicet Bio, Inc.

Notes to Consolidated Financial Statements

As of December 31, 2020, the deferred debt issuance costs were $ 0.2 million and are included in other non-current assets on the Company’s consolidated balance sheets.

Regeneron License and Collaboration Arrangement

Agreement Terms

On July 29, 2016, the Company entered into a license and collaboration agreement with Regeneron Pharmaceuticals, Inc.

(Regeneron), which was amended in April 2019, with such amendment becoming effective in connection with Regeneron’s investment in the Company’s Series B redeemable convertible preferred stock private placement transaction in July 2019 (as amended, the Regeneron Agreement).

Agreement Structure .

The Regeneron Agreement has two principal components:

(a) a research collaboration component under which the parties will research, develop, and commercialize next-generation engineered gamma delta immune cell therapeutics (ICPs), namely engineered gamma delta immune cells with CARs and TCRs directed to disease-specific cell surface antigens, which includes the grant of certain licenses to intellectual property between the two parties, and (b) for a certain period following the effective date, a license to the Company to use certain of Regeneron’s proprietary mice to develop and commercialize ICPs generated by the Company, with certain limitations relating to targets under the Regeneron Agreement.

Research Collaboration .

Research activities under the collaboration are governed by research plans, which include the strategy, goals, activities, and responsibilities of the parties with respect to a target.

The Company is primarily responsible for generating, validating, and optimizing ICPs, developing processes for manufacture of ICPs, and certain preclinical and clinical manufacturing activities for ICPs;

Regeneron’s key responsibility is generating, validating, and optimizing CARs and TCRs that bind to the applicable target.

The parties have formed a joint research committee to monitor and govern the research and development efforts during the research program term.

Rights to Research Targets .

Under the terms of the five-year research collaboration, the parties will conduct research on mutually agreed upon targets.

Regeneron may obtain exclusive rights for the targets that it chooses in accordance with the target selection mechanism set forth in the Regeneron Agreement, and the Company similarly may obtain exclusive rights for targets it chooses in accordance with such target selection mechanism.

The Company has the right to develop and commercialize ICPs to the first collaboration target to come out of the research program.

In connection with an IND submission, Regeneron has an option to exercise exclusive rights for ADI-002 and potentially for additional targets to be mutually agreed upon.

For those targets it does not have an option to license, Regeneron has a right of first negotiation for up to two targets.

Regeneron has the right to terminate the research program in its entirety (a) for convenience on six months prior written notice given at any time after December 31, 2019, or (b) following a change of control (as defined in the Regeneron Agreement) of the Company.

The parties mutually agreed to their first product declaration criteria for collaboration ICP, CD20, in 2018.

Rights to Company-Developed Targets .

Regeneron has an exclusive license to use targeting moieties generated by the Company by its use of Regeneron’s proprietary mice to develop and commercialize non-ICPs.

Exclusivity .

During the five-year target selection period, the Company may not directly or indirectly research, develop, manufacture or commercialize an ICP, or grant a license to do the foregoing, except pursuant to the agreement.

For so long as either party is researching or developing an ICP to a target under the research program, neither party may research, develop, manufacture or commercialize any other ICP to such target, or grant a license to do the foregoing.

And for so long as a party is researching, developing or commercializing an ICP to target that is licensed to it (and royalty bearing) under the agreement, neither party may research, develop, manufacture or commercialize any other ICP to such target, or grant a license to permit another party to do the foregoing.

These exclusivity obligations are limited to engineered gamma delta immune cells to targets reasonably considered to have therapeutic relevance in oncology.

The Regeneron Agreement includes certain exceptions to the exclusivity obligations of the parties, including with respect to targets that are rejected by one party in the target selection process, as well as protections in the event of a change of control of a party where the acquirer has a competing program.

Co-Funding and Profit Sharing .

The Company has an option to co-fund specified portions of the future development costs for, and to co-promote, ICPs to a target for which Regeneron has exercised an option, and to participate in the profits for such target.

The Company has the right to exercise this right in various geographic regions, including on a worldwide basis.

In the event the Company exercises such right, the parties will share further development costs and revenues proportionally to their co-funding percentages.

Financial Terms .

The Company received a non-refundable upfront payment of $ 25.0 million from Regeneron upon execution of the Regeneron Agreement, has received an aggregate of $ 20.0 million of additional payments for research funding from Regeneron as of December 31, 2020.

In addition, Regeneron may have to pay the Company additional amounts in the future consisting of up to an aggregate of $ 100.0 million of option exercise fees, as specified in the Regeneron Agreement.

Regeneron must also pay the Company high single digit royalties as a percentage of net sales for ICPs to targets for which it has exclusive rights, and low single digit royalties as a percentage of net sales on any non-ICP product comprising a targeting moiety generated by the Company through the use of Regeneron’s proprietary mice.

The Company must pay Regeneron mid-single to low double digit, but less than teens, of royalties as a percentage of net sales of ICPs to targets for which the Company has exercised exclusive rights, and low to mid-single digit of royalties as a percentage of net sales of targeting moieties generated from the Company’s license to use Regeneron’s proprietary mice.

Royalties are payable until the longer of the expiration or invalidity of the licensed patent rights or twelve (12) years from first commercial sale.

Adicet Bio, Inc.

Notes to Consolidated Financial Statements

Other Terms .

The Regeneron Agreement contains customary representations, warranties and covenants by the Company and Regeneron and includes (i) an obligation of the Company to use commercially reasonable efforts to develop and commercialize at least one product based on a collaboration ICP that is not an optioned collaboration ICP for each collaboration target and (ii) an obligation of Regeneron to use commercially reasonable efforts to develop and commercialize at least one product based on an optioned collaboration ICP for each collaboration target.

The Company and Regeneron are required to indemnify the other party against all losses and expenses related to breaches of its representations, warranties and covenants under the Regeneron Agreement.

Term and Termination .

The term of the Regeneron Agreement expires, on a product-by-product basis, on the expiration of the obligation to pay royalties for such product.

The Regeneron Agreement is subject to early termination by either party upon uncured material breach by the other party.

The licenses to develop and commercialize an ICP to a target that one party has exclusively licensed may be terminated by such party for convenience.

Equity Investments .

In connection with its collaboration, Regeneron and the Company entered into a side letter pursuant to which, among other matters, Regeneron was granted certain stockholder rights and investment rights in connection with the Company’s next equity financing that met certain criteria and in connection with an initial public offering by the Company.

Regeneron exercised its investment right and purchased approximately $10.0 million of the Company’s Series B redeemable convertible preferred stock in a private placement transaction in July 2019.

The remaining obligations under the side letter agreement terminated immediately prior to the Effective Time of the Merger.

Revenue Recognition

The Company identified the following material promises under the Regeneron Agreement:

(1) a research license, (2) a collaboration invention license, (3) a trademark license, (4) research and development services during the research term, (5) manufacturing services to manufacture collaboration ICPs for the research programs, (6) participation in the joint research committee, and (7) information sharing during the research term.

The Company considered that the licenses granted under the Regeneron Agreement are not capable of being distinct and are not distinct from the research and development and manufacturing services within the context of the Regeneron Agreement, because 1) such licenses are for the research and development effort during the research term, unless Regeneron exercises its option under the Regeneron Agreement, 2) the research and development services significantly increase the utility of such licenses, and 3) research and development services require collaboration ICPs being manufactured.

Specifically, the Company’s granted licenses can only provide benefit to Regeneron in combination with the Company’s research and development and manufacturing services to discover the collaboration ICPs.

Similarly, the participation in the joint research committee and information sharing are not capable of being distinct and are not distinct from the research and development and manufacturing services within the context of the agreement, because the participation in the joint research committee is for monitoring and governing of the research and development efforts and the information sharing is for sharing results of such research and development efforts.

Therefore, all of the promises above are combined into a single performance obligation.

The Company also evaluated whether the option provided to Regeneron represents a material right that would require separate deferral and recognition.

The option exercise will provide Regeneron with a development and commercial license to develop and commercialize the optioned collaboration ICPs.

The Company concluded that the $25.0 million upfront payment to the Company was not negotiated to provide incremental discount for the future option fees payable upon Regeneron’s exercise of the option.

Regeneron could decide not to exercise the option at its own discretion.

The exercise of the option by Regeneron is not certain and is dependent on many factors, such as progress made on the specific option-eligible collaboration ICP, Regeneron’s overall assessment of commercial feasibility of the further research, development and commercialization of the Option products, availability and cost of alternative programs and products.

The option provides Regeneron with a license for intellectual property that will be improved from the inception of the Regeneron Agreement.

In addition, the option fee is significant compared to the sum total of the upfront payment and research funding fees in the original Regeneron Agreement.

Therefore, the Company determined that the option provided to Regeneron does not represent a material right and that any potential exercise of the option should be accounted as a separate contract.

Hence, upon the option exercise by Regeneron the option fee would be allocated to the development and commercial license which would be the only performance obligation in that separate contract and recognized as revenue when control of the license rights is transferred to Regeneron.

Adicet Bio, Inc.

Notes to Consolidated Financial Statements

For revenue recognition purposes, the Company determined that the duration of the contract is the same as the research term of five years beginning on the execution of the Regeneron Agreement on July 29, 2016.

The contract duration is defined as the period during which parties to the contract have present and enforceable rights and obligations.

The Company determined that Regeneron faces significant in-substance penalties were it to terminate the Regeneron Agreement prior to the end of the research term.

At contract inception, the Company determined a transaction price of the Regeneron Agreement consisting of the $ 25.0 million upfront payment and the aggregate research funding fees payable over the research term.

In order to determine the transaction price, the Company evaluated all the payments to be received during the duration of the contract.

Per the terms of the original Regeneron Agreement prior to the amendment effective from July 2019, the research funding fees were payable merely due to the passage of time and therefore did not represent a variable consideration.

After the amendment became effective in July 2019, certain of these fees became contingent upon meeting certain development and regulatory milestones.

Therefore, the Company concluded that after the amendment such potential payments became variable consideration.

The receipt of the variable consideration was subject to substantial uncertainty and was therefore excluded from the transaction price upon the effective date of the amendment.

As a result, during the three months ended September 30, 2019, the Company recorded $ 6.6 million as a reduction to cumulative revenue recognized prior to the amendment effective date.

The Company will re-evaluate the transaction price if there is a significant change in facts and circumstances at least at the end of each reporting period.

