BioAtla, Inc. 10-K

ITEM 8. Financial Statements and Supplementary Data BioAtla, Inc. Page Index to consolidated financial statements Report of independent registered public accounting firm 137 Consolidated balance sheets 138 Consolidated statements of operations and comprehensive loss 139 Consolidated statements of convertible preferred stock and stockholders’/members’ equity (deficit) 140 Consolidated statements of cash flows 141 Notes to consolidated financial statements 142 136 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of BioAtla, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of BioAtla, Inc. (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive loss, convertible preferred stock and stockholders’/members’ equity (deficit) and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements 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. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. 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 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 financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2016. San Diego, California March 24, 2021 137 Table of Contents BioAtla, Inc. Consolidated balance sheets (in thousands, except share/unit amounts) December 31, 2020 2019 Assets Current assets: Cash and cash equivalents $ 238,605 $ 3,704 Prepaid expenses and other current assets 2,076 803 Total current assets 240,681 4,507 Property and equipment, net 4,102 4,675 Other assets 154 154 Total assets $ 244,937 $ 9,336 Liabilities and Stockholders’/ Members’ Equity (Deficit) Current liabilities: Accounts payable and accrued expenses (includes related party amounts of $0 and $421, respectively) $ 12,068 $ 11,972 Accrued interest — 3,253 Current portion of deferred rent 387 367 Current portion of deferred revenue 19,806 1,420 Current portion of convertible debt, less debt discount — 9,706 Total current liabilities 32,261 26,718 Profits interest liability — 8,592 Long-term accrued interest (includes related party amounts of $0 and $27, respectively) 5 623 Deferred rent, less current portion 2,015 2,185 Deferred revenue, less current portion — 18,815 Convertible debt, less current portion and debt discount (includes related party amounts of $0 and $1,396, respectively) — 8,414 Other debt 682 — Total liabilities 34,963 65,347 Commitments and contingencies (Note 5) Stockholders’/Members’ equity (deficit): Class C preferred units — 0 units and 23,968,178 units issued and outstanding at December 31, 2020 and 2019, respectively — 89,345 Class A units — 0 units and 54,600,000 units issued and outstanding at December 31, 2020 and 2019, respectively — 750 Preferred stock, $0.0001 par value; 200,000,000 shares and 0 shares authorized at December 31, 2020 and 2019, respectively; 0 shares issued and outstanding at December 31, 2020 and 2019 — — Common stock, $0.0001 par value; 350,000,000 shares and 0 shares authorized at December 31, 2020 and 2019, respectively; 32,171,560 shares and 0 shares issued and outstanding at December 31, 2020 and 2019, respectively 3 — Class B common stock, $0.0001 par value; 15,368,569 shares and 0 shares authorized at December 31, 2020 and 2019, respectively; 1,492,059 shares and 0 shares issued and outstanding at December 31, 2020 and 2019, respectively — — Additional paid-in capital 300,888 2,295 Accumulated deficit (90,917 ) (148,354 ) Total stockholders’/members’ equity (deficit)—BioAtla, Inc. /BioAtla LLC 209,974 (55,964 ) Noncontrolling interest — (47 ) Total stockholders’/members’ equity (deficit) 209,974 (56,011 ) Total liabilities and stockholders’/members’ equity (deficit) $ 244,937 $ 9,336 See accompanying notes. 138 Table of Contents BioAtla, Inc. Consolidated statements of operations and comprehensive loss (in thousands, except share/unit and per share/unit amounts) Years ended December 31, 2020 2019 Collaboration revenue $ 429 $ 5,200 Operating expenses: Research and development expense (includes related party amounts of $0 and $1,885, respectively) 19,933 25,919 General and administrative expense (includes related party amounts of $0 and $15, respectively) 10,595 7,549 Total operating expenses 30,528 33,468 Loss from operations (30,099 ) (28,268 ) Other income (expense): Interest income 100 128 Interest expense (includes related party amounts of $147 and $52, respectively) (1,389 ) (1,630 ) Change in fair value of derivative liability (1,581 ) (63 ) Extinguishment of convertible debt (2,883 ) — Other income (expense) (1 ) (22 ) Total other income (expense) (5,754 ) (1,587 ) Consolidated net loss and comprehensive loss (35,853 ) (29,855 ) Net loss attributable to noncontrolling interests — 61 Net loss attributable to BioAtla, Inc./BioAtla LLC $ (35,853 ) (29,794 ) Net loss allocable to Class C preferred unit holders 9,089 Class C preferred return (8,026 ) Net loss attributable to Class A unit holders $ (28,731 ) Net loss per unit attributable to Class A unit holders, basic and diluted $ (0.53 ) Weighted-average Class A units outstanding, basic and diluted 54,600,000 Net loss per common share, basic and diluted (1) $ (3.19 ) Weighted-average shares of common stock outstanding, basic and diluted (1) 8,428,153 (1) The net loss attributable to common stockholders and related per share amounts are based on the period from July 10, 2020 to December 31, 2020, the period where the Company had outstanding common stock (see Note 1). See accompanying notes. 139 Table of Contents BioAtla, Inc. Consolidated statements of convertible preferred stock and stockholders’/members’ equity (deficit) (in thousands, except share/unit amounts) Series D convertible preferred stock Class C preferred units Class A units Common stock Class B common stock Additional paid-in capital Accumulated deficit Non- controlling interest Total stockholders’/ members’ equity (deficit) Shares Amount Units Amount Units Amount Shares Amount Shares Amount Balance at December 31, 2018 — $ — 23,968,178 $ 89,345 54,600,000 $ 750 — $ — — $ — $ — $ (118,560 ) $ 19 $ (28,446 ) Noncontrolling interest — — — — — — — — — — — — (5 ) (5 ) Warrants issued by affiliates in connection with modification of convertible promissory notes — — — — — — — — — — 764 — — 764 Assumption of unvested profits interest liability by affiliates — — — — — — — — — — 197 — — 197 Assumption of vested profits interest liability by affiliates — — — — — — — — — — 800 — — 800 Beneficial conversion feature in convertible promissory notes — — — — — — — — — — 534 — — 534 Net loss — — — — — — — — — — — (29,794 ) (61 ) (29,855 ) Balance at December 31, 2019 — — 23,968,178 89,345 54,600,000 750 — — — — 2,295 (148,354 ) (47 ) (56,011 ) Issuance of Series D convertible preferred stock for cash, net of $4,317 of issuance costs 140,626,711 68,183 — — — — — — — — — — — — Issuance of Series D convertible preferred stock in connection with settlement of convertible promissory notes 59,164,808 30,594 — — — — — — — — — — — — Assumption of profits interest liability by affiliate — — — — — — — — — — 991 — — 991 Change in profits interest liability of affiliate — — — — — — — — — — 749 — — 749 Noncontrolling interest—distribution of net assets to affiliate and related deconsolidation — — — — — — — — — — (66 ) — 47 (19 ) LLC Conversion — — (23,968,178 ) (89,345 ) (54,600,000 ) (750 ) 6,220,050 1 — — (3,196 ) 93,290 — — Conversion of Series D convertible preferred stock into common stock (199,791,519 ) (98,777 ) — — — — 13,876,510 1 1,492,059 — 98,776 — — 98,777 Initial public offering, net of $19,032 of issuance costs — — — — — — 12,075,000 1 — — 198,317 — — 198,318 Stock-based compensation — — — — — — — — — — 3,022 — — 3,022 Net loss — — — — — — — — — — — (35,853 ) — (35,853 ) Balance at December 31, 2020 — $ — — $ — — $ — 32,171,560 $ 3 1,492,059 $ — $ 300,888 $ (90,917 ) $ — $ 209,974 See accompanying notes. 140 Table of Contents BioAtla, Inc. Consolidated statements of cash flows (in thousands) Years ended December 31, 2020 2019 Cash flows from operating activities Net loss $ (35,853 ) $ (29,855 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,008 860 Loss on disposal of property and equipment — 3 Change in fair value of derivative liability 1,581 63 Change in fair value of profits interest liability (6,852 ) (6,403 ) Loss on extinguishment of debt 2,883 — Stock-based compensation 3,022 — Non-cash interest 525 355 Deferred rent (150 ) 230 Changes in operating assets and liabilities: Prepaid expenses and other assets (1,273 ) 939 Accounts payable and accrued expenses (1,660 ) 3,218 Accounts payable and accrued expenses—related parties — (88 ) Accrued interest 864 1,276 Deferred revenue (429 ) 19,757 Net cash used in operating activities (36,334 ) (9,645 ) Cash flows from investing activities Purchases of property and equipment (590 ) (1,509 ) Net cash used in investing activities (590 ) (1,509 ) Cash flows from financing activities Noncontrolling interest (19 ) (5 ) Proceeds from issuance of convertible debt 2,750 4,000 Proceeds from issuance of convertible preferred stock, net of issuance costs 68,183 — Proceeds from PPP loan 682 — Proceeds from initial public offering, net of issuance costs 200,229 — Net cash provided by financing activities 271,825 3,995 Net increase (decrease) in cash and cash equivalents 234,901 (7,159 ) Cash and cash equivalents, beginning of period 3,704 10,863 Cash and cash equivalents, end of period $ 238,605 $ 3,704 Supplemental disclosure of non-cash investing and financing activities Property and equipment additions included in accounts payable and accrued expenses $ 17 $ 172 Fair value of warrants issued by affiliates in connection with modification of convertible promissory notes $ — $ 764 Assumption of profits interest liability by affiliates $ 991 $ 997 Equity issuance costs included in accounts payable and accrued expenses $ 1,911 $ — Carrying value of convertible promissory notes settled in connection with Corporate Reorganization $ 27,711 $ — Fair value of consideration issued in connection with settlement of convertible promissory notes $ 30,594 $ — See accompanying notes. 141 Table of Contents BioAtla, Inc. Notes to consolidated financial statements 1. Organization and summary of significant accounting policies Organization BioAtla, LLC (the “Pre-Division Predecessor”) was formed in Delaware in March 2007. In March 2019, the Pre-Division Predecessor was divided into three separate and distinct Delaware limited liability companies (the “Division”) as follows: 1) BioAtla, LLC renamed to BioAtla Holdings, LLC (“BioAtla Holdings”), 2) a new legal entity named Inversagen, LLC (“Inversagen”), and 3) a new legal entity named BioAtla, LLC (the “Post-Division Successor” and together with BioAtla Holdings and Inversagen, the “Post-Division LLCs”). Upon the Division, each Post-Division LLC had substantially the same form of operating agreement and capital structure as the Pre-Division Predecessor, with the following exceptions: i) 1,750,000 Class B units issued by the Post-Division Successor but not by BioAtla Holdings or Inversagen, ii) the outstanding warrants of the Pre-Division Predecessor at the Division date were transferred to the Post-Division Successor (see Note 6), and iii) the Class C units of the Post-Division Successor had liquidation preferences and a preferred return not included in the operating agreements of BioAtla Holdings and Inversagen. In connection with the Division, the Pre-Division Predecessor’s holdings of EXUMA Biotech Corp. (“EXUMA”, formerly F1 Oncology, Inc.) common and preferred stock (see Note 11) remained in BioAtla Holdings and certain rights related to the application of CAB technology in senescent cell therapy were transferred to the Post-Division Successor and simultaneously licensed to Inversagen (see Note 9). The remaining assets and liabilities (including ownership of Himalaya Therapeutics SEZC and its wholly-owned subsidiary, Himalaya Therapeutics HK Limited as described below in “Principles of consolidation and deconsolidation”), and substantially all of the operations of the Pre-Division Predecessor, including all existing employees, were transferred to the Post-Division Successor. Each of the Pre-Division Predecessor’s members at the time of the Division continued as a member in the Post-Division Successor, BioAtla Holdings and Inversagen, and each entity has Dr. Jay Short and Carolyn Anderson Short as its LLC managers. There are no shared services agreements between the Company and BioAtla Holdings or Inversagen. The Company has determined that Inversagen is a variable interest entity (“VIE”), the Company is not the primary beneficiary of Inversagen, and that the Post-Division LLCs are under the common control of Jay and Carolyn Short. The Company does not consolidate either BioAtla Holdings or Inversagen (see Note 9). In addition, the Company has no direct equity investment in either BioAtla Holdings or Inversagen that require either equity method or cost method accounting. The assets, liabilities, and employees transferred to the Post-Division Successor in the Division met the definition of a business and the transfer qualifies as a change in reporting entity under Accounting Standards Codification (“ASC”) 250-10-45-21. As such, the historical financial statements of the Pre-Division Predecessor are deemed to be those of the Post-Division Successor, even for periods prior to its formation. As a transfer of a business to an entity under common control, the assets and liabilities of the Pre-Division Predecessor were transferred to the Post-Division Successor at historical carrying values. At the Division date, the Pre-Division Predecessor’s investment in EXUMA and the assets licensed to Inversagen had a zero carrying value and neither EXUMA nor Inversagen had material operations. As such, the Pre-Division historical financial statements presented herein are the historical financial statements of the Pre-Division Predecessor without adjustment. In connection with the Division, certain modifications were made to then outstanding debt agreements and units, including: i) the participation threshold of each Class B unit in each Post-Division LLC was adjusted for the impact of the Division (see Note 7), ii) the amendment of the Pfizer Note and 2018 Notes (as defined and described in Note 4), and iii) the issuance, to both Pfizer and the holders of the 2018 Notes, of conditional warrants by BioAtla Holdings and Inversagen which become exercisable upon the conversion of the Pfizer Note and 2018 Notes into capital stock of the Post-Division Successor (see Note 4). 