The Company increased the transaction price by $ 10.0 million in June 2020 when it achieved the milestone for the selection of a clinical candidate to the second collaboration target under the Regeneron Agreement, resulting in the recognition of an additional $ 5.0 million in revenue during the three months ended June 30, 2020.

The Company also considered the existence of any significant financing component within the Regeneron Agreement given its upfront payment structure.

Based upon this assessment, the Company concluded that the up-front payment was provided for valid business reasons and not for the purpose of providing financing.

The reason for the initial advance payment at the beginning of the contract is not to provide financing to the Company, but to ensure Regeneron’s commitment to the contract and to provide assurance that the customer will perform its obligations under the contract.

Accordingly, the Company has concluded that the upfront payment structure of the Regeneron Agreement does not result in the existence of a significant financing component.

The royalty payments will be recognized when the related sales occur as they were determined to relate predominantly to the intellectual property licenses granted to Regeneron and therefore have also been excluded from the transaction price.

The Company has determined that the combined performance obligation is satisfied over time.

ASC 606 requires the Company to select a single revenue recognition method for the performance obligation that depicts the Company’s performance in transferring control of the services.

Accordingly, the Company utilizes a cost-based input method to measure proportional performance and to calculate the corresponding amount of revenue to recognize.

The Company believes this is the best measure of progress because it reflects how the Company transfers its performance obligation to Regeneron.

In applying the cost-based input method of revenue recognition, the Company uses actual costs incurred relative to budgeted costs to fulfill the combined performance obligation.

These costs consist primarily of internal full-time equivalent effort and third-party contract costs.

Revenue is recognized based on actual costs incurred as a percentage of total budgeted costs as the Company completes its performance obligations over the research term of five years.

A cost-based input method of revenue recognition requires management to make estimates of costs to complete the Company’s performance obligations.

In making such estimates, significant judgment is required to evaluate assumptions related to cost estimates.

The cumulative effect of revisions to estimated costs to complete the Company’s performance obligations will be recorded in the period in which changes are identified and amounts can be reasonably estimated.

A significant change in these assumptions and estimates could have a material impact on the timing and amount of revenue recognized in future periods.

The following table presents changes in the Company’s contract liabilities (in thousands):

Year ended December 31, 2020

Balance at beginning

Additions (Deductions) (1)

Contract asset

Contract liability

Year ended December 31, 2019

Balance at beginning

Additions (Deductions) (1)

Contract liability

Deductions to contract liabilities relate to deferred revenue recognized as revenue during the reporting period.

Adicet Bio, Inc.

Notes to Consolidated Financial Statements

Contract assets are reflected as accounts receivable—related party on the consolidated balance sheet.

The Company achieved the milestone for the selection of a clinical candidate to the second collaboration target under the Regeneron Agreement in June 2020 and was entitled to receive a payment of $ 10.0 million from Regeneron.

The Company received the payment from Regeneron in July 2020.

Contract liabilities related to the Regeneron Agreement of $ 14.0 million and $ 21.9 million as of December 31, 2020 and 2019, respectively, which was comprised of the $ 25.0 million upfront payment and additional $ 5.0 million research funding fees in each of 2017 and 2018, and $10.0 million for achievement of the milestone for the selection of a clinical candidate to the second collaboration target in June 2020, less $ 31.0 million and $ 13.1 million of license and collaboration revenue recognized from the inception of the Regeneron Agreement as of December 31, 2020 and 2019, respectively, will be recognized as the combined performance obligation is satisfied.

During the years ended December 31, 2020, 2019 and 2018, the Company recognized $ 17.9 million, $ 1.0 million and $ 8.2 million of license and collaboration revenue, respectively, from amounts included in the contract liability balances at the beginning of the period.

There were no costs to obtain or fulfill the contract that meet the criteria to be capitalized.

License, Funding and Other Agreements Related to the CVR

Contingent Value Rights Agreement

As discussed in Note 3, in connection with the Merger, the Company entered into the CVR Agreement with Computershare Inc.

and Computershare Trust Company, N.A.

as joint rights agent.

The CVR holders are entitled to receive net proceeds from the commercialization, if any, received from a third-party commercial partner of RTB101 for a COVID-19 related indication.

The total fees and expenses of the Company’s clinical trials for a COVID-19 related indication of RTB101 is limited to $ 3.0 million under the CVR Agreement.

Through October 31, 2020, the Company’s total accumulated spend was $ 1.1 million of expenses.

In November 2020, management terminated the nursing home study due to poor enrollment and as a consequence lowered the probability of finding a partner due to the delay in time to commercialization of RTB101.

As a result, the fair value of the CVR liability was decreased by $ 1.9 million to $ 1.0 million.

Novartis License Agreement

On March 23, 2017, the Company entered into an exclusive license agreement with Novartis International Pharmaceutical Ltd.

(“Novartis”).

Under the agreement, Novartis granted the Company an exclusive, field-restricted, worldwide license, to certain intellectual property rights owned or controlled by Novartis, to develop, commercialize and sell one or more therapeutic products comprising RTB101 or RTB101 in combination with everolimus in a fixed dose combination.

On March 23, 2017, resTORbio entered into an exclusive license agreement with Novartis International Pharmaceutical Ltd.

Under the agreement, Novartis granted resTORbio an exclusive, field-restricted, worldwide license, to certain intellectual property rights owned or controlled by Novartis, to develop, commercialize and sell one or more therapeutic products comprising RTB101 or RTB101 in combination with everolimus in a fixed dose combination.

The exclusive field under the license agreement is for the treatment, prevention and diagnosis of disease and other conditions in all indications in humans and animals.

As consideration for the licensed rights, the Company issued Novartis Institutes for Biomedical Research (“NIBR”) 2,587,992 shares of the Company’s Series A Preferred Stock.

The fair value of the Novartis license was $3.2 million based on the fair value of the Series A Preferred Stock which was determined to be $1.22 per share based on an independent third-party valuation and is recorded as research and development expenses in the consolidated statements of operations and comprehensive loss.

The agreement may be terminated by either party upon a material breach by the other party that is not cured within 60 days after written notice.

The Company may terminate the agreement in its entirety or on a product-by-product or country-by-country basis with or without cause with 60 days’ prior written notice.

Novartis may terminate the portion of the agreement related to everolimus if the Company fails to use commercially reasonable efforts to research, develop and commercialize a product utilizing everolimus for a period of three years.

Novartis may terminate the license agreement upon the Company’s bankruptcy, insolvency, dissolution or winding up.

As additional consideration for the license, the Company is required to pay up to an aggregate of $4.3 million upon the satisfaction of clinical milestones, up to an aggregate of $24 million upon the satisfaction of regulatory milestones for the first indication approved, and up to an aggregate of $18 million upon the satisfaction of regulatory milestones for the second indication approved.

In addition, the Company is required to pay up to an aggregate of $125 million upon the satisfaction of commercial milestones, based on the amount of annual net sales.

The Company is also required to pay tiered royalties ranging from a mid single-digit percentage to a low teen-digit percentage on annual net sales of products.

The agreement may be terminated by either party upon a material breach of obligation by the other party that is not cured with 60 days after written notice.

resTORbio may terminate the agreement in its entirety or on a product-by-product or country-by-country basis with or without cause with 60 days’ prior written notice.

As consideration for the license, resTORbio is required to pay up to an aggregate of $ 4.3 million upon the satisfaction of clinical milestones, up to an aggregate of $ 24 million upon the satisfaction of regulatory milestones for the first indication approved, and up to an aggregate of $ 18 million upon the satisfaction of regulatory milestones for the second indication approved.

In addition, resTORbio is required to pay up to an aggregate of $ 125 million upon the satisfaction of commercial milestones, based on the amount of annual net sales.

resTORbio is also required to pay tiered royalties ranging from a mid-single digit percentage to a low-teen digit percentage on annual net sales of products.

These royalty obligations last on a product-by-product and country-by-country basis until the latest of (i) the expiration of the last valid claim of a Novartis patent covering a subject product, (ii) the expiration of any regulatory exclusivity for the subject product in a country, or (iii) the 10 th anniversary of the first commercial sale in the country, and are subject to a reduction after the expiration of the last valid claim of a Novartis patent or the introduction of a generic equivalent of a product in a country.

Milestone payments to Novartis are recorded as research and development expenses in the consolidated statements of operations and comprehensive loss once achievement of each associated milestone has occurred or the achievement is considered probable.

In May 2017, the Company initiated a Phase 2b clinical trial for a first indication, triggering the first milestone payment under the agreement.

Accordingly, the Company paid the related $0.3 million payment in May 2017.

In May 2019, the Company initiated a Phase 3 clinical trial for the first indication, triggering another milestone payment of $2.5 million under the agreement.

As of December 31, 2020, none of the remaining clinical milestones, regulatory milestones, sales milestones, or royalties had been reached or were probable of achievement.

Research Funding Agreement

Silverstein Foundation

On March 6, 2018, the Company and the Silverstein Foundation for Parkinson’s with GBA (the “Silverstein Foundation”) entered into a research funding agreement (the “Silverstein Funding Agreement”).

One of the Company’s directors is a co-founder and current trustee of the Silverstein Foundation.

Under the terms of the Silverstein Funding Agreement, the Silverstein Foundation will partially fund the preclinical research, development work, and Phase 2 clinical trial expenses (the “Research”) to be conducted and borne by the Company in connection with the development of RTB101, alone or in combination with other products (the “Product”).

Upon execution of the Silverstein Funding Agreement, the Silverstein Foundation paid the Company an upfront sum of $0.5 million (the “Funding Amount”).

The Company is entitled to use the Funding Amount solely to conduct the Research and is obligated to repay the Funding Amount in full to the Silverstein Foundation if it successfully conducts a positive Phase 3 clinical trial of the Product for PD.

The Company is solely responsible for commencing and conducting the Research and will furnish periodic progress updates to the Silverstein Foundation throughout the term of the Silverstein Funding Agreement.

After completing the Research, the Company must provide the Silverstein Foundation with a formal report describing the work performed and the results of the Research.

The Company recognizes proceeds received from the Silverstein Foundation as a reduction to research and development expenses, rather than as revenue, in the consolidated statements of operations and comprehensive loss because the corresponding Silverstein Funding Agreement does not contain specified performance obligations other than to conduct research on a particular program or in a particular field and there are no obligations to deliver specified products or technology.

For funds received under the Silverstein Funding Agreement, the Company recognizes a reduction in research and development expenses.

During the year ended December 31, 2018, $0.5 million qualifying expenses have been incurred.

Therefore, all amounts received have been recorded as a reduction of the research and development expense.

National Institute of Health

In May 2019, the Company was awarded a 5-year grant for up to $1.5 million from the National Institutes of Health (the “NIH”) to study RTB101 and the regulation of antiviral immunity in the elderly.

The Company is entitled to use the award solely to conduct the research.

The Company is solely responsible for commencing and conducting the research and will furnish periodic progress updates to the NIH throughout the term of the award.

After completing the research, the Company must provide the NIH with a formal report describing the work performed and the results of the research.

For funds received under the NIH funding agreement, the Company recognizes a reduction in research and development expenses in an amount equal to the qualifying expenses incurred in each period up to the amount funded by the NIH.

Qualifying expenses incurred by the Company in advance of funding by the NIH are recorded in the consolidated balance sheets as other current assets.

As of December 31, 2019, $0.1 million qualifying expenses have been incurred and $41,000 have been funded by the NIH.

Therefore, $61,000 is included in other current assets on the accompanying balance sheet as of December 31, 2019.

In May 2019, resTORbio was awarded a 5 -year grant for up to $ 1.5 million from the National Institutes of Health (the NIH) to study RTB101 and the regulation of antiviral immunity in the elderly.

resTORbio is entitled to use the award solely to conduct the research and is solely responsible for commencing and conducting the research and will furnish periodic progress

Adicet Bio, Inc.

Notes to Consolidated Financial Statements

updates to the NIH throughout the term of the award.

After completing the research, resTORbio must provide the NIH with a formal report describing the work performed and the results of the research.

For funds received under the NIH funding agreement, resTORbio recognizes a reduction in research and development expenses in an amount equal to the qualifying expenses incurred in each period up to the amount funded by the NIH.

Qualifying expenses incurred by resTORbio in advance of funding by the NIH are recorded in the consolidated balance sheets as other current assets.

For the year ended December 31, 2020, $ 0.7 million qualifying expenses have been incurred and $ 0.6 million have been funded by the NIH.

Commitments and Contingencies

Operating Leases

On September 30, 2015, the Company entered into a lease agreement (the Menlo Park Lease) to lease approximately 17,352 square feet of office and laboratory space located in Menlo Park, CA.

The total base lease payments over the life of the lease are $ 3.4 million, offset by $ 0.8 million in tenant improvement allowances.

The lease expires on March 31, 2022 .

The landlord maintains responsibility for maintenance and risk of loss throughout the term of the lease agreement.

The lease is recorded as an operating lease.

On September 30, 2019 and October 19, 2020, the Company entered into amendments to the Menlo Park lease agreement for the office and laboratory space in Menlo Park to lease from the same landlord additional nearby buildings with approximately 7,973 and 4,862 square feet of office and laboratory space, respectively.

The leases commenced on October 1, 2019 and October 1, 2020 , respectively, and both amendment leases expire on March 31, 2022 .

The total base lease payments over the life of the lease amendments are $ 0.4 million and $ 0.3 million, respectively.

On October 28, 2018, the Company entered into a new lease agreement to lease approximately 50,305 square feet of office and laboratory space located in Redwood City, CA.

The total base lease payments over the life of the lease are $ 29.5 million, offset by $ 3.0 million in tenant improvement allowances.

On December 30, 2020, the Company entered an amendment to the Redwood City lease to change the manner in which tenant improvements will be constructed at the premises.

The lease has not commenced as the office and laboratory space is not available for use by the Company.

The lease expires on February 28, 2030 .

In April 2019, the Company amended its multi-year lease agreement to relocate its office space in Boston, MA under an operating lease agreement.

The amended lease term is for a period of seven years from the date of relocation on August 1, 2019.

The total base lease payments over the remaining lease term are $ 3.5 million.

The Company recognized rent expense of $ 0.9 million, $ 0.7 million and $ 0.5 million for the years ended December 31, 2020, 2019 and 2018, respectively.

As a result of adopting ASC 842 in 2020, the Company recorded lease right-of-use, (ROU) asset of $ 1.4 million and lease liabilities of $ 1.8 million as of January 1, 2020, primarily related to office leases based on the present value of future lease payments.

There was no impact to retained earnings upon the adoption of ASC 842.

As of December 31, 2020, the Company had no finance lease.

The adoption of ASC 842 resulted in the recognition of an operating lease ROU asset and corresponding liability in 2020 based on the present value of remaining lease payments discounted at the Company’s estimated IBR.

The IBR and the remaining lease terms of our facilities and their weighted average IBR and remaining terms are as follows as of December 31, 2020:

Lease Locations

Remaining Terms

Redwood City, CA

Menlo Park, CA

Weighted Average

Adicet Bio, Inc.

Notes to Consolidated Financial Statements

The following table contains a summary of the lease costs recognized under ASC 842 and other information pertaining to the Company’s operating leases for the year ended December 31, 2020:

For the Year Ended

December 31, 2020

(in thousands)

Operating lease cost

Short-term lease cost

Variable lease cost

Total lease cost

Other Information

Operating cash flows used for lease payments

Operating cash flows used for lease liabilities

Operating lease right of use asset obtained

in exchange of operating lease liability

As of December 31, 2020, operating lease assets were $ 23.1 million and operating lease liabilities were $ 21.6 million.

The Company has no finance leases.

The maturities of the operating lease liabilities as of December 31, 2020 were as follows (in thousands):

2026 and thereafter

Total undiscounted lease payments

imputed interest

Total operating lease liability

current portion

Operating lease liability, net of current maturities

The future minimum lease payments under all non-cancelable operating lease obligations as of December 31, 2019 under ASC 840 were as follows (in thousands):

2025 and thereafter

In conjunction with the Menlo Park lease agreement, the Company issued a cash-collateralized letter of credit in lieu of security deposit of $ 0.2 million.

In addition, the Company issued a cash-collateralized letter of credit for $ 4.1 million in 2018 for the new office lease in Redwood City, CA.

The Company also maintains a letter of credit of $ 0.2 million for the benefit of the landlord in connection with the Company’s office lease in Boston, MA.

All cash amounts are recorded as restricted cash on the consolidated balance sheet as of December 31, 2020 and 2019.

Indemnification Agreements

In the ordinary course of business, the Company enters into agreements that may include indemnification provisions.

Pursuant to such agreements, the Company may indemnify, hold harmless and defend an indemnified party for losses suffered or incurred by the indemnified party.

Some of the provisions will limit losses to those arising from third-party actions.

In some cases, the indemnification will continue after the termination of the agreement.

The maximum potential amount of future payments the Company could be required to make under these provisions is not determinable.

The Company has never

Adicet Bio, Inc.

Notes to Consolidated Financial Statements

incurred material costs to defend lawsuits or settle claims related to these indemnification provisions.

The Company has also entered into indemnification agreements with its directors and officers that require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers to the fullest extent permitted by Delaware corporate law.

The Company currently has directors’ and officers’ liability insurance.

Legal Proceedings

In connection with the Merger, seven lawsuits were filed against the Company, its directors, Former Adicet, and/or Merger Sub.

which were either dismissed or settled for of $ 0.2 million in the fourth quarter of 2020.

Redeemable Convertible Preferred Stock

As of December 31, 2019, redeemable convertible preferred stock consists of the following (in thousands, except per share and share amounts):

Conversion (1)

(1) Adjusted to reflect the Exchange Ratio.

Following the closing of the Merger, all outstanding shares of the redeemable convertible preferred stock converted into 12,048,671 shares of common stock and the related carrying value was reclassified to common stock and additional paid-in capital.

There were no shares of redeemable convertible preferred stock outstanding as of December 31, 2020.

Redeemable Convertible Preferred Stock Tranche Liability

The Milestone Closing liability and Additional Closing liability were initially recorded at $ 6.2 million and $ 5.0 million, respectively.

The Milestone Closing liability was settled in November 2018 upon the Milestone Closing and the related TRDF liability was settled in March 2019.

In July 2019, as part of the Series B redeemable convertible preferred stock purchase agreement the Additional Closing liability and the related TRDF liability were terminated.

The Company recorded $ 2.0 million gain from the remeasurement of the redeemable convertible preferred stock tranche liability in other income (expense), net in its consolidated statements of operations and comprehensive loss during the years ended December 31, 2019.

The Additional Closing liability was valued using the following assumptions under the option-pricing method:

Fair Value of Series A

Preferred Stock

As of December 31, 2019 and 2018, the Company had 10,000,000 shares of preferred stock authorized and none was issued and outstanding.

As of December 31, 2019, the Company had 150,000,000 shares of common stock authorized, of which 36,444,732 shares were issued and outstanding.

The common stock has the following characteristics:

The holders of the common stock are entitled to one vote for each share of common stock held at all meetings of stockholders and written actions in lieu of meetings, provided, however, that except as otherwise required by law, holders of common stock as such shall not be entitled to vote on any amendment to the Company’s Certificate of Incorporation that relates solely to the terms of one or more outstanding series of preferred stock if the holders of such affected series are entitled, either separately or together with the holders of one or more other such series, to vote thereon pursuant to the Company’s Certificate of Incorporation or pursuant to Delaware General Corporation Law.

There shall be no cumulative voting.

The holders of shares of common stock are entitled to receive dividends, if and when declared by the Board of Directors.

Cash dividends may not be declared or paid to the holders of common stock until paid on the preferred stock.

As of December 31, 2019, no dividends have been declared or paid since the Company’s inception.

After payment to the holders of shares of preferred stock of their liquidation preference, the holders of the common stock are entitled to share ratably in the Company’s assets available for distribution to stockholders, in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company or upon the occurrence of a deemed liquidation event.

Reserve for future issuance

As of December 31, 2019 and 2018, the Company has reserved the following number of shares of common stock for future issuance upon the exercise of options, vesting of restricted stock units or grant of equity awards:

As of December 31,

Options issued and outstanding

Unvested restricted stock units

Options available for future grants

Shares available for issuance under the 2018 ESPP

Interest rate

December 31, 2018

July 25, 2019

Redeemable Convertible Preferred Stock Warrants and Common Stock Warrants

In connection with Series B redeemable convertible preferred stock financing transactions, the Company issued to its financial advisor warrants to purchase 1,781,387 shares of our Series B redeemable convertible preferred stock at an exercise price of at $ 1.4034 per share.