142 Table of Contents The Post-Division Successor converted to a Delaware corporation in July 2020 as part of the Corporate Reorganization defined and described below, and was renamed BioAtla, Inc. BioAtla, Inc. is the final successor to the Pre-Division Predecessor and the Post-Division Successor, and collectively these entities are referred to as “the Company.” The historical financial statements of the Company prior to the Corporate Reorganization are those of the Pre-Division Predecessor and the Post-Division Successor without adjustment. The Company has a proprietary platform for creating biologics, including its conditionally active biologics (“CAB” or “CABs”). CABs have been designed to be active only under certain conditions found in diseased tissue, while remaining inactive in normal tissue. The Company is currently in clinical development of its two lead CAB antibody drug conjugates (“CAB ADC”) targeting AXL and ROR2 receptors. Corporate reorganization and Series D financing In July 2020, BioAtla, LLC (the Post-Division Successor) completed a series of transactions (the “Corporate Reorganization”) in connection with the conversion from a limited liability company into a Delaware corporation, the spin-off of Himalaya Therapeutics SEZC, and the completion of a Series D convertible preferred stock financing. The Corporate Reorganization involved the formation of Himalaya Parent LLC as a wholly owned subsidiary of BioAtla, LLC and the formation of BioAtla MergerSub LLC, as a wholly owned subsidiary of Himalaya Parent LLC. Under the Agreement and Plan of Merger (the “Merger Agreement”), BioAtla, LLC was merged into and with BioAtla MergerSub LLC, with BioAtla, LLC surviving, and the members of BioAtla, LLC immediately prior to the effective time of the Merger Agreement received membership interests, on a one-for-one basis, of Himalaya Parent LLC as consideration, and the then-outstanding warrants to purchase equity of BioAtla, LLC were converted into warrants to purchase common shares of common stock of BioAtla, Inc. (see Note 6). The Himalaya Parent LLC operating agreement provided identical equity rights for the then outstanding units of BioAtla, LLC. In addition: (i) the membership interests of BioAtla, LLC held by Himalaya Parent LLC were exchanged for 6,220,050 shares of BioAtla, Inc. common stock, (ii) BioAtla, Inc. issued an aggregate of 59,164,808 shares of Series D convertible preferred stock to Himalaya Parent LLC and Himalaya Parent LLC issued an aggregate of 59,164,808 Class D units to the holders of convertible notes of BioAtla, LLC in connection with the conversion of their convertible notes into Class D units of Himalaya Parent LLC (see Note 4), (iii) BioAtla, LLC distributed to Himalaya Parent LLC its equity interests in Himalaya Therapeutics SEZC, a majority-owned subsidiary which is engaged in the development of a set of antibodies in the field of oncology primarily in Greater China, (iv) Himalaya Parent LLC assumed the profits interest liability of BioAtla, LLC (see Note 7) and (v) BioAtla, LLC converted into a Delaware corporation pursuant to a statutory conversion and changed its name to BioAtla, Inc. Following the Corporate Reorganization, Himalaya Parent LLC owned 59,164,808 shares of BioAtla, Inc. Series D convertible preferred stock and 6,220,050 shares of BioAtla, Inc. common stock. As a result of the subsequent sale of 140,626,711 shares of Series D convertible preferred stock to new investors in July 2020 (see Note 6), BioAtla, Inc. is not controlled by Himalaya Parent LLC (see further discussion in “Principles of consolidation” below). All pre-Corporate Reorganization operations, employees, property, assets and obligations of BioAtla, LLC (exclusive of the profits interest liability and Himalaya Therapeutics SEZC now held by Himalaya Parent LLC) are held by BioAtla, Inc. Reverse stock split On December 2, 2020, the Company effected a 1-for-13 reverse stock split of its common stock. The par value and the authorized shares of the common stock were not adjusted as a result of the reverse stock split. The reverse stock split resulted in an adjustment to the convertible preferred stock conversion price to reflect a proportional decrease in the number of shares of common stock to be issued upon conversion. The accompanying financial statements and notes to the financial statements give retroactive effect to the reverse stock split for all periods presented. No adjustments have been made to any period for the units outstanding prior to the LLC Conversion. 143 Table of Contents Principles of consolidation and deconsolidation Prior to the Corporate Reorganization in July 2020, the consolidated financial statements included the accounts of BioAtla, LLC and those of its majority owned subsidiary Himalaya Therapeutics SEZC that had no material operations. Himalaya Therapeutics SEZC also had a wholly owned subsidiary, Himalaya Therapeutics HK Limited that had no material operations. All intercompany balances were eliminated in consolidation. In connection with the Corporate Reorganization, Himalaya Therapeutics SEZC and Himalaya Therapeutics HK Limited were deconsolidated without material impact to the consolidated financial statements. Subsequent to the Corporate Reorganization, Himalaya Parent LLC does not control, is not under common control with, and is not consolidated by BioAtla, Inc. (see Note 9). Liquidity and going concern The Company has incurred cumulative operating losses and negative cash flows from operations since its inception and expects to continue to incur significant expenses and operating losses for the foreseeable future as it continues the development of its product candidates. As of December 31, 2020, the Company had an accumulated deficit of $90.9 million. The Company plans to continue to fund its losses from operations and capital funding needs through public or private equity or debt financings or other sources. If the Company is not able to secure adequate additional funding, the Company may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, or suspend or curtail planned programs. Any of these actions could materially harm the Company’s business, results of operations and future prospects. Management is required to perform a two-step analysis of the Company’s ability to continue as a going concern. Management must first evaluate whether there are conditions and events that raise substantial doubt about the Company’s ability to continue as a going concern (Step 1). If management concludes that substantial doubt is raised, management is also required to consider whether its plans alleviate that doubt (Step 2). Management’s assessment included the preparation of cash flow forecasts resulting in management’s conclusion that there is not substantial doubt about the Company’s ability to continue as a going concern for 12 months after the date the consolidated financial statements for the year ended December 31, 2020 were issued. Variable interest entities The Company consolidates entities in which it has a controlling financial interest. The Company determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a voting interest entity (“VIE”). Voting interest entities are entities in which (i) the total equity investment at risk is sufficient to enable the entity to finance its activities independently, (ii) the equity holders have the power to direct the activities of the entity that most significantly impact its economic performance, the obligation to absorb the losses of the entity and the right to receive the residual returns of the entity and (iii) the legal entity is structured with substantive voting rights. A VIE is an entity that lacks one or more of the characteristics of a voting interest entity. The Company has a controlling financial interest in a VIE when the Company has a variable interest or interests that provide it with (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The Company evaluates its relationships with its VIEs on an ongoing basis to determine whether or not it has a controlling financial interest (see Notes 9 and 11). Use of estimates The Company’s consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of the Company’s consolidated financial statements requires it to make estimates and assumptions that impact the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in the Company’s consolidated financial statements and accompanying notes. The most significant estimates in the Company’s consolidated financial statements relate to 144 Table of Contents revenue recognition, accruals for research and development costs, equity-based compensation and fair value measurements. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of revenue and expenses that are not readily apparent from other sources. Actual results may differ materially and adversely from these estimates. To the extent there are material differences between the estimates and actual results, the Company’s future results of operations will be affected. Segment reporting Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. The Company views its operations and manages its business in one operating segment. Cash and cash equivalents The Company considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents. Concentrations of risk Financial instruments that potentially subject the Company to a significant concentration of credit risk consist primarily of cash and cash equivalents. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. The Company has not experienced any losses in such accounts and management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held. For the years ended December 31, 2020 and 2019, BeiGene, as defined and described in Note 8, represented 100% and 91%, respectively, of total revenues. Property and equipment Property and equipment are stated at cost and depreciated on a straight-line basis over the estimated useful life of the related assets. Leasehold improvements are stated at cost and amortized on a straight-line basis over the lesser of the remaining term of the related lease or the estimated useful life of the leasehold improvements. Repairs and maintenance costs are charged to expense as incurred and expenditures that materially extend the useful lives of assets are capitalized. Impairment of long-lived assets The Company reviews long-lived assets, such as property and equipment, for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. Fair value would be assessed using discounted cash flows or other appropriate measures of fair value. The Company has not recognized any impairment losses for the years ended December 31, 2020 and 2019. Deferred rent Rent expense is recognized using the straight-line method over the lease term, which includes the period of time from when the Company takes possession of the leased space until leasehold improvements are completed 145 Table of Contents and the space is occupied. The difference between rent expense and amounts paid under the lease agreement is deferred in the accompanying consolidated balance sheets. Tenant improvement allowances and other lease incentives are recorded as liabilities and are amortized on the straight-line basis over the lease term as reductions to rent expense. Beneficial conversion features A beneficial conversion feature is a non-detachable conversion feature that is “in the money” at the commitment date, which requires recognition of interest expense for underlying debt instruments and a deemed dividend for underlying equity instruments. A conversion option is “in the money” if the effective conversion price is lower than the commitment date fair value of the share into which it is convertible. Accounting for derivatives The Company evaluates its convertible instruments and other contracts to determine if those contracts or embedded components of those contracts are required to be recognized under Accounting Standards Codification (“ASC”) Topic 815, Derivatives and Hedging . The result of this accounting treatment is that the derivative is carried at fair value as an asset or liability with changes in fair value recognized in earnings as they occur. Although separately measured at fair value, the fair value of bifurcated embedded derivatives is presented with the host contract in the consolidated balance sheets. Changes in the fair value of derivatives are recorded in the accompanying consolidated statements of operations and comprehensive loss as a component of other income (expense). Revenue recognition Effective January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) (“Topic 606”) using the modified retrospective method. Topic 606 supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition (“Topic 605”). There was no material cumulative effect of adopting Topic 606. Revenue recognition under Topic 606 The Company recognizes revenue in a manner that depicts the transfer of control of a product or a service to a customer and reflects the amount of the consideration the Company is entitled to receive in exchange for such product or service. In doing so, the Company follows a five-step approach: (i) identify the contract with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations, and (v) recognize revenue when (or as) the customer obtains control of the product or service. The Company considers the terms of a contract and all relevant facts and circumstances when applying the revenue recognition standard. A customer is a party that has entered into a contract with the Company, where the purpose of the contract is to obtain a product or a service that is an output of the Company’s ordinary activities in exchange for consideration. To be considered a contract, (i) the contract must be approved (in writing, orally, or in accordance with other customary business practices), (ii) each party’s rights regarding the product or the service to be transferred can be identified, (iii) the payment terms for the product or the service to be transferred can be identified, (iv) the contract must have commercial substance (that is, the risk, timing or amount of future cash flows is expected to change as a result of the contract), and (v) it is probable that the Company will collect substantially all of the consideration to which it is entitled to receive in exchange for the transfer of the product or the service. A performance obligation is defined as a promise to transfer a product or a service to a customer. The Company identifies each promise to transfer a product or a service (or a bundle of products or services, or a 146 Table of Contents series of products and services that are substantially the same and have the same pattern of transfer) that is distinct. A product or a service is distinct if both (i) the customer can benefit from the product or the service either on its own or together with other resources that are readily available to the customer and (ii) the Company’s promise to transfer the product or the service to the customer is separately identifiable from other promises in the contract. Each distinct promise to transfer a product or a service is a unit of accounting for revenue recognition. If a promise to transfer a product or a service is not separately