These warrants will terminate at the earlier of seven-year anniversary from the issuance date and a liquidation of the company.

Additionally, in connection with the entrance into the Loan Agreement, the Company issued

Adicet Bio, Inc.

Notes to Consolidated Financial Statements

Pacific Western Bank a warrant to purchase shares of its Series B redeemable convertible preferred stock (see Note 9).

These warrants together are referred to as Series B Warrants.

Prior to the Merger, the Company classified the Series B Warrants as a liability on its consolidated balance sheet because the warrants are freestanding financial instruments that may have required the Company to transfer assets upon exercise.

The liability associated with each of these warrants was initially recorded at fair value upon the issuance date of each warrant and was subsequently remeasured to fair value as a component of other income (expense), net in the consolidated statement of operations and comprehensive loss.

Upon the closing of the Merger (see Note 3), pursuant to the Merger Agreement, all of the Series B Warrants converted to warrants for the purchase of the shares of the Company’s common stock.

The Company assessed the features of the warrants and determined that they qualify for classification as permanent equity upon the closing of the Merger.

Accordingly, the Company remeasured the warrants to fair value upon the closing of the Merger, which was $ 2.9 million on September 15, 2020.

Upon the closing of the Merger, the warrant liability was reclassified to additional paid-in capital.

The fair value of the warrants to purchase shares of the Company’s common stock was equal to the fair value of the Series B Warrants on the Merger date.

Accordingly, no incremental expense was recognized at the Merger date.

The Series B Warrants had a fair value of $ 1.9 million as of December 31, 2019.

The change in fair value of $ 0.8 and $ 0.2 million during the years ended December 31, 2020 and 2019, respectively, was recorded as a component of other income (expense), net in the consolidated statements of operations and comprehensive loss.

The redeemable convertible preferred stock warrant liability was valued using the following assumptions under the Black-Scholes option-pricing model:

September 14, 2020 (Conversion Date)

April 28, 2020

(Issuance Date of

PacWest Warrants)

December 31, 2019

Expected term (years)

Expected volatility

81.1% - 82.1%

82.1% - 93.3%

Risk-free interest rate

0.35% - 0.42%

1.53% - 1.93%

Dividend yield

The following table provides a roll forward of outstanding warrants:

Outstanding and exercisable warrants to purchase

preferred shares as of December 31, 2019

Impact of converting to warrants for the purchase of common stock

and adjusted for the Exchange Ratio and Reverse Stock Split

Outstanding and exercisable warrants to purchase

common stock as of December 31, 2020

As of December 31, 2020, the Company’s outstanding warrants to purchase shares of common stock, including the New PacWest Warrant, consisted of the following:

Issuance Date

Stock Issuable

Classification

Expiration Date

September 15, 2020

July 25, 2026

September 15, 2020

August 21, 2026

September 15, 2020

September 19, 2026

September 15, 2020

September 26, 2026

September 15, 2020

April 28, 2027

Adicet Bio, Inc.

Notes to Consolidated Financial Statements

As of December 31, 2019, the Company’s outstanding warrants to purchase shares of redeemable convertible preferred stock (which converted into warrants to purchase common stock upon close of the Merger) consisted of the following (not adjusted for the Exchange Ratio):

Issuance Date

Stock Issuable

Classification

Expiration Date

Series B warrants

July 25, 2019

July 25, 2026

Series B warrants

August 21, 2019

August 21, 2026

Series B warrants

September 19, 2019

September 19, 2026

Series B warrants

September 26, 2019

September 26, 2026

The Company’s Certificate of Incorporation, as amended, authorized the Company to issue 150,000,000 shares of $ 0.0001 par value common stock as of December 31, 2020.

Common stockholders are entitled to dividends if and when declared by the Board of Directors subject to the prior rights of the preferred stockholders.

As of December 31, 2020 and 2019, no dividends on common stock had been declared by the Board of Directors.

The Company has the following shares of common stock reserved for future issuance:

Conversion of redeemable convertible preferred stock

(as converted to common stock)

Conversion of additional authorized and unissued redeemable

convertible preferred stock

Stock options available for future grant

Stock options issued and outstanding

Redeemable convertible preferred stock warrants issued and outstanding

Common stock warrants issued and outstanding

Total common stock reserved

At-the-Market (ATM) Offering

Adicet Bio, Inc.

Notes to Consolidated Financial Statements

On December 1, 2020, the Company entered into a Sales Agreement (the 2020 Sales Agreement) with Evercore Group L.L.C.

Wainwright & Co., LLC (collectively, the Agents), pursuant to which the Company may sell, from time to time, at its option, up to an aggregate of $ 50.0 million of shares of the Company’s common stock, through the Agents, as its sales agents.

N o sales of Shares have been made under the 2020 Sales Agreement.

The ATM offering was terminated in February 2021 .

Stock-Based Compensation

In 2017, the Company adopted the 2017 Stock Incentive Plan (the “2017 Plan”).

Under the 2017 Plan, shares of the Company’s common stock have been reserved for the issuance of stock options, restricted stock awards and restricted stock units to employees, directors, and consultants under terms and provisions established by the Board of Directors.

A total of 537,914 shares were reserved for issuance under the 2017 Plan.

Under the terms of the 2017 Plan, options may be granted at an exercise price not less than fair market value.

The terms of options granted under the 2017 Plan may not exceed ten years.

The Board shall determine the terms and conditions of a restricted stock Award, including the conditions for vesting and repurchase (or forfeiture) and the issue price, if any.

On October 11, 2017, the Company increased the number of shares of common stock available for issuance under the 2017 Plan from 537,914 shares to 630,662 shares.

On November 29, 2017, the Company increased the number of shares of common stock available for issuance under the 2017 Plan from 630,662 shares to 1,866,009 shares.

In connection with the Company’s IPO, the Board adopted, and the Company’s stockholders approved the 2018 Stock Option and Incentive Plan (“2018 Plan”), which became effective on the date immediately preceding the date on which the Company’s registration statement became effective.

The 2018 Plan provides for the grant of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock units, stock appreciation rights, and other stock-based awards.

The Company’s employees, officers, directors, consultants and advisors are eligible to receive awards under the 2018 Plan.

The number of shares of common stock that were initially reserved for issuance under the 2018 Plan was 2,200,260 shares.

The 2018 Plan provides that the number of shares reserved and available for issuance under the plan will automatically increase each January 1, beginning on January 1, 2019, by 4% of the outstanding number of shares of the Company’s common stock on the immediately preceding December 31 or such lesser number of shares as determined by the Board.

On January 1, 2019, as a result of the foregoing evergreen provision, the number of common stock available for issuance under the 2018 Plan automatically increased from 2,200,260 to 3,322,473 shares.

Since the date of effectiveness of the 2018 Plan, the Company has not and will not grant any further awards under the 2017 Plan.

Summary of Plans

Upon completion of the Merger with resTORbio on September 15, 2020, Former Adicet’s 2014 Share Option Plan (the 2014 Plan), Former Adicet’s 2015 Stock Incentive Plan (the 2015 Plan), resTORbio’s 2017 Stock Incentive Plan (the 2017 Plan), resTORbio’s 2018 Stock Incentive Plan (the 2018 Plan) and resTORbio’s 2018 Employee Stock Purchase Plan (the 2018 ESPP, and, collectively with the 2014 Plan, the 2015 Plan, the 2017 Plan and the 2018 Plan, the Plans) were assumed by the Company.

The Plans are administered by the Board of Directors or, at the discretion of the Board of Directors, by a committee of the Board of Directors.

No further shares will be issued from the 2014 Plan or 2017 Plan.

The exercise prices, vesting and other restrictions are determined at the discretion of the Board of Directors, or its committee if so delegated, except that the exercise price per share of stock options may not be less than 100% of the fair market value of the share of common stock on the date of grant and the term of the stock option may not be greater than ten years.

Incentive stock options granted to employees and restricted stock awards granted to employees, officers, members of the Board of Directors, advisors, and consultants of the Company typically vest over four years.

Non-statutory options granted to employees, officers, members of the Board of Directors, advisors, and consultants of the Company typically vest over three or four years.

Shares that are expired, terminated, surrendered or canceled under the Plans without having been fully exercised will be available for future awards.

In addition, shares of common stock that are tendered to the Company by a participant to exercise an award are added to the number of shares of common stock available for the grant of awards.

The 2017 Plan and 2018 Plan

In 2017, resTORbio adopted the 2017 Plan.

In connection with resTORbio’s initial public offering completed in January 2018, the resTORbio Board adopted and resTORbio’s stockholders approved the 2018 Plan.

The 2018 Plan provides that the number of shares reserved and available for issuance under the plan will automatically increase each January 1, beginning on January 1, 2019, by 4 % of the outstanding number of shares of resTORbio’s common stock on the immediately preceding December 31 or such lesser number of shares as determined by the Board.

On January 1, 2021, the number of shares reserved and available for issuance under the 2018 Plan automatically increased by 787,089 shares of Common Stock equal to 4 % of the number of shares of Common Stock issued and outstanding on December 31, 2020.

Since the date of effectiveness of the 2018 Plan, resTORbio has not and the Company will not grant any further awards under the 2017 Plan.

However, any shares of common stock subject to awards under the 2017 Plan that expire, terminate, or otherwise are surrendered, canceled, forfeited or repurchased without having been fully exercised or resulting in any common stock being issued will become available for issuance under the 2018 Plan.

As of December 31, 2019, no such shares became available for issuance under the 2018 Plan.

Stock-based Compensation Expense

Total stock-based compensation expense is recognized for stock-based awards granted to employees and non-employees and has been reported in the Company’s consolidated statements of operations and comprehensive loss as follows:

Year Ended December 31,

(In thousands)

Research and development

General and administrative

Total stock-based compensation expense

Stock Options

The following table summarizes stock option activity under the Plan:

Available for

per Option ($)

(In thousands)

As of December 31, 2020, the number of shares of common stock available for grant under the 2017 and 2018 Plan is 1,456,492 .

As of December 31, 2020, an aggregate of 1,317,892 shares of common stock were issuable upon the exercise of outstanding stock options under the 2017 Plan and 2018 Plans at a weighted average exercise price of $ 15.62 per share.