identifiable from other promises in the contract, such promises should be combined into a single performance obligation. The transaction price is the amount of consideration the Company is entitled to receive in exchange for the transfer of control of a product or a service to a customer. To determine the transaction price, the Company considers the existence of any significant financing component, the effects of any variable elements, noncash considerations and consideration payable to the customer. If a significant financing component exists, the transaction price is adjusted for the time value of money. If an element of variability exists, the Company must estimate the consideration it expects to receive and uses that amount as the basis for recognizing revenue as the product or the service is transferred to the customer. There are two methods for determining the amount of variable consideration: (i) the expected value method, which is the sum of probability-weighted amounts in a range of possible consideration amounts, and (ii) the mostly likely amount method, which identifies the single most likely amount in a range of possible consideration amounts. If a contract has multiple performance obligations, the Company allocates the transaction price to each distinct performance obligation in an amount that reflects the consideration the Company is entitled to receive in exchange for satisfying each distinct performance obligation. For each distinct performance obligation, revenue is recognized when (or as) the Company transfers control of the product or the service applicable to such performance obligation. In those instances where the Company first receives consideration in advance of satisfying its performance obligation, the Company classifies such consideration as deferred revenue until (or as) the Company satisfies such performance obligation. In those instances where the Company first satisfies its performance obligation prior to its receipt of consideration, the consideration is recorded as accounts receivable. The Company expenses incremental costs of obtaining and fulfilling a contract as and when incurred if the expected amortization period of the asset that would be recognized is one year or less, or if the amount of the asset is immaterial. Otherwise, such costs are capitalized as contract assets if they are incremental to the contract and amortized to expense proportionate to revenue recognition of the underlying contract. Research and development expenses The Company’s research and development expenses consist primarily of salaries, payroll taxes, employee benefits, and equity-based compensation charges for those individuals involved in ongoing research and development efforts; as well as consulting expenses, laboratory supplies, third party research and development expenses, animal studies and overhead, including facilities and depreciation costs. Research and development expenses are charged to expense as incurred. The Company has entered into various research and development contracts with research institutions, clinical research organizations, clinical manufacturing organizations and other companies. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in the accompanying consolidated balance sheets as prepaid or accrued expenses. The Company records accruals for estimated ongoing research and development costs. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the services, including the phase or completion of events, invoices received and contracted costs. Significant judgments and estimates may be made in determining the accrued balances at the end of any reporting period. Actual results could differ from the Company’s estimates. 147 Table of Contents Patent costs Costs related to filing and pursuing patent applications are recorded as general and administrative expenses and expensed as incurred since recoverability of such expenditures is uncertain. Equity-based compensation related to profits interest plan Prior to the Corporate Reorganization in July 2020, the Company had a profits interest plan that was a liability award plan in accordance with ASC Topic 718, Compensation – Stock Compensation (Topic 718) . The Company measured the fair value of each award on the grant date and recognized such fair value over the requisite service period (usually the vesting period) on a straight-line basis. The fair value of the award was remeasured at each reporting date until the award was settled, with a true-up of compensation cost for changes in fair value prorated for the portion of the requisite service period rendered. Once vested, any subsequent change in fair value was recognized immediately. The fair value of any awards that expired or were forfeited or canceled for no value were adjusted to zero, as they occurred, such that any previously recorded compensation cost would be fully reversed. Subsequent to the Corporate Reorganization and amendment of the profits interest plan by Himalaya Parent in October 2020, the Company will no longer reflect compensation cost and a corresponding capital contribution associated with the ongoing mark-to-market of the Class B profits interests held by Himalaya Parent LLC, but any new profits interest awards granted by Himalaya Parent LLC to BioAtla, Inc.’s employees, or modifications to the existing awards made by Himalaya Parent LLC, will result in additional compensation cost and a corresponding capital contribution in accordance with ASC Topic 718. Stock-based compensation Stock-based compensation expense represents the grant date fair value of equity awards over the requisite service period of the awards (usually the vesting period) on a straight-line basis. The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model. Prior to the Company’s initial public offering (“IPO”), the fair value of RSUs was based on the estimated fair value of the underlying common stock on the date of grant and, subsequent to the Company’s IPO, the fair value is based on the closing sales price of the Company’s common stock on the date of grant. Equity award forfeitures are recognized as they occur. Income taxes The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized as income in the period that includes the enactment date. The Company recognizes net deferred tax assets to the extent that the Company believes these assets are more likely than not to be realized. In making such a determination, management considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, exclusive of reversing temporary difference, tax-planning strategies and the results of recent operations. If management determines that the Company would be able to realize its deferred tax assets in the future in excess of their net recorded amount, management would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. The Company records uncertain tax positions on the basis of a two-step process whereby (1) management determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, management recognizes the largest amount of tax benefit that is more than 50% likely to be realized upon 148 Table of Contents ultimate settlement with the related tax authority. The Company recognizes interest and penalties related to unrecognized tax benefits within income tax expense. Any accrued interest and penalties are included within the related tax liability. Comprehensive loss Comprehensive loss is defined as a change in equity during a period from transactions and other events and circumstances from non-owner sources. There have been no items qualifying as other comprehensive loss and, therefore, for all periods presented, the Company’s comprehensive loss was the same as its reported net loss. Net loss per unit/share Prior to the Corporate Reorganization, the Company applied the two-class method for calculating and presenting net loss per unit. In applying the two-class method, earnings are hypothetically allocated between the common, preferred, and other participating securities based on their respective rights to receive non-forfeitable distributions, whether or not declared. The Company considered its Class A units to be its “common units” since Class A units were the most subordinate class of equity with respect to preference in liquidation. In addition, the Class C units were entitled to a preferred return equal to 10% per annum, simple interest, on the Class C issuance price. The Company’s Class B units were excluded from the net loss per unit calculations based on the presumption that the units would be settled in cash pursuant to the terms of the Company’s operating agreement. Basic net loss per Class A unit was calculated by dividing net loss allocable to Class A unit holders (after adjustment for Class C preferred return and allocation of net losses to Class C units) by the weighted-average number of Class A units outstanding during the period. The Company calculated diluted net loss per unit using the more dilutive of 1) the treasury stock method, if-converted method, or contingently issuable share method, as applicable, or 2) the two-class method. For the year ended December 31, 2019, the basic and diluted net loss per unit were the same as the inclusion of outstanding warrants, convertible debt or Class C preferred units would be antidilutive. Subsequent to the Corporate Reorganization, basic net loss per share is computed by dividing the net loss by the weighted-average number of common shares outstanding for the period, without consideration for potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of common shares and dilutive common stock equivalents outstanding for the period determined using the treasury-stock method. Dilutive common stock equivalents are comprised of common stock warrants, RSUs, and common stock options outstanding under the Company’s stock option plan. For the year ended December 31, 2020, the Company determined that the attribution of pre-Corporate Reorganization net losses based on the post-Corporate Reorganization capital structure would not meaningfully represent the economic rights of the unit holders. As a result, the Company presents net loss per share information only for the period subsequent to the Corporate Reorganization. The basic and diluted net loss per share for the year ended December 31, 2020 represents only the period from July 10, 2020 to December 31, 2020, the period where the Company had outstanding common stock. 149 Table of Contents The following table presents the calculation of basic and diluted net loss per share for the period following the Corporate Reorganization (in thousands, except share and per share data): July 10, 2020 through December 31, 2020 Numerator: Net loss $ (26,877 ) Denominator: Weighted-average shares of common stock outstanding, basic and diluted 8,428,153 Net loss per common share, basic and diluted $ (3.19 ) Potentially dilutive securities not included in the calculation of diluted net loss per share because to do so would be anti-dilutive are as follows (in common stock equivalents): December 31, 2020 Common stock warrants 717,674 Common stock options 615,106 Restricted stock units 1,920,037 Total 3,252,817 Recent accounting pronouncements In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, Leases . The new standard establishes a right-of-use model and requires a lessee to recognize on the balance sheet a right-of-use asset and corresponding lease liability for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU No. 2016-02 is effective for annual periods beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022 and early adoption is permitted. While management is currently assessing the impact this new standard will have, the expected primary impact to its consolidated financial position upon adoption will be the recognition, on a discounted basis, of its minimum commitments under noncancelable operating leases on its consolidated balance sheets resulting in the recording of right of use assets and lease liabilities. The Company’s current minimum commitments under its noncancelable operating leases are disclosed in Note 5. In June 2018, the FASB issued ASU No. 2018-07, Compensation-Stock Compensation (Topic 718) , which simplifies the accounting for nonemployee share-based payment transactions. The amendments in the new guidance specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The adoption of ASU No. 2018-07 effective October 1, 2020 had no material impact on the Company’s consolidated financial statements. In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception . The ASU allows companies to exclude a down round feature when determining whether a financial instrument (or embedded conversion feature) is considered 150 Table of Contents indexed to the entity’s own stock. As a result, financial instruments (or embedded conversion features) with down round features may no longer be required to be classified as liabilities. A company will recognize the value of a down round feature only when it is triggered and the strike price has been adjusted downward. For equity-classified freestanding financial instruments, such as warrants, an entity will treat the value of the effect of the down round, when triggered, as a dividend and a reduction of income available to common shareholders in computing basic earnings per share. For convertible instruments with embedded conversion features containing down round provisions, entities will recognize the value of the down round as a beneficial conversion discount to be amortized to earnings. The early adoption of this guidance, effective January 1, 2020, had no material impact on the Company’s consolidated financial statements. 2. Balance sheet details Prepaid expenses and other current assets consist of the following (in thousands): December 31, 2020 2019 Prepaid research and development $ 2,004 $ 589 Other prepaid expenses and current assets 72 214 Total $ 2,076 $ 803 Property and equipment consist of the following (in thousands): December 31, Useful life (years) 2020 2019 Furniture, fixtures and office equipment 3 - 7 $ 1,719 $ 1,198 Laboratory equipment 5 1,790 1,826 Leasehold improvement 2 - 3 3,663 2,475 Construction in process — — 1,390 7,172 6,889 Less accumulated depreciation and amortization (3,070 ) (2,214 ) Total $ 4,102 $ 4,675 Accounts payable and accrued expenses consist of the following (in thousands): December 31, 2020 2019 Accounts payable (includes related party amounts of $0 and $381, respectively) $ 2,456 $ 5,139 Accrued compensation 2,804 2,297 Accrued research and development 4,852 4,050 Accrued equity issuance costs 1,143 — Other accrued expenses (includes related party amounts of $0 and $40, respectively) 813 486 Total $ 12,068 $ 11,972 3. Fair value measurements The carrying amounts of the Company’s current financial assets and current financial liabilities are considered to be representative of their respective fair values because of the short-term nature of those 151 Table of Contents instruments. Based on the borrowing rates available to the Company for loans with similar terms, the Company believed that the carrying value of its outstanding convertible debt as of December 31, 2019 approximated fair value. As of December 31, 2020, the Company had no convertible debt outstanding. As of December 31, 2020 and 2019, the Company had no financial assets measured at fair value on a recurring basis. As of December 31, 2020, the Company had no financial liabilities measured at fair value on a recurring basis and, as of December 31, 2019 and through the date of settlement in July 2020, the financial liabilities measured at fair value on a recurring basis include the embedded derivative liability described below. Profits interest liabilities are accounted for in accordance with the provisions of ASC 718 – Stock Compensation and, as such, are excluded from the fair value disclosures below. The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or non-recurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: Level 1: Observable inputs such as quoted prices in active markets. Level 2: Inputs, other than the quoted prices in active markets that are observable either directly or indirectly. Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. None of the Company’s non-financial assets and liabilities are recorded at fair value on a non-recurring basis. No transfers between levels have occurred during the periods presented. Liabilities measured at fair value on a recurring basis are as follows as of December 31, 2019 (in thousands): Fair value measurements at reporting date using Total Quoted prices in active markets for identical assets (level 1) Significant other observable inputs (level 2) Significant unobservable inputs (level 3) Embedded derivative liability $ 1,856 $ — $ — $ 1,856 Total $ 1,856 $ — $ — $ 1,856 The 2018 Notes (as amended in 2020), the 2019 Notes and the 2020 Notes (each as defined and described in Note 4) contained a redemption feature which was determined to be an embedded derivative requiring bifurcation and separate accounting. The fair value of the derivative was determined based on an income approach that identified the cash flows using a “with-and-without” valuation methodology. The inputs used to determine the estimated fair value of the derivative instrument were based primarily on the probability of an underlying event triggering the embedded derivative occurring and the timing of such event. 152 Table of Contents The following table provides a reconciliation of the embedded derivative liability measured at fair value using Level 3 unobservable inputs (in thousands): Embedded derivative liability Balance at December 31, 2018 $ — Initial fair value of embedded derivatives issued 1,793 Change in fair value 63 Balance at December 31, 2019 1,856 Initial fair value of embedded derivatives issued 3,415 Change in fair value 1,581 Settlement (6,852 ) Balance at December 31, 2020 $ — 4. Convertible and other debt Convertible debt consists of the following as of December 31, 2019 (in thousands): Convertible debt $ 19,000 Unamortized debt discount (2,736 ) Fair value of embedded derivative 1,856 Total convertible debt 18,120 Less: current portion of convertible debt (10,000 ) Less: current portion of unamortized debt discount 294 Convertible debt, less current portion and debt discount $ 8,414 Pfizer convertible promissory note In December 2015, the Company issued a $10.0 million unsecured convertible promissory note (“Pfizer Note”) to certain affiliates of Pfizer, Inc. (“Pfizer”). The Pfizer Note accrued interest at 8.0% per annum with a maturity date in December 2020. Prior to amendment in March 2019 as described below, the Pfizer Note, including accrued interest, was convertible at the election of the holder into Class C preferred units at a price of $3.394142 per unit and was automatically convertible into i) common shares upon the completion of an IPO based on the price per share paid by investors in the IPO or ii) qualified financing shares upon the completion of a qualified financing based on the price per share paid by investors in the qualified financing. The Company assessed the terms of the Pfizer Note and concluded that it was not share-settled debt, did not contain any embedded derivative features requiring bifurcation and did not contain a beneficial conversion feature. As a result, the Pfizer Note was carried at cost since the Company did not incur a material amount of issuance costs in connection with the debt. The Pfizer Note was amended in March 2019 in connection with the Division to provide the lender additional accrued interest upon conversion. The amended conversion amount of the Pfizer Note was equal to the greater of a) the then outstanding principal plus accrued interest, or b) principal plus accrued interest through December 7, 2020. In connection with the March 2019 amendment, Pfizer received conditional warrants in BioAtla Holdings and Inversagen which allowed Pfizer to acquire an equity interest in each of BioAtla Holdings and Inversagen upon conversion of the Pfizer Note of the Post-Division Successor. The amendment of the Pfizer Note was accounted for as a modification, which required prospective consideration of the revised terms. The Company recognized the initial fair value of the warrants of $0.5 million as a fee paid by the Company to the lenders, which was recorded as debt discount on the modified debt and as a capital contribution, as the warrants 153 Table of Contents were written on two entities under common control that were not consolidated with the Company. The debt discount was amortized to interest expense using the effective interest method over the term of the Pfizer Note. The fair value of the conditional warrants was determined using the Option Pricing Method based on the underlying value of the assets allocated to BioAtla Holdings and Inversagen. As of December 31, 2019, outstanding accrued interest on the Pfizer Note was $3.3 million. As of December 31, 2019, unamortized debt issuance costs were $0.3 million. The Company incurred interest expense in connection with the Pfizer Note of $0.6 million and $1.0 million for the years ended December 31, 2020 and 2019. As further described below, the Pfizer Note was amended and settled in connection with the Corporate Reorganization in July 2020. 2018 convertible promissory notes In August 2018, the Company issued unsecured convertible promissory notes for an aggregate of $5.0 million (the “2018 Notes”). The 2018 Notes accrued interest at 8.0% per annum with a maturity date in July 2023. Prior to amendment in March 2019, as described below, the then outstanding principal plus accrued interest under the 2018 Notes was convertible at the election of the holder into Class C preferred units at a price of $3.394142 per unit and was automatically convertible into i) common shares upon the completion of an IPO based on the price per share paid by investors in the IPO or ii) qualified financing shares upon the completion of a qualified financing based on the price per share paid by investors in the qualified financing. The Company assessed the terms of the 2018 Notes and concluded that they were not share-settled debt, did not contain any embedded derivative features requiring bifurcation and did not contain a beneficial conversion feature. As a result, the 2018 Notes were carried at cost since the Company did not incur a material amount of issuance costs in connection with the issuance of the promissory notes. The 2018 Notes were amended in March 2019 in connection with the Division to provide the lenders additional accrued interest upon conversion. The amended conversion amount of the 2018 Notes was equal to the greater of a) the then outstanding principal plus accrued interest, or b) principal plus accrued interest through December 7, 2020. In connection with the March 2019 amendment, the lenders received conditional warrants in BioAtla Holdings and Inversagen which allowed them to acquire an equity interest in each of BioAtla Holdings and Inversagen upon conversion of the 2018 Notes of the Post-Division Successor. The amendment of the 2018 Notes was accounted for as a modification, which required prospective consideration of the revised terms. The Company recognized the initial fair value of the warrants of $0.2 million as a fee paid by the Company to the lenders, which was recorded as debt discount on the modified debt and as a capital contribution, as the warrants were written on two entities under common control that were not consolidated with the Company. The debt discount was amortized to interest expense using the effective interest method over the term of the 2018 Notes. The fair value of the conditional warrants was determined using the Option Pricing Method based on the underlying value of the assets allocated to BioAtla Holdings. The underlying value of the assets allocated to Inversagen was immaterial. The 2018 Notes were amended in April 2020 to add a discount to the conversion prices such that they were convertible (i) automatically into preferred stock upon a qualified equity financing, with a conversion price of 80% of the lowest purchase price per share of preferred stock paid by investors in such qualified equity financing, (ii) automatically convert into common stock upon an initial public offering, with a conversion price of 80% of the price per share of common stock paid by investors in such initial public offering, and (iii) upon the election of each note holder, into Class C preferred units, with a conversion price per share of $2.7153136. The Company concluded that the amendment was an extinguishment and the fair value of the amended 2018 Notes was equal to the then outstanding principal and accrued interest of the 2018 Notes. As a result, the Company recognized a loss on extinguishment for the $0.2 million of unamortized discounts at the extinguishment date. In addition, the Company assessed the terms and concluded the amended 2018 Notes: (i) were not share-settled debt, (ii) contained a redemption feature that was determined to be an embedded derivative requiring bifurcation and (iii) did not contain a beneficial conversion feature. The $2.2 million issuance date fair value of the embedded derivative liability was recorded as a debt discount and amortized to interest expense using the effective interest method over the remaining term of the 2018 Notes. 154 Table of Contents As of December 31, 2019, outstanding accrued interest on the 2018 Notes was $0.5 million. As of December 31, 2019, unamortized debt issuance costs were $0.2 million. The Company incurred interest expense, including coupon interest and amortization of debt discounts, in connection with the 2018 Notes of $0.4 million and $0.4 million for the years ended December 31, 2020 and 2019, respectively. As further described below, the 2018 Notes were amended and settled in connection with the Corporate Reorganization in July 2020. 2019 convertible promissory notes Between August and December 2019, the Company issued unsecured convertible promissory notes payable to various entities in an aggregate principal amount of $4.0 million (the “2019 Notes”), of which $1.5 million was to related parties. The 2019 Notes accrued interest at 8.0% per annum with maturity dates of five years after issuance. The outstanding principal amount and any accrued and unpaid interest on the 2019 Notes was due and payable on the earlier to occur of (i) the maturity date, (ii) an event of default, or (iii) immediately prior to an acquisition event. The 2019 Notes were convertible (i) automatically into preferred stock upon a qualified equity financing, with a conversion price of 80% of the lowest purchase price per share of preferred stock paid by investors in such qualified equity financing, (ii) automatically into common stock upon an initial public offering, with a conversion price of 80% of the price per share of common stock paid by investors in such initial public offering, and (iii) upon the election of each note holder, into Class C preferred units, with a conversion price per share of $2.7153136. The number of shares or units issuable upon conversion is determined by dividing the conversion amount by the conversion price, with the conversion amount equal to the greater of a) the then outstanding principal plus accrued interest, or b) principal plus accrued interest through December 7, 2020. The Company assessed the terms and concluded the 2019 Notes: (i) were not share-settled debt, (ii) contained a redemption feature that was determined to be an embedded derivative requiring bifurcation and (iii) certain of the notes contained a beneficial conversion feature because the fair value of the securities into which the 2019 Notes were convertible at the time of issuance, the Class C preferred units, was greater than the effective conversion price of the 2019 Notes. The $0.5 million beneficial conversion feature was recorded as additional paid-in capital and a debt discount and the $1.8 million issuance date fair value of the embedded derivative liability was recorded as a debt discount, both of which discounts were amortized to interest expense using the effective interest method over the term of the 2019 Notes. In April and May of 2020 certain of the 2019 Notes, representing $2.5 million of the then outstanding principal balance, were amended such that the conversion shares or units issuable upon conversion is the greater of: (i) the then outstanding principal plus accrued interest divided by $0.86866 or (ii) the amount determined by dividing the conversion amount by the conversion price, with the conversion amount equal to the greater of a) the then outstanding principal plus accrued interest, or b) principal plus accrued interest through December 7, 2020. The amendment of the 2019 Notes was accounted for as a modification, which required prospective consideration of the revised terms. For the year ended December 31, 2020 and 2019, the Company recognized interest expense, including coupon interest and amortization of debt discounts, in connection with the 2019 Notes of $0.3 million and $0.1 million, respectively. As of December 31, 2019, outstanding accrued interest and unamortized debt discount on the 2019 Notes were $0.1 million and $2.3 million, respectively, and no principal or interest had been repaid. As further described below, the 2019 Notes were amended and settled in connection with the Corporate Reorganization in July 2020. 