The 2014 Plan and 2015 Plan

At the Effective Time of the Merger, each outstanding and unexercised option to purchase Former Adicet’s common stock, whether vested or unvested, pursuant to the 2015 Plan and a subset of options issued pursuant to the 2014 Plan were converted into options to purchase a number of shares of the Company’s common stock based on the Exchange Ratio.

As of December 31, 2020, the number of shares of common stock available for grant under the 2014 and 2015 Plan is 283,129 .

As of December 31, 2020, an aggregate of 1,957,536 shares of common stock were issuable upon the exercise of outstanding stock options under the 2015 plan at a weighted average exercise price of $ 7.43 per share and an aggregate of 69,014 shares of common stock were issuable upon the exercise of outstanding stock options under the 2014 Plan at a weighted average exercise price of $ 1.27 per share.

Since the date of effectiveness of the Merger, the Company has not and will not grant any further awards under the 2014 Plan.

2018 Employee Stock Purchase Plan

The resTORbio Board adopted and resTORbio’s stockholders approved the 2018 ESPP, which became effective on the date immediately preceding the date on which resTORbio’s registration statement on Form S-1 became effective.

As a result of the Merger, the 2018 ESPP enables eligible employees to purchase shares of the Company’s common stock at a discount.

Prior to the Merger, the number of shares of common stock originally reserved for issuance under the 2018 ESPP were 39,290 shares.

The 2018 ESPP provides that the number of shares reserved and available for issuance will automatically increase each January 1, beginning on January 1, 2019 and increasing each January 1 thereafter through January 1, 2028, by the least of (i) 1 % of the outstanding number of shares of

Adicet Bio, Inc.

Notes to Consolidated Financial Statements

the Company’s common stock on the immediately preceding December 31;

(ii) 77,703 shares or (iii) such number of shares as determined by the ESPP administrator.

On January 1, 2019, as a result of the foregoing evergreen provision, the number of shares of common stock available for issuance under the 2018 ESPP automatically increased from 39,290 to 79,369 shares.

On January 1, 2020, as a result of the foregoing evergreen provision, the number of shares of common stock available for issuance under the 2018 ESPP automatically increased from 79,369 to 131,432 shares.

No shares have been issued under the 2018 ESPP during the year ended December 31, 2020.

Inducement Grants

As of December 31, 2020, an aggregate of 362,503 shares were issuable upon the exercise of inducement grants of stock options approved by the Company in accordance with Nasdaq listing Rule 5635(c)(4) at a weighted average exercise price of $ 14.33 per share.

Former CEO’s Stock Option Modification

In connection with the Merger, the stock options granted to Dr.

Singhal were modified (see Note 3), which resulted in acceleration and recognition of the stock compensation expense of $ 0.6 million during the quarter ended September 30, 2020.

The modification also resulted in incremental stock compensation expense of $ 0.1 million that will be recognized through May 7, 2021 as the Company determined that Dr.

Singhal will be providing substantial services under the ICSA through that date.

The ICSA was terminated in February 2021 .

Former CEO’s Performance Option

Adicet Bio, Inc.

Notes to Consolidated Financial Statements

On July 14, 2020, the Company’s Board of Directors confirmed that the conditions for Dr.

Singhal’s Second Target Milestone Option (as defined in Dr.

Singhal’s amendment to his employment agreement with the Company , dated October 15, 2019 ) had been fulfilled as the Company achieved the milestone for the selection of a clinical candidate to the second collaboration target under the Regeneron Agreement.

According to Dr.

Singhal’s employment agreement, Dr.

Singhal would be granted an option to purchase 22,574 shares of the Company’s common stock related to the achievement of this milestone option.

However, as this milestone option was earned during his transition from Chief Executive Officer to an advisory role, only 75 % of this option vested.

As a result, following the Merger, on September 17, 2020, the Company’s Board of Directors granted this option to Dr.

Singhal to purchase 16,931 shares of the Company’s common stock at an exercise price of $ 16.11 per share, (i) one-third of the shares vesting on the first anniversary of May 6, 2019, (ii) one-third of the shares vesting in 12 equal monthly installments following such first anniversary , and (iii) one-third of the shares vesting in accordance with the terms of his Transition Agreement which consisted of 12 months’ of accelerated vesting of his unvested options to purchase the Company’s common stock upon completion of the Merger .

The Company recognized $ 0.1 million in stock compensation expense associated with this reward during the year ended December 31, 2020.

A summary of stock option activity is set forth below (in thousands, except share and per share data):

Outstanding Awards

Term (in years)

Outstanding, January 1, 2018

Options authorized

Options granted

Options exercised

Options forfeited or cancelled

Outstanding, December 31, 2018

Shares reserved for issuance

Options authorized

Options granted

Restricted stock units granted

Options exercised

Options forfeited

Options forfeited or cancelled

Outstanding, December 31, 2019

Exercisable, December 31, 2019

Assumed as part of the Merger

Options granted

Options exercised

Options forfeited or cancelled

Outstanding, December 31, 2020

Shares exercisable December 31, 2020

Vested and expected to vest, December 31, 2020

The aggregate intrinsic values of options outstanding, exercisable, vested and expected to vest were calculated as the difference between the exercise price of the options and the fair value of the Company’s common stock as of December 31, 2019.

The aggregate intrinsic value of options exercised during the year ended December 31, 2019, was $67,000.

The aggregate intrinsic values of options exercised during the year ended December 31, 2018 was $78,000.

During the year ended December 31, 2019, the Company granted options to employees and directors to purchase an aggregate of 1,886,687 common shares with a weighted-average grant date fair value of $4.83.

During the year ended December 31, 2018, the Company granted options to employees to purchase an aggregate of 926,838 common shares with a weighted-average grant date fair value of $9.23.

During the year ended December 31, 2019, the Company granted options to non-employees to purchase an aggregate of 9,840 common shares with a weighted-average grant date fair value of $7.61.

During the year ended December 31, 2018, the Company granted options to non-employees to purchase an aggregate of 7,200 common shares with a weighted-average grant date fair value of $12.51.

As of December 31, 2019, the total unrecognized compensation expense related to unvested employee options was $9.4 million which the Company expects to recognize over an estimated weighted-average period of 2.80 years.

As of December 31, 2019, the total unrecognized compensation expense related to unvested non-employee options was $26,000 which the Company expects to recognize over an estimated weighted-average period of 2.14 years.

The fair value of stock options for employees and non-employees was estimated using a Black-Scholes option pricing model with the following assumptions:

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock options and the fair value of the Company’s common stock for stock options that were in-the-money at December 31, 2020, 2019 and 2018.

The aggregate intrinsic value of stock options exercised during the years ended on December 31, 2020, 2019 and 2018 was $ 2.5 million, $ 0.1 million and $ 0.4 million, respectively.

Adicet Bio, Inc.

Notes to Consolidated Financial Statements

The total fair value of options that vested during the years ended December 31, 2020, 2019 and 2018 was $ 2.4 million, $ 0.9 million and $ 1.8 million, respectively.

The options granted during the years ended December 31, 2020, 2019 and 2018 had a weighted-average per share grant-date fair value of $ 9.96 per share, $ 2.98 per share and $ 3.95 per share, respectively.

As of December 31, 2020, the total unrecognized stock-based compensation expense related to unvested stock options was $ 21.6 million, which is expected to be recognized over the remaining weighted-average vesting period of 3.6 years .

Restricted Stock

Activity with respect to restricted stock was as follows:

Unvested, January 1, 2018

Unvested, December 31, 2018

Unvested, December 31, 2019

As of December 31, 2020, there was no unrecognized compensation cost related to restricted stock.

The fair value of restricted stock vested during the years ended December 31, 2020, 2019 and 2018 was $ 0 , $ 0.1 million and $ 0.6 million, respectively.

Stock-Based Compensation Associated with Awards to Employees and Non-Employees

Total stock-based compensation expense recognized was as follows (in thousands):

Year Ended December 31,

Fair value of common stock

$1.27 - $10.66

$8.57 - $15.45

$0.79 - $9.33

Expected term (in years)

Research and development

General and administrative

Total stock-based compensation

The Company estimated the fair value of stock options using the Black Scholes option-pricing model.

The fair value of stock options is being amortized on a straight-line basis over the requisite service period of the awards.

The fair value of stock options was estimated using the following weighted-average assumptions:

Year Ended December 31,

Expected volatility

92.0% - 104.9%

75.9% - 90.6%

74.4% - 74.5%

Risk-free interest rate

Expected dividend yield

Non-employees:

Fair value of common stock

$1.23 - $10.26

$8.62 - $15.45

$0.79 - $10.28

Expected term (in years)

Dividend yield

Expected term

1.00-6.08 years

5.15-6.08 years

6.02-6.08 years

The assumptions are as follows:

Expected volatility.

89.7% - 99.5%

78.0% - 91.2%

74.6% - 77.0%

The expected volatility was determined by examining the historical volatilities for comparable publicly traded companies within the biotechnology and pharmaceutical industry using an average of historical volatilities of the Company’s industry peers.

Risk-free interest rate.

Expected dividend yield

Restricted Stock

On April 17, 2018, the Company granted 2,000 shares of restricted stock to a consultant.

The restrictions lapsed in four equal quarterly installments and was fully vested on the first anniversary of such grant.

Compensation expenses of such unvested shares was remeasured at fair value until vested at each reporting date.

The summary of restricted stock activity and related information follows:

Unvested shares — December 31, 2018

Unvested shares — December 31, 2019

The Company recognized $4,000, $0.9 million and $0.4 million of stock-based compensation expense related to restricted shares during the years ended December 31, 2019, 2018 and 2017, respectively.

As of December 31, 2019, there was no unrecognized stock-based compensation expense related to unvested restricted stock.

Restricted Stock Units

In May 2018, the Company granted 24,960 restricted stock units to an employee with a grant date fair value of $9.03 per share.

In December 2019, the Company granted 813,335 restricted stock units to employees with a weighted-average grant date fair value of $1.27.

The summary of restricted stock unit activity and related information follows:

Unvested shares — December 31, 2018

Unvested shares — December 31, 2019

The Company recognized $74,000 and $35,000, of stock-based compensation expense related to restricted stock units during the years ended December 31, 2019 and 2018, respectively.