2020 convertible promissory notes During March, April and May of 2020 the Company issued unsecured convertible promissory notes (the “2020 Notes”) payable to various entities in an aggregate principal amount of $2.8 million, of which $0.5 million was to related parties. The 2020 Notes accrued interest at 8.0% per annum with maturity dates of five years after issuance. The Company assessed the terms and concluded the 2020 Notes: (i) were not share-settled debt, 155 Table of Contents (ii) contained a redemption feature that was determined to be an embedded derivative requiring bifurcation and (iii) did not contain a beneficial conversion feature. The $1.2 million issuance date fair value of the embedded derivative liability was recorded as a debt discount which was amortized to interest expense using the effective interest method over the term of the 2020 Notes. In May of 2020 certain of the 2020 Notes, representing $0.1 million of the then outstanding principal balance, were amended such that the conversion shares or units issuable upon conversion is the greater of: (i) the then outstanding principal plus accrued interest divided by $0.86866 or (ii) the amount determined by dividing the conversion amount by the conversion price, with the conversion amount equal to the greater of a) the then outstanding principal plus accrued interest, or b) principal plus accrued interest through December 7, 2020. The amendment of the 2020 Notes was accounted for as a modification, which required prospective consideration of the revised terms. For the year ended December 31, 2020, the Company recognized interest expense, including coupon interest and amortization of debt discounts, in connection with the 2020 Notes of $0.1 million. As further described below, the 2020 Notes were amended and settled in connection with the Corporate Reorganization in July 2020. Amendment and settlement of convertible notes As a condition of the closing of the Series D financing in July 2020, the Pfizer Note, 2018 Notes, 2019 Notes and 2020 Notes (and together, the “Convertible Notes”) were amended to settle the Convertible Notes into 59,164,808 Class D units of Himalaya Parent LLC. As of the settlement date, the aggregate outstanding principal and accrued interest of the Convertible Notes was $21.8 million and $4.7 million, respectively. The Pfizer Note converted into Class D units at a conversion price of $0.51554931 and the 2018 Notes and 2019 Notes converted into Class D units at a conversion price of $0.412439448, which is 80% of the price paid by investors in the Series D financing. As of the July 10, 2020 settlement date, the Convertible Notes had a carrying value of $27.9 million, including related accrued interest, embedded derivatives and unamortized debt discounts. The fair value of the Class D units of Himalaya Parent LLC issued to the noteholders in exchange for the Convertible Notes was $30.6 million, resulting in a loss on extinguishment of convertible debt of $2.7 million. The fair value per unit of the Class D units of Himalaya Parent LLC was based on the fair value per share paid by investors in the Company’s Series D financing. Other debt On April 22, 2020, the Company received proceeds from a loan in the amount of $0.7 million (the “PPP Loan”) from City National Bank, as lender, pursuant to the Paycheck Protection Program (“PPP”) of the CARES Act. The PPP Loan is evidenced by a promissory note (the “Note”), which contains customary events of default relating to, among other things, payment defaults and breaches of representations, warranties or terms of the PPP Loan documents. The PPP Loan matures on April 22, 2022 and bears interest at an annual rate of approximately 1%. Beginning in August 2021, the Company is required to begin making payments of principal and interest. The PPP Loan may be prepaid by the Company at any time prior to maturity with no prepayment penalties. The proceeds from the PPP Loan may only be used for payroll costs (including benefits), rent and utility obligations, and interest on certain of the Company’s other debt obligations. All or a portion of the PPP Loan may be forgiven by the U.S. Small Business Administration (“SBA”) upon application by the Company beginning 60 days but not later than 120 days after loan approval and upon documentation of expenditures in accordance with the SBA requirements. In the event the PPP Loan, or any portion thereof, is forgiven pursuant to the PPP, the amount forgiven is applied to outstanding principal. If it is determined that the Company was not eligible to receive the PPP Loan, the Company may be subject to penalties and could be required to repay the PPP Loan in its entirety. 156 Table of Contents 5. Commitments and contingencies Operating leases In June 2017, as amended in January 2019, the Company entered into a non-cancellable operating lease for its corporate headquarters and laboratory space in San Diego, California. The lease commenced in January 2018, the period the Company gained access to the leased space and began recognizing rent expense. The lease expires in July 2025 and the Company has an option to extend the term of the lease for an additional five years. The lease includes certain rent abatement, rent escalations, tenant improvement allowances and additional charges for common area maintenance and other costs. Rent expense for the years ended December 31, 2020 and 2019 was $1.7 million and $1.1 million, respectively. Expected future minimum payments under the non-cancelable operating lease are as follows (in thousands): Years ending December 31: Operating lease 2021 $ 1,374 2022 1,555 2023 1,636 2024 1,685 Thereafter 845 $ 7,095 Contingencies From time to time, the Company may be subject to various claims and suits arising in the ordinary course of business. The Company is not currently a party to any legal proceedings the outcome of which the Company believes, if determined adversely to the Company, would individually or in the aggregate have a material adverse effect on the Company’s business, operating results or financial condition. 6. Convertible preferred stock and members’/stockholders’ equity (deficit) Convertible preferred stock The Company had convertible preferred stock outstanding between the date of its Series D financing in July 2020 until the closing of its IPO in December 2020. The Company’s convertible preferred stock was classified as temporary equity in the accompanying consolidated balance sheets in accordance with authoritative guidance for the classification and measurement of potentially redeemable securities whose redemption is based upon certain change in control events outside of the Company’s control, including liquidation, sale or change of control of the Company. Because these change in control events were not probable, the Company did not adjust the carrying values of the convertible preferred stock to redemption value. Series D financing On July 13, 2020, BioAtla, Inc. entered into a Series D Preferred Stock Purchase Agreement, pursuant to which it issued 140,626,711 shares of Series D convertible preferred stock at $0.51554931 per share, for aggregate cash proceeds of $72.5 million. The Company incurred $4.3 million of issuance costs. Initial public offering and related transactions In December 2020, the Company completed its IPO selling 12,075,000 shares its common stock at $18.00 per share. Proceeds from the Company’s IPO, net of underwriting discounts and commissions and other offering costs, were $198.3 million. In connection with the IPO, all 199,791,519 shares of convertible preferred stock outstanding at the time of the IPO converted into 13,876,510 shares of the Company’s common stock and 1,492,059 shares of the Company’s Class B common stock. 157 Table of Contents Description of securities of Delaware corporation The Company is authorized to issue 200,000,000 shares of preferred stock, par value $0.0001 per share, 350,000,000 shares of common stock, par value $0.0001 per share, and 15,368,569 shares of Class B common stock, par value $0.0001 per share. Dividends Subject to preferences that may be applicable to any outstanding shares of preferred stock, holders of the Company’s common stock and Class B common stock are entitled to receive dividends only if declared from time to time by the Company’s board of directors out of assets which are legally available. Liquidation preferences Upon any liquidation, dissolution or winding-up of the Company, holders of the Company’s common stock and Class B common stock are entitled to share ratably in all assets remaining after payment of all liabilities and the liquidation preferences of any of our outstanding shares of preferred stock. Conversion Holders of the Company’s common stock have no conversion rights, while holders of the Company’s Class B common stock shall have the right to convert each share of Class B common stock into one share of common stock at such holder’s election, provided that as a result of such conversion, such holder would not beneficially own in excess of 4.99% of any class of the Company’s securities registered under the Securities Exchange Act of 1934, as amended, unless otherwise as expressly provided for in the Company’s amended and restated certificate of incorporation. This ownership limitation may be increased or decreased to any other percentage designated by such holder of Class B common stock upon 61 days’ notice to the Company. Voting rights Except as otherwise expressly provided in the Company’s amended and restated certificate of incorporation or as required by applicable law, on any matter that is submitted to a vote by the Company’s stockholders, holders of the Company’s common stock are entitled to one vote per share of common stock, and holders of the Company’s Class B common stock are not entitled to any votes per share of Class B common stock, including for the election of directors. Operating agreement Prior to the Corporate Reorganization, the Company’s operating agreement, as amended and restated, provided for classes of units, allocation of profits and losses, distribution preferences, other member rights and management of the LLC. The operating agreement designated Class A units, Class B units and Class C preferred units. The Class B units and Class C preferred units were non-voting, except as required by law. The Class B units were liability awards pursuant to authoritative guidance and, as such, were reported at fair value outside of members’ deficit. Members were limited in their liability to their capital contributions. Conversion Class C preferred units were convertible, at the option of the member, into Class A units on a one-for-one basis, subject to adjustment for any split, reverse split, distribution or other event affecting the Class C preferred units. The Class C preferred units would have automatically converted into Class A units upon the earlier to occur of (i) immediately prior to the closing of the Company’s first firm commitment underwritten public offering of its common equity and (ii) the vote of at least two-thirds of the Class C preferred units outstanding. 158 Table of Contents Distributions Distributions, other than tax distributions, were to be made to each unit holder based on such unit holder’s pro-rata share of total outstanding units; however, Class B units were subject to threshold limitations. Preferred return The preferred return was an amount separately determined for each Class C member equal to (i) the cumulative return that would have been earned from the date(s) of such Class C members’ capital contribution in respect to their Class C preferred units at a rate of 10% per annum, simple interest, on the Class C issue price, plus (b) such Class C member’s capital contributions. As of December 31, 2019, the aggregate Class C preferred return was $114.3 million. Liquidation The proceeds from a liquidation or winding up of the Company would have been distributed in the following order and priority: • First, to the payment of creditors of the Company; • Second, to the creation of any reserves that the managers deem reasonably necessary for any contingent or unforeseen liabilities or obligations of the Company; • Third, to the repayment of any outstanding loans made by any member of the Company; • Fourth, to the Class C members, in proportion to their unreturned preferred return, until each Class C member has received total distributions equal to such Class C member’s preferred return; and • Thereafter, to each member pro rata according to the percentage derived by dividing the number of outstanding units (excluding Class C preferred units already distributed) owned by such member by the total number of outstanding units (excluding Class C preferred units already distributed) owned by all members; however, Class B units are subject to threshold limitations. Common stock warrants Upon adoption of ASU No. 2018-07 on October 1, 2020, the measurement date of the warrants described below became fixed in accordance with the guidance, and such fair value was nominal since the warrants were deeply out-of-the-money. As of December 31, 2020 all the common stock warrants below are exercisable and expire as follows: Outstanding and exercisable Exercise price per share Expiration date 566,586 $ 88.25 December 17, 2021 151,088 $132.37 March 12, 2022 717,674 Noncontrolling interests In December 2018, the Company issued a noncontrolling interest in HTKY in the form of ordinary shares in connection with the termination of a collaboration and license agreement. In addition to the ordinary shares issued, certain employees and shareholders of the Company purchased 19,000,000 ordinary shares of HTKY for an aggregate purchase price of $19,000, of which 5,000,000 were repurchased for $5,000 in March 2019. As of December 31, 2019, the Company held all of the outstanding HTKY preferred equity, consisting of 97,183,256 Series B convertible preference shares, and 1,000 ordinary shares. The Series B convertible preference shares had 159 Table of Contents a liquation preference equal to the greater of $1.00 per share, plus declared and unpaid dividends, or the if-converted value, and pay non-cumulative dividends in preference to the holders of ordinary shares at an annual rate of 7% of the purchase price per share when, as and if declared by the board. The net income (loss) of HTKY was allocated to the ordinary shareholders on a pro rata basis. However, any net income was initially be allocated to the preference shares until the liquidation preference is met. Thereafter, preference shares would only be allocated dividends declared by the board of directors of HTKY. For the year ended December 31, 2019, substantially all of the $61,000 net loss of HTKY was allocated to the noncontrolling interest. HTKY had no material operations for the year ended December 31, 2020. 2020 Equity Incentive Plan On October 29, 2020, the Company’s board of directors approved the adoption of the BioAtla, Inc. 2020 Equity Incentive Plan (the “2020 Plan”) and approved certain amendments to the 2020 Plan in December 2020. The Company’s stockholders approved the 2020 Plan, as amended, in December 2020. Under the 2020 Plan, the Company may grant awards of common stock to the Company’s employees, consultants and non-employee directors pursuant to option awards, stock appreciation rights awards, restricted stock awards, restricted stock unit awards, performance stock awards, performance stock unit awards and other stock-based awards. Initially, the total number of common shares reserved for issuance under the 2020 Plan was 4,939,678. On January 1st of each year, commencing with the first January 1st following the effective date of the 2020 Plan, the shares available for awards under the 2020 Plan shall be increased by a number of shares equal to the lessor of 4% of the total number of shares outstanding on the immediately preceding December 31st and such lesser number of shares determined by the Company’s board of directors. The maximum term of the options granted under the 2020 Plan is no more than ten years. Awards under the 2020 Plan generally vest at 25% one year from the vesting commencement date and ratably each month thereafter for a period of 36 months, subject to continuous service. Stock-based compensation expense recognized for all equity awards under the 2020 Plan has been reported in the consolidated statements of operations and comprehensive loss as follows (in thousands): Year ended December 31, 2020 Research and development $ 740 General and administrative 2,282 Total $ 3,022 Restricted stock units In December 2020, the Company granted an aggregate of 1,920,037 restricted stock units (“RSUs”) to certain of the Company’s employees and service providers, including executive officers and non-employee directors. The following table summarizes RSU activity under the 2020 Plan for the year ended December 31, 2020: Number of Shares Weighted - average grant date fair value Outstanding at December 31, 2019 — $ — Granted 1,920,037 $ 18.00 Vested — $ — Outstanding at December 31, 2020 1,920,037 $ 18.00 160 Table of Contents As of December 31, 2020, total unrecognized stock-based compensation expense for RSUs was $31.6 million, which is expected to be recognized over a remaining weighted-average period of approximately 3.1 years. Stock options The following table summarizes stock option activity under the 2020 Plan for the year ended December 31, 2020 (in thousands, except share and per share data and years): Number of options Weighted - average exercise price per share Weighted - average remaining contractual term (in years) Aggregate intrinsic value Balance at December 31, 2019 — $ — — $ — Granted 615,106 $ 18.00 Balance at December 31, 2020 615,106 $ 18.00 9.95 $ 9,848 Vested and expected to vest at December 31, 2020 615,106 $ 18.00 9.95 $ 9,848 Exercisable at December 31, 2020 — $ — — $ — As of December 31, 2020, total unrecognized stock-based compensation cost for unvested common stock options was $7.1 million, which is expected to be recognized over a remaining weighted-average period of approximately 4.0 years. The weighted- average grant date fair value of stock options granted during the year ended December 31, 2020 was $11.66 per share. No stock options were granted during the year ended December 31, 2019. The assumptions used in the Black-Scholes option pricing model to determine the fair value of stock option grants were as follows: Year ended December 31, 2020 Expected volatility 74.5 % Risk-free interest rate 0.52 % Expected dividend yield 0.0 % Expected term 6.09 years Expected volatility. As the Company’s common stock does not have a significant trading history, the expected volatility assumption is based on volatilities of a peer group of similar companies whose share prices are publicly available. The peer group was developed based on companies in the biotechnology industry. Risk-free interest rate. The Company bases the risk-free interest rate assumption on the U.S. Treasury’s rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued. Expected dividend yield. The Company bases the expected dividend yield assumption on the fact that it has never paid cash dividends and has no present plans to pay cash dividends. Expected term. For employees, the expected term represents the period of time that options are expected to be outstanding. Because the Company has minimal historical exercise behavior, it determines the expected life assumption using the simplified method, which is an average of the contractual term of the option and its vesting period. For nonemployees, the expected term is generally the contractual term of the option. 161 Table of Contents Employee Stock Purchase Plan In December 2020, the Company’s board of directors and stockholders approved the BioAtla, Inc. Employee Stock Purchase Plan (the “ESPP”). The ESPP permits participants to purchase common stock through payroll deductions of up to 15% of their eligible compensation. A total of 464,829 shares of common stock were approved to be initially reserved for issuance under the ESPP. The number of shares of common stock reserved for issuance will automatically increase on January 1 of each calendar year, from January 1, 2021 through January 1, 2030 by the least of (i) 1.0% of the total number of common shares of our common stock outstanding on December 31 of the preceding calendar year (calculated on a fully diluted basis), (ii) 929,658 common shares or (iii) a number determined by the Company’s board of directors that is less than (i) and (ii). As of December 31, 2020, no employees had enrolled in the ESPP and no offering period had commenced. Common stock reserved for future issuance Common stock reserved for future issuance are as follows in common equivalent shares: December 31, 2020 Warrants for the purchase of common stock 717,674 Common stock options and restricted stock units issued and outstanding 2,535,143 Awards available for future issuance under the 2020 Plan 2,404,535 Awards available for future issuance under the ESPP 464,829 Total common stock reserved for future issuance 6,122,181 7. Profits interest incentive plan Prior to the Corporate Reorganization in July 2020, the Company maintained a Profits Interest Incentive Plan (the “Plan”) for selected employees, consultants and other service providers. In connection with the Corporate Reorganization, Himalaya Parent LLC assumed the Plan and the $1.0 million fair value of the liability was reclassified to additional paid-in capital. As of December 31, 2019, the Company had reserved a total of 16,665,977 Class B units for issuance under the Plan. The Class B units generally vested over four years, were subject to continued service requirements, and only provide the participants with benefits (in the form of distributions) if the distributions from BioAtla exceed specified threshold values. Generally, upon termination of services, all unvested Class B units were forfeited to the Company and the Company had the right, but not the obligation, to repurchase the vested Class B units within two years at the termination date fair value. The Class B unit repurchase would be settled in cash, at all times at the option of the Company, and the holder did not have the right to put the Class B units to the Company under any condition. Vested Class B units that are neither repurchased by the Company nor forfeited remained subject to the terms of the Company’s operating agreement. The Class B units were not subject to sale, assignment, transfer, pledge, or allowed to be otherwise encumbered or disposed of without prior written consent of the Company. As of December 31, 2019, no Class B units had been repurchased. As of December 31, 2019, there were 2,187,028 Class B units available for future issuance under the Plan. 162 Table of Contents Activity under the Plan is summarized as follows: Outstanding at December 31, 2018 12,867,269 Granted 2,277,586 Cancelled (665,906 ) Outstanding at December 31, 2019 14,478,949 Cancelled (170,836 ) Assumption of Plan by Himalaya Parent LLC on July 10, 2020 (14,308,113 ) Outstanding at December 31, 2020 — Vesting of Class B units under the Plan is summarized as follows: Unvested at December 31, 2018 5,992,101 Granted 2,277,586 Cancelled (665,906 ) Vested (1,445,453 ) Unvested at December 31, 2019 6,158,328 Cancelled (170,836 ) Vested (1,310,807 ) Assumption of unvested Class B units by Himalaya Parent LLC on July 10, 2020 (4,676,685 ) Unvested at December 31, 2020 — The Class B units were liability awards pursuant to authoritative guidance, which required the Company to record a liability based on the fair value of the Class B units as of each reporting period. For the year ended December 31, 2019 and through the date of the Corporate Reorganization, the fair value of the liability awards was determined based on the Company’s estimated enterprise value, which was allocated based on a hybrid model that, in addition to the option pricing model, considering the Company’s expected IPO. Under the option pricing method, units were valued by creating a series of call options with exercise prices based on the liquidation preferences and conversion terms of each unit class. In connection with the Division, the distribution thresholds that had to be achieved before the Class B unit holders were entitled to distributions were adjusted, resulting in a $0.9 million reduction to the aggregate profits interest liability between the Predecessor and the Post-Division LLCs at the date of the Division. The thresholds of the Post-Division Successor were changed in order to reflect the impact of the assets assigned to BioAtla Holdings and Inversagen in the Division. For the year ended December 31, 2019, the profits interest liability decreased $7.4 million, including the $0.9 million reduction described above, and $0.8 million recognized as additional paid-in capital related to the fair value of vested Class B units assumed by BioAtla Holdings and Inversagen in connection with the Division. In addition, the Company recognized stock-based compensation expense and additional paid-in capital of $0.2 million related to the fair value of the unvested Class B units assumed by BioAtla Holdings and Inversagen in connection with the Division since these Class B unit holders are employees of the Post-Division Successor, and were not expected to provide services to BioAtla Holdings or Inversagen. 163 Table of Contents The following table provides a reconciliation of the profits interest liability (in thousands): Balance at December 31, 2018 $ 15,992 Increase in fair value of vested liability (Pre-Division) recognized as stock-based compensation expense 168 Balance at March 15, 2019 (Pre-Division) 16,160 Fair value of vested liability assumed by BioAtla Holdings and Inversagen in connection with Division recognized as additional paid-in capital (800 ) Decrease in liability related to changes in distribution thresholds recognized as a reduction to stock-based compensation (870 ) Balance at March 15, 2019 (Post-Division) 14,490 Decrease in fair value of vested liability recognized as a reduction to stock-based compensation expense (5,898 ) Balance at December 31, 2019 8,592 Decrease in fair value of vested liability (Pre-Corporate Reorganization) recognized as decrease to stock-based compensation expense (7,601 ) Fair value of vested liability assumed by Himalaya Parent LLC on July 10, 2020 recognized as additional paid-in capital (991 ) Balance at December 31, 2020 $ — The outstanding Class B units as of December 31, 2019 are summarized as follows (in thousands, except threshold, unit and per unit data): Threshold (in millions) Units outstanding Vested units outstanding Unvested units outstanding Fair value per unit Profits interest liability $ 1.0 2,166,000 2,166,000 — $ 1.67 $ 3,617 29.2 395,000 395,000 — 1.47 581 42.1 285,804 285,804 — 1.38 394 51.9 1,650,000 1,650,000 — 1.31 2,162 59.7 330,000 330,000 — 1.27 419 64.8 90,000 90,000 — 1.23 111 74.8 591,956 591,956 — 1.17 693 115.5 86,875 84,375 2,500 0.94 79 149.7 181,250 175,833 5,417 0.76 134 169.4 20,000 17,083 2,917 0.66 11 254.0 305,000 236,248 68,752 0.24 57 265.2 58,750 54,375 4,375 0.19 10 270.7 250,000 133,332 116,668 0.17 23 279.1 1,386,762 1,056,338 330,424 0.12 127 279.9 100,000 43,750 56,250 0.12 5 283.0 273,966 273,966 — 0.11 30 304.6 2,277,586 — 2,277,586 0.08 33 305.9 70,000 28,958 41,042 0.08 2 308.7 3,960,000 707,603 3,252,397 0.08 104 14,478,949 8,320,621 6,158,328 $ 8,592 164 Table of Contents The allocation of equity-based compensation, including $0.7 million from Himalaya Parent as a capital contribution during 2020, for all Class B units is as follows (in thousands): Years ended December 31, 2020 2019 Research and development $ (2,993 ) $ (2,997 ) General and administrative (3,859 ) (3,406 ) Total $ (6,852 ) $ (6,403 ) 8. Collaboration, license and option agreements Global Co-Development and Collaboration Agreement with BeiGene In April 2019, the Company entered into a Global Co-Development and Collaboration agreement (the “BeiGene Collaboration”) with BeiGene, Ltd. and BeiGene Switzerland GmbH (collectively “BeiGene”), a commercial-stage biopharmaceutical company, for the development, manufacturing and commercialization of the Company’s investigational CAB CTLA-4 antibody (BA3071). The Company and BeiGene amended the Global Co-Development and Collaboration agreement in December 2019 and in October 2020 (the “Amended BeiGene Collaboration”). Under the BeiGene Collaboration the Company would co-develop the CAB-CTLA-4 antibody to reach defined early clinical objectives (“POC Milestone”), whereby the Company would perform the development activities (“Development Services”) and BeiGene reimbursed the Company for a portion of the costs incurred by the Company for these Development Services subsequent to the filing of an Investigational New Drug Application (“IND”). Following the POC Milestone, BeiGene would then lead the parties’ joint efforts to develop the product candidate and be responsible for global regulatory filings and commercialization. Subject to the terms of the agreement, BeiGene will hold a co-exclusive license with the Company to develop and manufacture the product candidate globally and an exclusive license to commercialize the product candidate globally. BeiGene will be responsible for all costs of development, manufacturing and commercialization in China, parts of the Middle East and Asia (excluding Japan), Australia and New Zealand (the “BeiGene Territory”), and the parties would share development and manufacturing costs and commercial profits and losses upon specified terms in the rest of the world that are not part of the BeiGene Territory (the “ROW”). Subject to earlier termination, the BeiGene Collaboration shall remain in effect, on a country-by-country basis until the earlier of ten years following commercial sale or upon such time that the parties cease pursuing commercialization. Unless terminated early, at the expiration date BeiGene retains all licensing rights in the applicable territories. BeiGene may terminate the BeiGene Collaboration at any time after the one-year anniversary of the agreement subject to 90 days written notice, or any time subject to 45 days’ notice if it is determined that the proof of concept milestone or technological or scientific feasibility will not be achieved. The BeiGene Collaboration also contains customary provisions for termination by either party, including the event of breach of the BeiGene Collaboration, subject to cure. In 2019, BeiGene paid the Company an upfront non-refundable payment of $20.0 million and paid the Company $5.0 million for the reimbursement of manufacturing costs. Under the BeiGene Collaboration, the Company was eligible to receive variable consideration for subsequent development and regulatory milestones globally and commercial milestones in the BeiGene Territory and tiered royalties ranging from the mid-single digits to the mid-double digits based on net sales in the BeiGene Territory. The Company concluded that the BeiGene Collaboration is a contract with a customer and applied relevant guidance from Topic 606 through reaching the POC milestone as the licenses to intellectual property granted to BeiGene and the obligation to perform research and development services are outputs of the Company’s ongoing activities. 