As of December 31, 2019, there was $1.1 million of unrecognized stock-based compensation expense related to unvested restricted stock units which the Company expects to recognize over a remaining weighted-average period of 3.75 years.

2018 Employee Stock Purchase Plan

The Board adopted and the Company’s stockholders approved the 2018 Employee Stock Purchase Plan (“2018 ESPP”), which became effective on the date immediately preceding the date on which the Company’s registration statement became effective.

The 2018 ESPP enables eligible employees to purchase shares of the Company’s Common Stock at a discount.

The number of shares of common stock that were initially reserved for issuance under the 2018 ESPP was 275,030 shares.

(ii) 543,926 shares or (iii) such number of shares as determined by the ESPP administrator.

On January 1, 2019, as a result of the foregoing evergreen provision, the number of common stock available for issuance under the 2018 ESPP automatically increased from 275,030 to 555,583 shares.

No shares have been issued under the 2018 ESPP during the years ended December 31, 2019 and 2018.

Provision for Income Taxes

For the years ended December 31, 2019, 2018, and 2017, the Company did not record a federal current or deferred income tax expense.

For the years ended December 31, 2019 and 2018, the Company did record a state current tax expense.

The Company’s consolidated loss before income taxes consists solely of a domestic loss.

A reconciliation of income tax expense computed at the statutory federal income tax rate to income taxes as reflected in the consolidated financial statements is as follows:

The risk-free interest rate is based on the U.S.

Treasury yield with a maturity equal to the expected term of the option in effect at the time of grant.

Dividend yield.

The expected dividend is assumed to be zero as dividends have never been paid and there are no current plans to pay dividends on common stock.

Expected term.

The expected term represents the period that the stock-based awards are expected to be outstanding.

The expected term is calculated using the simplified method which is used when there is insufficient historical data about exercise patterns and post-vesting employment termination behavior.

The simplified method is based on the vesting period and the contractual term for each grant, or for each vesting-tranche for awards with graded vesting.

The mid-point between the vesting date and the maximum contractual expiration date is used as the expected term under

Adicet Bio, Inc.

Notes to Consolidated Financial Statements

For awards with multiple vesting-tranches, the times from grant until the mid-points for each of the tranches may be averaged to provide an overall expected term.

In addition to the assumptions used in the Black-Scholes option-pricing model, the Company recognizes the actual forfeitures by reducing the employee stock-based compensation expense in the same period the forfeiture occurs.

The Company will continue to use judgment in evaluating the expected volatility, risk-free interest rates, dividend yield and expected term, utilized for stock-based compensation on a prospective basis.

Net Loss Per Share

The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders, which excludes unvested restricted shares and shares which are legally outstanding, but subject to repurchase by the Company (in thousands, except share and per share data):

Year Ended December 31,

(In thousands)

Income tax benefit at federal statutory rate

Stock-based compensation

Federal tax rate change

Change in fair value of tranche rights

Net loss attributable to common stockholders

Weighted-average shares outstanding

weighted-average unvested restricted shares and

shares subject to repurchase

Weighted-average shares used in computing net loss

per share attributable to common stockholders,

basic and diluted

Net loss per share attributable to common stockholders,

basic and diluted

The following outstanding shares of potentially dilutive securities were excluded from the computation of diluted net loss per share attributable to common stockholders for the period presented because including them would have been antidilutive:

Redeemable convertible preferred stock

(as converted to common stock)

Options to purchase common stock

Redeemable convertible preferred stock warrants

Common stock warrants

Unvested early exercised common stock options

Unvested restricted stock awards

Redeemable convertible preferred stock tranche liability

and TRDF obligation

Adicet Bio, Inc.

Notes to Consolidated Financial Statements

The components of the provision for (benefit from) income taxes are as follows (in thousands):

Year Ended December 31,

Total current

Total deferred

Provision for (benefit from) income taxes

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was enacted in response to the COVID-19 Pandemic.

The tax relief measures under the CARES Act for businesses include a five-year net operating loss carryback, suspension of annual deduction limitation of 80 % of taxable income from net operating losses generated in a tax year beginning after December 31, 2017, changes in the deductibility of interest, acceleration of alternative minimum tax credit refunds, payroll tax relief, and a technical correction to allow accelerated deductions for qualified improvement property.

The Company recognized income tax benefit of $ 2.8 million for the year ended December 31, 2020 due to the net operating loss carryback under the CARES Act which generated a refund of income taxes paid in 2017 and revaluation of IPR&D at year-end.

The state tax expense for the year ended December 31, 2020 is due to state minimum and franchise taxes, and true-up of state tax refund.

For the rate table below the (provision for) benefit from income taxes differ from the amount expected by applying the federal statutory rate to the loss before taxes as follows:

Year Ended December 31,

Federal statutory income tax rate

Other permanent differences

State income taxes

Foreign rate differential

Federal benefit from NOL carryback

Change in valuation allowance

Income tax expense

Effective tax rate

On December 22, 2017, the Tax Cuts and Jobs Act (“TCJA”) was signed into United States law.

The TCJA includes a number of changes to existing tax law, including, among other things, a permanent reduction in the federal corporate income tax rate from 34% to 21%, effective as of January 1, 2018, as well as limitation of the deduction for net operating losses to 80% of annual taxable income and elimination of net operating loss carrybacks, in each case, for losses arising in taxable years beginning after December 31, 2017 (though any such net operating losses may be carried forward indefinitely).

The tax rate change resulted in (i) a reduction in the gross amount of our deferred tax assets as of December 31, 2017, without an impact on the net amount of our deferred tax assets, which are recorded with a full valuation allowance, and (ii) no income tax expense or benefit being recognized as of the enactment date of the TCJA.

Deferred Tax Assets and Liabilities

Deferred income taxes reflect the net tax effects of loss and credit carryforwards and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Significant components of deferred income taxes were as follows:

As of December 31,

(In thousands)

Change in fair value of redeemable convertible preferred stock

tranche liability and TRDF liability

Stock-based compensation

Benefit from (provision for) income taxes

Adicet Bio, Inc.

Notes to Consolidated Financial Statements

The tax effects of temporary differences and carryforwards of the deferred tax assets are presented below (in thousands):

Deferred Tax Assets:

Net operating losses

Capitalized license

Research credits

Net operating loss carryforwards

Operating lease right-of-use asset liability

Deferred revenue

Stock-based compensation

Net unrealized loss

Total gross deferred tax assets

Less valuation allowance

Total deferred tax assets

Intangible assets

Accruals and reserves

Research and development credit carryforwards

Gross deferred tax assets

Valuation allowance

Deferred tax assets, net of valuation allowance

Deferred tax liabilities:

Net unrealized gain

Depreciation and amortization

Total gross deferred tax liability

Net deferred tax assets

Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain.

Due to the lack of earnings history, the net deferred tax assets have been fully offset by a valuation allowance.

A valuation allowance of $40.2 million and $15.4 million has been recorded for the years ended December 31, 2019 and 2018, respectively.

Net Operating Loss and Tax Credit Carryforwards

As of December 31, 2019, the Company had net operating loss carryforwards for federal income tax purposes of approximately $127.0 million, of which $14.0 million will begin to expire in 2036 and $113.0 million can be carried forward indefinitely.

As of December 31, 2019, the Company had total state net operating loss carryforwards of approximately $130.8 million which will begin to expire in 2036.

Utilization of some of the federal and state net operating loss and credit carryforwards are subject to annual limitations due to the “change of ownership” provisions under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, and similar state provisions.

The annual limitations may result in the expiration of net operating losses and credits before utilization.

The Company has not performed an ownership change analysis.

As of December 31, 2019 and 2018, the Company had federal research credits of $3.8 million and $0.9 million, respectively, which will begin to expire in 2037 and state research credits of $0.5 million and $0.2 million, respectively, which will begin to expire in 2032.

These tax credits are subject to the same limitations discussed above.

The Company has not yet conducted a study of its research and development credit carryforwards.

This study may result in an increase or decrease to the Company's credit carryforwards, however, until a study is completed and any adjustment is known, no amounts are being presented as an uncertain tax position.

A full valuation allowance has been provided against the Company's credits, and if an adjustment is required, this adjustment would be offset by an adjustment to the valuation allowance.

As a result, there would be no impact to the statements of operations and comprehensive loss or statements of cash flows if an adjustment were required.

Unrecognized Tax Benefits

The Company has incurred net operating losses since inception and has no significant unrecognized tax benefits.

If in the future the Company recognizes uncertain tax positions, the Company’s effective tax rate will be reduced.

Currently, the Company has a full valuation allowance against its net deferred tax asset which would impact the timing of the effective tax rate benefit should any of these uncertain tax positions be favorably settled in the future.

Any adjustments to uncertain tax positions would result in an adjustment of net operating loss or tax credit carry forwards rather than resulting in a cash outlay.

As of December 31, 2019, the Company had no unrecognized tax benefits and no accrued interest or penalties related to uncertain tax positions.

Income tax returns are filed in the U.S.

and Massachusetts.

The Company is not currently under examination.

Due to net operating losses and research credit carryovers, all of the tax years remain open to examination.

Commitments and Contingences

The Company is not a party to any litigation and does not have contingency reserves established for any litigation liabilities as of December 31, 2019.

In April 2019, the Company amended its multi-year lease agreement to relocate its office space in Boston, Massachusetts under an operating lease agreement.

The amended lease term is for a period of seven years from the date of relocation on August 1, 2019.

The initial annual base rent of the relocation premises is $0.6 million per year, increasing 2% annually.

In connection with the lease amendment, the Company issued a new cash-collateralized letter of credit for the benefit of the landlord in the amount of $0.2 million.

Rent expense was $0.5 million, $0.3 million and $0 the years ended December 31, 2019, 2018, and 2017, respectively.

Obligations to make future minimum lease payments as of December 31, 2019, are as follows:

Year ending December 31,

Lease Payments

(In thousands)

Years thereafter

Novartis License Agreement

The Company is required to pay up to an aggregate of $1.5 million upon the satisfaction of clinical milestones, up to an aggregate of $24 million upon the satisfaction of regulatory milestones for the first indication approved, and up to an aggregate of $18 million upon the satisfaction of regulatory milestones for the second indication approved.

In addition, the Company is required to pay up to an aggregate of $125 million upon the satisfaction of commercial milestones, based on the amount of annual net sales.

The Company is also required to pay tiered royalties ranging from a mid single-digit percentage to a low teen-digit percentage on annual net sales of products.