165 Table of Contents The Company identified material promises in the BeiGene Collaboration through POC milestone, consisting of the licenses described above and the Development Services. It was determined that the licenses are not distinct from the development services resulting in a single performance obligation. In accordance with Topic 606, the Company determined the transaction price of the agreement is limited to the $25.0 million received, and excluded the variable consideration of expense reimbursements, milestone payments and royalties as they are fully constrained. The expense reimbursements were included in the transaction price in the reporting period the Company concluded it was probable that inclusion of such amounts in the transaction price would not result in a significant reversal in revenue recognized. As part of the Company’s evaluation of the milestone constraints, the Company determined the achievement of such milestones are contingent upon success in future developments, regulatory approvals and commercial activities which are not within its control and are uncertain at this stage. Variable consideration related to royalties will be recognized when the related sales occur. Under the terms of the Amended BeiGene Collaboration, BeiGene is generally responsible for developing BA3071 and is responsible for global regulatory filings and commercialization. Subject to the terms of the Amended BeiGene Collaboration, BeiGene holds an exclusive license with the Company to develop and manufacture the BA3071 candidate globally, and BeiGene is responsible for all costs of development, manufacturing and commercialization globally. The Amended BeiGene Collaboration provides that the Company is eligible to receive tiered royalties, ranging from the high-single digits to the low twenties, on sales worldwide, up to $225.5 million in subsequent development and regulatory milestone payments globally and commercial milestones in the BeiGene territory (reduced from $249 million under the BeiGene Collaboration), and a $5.0 million milestone payment upon the completion of the Company’s amended performance obligations, including the transfer of the master cell bank for BA3071 and other know-how. Under the Amended BeiGene Collaboration, the Company’s amended performance obligation, which includes the transfer of know-how and the master cell bank for BA3071, is satisfied at a point in time determined to be when BeiGene has received the know-how and master cell bank. Until then BeiGene cannot benefit from the ability to further develop and manufacture the BA3071 candidate. Under the original collaboration agreement, the Company recognized revenue over time using an input method based on actual costs incurred compared to estimated total costs expected to be incurred to fulfill its performance obligation to perform development services. For the years ended December 31, 2020 and 2019, the Company recognized revenue of $0.4 million and $4.7 million, respectively, related to the BeiGene collaboration. As of December 31, 2020 and 2019, the Company had $19.8 million and $20.2 million, respectively, of related deferred revenue, of which $19.8 million and $1.4 million, respectively, was classified as current. The deferred revenue is expected to be earned upon transfer of the know-how and master cell bank within the next twelve months. License and Option Agreement with Pfizer, Inc. The Company was party to a license and option agreement with Pfizer that was terminated in December 2019. Under the agreement, the parties granted to each other the exclusive option to obtain an exclusive, worldwide, sublicensable, transferable license to develop and commercialize a certain number of Antibody Drug Conjugates (“ADC”) CAB antibodies, with such ADC CAB antibodies to be jointly selected by the parties. As of December 2019, no ADC CAB Antibodies had been optioned by either party. Pfizer paid the Company $1.0 million in December 2015 upon execution of the agreement. The Company had identified a single deliverable at inception of the agreement, which consisted of the company’s obligation to nominate targets, perform certain preclinical research, efficacy studies and related reports (“research and development services”). These services were prerequisites to Pfizer’s exercise of Pfizer’s substantive options under the agreement. As such, the Company recognized revenue for the $1.0 million of consideration received 166 Table of Contents over the four-year period over which it delivered its research and development services. In connection with the license and option agreement with Pfizer, the Company recognized collaboration revenue of $0.5 million for the year ended December 31, 2019. 9. Related party transactions Biotech Investment Group, LLC Prior to the Corporate Reorganization, Biotech Investment Group, LLC (“BIG”), was a principal owner, related party of the Company and affiliated with BioDuro, LLC (“BioDuro”) and Biotech Investment Group II LLC (“BIG II”). Subsequent to the Corporate Reorganization, BIG is no longer a principal owner and, as a result, neither BIG nor its affiliates are related parties of the Company. BioDuro BioDuro is a contract research organization that provides services to the Company. For the year ended December 31, 2019, the Company incurred expenses of $1.9 million in connection with services provided by BioDuro. As of December 31, 2019, the Company had outstanding accounts payable and accrued expenses due to BioDuro in the aggregate amount of $0.4 million. During 2019, an affiliate of BIG sold a majority interest in BioDuro to an unaffiliated entity. Effective January 1, 2020, BioDuro is no longer considered a related party of the Company. Biotech Investment Group II LLC BIG II loaned the Company $0.5 million under the terms of the 2019 Notes described in Note 4 above. As of December 31, 2019, the Company had outstanding 2019 Notes due to BIG II in the amount of $0.5 million and accrued interest payable to BIG II of $11,000. For the years ended December 31, 2020 and 2019, the Company recognized interest expense (including amortization of debt discounts) of $42,000 and $20,000, respectively on outstanding 2019 Notes payable to BIG II. The 2019 Notes payable to BIG II were settled in connection with the Corporate Reorganization in July 2020. Dr. Jay Short and Carolyn Anderson Short Dr. Jay Short and Carolyn Anderson Short, principal owners and officers of the Company, loaned the Company $1.0 million and $0.5 million, respectively, under the terms of the 2019 Notes and 2020 Notes described in Note 4 above. As of December 31, 2019, the Company had outstanding 2019 Notes due to Dr. Jay Short and Carolyn Anderson Short in the amount of $1.0 million and accrued interest payable to Dr. Jay Short and Carolyn Anderson Short of $16,000. For the years ended December 31, 2020 and 2019, the Company recognized interest expense (including amortization of debt discounts) of $0.1 million and $32,000, respectively, on outstanding 2019 Notes and 2020 Notes payable to Dr. Jay Short and Carolyn Anderson Short. The 2019 Notes and 2020 Notes payable to Dr. Jay Short and Carolyn Anderson Short were settled in connection with the Corporate Reorganization in July 2020. EXUMA Biotech Corp. and subsidiary As of December 31, 2019, the Company and EXUMA are no longer related parties since none of the Post-Division LLCs own any common or preferred stock of EXUMA and have no ongoing contractual relationships other than the license agreement described below (see Note 11). The Company was a named party to a lease where a subsidiary of EXUMA was the primary tenant. The EXUMA subsidiary paid the landlord directly for payments due under the lease and was reimbursed by the Company for its share of the payments. For the year ended December 31, 2019, the Company expensed $15,000 for its share of payments due under the lease. In addition, the Company expensed $10,000 related to an amendment of the license agreement described in Note 11. 167 Table of Contents Inversagen, LLC Inversagen was formed in conjunction with the LLC Division. On March 15, 2019, the Company entered into an Exclusive License Agreement with Inversagen (the “Inversagen License”). Under the terms of the agreement, Inversagen acquired the rights to CAB-antibodies for the field of diseases associated with aging, outside of cancer, and a immuno-oncology antibody. The Company may perform development services under the agreement and will be reimbursed by Inversagen for its costs. Commencing on the first commercial sale of the CAB-antibodies and immuno-oncology antibody subject to the Inversagen License, Inversagen will pay the Company milestone payments and royalties, which represent a variable interest held by the Company. On July 7, 2020, the Company and Inversagen entered into the First Amendment to Exclusive License Agreement (“Amended Inversagen License”), which grants the Company an option for a period of 10 years to acquire the immuno-oncology antibody in return for royalty payments in the low-single digits during the applicable royalty term. No payments have been made to date. Inversagen has only nominal assets and liabilities and is a VIE as the entity lacks sufficient equity to finance its activities without additional subordinated financial support. The Company does not consolidate Inversagen as it is not the primary beneficiary; Inversagen License and the Amended Inversagen License did not and do not provide the Company with any decision-making power over the activities that are most significant to the entity’s economic success, such as the direction of its development efforts or the search for or terms of any future financing arrangements. The Company has no equity interest in Inversagen, and no exposure to its losses. Inversagen is currently inactive, and the Company has not provided any services to Inversagen, has not provided any support to Inversagen and has no obligation to do so, and Inversagen’s creditors have no recourse to the general credit of the Company. The Company does not have any assets or liabilities associated with its variable interest in Inversagen at December 31, 2020 and 2019. Inversagen is a related party of the Company. Dr. Jay Short and Carolyn Anderson Short serve as managers of Inversagen. Himalaya Therapeutics SEZC Prior to the Corporate Reorganization, Himalaya Therapeutics SEZC met the definition of a VIE under ASC 810-10, as the entity did not have enough equity to finance its activities without additional subordinated financial support. The Company consolidated Himalaya Therapeutics SEZC as the primary beneficiary, as it had (i) the power to direct activities of a VIE that most significantly impact the VIE’s economic performance and (ii) the right to receive benefits from the VIE that could potentially be significant to the VIE, resulting from its control of the board of directors, and voting control of the entity via a voting agreement among its shareholders, and its equity holdings. The Company was not obligated to provide financial support to Himalaya Therapeutics SEZC. Himalaya Therapeutics SEZC’s creditors had no recourse in the general credit of the Company. Himalaya Therapeutics SEZC held intellectual property related to certain CAB Antibodies under an Exclusive Rights Agreement with the Company dated December 20, 2018. As of December 31, 2019, Himalaya Therapeutics SEZC had no material operations, did not have any employees and the carrying value of its assets and liabilities was nominal. On January 1, 2020, the Company entered into an Amended and Restated Exclusive Rights Agreement (the “Amended Rights Agreement”) with Himalaya Therapeutics SEZC. Under the terms of the Amended Rights Agreement, Himalaya Therapeutics SEZC acquired the rights to 10 CAB-antibodies for the territory of China, Macao, Hong Kong and Taiwan, global rights to a CAB-HER2-bispecific-antibody and global co-development rights with us to an IL-22 non-CAB-antibody. Payments to the Company may include upfront payments, milestone payments and double digit royalties, which represent a variable interest held by the Company, but no payments have been made to the Company to date. As part of the Corporate Reorganization, Himalaya Therapeutics SEZC was distributed to Himalaya Parent LLC at the carrying value of its assets and liabilities, which were nominal, and no gain or loss was recorded on 168 Table of Contents the transaction in the Company’s financial statements for the year ended December 31, 2020. Himalaya Therapeutics SEZC continues to be a variable interest entity as it does not have sufficient equity to finance its activities without additional subordinated financial support. The Company is not obligated to provide financial support to Himalaya Therapeutics SEZC. The Company is not the primary beneficiary of Himalaya Therapeutics SEZC, however, as the Amended Rights Agreement does not provide BioAtla, Inc. with the power to direct activities of a VIE that most significantly impact the VIE’s economic performance, such as decision-making power over the direction of its development efforts or the search for or terms of any future financing arrangements. The Company does not have any assets or liabilities recorded at December 31, 2020 associated with its variable interest in Himalaya Therapeutics SEZC, and has no exposure to Himalaya Therapeutics SEZC losses. The Company does not have a variable interest in Himalaya Parent LLC. Himalaya Therapeutics SEZC is a related party whose controlling shareholder is Himalaya Parent LLC. Dr. Jay Short and Carolyn Anderson Short serve as directors of Himalaya Therapeutics SEZC, and Carolyn Anderson Short serves as an officer of such entity. BioAtla Holdings, LLC Effective January 1, 2020, the Company entered into an Exclusive License Agreement (the “BioAtla Holdings License”) with BioAtla Holdings, LLC. Under the terms of the agreement, BioAtla Holdings acquired the rights to CAB antibodies for certain targets in the field of Adoptive Cell Therapy (CAR-T format) in exchange for potential royalty payments on future net sales. On July 7, 2020, the Company and BioAtla Holdings entered into the First Amendment to Exclusive License Agreement (the “Amended BioAtla Holdings License”), which grants the Company an option for a period of 10 years to acquire the ACT Preparations and ACT Treatments in return for royalty payments in the low-single digits during the applicable royalty term. The Company has not exercised its option and no payments have been made to date under these agreements. In addition, effective January 1, 2020, the Company entered into a Royalty Sharing Agreement whereby the Company agreed to share with BioAtla Holdings 50% of the royalties it receives under the Amended and Restated EXUMA License defined and described in Note 11 below. BioAtla Holdings is a variable interest entity as it does not have sufficient equity to finance its activities without additional subordinated financial support. The royalty payments and option to acquire assets represent variable interests held by the Company in BioAtla Holdings. The Company is not the primary beneficiary of BioAtla Holdings, however, as the BioAtla Holdings License and Amended BioAtla Holdings License did not and do not provide the Company with any decision-making power over the activities that are most significant to the entity’s economic success, such as the direction of its development efforts or the search for or terms of any future financing arrangements. The Company has no equity interest in BioAtla Holdings, and no exposure to its losses. BioAtla Holdings is currently inactive, and the Company has not provided any support to BioAtla Holdings and has no obligation to do so, and BioAtla Holdings’ creditors have no recourse to the general credit of the Company. The Company does not have any assets or liabilities associated with its variable interests in BioAtla Holdings at December 31, 2020 and 2019. BioAtla Holdings is a related party of the Company. Dr. Jay Short and Carolyn Anderson Short serve as managers of BioAtla Holdings. Himalaya Parent LLC In connection with the Corporate Reorganization, Himalaya Parent assumed the Company’s profits interest plan, including equity awards to employees of the Company. For the year ended December 31, 2020, the Company recognized $0.7 million of compensation cost and a related capital adjustment in connection with the assumed profits interest plan. Dr. Jay Short and Carolyn Anderson Short serve as managers of Himalaya Parent LLC. 169 Table of Contents 10. 401(k) plan The Company maintains a defined contribution 401(k) plan available to eligible employees. Employee contributions are voluntary and are determined on an individual basis, limited to the maximum amount allowable under federal tax regulations. The Company, at its discretion, may make certain matching contributions to the 401(k) plan. As of December 31, 2020 and 2019, the Company had not made any matching contributions. 11. EXUMA Biotech Corp. Exclusive License Agreement As of December 31, 2020 and December 31, 2019, the Company is party to an Amended and Restated Exclusive License Agreement with EXUMA. Under the Amended and Restated Exclusive License Agreement, the Company granted EXUMA and its affiliates an exclusive, worldwide, sublicensable license under certain patents and know-how controlled by the Company to develop, manufacture and commercialize Adoptive Cellular Therapy (“ACT”) preparations and treatments for cancer for four specified targets. EXUMA’s rights under the agreement exclude the right to grant sublicenses to third parties to discover, develop or manufacture any CAB ACT or any component of the Company’s CAB ACT technology, except as used in or incorporated into EXUMA’s ACTs for cancer. The license to EXUMA is royalty bearing. EXUMA granted the Company an exclusive, worldwide, royalty free, fully paid-up, sublicensable license under certain patents and know-how controlled by EXUMA and EXUMA’s interest in technology jointly developed under the agreement to develop, manufacture and commercialize non-ACT CAB products for any indication. EXUMA is obligated to pay the Company during the royalty term, on a product-by-product basis and country-by-country basis, mid-single digit royalties based on annual net sales of certain EXUMA ACT products, subject to certain adjustments. The term during which EXUMA is obligated to pay royalties under the agreement with respect to any particular product in any particular country, will begin on the first commercial sale of such product in such country and will end on the date of expiration of the last-to-expire of certain product-related patent rights in such country. All royalties to be paid under the agreement are subject to certain adjustments. Future royalties will be recognized when earned. Unless earlier terminated, the agreement continues in effect so long as EXUMA or any of its affiliates, licensees or sublicensees are developing or commercializing any EXUMA products in the ACT field or the Company or any of its affiliates, licensees or sublicensees are developing or commercializing any CAB products for any indication outside the ACT field. The agreement may be terminated only by the mutual written agreement of the parties. EXUMA is a VIE, and the Company has a variable interest in EXUMA due to its right to receive royalties during the royalty term under the Amended and Restated EXUMA License. As of December 31, 2020 and 2019, the Company has determined it is not the primary beneficiary of EXUMA and, as such, the Company does not consolidate EXUMA. The Company has no equity ownership in EXUMA, no representation on the EXUMA board of directors, and the Amended and Restated EXUMA License does not provide the Company with the ability to make decisions regarding the execution of business strategy that most significantly impact the economic performance of EXUMA. The Company has not funded and has no commitment to fund EXUMA’s losses, and has no exposure to loss as a result of its Amended and Restated EXUMA License. The Company’s financial statements do not include any assets or liabilities related to the Amended and Restated EXUMA License at December 31, 2020 and 2019. 12. Income taxes Historically, the Company has conducted its U.S. operations through a pass through entity that filed its income tax returns as a partnership for U.S. federal and state income tax purposes. As a result, the Company was 170 Table of Contents not subject to U.S. federal or state income taxes as the related tax consequences were reported by its individual members. In connection with the Company’s initial public offering, its status was changed from a limited liability company to a corporation, and accordingly, the Company became taxable at the entity level for U.S. federal and state income tax purposes. A reconciliation of income tax expense computed at the U.S. federal statutory income tax rate to the Company’s income tax expense for the year ended December 31, 2020 is as follows (in thousands): Year ended December 31, 2020 Tax computed at the federal statutory rate $ (7,529 ) Deferred impact of conversion to C Corporation (6,708 ) Partnership income not subject to tax 1,837 Research and development credits (807 ) Uncertain tax positions 197 Other, net 242 Valuation allowance 12,768 Income tax expense $ — As of December 31, 2020, the Company’s net deferred tax assets (liabilities) are as follows (in thousands): December 31, 2020 Deferred tax assets: Net operating loss carryforwards $ 5,607 Guaranteed payments 1,702 Deferred revenue 4,159 Deferred rent 504 Accrued compensation 585 Research credit carryforwards 610 Stock-based compensation 438 Gross deferred tax assets 13,605 Less valuation allowance (12,768 ) Total deferred tax assets 837 Deferred tax liabilities: Fixed assets (837 ) Total deferred tax liabilities (837 ) Net deferred tax assets $ — A valuation allowance of approximately $12.8 million as of December 31, 2020 has been established to offset the deferred tax assets as the Company has determined that it is not more likely than not that these assets will be realized. The valuation allowance increased by approximately $12.8 million during 2020. At December 31, 2020, the Company had federal net operating loss carryforwards of approximately $26.7 million. The federal net operating losses can be carried forward indefinitely, subject to an 80% limitation against taxable income. At December 31, 2020, the Company had federal and California research and development credit carryforwards of approximately $0.6 million and $0.3 million, respectively. The federal credit carryforwards will begin to expire in 2040, unless previously utilized. The California credits will carry forward indefinitely. 171 Table of Contents Pursuant to Internal Revenue Code (“IRC”) Sections 382 and 383, annual use of the Company’s net operating loss carryforwards may be limited in the event a cumulative change in ownership of more than 50% occurs within a three-year period. The Company has not completed an ownership change analysis pursuant to IRC Section 382. If ownership changes within the meaning of IRC Section 382 are identified as having occurred, the amount of remaining tax attribute carryforwards available to offset future taxable income and income tax expense in future years may be significantly restricted or eliminated. Further, the Company’s deferred tax assets associated with such tax attributes could be significantly reduced upon realization of an ownership change within the meaning of IRC Section 382. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES” Act) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits net operating loss carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows net operating losses incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. As the Company operated as a partnership during the carryback period, net operating loss carrybacks will not be allowed. Due to the Company’s history of net operating losses, other provisions of the CARES Act are not expected to have a material impact on the Company’s financial statements. Pursuant to the Paycheck Protection Program (“PPP”) of the CARES Act, the Company received a PPP loan in the amount of $0.7 million. In accordance with the Consolidated Appropriations Act, 2021 enacted on December 27, 2020, certain qualified expenses which were paid for with the PPP loan proceeds are fully deductible for federal income tax purposes. Additionally, should the Company receive forgiveness of the PPP loan in the future, the amount of forgiveness will not be considered taxable income for federal income tax purposes. Under the FASB’s accounting guidance related to income tax positions, among other things, the impact of an uncertain income tax position reflected on the Company’s income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Additionally, the guidance addresses derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company regularly evaluates the likelihood of recognizing the benefit for income tax positions taken in various U.S. federal and state filings by considering all relevant facts, circumstances, and information available. The following table summarizes the reconciliation of the unrecognized tax benefits activity during the year ended December 31, 2020 (in thousands): Balance as of December 31, 2019 $ — Gross increase – current-period tax positions 210 Balance as of December 31, 2020 $ 210 As of December 31, 2020, the Company had gross unrecognized tax benefits of approximately $0.2 million, none of which would affect the Company’s effective tax rate due to the existence of the valuation allowance. The Company’s policy is to recognize interest and penalties related to income tax matters in income tax expense. The Company had no accrual for interest or penalties on the Company’s consolidated balance sheet and has not recognized interest or penalties in the consolidated statements of net and comprehensive income for the year ended December 31, 2020. The Company does not anticipate a significant change to its liability for unrecognized tax benefits within the next twelve months. The Company is subject to taxation in the United States and California. The Company is subject to examination by tax authorities in those jurisdictions for the tax years 2017 and 2016, respectively, and forward. However, any adjustment made for the period prior to the conversion to C Corporation in July 2020 would be 172 Table of Contents passed through to the Company’s former members. Post-conversion to C Corporation, to the extent allowed by law, the taxing authorities may have the right to examine periods where net operating losses and research and development credits were generated and carried forward, and make adjustments to the amount of the net operating loss and research credits carryforward amount. The Company is not currently under examination by any jurisdiction. 13. Subsequent events The Company has completed an evaluation of all subsequent events through March 24, 2021 for the financial statements as of and for the years ended December 31, 2020 and 2019, to ensure these consolidated financial statements include appropriate disclosure of events both recognized in the consolidated financial statements and events which occurred but were not recognized in the consolidated financial statements. Except as described below or elsewhere in these consolidated financial statements, the Company has concluded that no subsequent event has occurred that requires disclosure. Transition Agreement On March 18, 2021, the Company and Carolyn Anderson Short, its co-founder and Chief of Intellectual Property & Strategy, mutually agreed that Ms. Short would depart the Company following an agreed upon transition period. The Transition Agreement provides for the following severance benefits in exchange for a release of claims by Ms. Short: (i) a lump sum payment equal to eighteen (18) months of Ms. Short’s current base salary, (ii) a payment at her targeted bonus rate for 2021, pro-rated to the Separation Date, and (iii) accelerated full vesting of her time-vesting equity awards including 7,747 stock options and 138,461 restricted stock units which could result in a material non-cash charge. 173 Table of Contents ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.