Silverstein Foundation

The Company is obligated to repay the Funding Amount in full to the Silverstein Foundation if it successfully conducts a positive Phase 3 clinical trial of the Product for PD (see Note 7).

Net Loss per Share

As described in Note 2, the Company computes basic and diluted earnings (losses) per share using a methodology that gives effect to the impact of outstanding participating securities (the “two-class” method).

Basic net loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding during the period and excludes any dilutive effects of share-based awards.

Diluted net loss per share is computed giving effect to all potential dilutive common shares, including common stock issuable upon exercise of stock options, convertible preferred stock, unvested restricted stock, and unvested restricted stock units.

For periods in which the Company has reported net losses, diluted net loss per common share is the same as basic net loss per common share, since dilutive common shares are not assumed to have been issued if their affect is anti-dilutive.

The following potentially dilutive securities, prior to the use of the treasury stock method, have been excluded from the calculation of diluted net loss per share because including them would have had an anti-dilutive effect (in common stock equivalent shares):

As of December 31,

Options issued and outstanding

Unvested restricted stock

Unvested restricted stock units

Related Party Transactions

Since the Company’s incorporation in July 2016, the Company has engaged in transactions with related parties.

During the year ended December 31, 2017, the Company issued 1,886,363 shares of common stock and made payments to PureTech for certain founding services and cost reimbursements.

PureTech is a founder of the Company and holds shares of common stock and preferred stock of the Company.

The Company is a party to an intellectual property license agreement with Novartis.

In addition, NIBR is a preferred stock shareholder of the Company (see Note 6).

Aggregate payments for the above related party transactions totaled $2.5 million, $0, and $0.9 million for the years ended December 31, 2019, 2018 and 2017, respectively.

The Company is a party to a Funding Agreement with the Silverstein Foundation, an entity in which one of the Company’s directors is a co-founder and current trustee (See Note 7).

No funds were received from the Silverstein Foundation during the year ended December 31, 2019 and 2017.

The Company received $0.5 million during the year ended December 31, 2018.

Reduction in Workforce

In December 2019, the Company’s Board of Directors approved a restructuring plan to reduce operating costs and better align the Company’s workforce with its business needs following the Company’s November 2019 announcement regarding that top line data from the PROTECTOR 1 Phase 3 study, evaluating the safety and efficacy of RTB101 in preventing clinically symptomatic respiratory illness in adults age 65 and older, did not meet its primary endpoint, and that the Company has stopped the development of RTB101 in this indication.

Under the restructuring plan, the Company reduced its workforce by 8 employees (approximately 22% of total employees).

Affected employees are eligible to receive severance payments and outplacement services in connection with the reduction.

During the year ended December 31, 2019, the Company recorded aggregate restructuring charges of approximately $0.6 million related to severance payments and other employee-related costs.

The Company does not expect to incur any additional significant costs associated with this restructuring.

During the year ended December 31, 2019, $66,000 of the estimated restructuring charges were paid.

The Company expects the remaining accrued restructuring costs of $0.5 million will be paid in the next 12 months.

The following table shows the total amount expected to be incurred and the liability related to the 2019 restructuring as of December 31, 2019:

One-time Employee

Termination Benefits

(In thousands)

Accrued restructuring costs beginning balance

Restructuring charges incurred during the year

Amounts paid during the year

Accrued restructuring costs as of December 31, 2019

The following table summarizes the restructuring charges reported in the consolidated statements of operations and comprehensive loss for the year ended December 31, 2019:

Total Expenses

(In thousands)

Research and development

General and administrative

Selected Quarterly Financial Data (Unaudited)

The following table contains quarterly financial information for 2019 and 2018.

The Company believes that the following information reflects all normal recurring adjustments necessary for a fair statement of the information for the periods presented.

The operating results for any quarter are not necessarily indicative of results for any future period.

(In thousands, except per share data)

Total operating expenses

Loss from operations

Net loss per share—basic and diluted

(In thousands, except per share data)

Total operating expenses

Loss from operations

Net loss per share—basic and diluted

Basis Difference IPR&D

Operating lease right-of-use asset

Net deferred tax liability

On September 15, 2020 Adicet Bio and resTORbio completed the Merger upon which Adicet Bio became the parent company of the consolidated group.

The Merger did not create a step up in basis for tax basis of the asset as it was considered a tax-free merger.

The above deferred tax table includes deferred related to resTORbio.

The Company has established a valuation allowance against its deferred tax assets due to the uncertainty surrounding the realization of such assets.

ASC 740 requires that the tax benefit of net operating losses, temporary differences and credit carryforwards be recorded as an asset to the extent that management assesses that realization is “more likely than not.” Realization of the future tax benefits is dependent on the Company’s ability to generate sufficient taxable income within the carryforward period.

Because of the Company’s recent history of operating losses, management believes that recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently not likely to be realized and, accordingly, has provided a valuation allowance.

The valuation allowance increased by $ 37.9 million during 2020 and $ 8.1 million during 2019.

As of December 31, 2020, the Company had net operating loss carryforwards of $ 211.4 million, $ 82.2 million and $ 16.7 million to reduce future taxable income, if any, for federal, state and foreign income tax purposes, respectively.

Of the federal net operating loss carryforwards, $ 7.6 million will begin to expire in 2037 if not utilized, and $ 203.8 million can be carried forward indefinitely.

The state carryforwards will begin to expire in 2035.

The Company also had California research and development credit carryforwards of less than $ 0.1 million as of December 31, 2020.

The California research credit can be carried forward indefinitely.

Utilization of the net operating loss carryforwards and research and development tax credit carryforwards may be subject to an annual limitation under Section 382 of the Internal Revenue Code of 1986, and corresponding provisions of state law, due to ownership changes that have occurred previously or that could occur in the future.

These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income.

In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain shareholders or public groups in the stock of a corporation by more than 50% over a three-year period .

The Company has not conducted a study to assess whether a change of control has occurred or whether there have been multiple changes of control since inception due to the significant complexity and cost associated with such a study.

If the Company has experienced a change of control, as defined by Section 382, at any time since inception, utilization of the net operating loss carryforwards or research and development tax credit carryforwards would be subject to an annual limitation under Section 382, which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term tax-exempt rate, and then could be subject to additional adjustments, as required.

Any limitation may result in expiration of a portion of the net operating loss carryforwards or research and development tax credit carryforwards before utilization.

Further, until a study is completed and

Adicet Bio, Inc.

Notes to Consolidated Financial Statements

any limitation is known, no liability related to uncertain tax positions is recorded in the consolidated financial statements.

The Company does not expect its unrecognized tax benefit balance to change materially over the next 12 months.

The Company files income tax returns in the U.S.

federal jurisdiction, California, Massachusetts, New York and Israel.

The tax years 2015 to 2020 remains open to U.S.

federal and state examination to the extent of the utilization of net operating loss and credit carryovers.

As of December 31, 2020, the Company had unrecognized tax benefits of $ 0.8 million related to the transfer of certain intellectual property from its Israeli subsidiary.

A reconciliation of the beginning and ending unrecognized tax benefit amount is as follows (in thousands):

Year Ended December 31,

Balance at the beginning of the year

Adjustment based on tax positions related to prior years

Balance at the end of the year

The Company recognizes interest expense and penalties related to the above unrecognized tax benefits within income tax expense (benefit).

Management determined that no accrual for interest and penalties was required as of December 31, 2020.

Defined Contribution Plan

The Company maintains a defined contribution plan under Section 401(k) of the Internal Revenue Code covering substantially all full-time U.S.

Employee contributions are voluntary and are determined on an individual basis subject to the maximum allowable under federal tax regulations.

The Company did no t make contributions to the 401(k) plan during 2020.

Related Party Transaction

As of December 31, 2020, Regeneron owned 883,568 shares of the Company’s common stock.

As of December 31, 2019, Regeneron owned 7,125,552 shares (not adjusted for the Exchange Ratio) of the Company’s redeemable convertible preferred stock.

Regeneron became a related party in July 2019 as a result of Series B redeemable convertible preferred stock financing.

Upon closing the Merger 7,125,552 shares of the redeemable convertible preferred stock converted into 883,568 shares of the Company’s common stock.

For the years ended December 31, 2020, 2019 and 2018, the Company recorded revenue of $ 17.9 million, $ 1.0 million and $ 8.2 million, respectively.

As of December 31, 2020, the Company recorded no accounts receivable and has deferred revenue of $ 14.0 million related to the Regeneron Agreement (See Note 10).

Subsequent Events

In February 2021, we completed an underwritten public offering of 10,575,513 shares of our common stock, including the exercise in full by the underwriters of their option to purchase up to an additional 1,344,743 shares of common stock at a public offering price of $ 13.00 per share.

The aggregate gross proceeds from the offering, before deducting underwriting discounts and commissions and offering expenses were approximately $ 137.5 million.

In connection with the offering, we also entered into a stock purchase agreement with certain existing investors for $ 15.0 million of shares of our common stock at a price per share equal to the public offering price, with an initial closing for certain investors held simultaneously with the closing of the offering and a subsequent closing for certain additional investors.

EXHIBIT INDEX

2 unchanged sentences

001-38359) filed with the SEC on January 30, 2018) .

Certificate of Amendment of Third Amended and Restated Certificate of Incorporation Of resTORbio, Inc.

related to the Reverse Stock Split, dated September 15, 2020 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No.

001-38359) filed with the SEC on September 16, 2020).

Certificate of Amendment of Third Amended and Restated Certificate of Incorporation Of resTORbio, Inc.

related to the Name Change, dated September 15, 2020 (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K (File No.

001-38359) filed with the SEC on September 16, 2020).

Amended and Restated Bylaws of the Registrant (as currently in effect) (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K (File No.

001-38359) filed with the SEC on January 30, 2018) .

Specimen stock certificate evidencing the shares of common stock (incorporated by reference to Exhibit 4.1 to the Registrant’s Registration Statement on Form S-1, as amended, (File No.

333-222373) filed with the SEC on January 16, 2018)

Amended and Restated Investors’ Rights Agreement, dated as of November 29, 2017, among the Registrant and the other parties thereto (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-1 (File No.

333-222373) filed with the SEC on December 29, 2017)

Description of Securities

2017 Stock Incentive Plan and forms of award agreements thereunder (incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form S-1, as amended, (File No.

333-222373) filed with the SEC on January 16, 2018)

2018 Stock Option and Incentive Plan and forms of award agreements thereunder (incorporated by reference to Exhibit 10.2 to the Registrant’s Registration Statement on Form S-1, as amended, (File No.

333-222373) filed with the SEC on January 16, 2018)

Form of Director Indemnification Agreement (incorporated by reference to Exhibit 10.3 to the Registrant’s Registration Statement on Form S-1, as amended, (File No.

333-222373) filed with the SEC on January 16, 2018)

Form of Officer Indemnification Agreement (incorporated by reference to Exhibit 10.4 to the Registrant’s Registration Statement on Form S-1, as amended, (File No.

333-222373) filed with the SEC on January 16, 2018)

2018 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.5 to the Registrant’s Registration Statement on Form S-1, as amended, (File No.

333-222373) filed with the SEC on January 16, 2018)

Non-Employee Director Compensation Policy (incorporated by reference to Exhibit 10.6 to the Registrant’s Registration Statement on Form S-1, as amended, (File No.

333-222373) filed with the SEC on January 16, 2018)

License Agreement, dated as of March 23, 2017, by and between the Registrant and Novartis International Pharmaceutical Ltd.

(incorporated by reference to Exhibit 10.7 to the Registrant’s Registration Statement on Form S-1, as amended, (File No.

333-222373) filed with the SEC on January 16, 2018)

First Amendment to License Agreement, dated as of October 3, 2017, by and among the Registrant and Novartis International Pharmaceutical Ltd.

(incorporated by reference to Exhibit 10.5 to the Registrant’s Registration Statement on Form S-1 (File No.

333-222373) filed with the SEC on December 29, 2017)

Offer Letter, dated as of March 31, 2017, between the Registrant and Chen Schor (incorporated by reference to Exhibit 10.7 to the Registrant’s Registration Statement on Form S-1 (File No.

333-222373) filed with the SEC on December 29, 2017)

Offer Letter, dated as of March 31, 2017, between the Registrant and Joan Mannick (incorporated by reference to Exhibit 10.8 to the Registrant’s Registration Statement on Form S-1 (File No.

333-222373) filed with the SEC on December 29, 2017)

Offer Letter, dated as of October 5, 2017, between the Registrant and John McCabe (incorporated by reference to Exhibit 10.9 to the Registrant’s Registration Statement on Form S-1 (File No.

Description of Securities (incorporated by reference to Exhibit 4.3 to the Registrant’s Annual Report on Form 10-K (File No.

001-38359) filed with the SEC on March 12, 2020).

Amended and Restated Investors’ Rights Agreement, dated as of November 29, 2017, among the Registrant and the other parties thereto (incorporated by reference to Exhibit 4.2 to our Registration Statement on Form S-1 (File No.

333-222373) filed with the SEC on December 29, 2017).

Escrow Agreement, dated as of September 15, 2020 by and among resTORbio, Inc.

and the investors listed on the Schedule of Investors attached thereto.

(incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No.

001-38359) filed with the SEC on September 16, 2020).

Contingent Value Rights Agreement, dated as of September 15, 2020 by and among resTORbio, Inc., Computershare Inc.

and Computershare Trust Company, N.A.

(incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File No.

001-38359) filed with the SEC on September 16, 2020) .

Second Amendment to Loan and Security Agreement, dated as of September 14, 2020, by and between Pacific West Bank and Adicet Therapeutics, Inc.

(incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K (File No.

001-38359) filed with the SEC on September 16, 2020) .

Third Amendment to Loan and Security Agreement, dated as of September 15, 2020, by and between Pacific West Bank and Adicet Therapeutics, Inc.

(incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K (File No.

001-38359) filed with the SEC on September 16, 2020) .

Form of Warrant to Purchase Common Stock issued to Beech Hill Securities, dated September 15, 2020 (incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K (File No.

001-38359) filed with the SEC on September 16, 2020).

Warrant to Purchase Common Stock issued to PacWest Bancorp, dated September 15, 2020 (incorporated by reference to Exhibit 10.6 to the Registrant’s Current Report on Form 8-K (File No.

001-38359) filed with the SEC on September 16, 2020) .

Unconditional Secured Guaranty, dated September 15, 2020 (incorporated by reference to Exhibit 10.7 to the Registrant’s Current Report on Form 8-K (File No.

001-38359) filed with the SEC on September 16, 2020) .

Amendment No.

1 to Loan and Security Agreement, dated as of July 8, 2020, between Adicet Therapeutics, Inc.

and Pacific Western Bank (incorporated by reference to Exhibit 10.32 to the Registrant’s Current Report on Form 8-K (File No.

001-38359) filed with the SEC on September 16, 2020).

First Amendment to the Adicet Bio, Inc.

2018 Stock Option and Incentive Plan (incorporated by reference to Exhibit 10.33 to the Registrant’s Current Report on Form 8-K (File No.

001-38359) filed with the SEC on September 16, 2020).

Employment Agreement, dated as of September 15, 2020, by and between the Company and Chen Schor (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No.

001-38359) filed with the SEC on September 18, 2020) .

Description of Exhibit

Amendment to Offer Letter, dated as of March 31, 2017, between the Registrant and Joan Mannick (incorporated by reference to Exhibit 10.13 to the Registrant’s Registration Statement on Form S-1, as amended, (File No.

333-222373) filed with the SEC on January 16, 2018)

Amendment to Offer Letter, dated as of March 31, 2017, between the Registrant and Chen Schor (incorporated by reference to Exhibit 10.14 to the Registrant’s Registration Statement on Form S-1, as amended, (File No.

Employment Agreement, dated as of September 15, 2020, by and between the Company and Carrie Krehlik (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File No.

001-38359) filed with the SEC on September 18, 2020).

Employment Agreement, dated as of September 15, 2020, by and between the Company and Francesco Galimi (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K (File No.

001-38359) filed with the SEC on September 18, 2020).

Employment Agreement, dated as of September 15, 2020, by and between the Company and Lloyd Klickstein (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K (File No.

001-38359) filed with the SEC on September 18, 2020).

Employment Agreement, dated as of September 15, 2020, by and between the Company and Nick Harvey (incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K (File No.

001-38359) filed with the SEC on September 18, 2020).

First Amendment to Lease, dated as of December 30, 2020, between Adicet Therapeutics, Inc.

as Tenant, and Westport Office Park, LLC as Landlord (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No.

001-38359) filed with the SEC on January 5, 2021).

1 unchanged sentence

333-222373) filed with the SEC on January 16, 2018).

Senior Executive Cash Incentive Bonus Plan (incorporated by reference to Exhibit 10.16 of the Registrant’s Annual Report on Form 10-K (File No.

001-38359) filed with the SEC on March 29, 2018)

Second Amendment to Offer Letter, effective as of March 1, 2019, between the Registrant and Joan Mannick (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q (File No.

001-38359) filed with the SEC on May 15, 2019)

First Amendment to Office Lease, dated as of April 1, 2019, by and between the Registrant and 500 Boylston and 222 Berkeley Owner (DE) LLC (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q (File No.

001-38359) filed with the SEC on May 15, 2019).

Employment Agreement, dated as of May 8, by and between the Registrant and Lloyd Klickstein (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q (File No.

001-38359) filed with the SEC on August 14, 2019)

Amendment No.

2 unchanged sentences

001-38359) filed with the SEC on November 5, 2019).

Stock Purchase Agreement, dated February 12, 2021, by and among the Registrant and the Investors named therein (incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form 8-K, as amended (File No.

001-38359) filed with the SEC on February 16, 2021).

Registration Rights Agreement, dated February 12, 2021, by and among the Registrant and the Investors named therein.

Subsidiaries of the Registrant.

Consent of KPMG LLP, independent registered public accounting firm.

Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm.

Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

2 unchanged sentences

§1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

XBRL Instance Document

XBRL Taxonomy Extension Schema Document

XBRL Taxonomy Extension Calculation Linkbase Document

XBRL Taxonomy Extension Definition Linkbase Document

XBRL Taxonomy Extension Label Linkbase Document

XBRL Taxonomy Extension Presentation Linkbase Document

Inline XBRL Instance Document

Inline XBRL Taxonomy Extension Schema Document

Inline XBRL Taxonomy Extension Calculation Linkbase Document

Inline XBRL Taxonomy Extension Definition Linkbase Document

Inline XBRL Taxonomy Extension Label Linkbase Document

Inline XBRL Taxonomy Extension Presentation Linkbase Document

Description of Exhibit

Cover Page Interactive Data File

Filed herewith.

4 unchanged sentences

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

resTORbio, Inc.

Adicet Bio, Inc.

March 11, 2021

2 unchanged sentences

(Principal Executive Officer)

POWER OF ATTORNEY

Each person whose individual signature appears below hereby authorizes and appoints Chen Schor and Nick Harvey, and each of them, with full power of substitution and resubstitution and full power to act without the other, as his or her true and lawful attorney-in-fact and agent to act in his or her name, place and stead and to execute in the name and on behalf of each person, individually and in each capacity stated below, and to file any and all amendments to this annual report on Form 10-K and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing, ratifying and confirming all that said attorneys-in-fact and agents or any of them or their or his substitute or substitutes may lawfully do or cause to be done by virtue thereof.

Pursuant to the requirements of the Securities Act of 1934, this Annual Report on Form 10-K has been signed by the following persons in the capacities and on the dates indicated.

2 unchanged sentences

March 11, 2021

/s/ John McCabe

Senior Vice President, Finance (principal financial officer and principal accounting officer)

/s/ Nick Harvey

Chief Financial Officer (principal financial officer and principal accounting officer)

March 11, 2021

2 unchanged sentences

March 11, 2021

/s/ Paul Fonteyne

Paul Fonteyne

/s/ Steve Dubin

March 11, 2021

/s/ Michael Grissinger

Michael Grissinger

March 11, 2021

/s/ Jonathan Silverstein

Jonathan Silverstein

/s/ Aya Jakobovits

Aya Jakobovits, Ph.D.

March 11, 2021

/s/ David Steinberg

David Steinberg

/s/ Bastiano Sanna

Bastiano Sanna, Ph.D

March 11, 2021

/s/ Lynne Sullivan

Lynne Sullivan

/s/ Andrew Sinclair

Andrew Sinclair

March 11, 2021

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures