What changed in this filing

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Item 9A. Controls and Procedures

2021-03-16 compared with 2020-03-30 · 258 added, 266 removed, 498 unchanged (51% of the section changed)

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Management’s Annual Report on Internal Control Over Financial Reporting

This Annual Report on Form 10-K does not include a report of management’s assessment regarding our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) or an attestation report of our independent registered accounting firm due to a transition period established by rules of the SEC for newly public companies.

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

Internal control over financial reporting is a process designed to provide reasonable assurance of the reliability of financial reporting and of the preparation of financial statements for external reporting purposes, in accordance with U.S.

generally accepted accounting principles.

Internal control over financial reporting includes policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and disposition of assets;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S.

generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with the authorization of its management and directors;

and (3) provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on its financial statements.

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

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

Our management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2020.

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

These criteria are in the areas of control environment, risk assessment, control activities, information and communication, and monitoring.

Management’s assessment included extensive documentation, evaluating and testing the design and operating effectiveness of its internal controls over financial reporting.

Based on management’s processes and assessment, as described above, management has concluded that, as of December 31, 2020, our internal control over financial reporting was effective.

Attestation Report of the Registered Public Accounting Firm

This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm due to an exemption established by the JOBS Act for “emerging growth companies.”

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the fiscal quarter ended December 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

As a result of the COVID-19 pandemic, since March 2020, most of our employees have been working remotely.

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

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

Other Information.

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Balance Sheets as of December 31, 2020 and 2019

Statements of Operations for the Years Ended December 31, 2019 and 2018

Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the Years Ended December 31, 2019 and 2018

Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2020 and 2019

Statements of Convertible Preferred Stock and Stockholders’ (Deficit) Equity for the Years Ended December 31, 2020 and 2019

Statements of Cash Flows for the Years Ended December 31, 2020 and 2019

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Balance Sheets as of December 31, 2020 and 2019

Statements of Operations for the Years Ended December 31, 2019 and 2018

Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the Years Ended December 31, 2019 and 2018

Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2020 and 2019

Statements of Convertible Preferred Stock and Stockholders’ (Deficit) Equity for the Years Ended December 31, 2020 and 2019

Statements of Cash Flows for the Years Ended December 31, 2020 and 2019

Notes to Financial Statements

Report of Independent Regist ered Public Accounting Firm

Report of Independent Registered Public Accounting Firm

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

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We have audited the accompanying balance sheets of Cabaletta Bio, Inc.

(the Company) as of December 31, 2019 and 2018, the related statements of operations, convertible preferred stock and stockholders’ equity (deficit) and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”).

(the Company) as of December 31, 2020 and 2019, the related statements of operations and comprehensive loss, convertible preferred stock and stockholders’ (deficit) equity and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the 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 the years then ended, in conformity with U.S.

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Cash and cash equivalents

Short-term investments

Prepaid expenses and other current assets

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Property, plant and equipment, net

Deferred offering costs

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

Liabilities and stockholders’ equity

Current liabilities:

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Commitments and contingencies (see Note 7)

Convertible preferred stock:

Series A, A-1 and A-2 convertible preferred stock, $0.00001 par value:

no shares and 12,393,497 shares authorized as of December 31,

2019 and 2018, respectively;

no and 12,393,047 shares issued and

outstanding at December 31, 2019 and 2018 respectively;

liquidation preference of $38,256 at December 31, 2018

Stockholders’ equity (deficit):

Stockholders’ equity:

Preferred stock, $0.00001 par value:

10,000,000 and no shares authorized

as of December 31, 2019 and 2018, respectively;

no shares issued

or outstanding at December 31, 2019 and 2018, respectively

10,000,000 shares authorized as of

December 31, 2020 and 2019, respectively;

no shares issued or outstanding at December 31, 2020 and 2019, respectively

Voting and non-voting common stock, $0.00001 par value:

(voting 143,590,481 shares and non-voting 6,409,519 shares)

and 21,147,115 (voting) shares authorized as of December 31, 2019

and 2018, respectively;

24,034,022 (voting 17,624,503 shares and

non-voting 6,409,519 shares) and 3,848,320 (voting) shares

issued and outstanding at December 31, 2019 and 2018, respectively

(143,590,481 voting and 6,409,519 non-voting) shares authorized as of December 31, 2020 and 2019, respectively;

24,062,775 (19,387,160 voting and 4,675,615 non-voting) shares issued and outstanding as of December 31, 2020 and 24,034,022 (17,624,503 voting and 6,409,519 non-voting) issued and outstanding as of December 31, 2019, respectively

Additional paid-in capital

Accumulated other comprehensive income

Accumulated deficit

Total stockholders’ equity (deficit)

Total liabilities convertible preferred stock and stockholders’ equity (deficit)

Total stockholders’ equity

Total liabilities and stockholders’ equity

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

CABALETTA BIO, INC.

Statements of Operations

Statements of Operations and Comprehensive Loss

(in thousands, except share and per share amounts)

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Loss from operations

Other income (expense):

Other income:

Interest income

Fair value adjustments on convertible notes

Deemed dividend

Net loss attributable to common stockholders

Other comprehensive income:

Net unrealized gain on available-for-sale investments, net of tax

Net comprehensive loss

Net loss per voting and non-voting share, basic and diluted

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CABALETTA BIO, INC.

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

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

(in thousands, except share and per share amounts)

Preferred Stock

Stockholders’

Equity (Deficit)

Convertible Preferred Stock

Additional Paid-in Capital

Accumulated Other Comprehensive Income

Accumulated Deficit

Total Stockholders’ (Deficit) Equity

Balance—December 31, 2018

Issuance of common stock in

connection with license

Issuance of common stock

Issuance of convertible

preferred stock upon

conversion of convertible

Issuance of convertible

preferred stock upon

milestone closing of

convertible notes

Issuance of convertible

preferred stock, net of

issuance costs of $169

Issuance of convertible preferred stock,

net of issuance costs of $1,293

Issuance of common stock upon completion of initial public offering, net of issuance costs of $3,408

Issuance of common stock in conjunction with exercise of stock options

Exchange of convertible preferred stock,

including deemed dividend

Conversion of convertible preferred stock into common stock on a 1.5 for 1 basis

Stock-based compensation

Balance—December 31, 2019

Issuance of convertible

preferred stock, net of

issuance costs of $1,293

Issuance of common stock

upon completion of initial

public offering, net of

issuance costs of $3,408

Issuance of common stock in

connection with exercise of

stock options

Exchange of convertible

preferred stock including

deemed dividend

Conversion of convertible

preferred stock into common

stock on a 1.5 for 1 basis

Issuance of common stock in connection with exercise of stock options

Issuance of common stock under employee stock purchase plan

Net unrealized gains on available-for-sale

Stock-based compensation

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Stock-based compensation

Change in fair value of convertible notes

Common stock issued in exchange for research and development

Amortization of premium on investments

Changes in operating assets and liabilities:

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Purchases of property and equipment

Purchases of investments

Proceeds from maturities of investments

Net cash used in investing activities

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Proceeds from issuance of common stock, net of issuance costs

Proceeds from issuance of convertible notes

Proceeds from issuance of convertible preferred stock on milestone

closing of convertible notes

Proceeds from issuance of convertible preferred stock

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the exercise of stock options

Net cash provided by financing activities

Net increase in cash and cash equivalents

Proceeds from the issuance of common stock under employee

stock purchase plan

Net cash (used in) provided by financing activities

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents—beginning of year

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financing activities:

Conversion of convertible notes into convertible preferred stock

Conversion of convertible preferred stock into common stock

Exchange of convertible preferred stock, including deemed dividend

Issuance costs included in accounts payable and accrued and other

current liabilities

Deferred offering costs in accounts payable and accrued and other current liabilities

Property and equipment purchases included in accounts payable

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and, in August 2018, changed its name to Cabaletta Bio, Inc.

The Company is headquartered in Pennsylvania.

The Company is headquartered in Philadelphia, Pennsylvania.

Cabaletta is a clinical-stage biotechnology company focused on the discovery and development of engineered T cell therapies for B cell-mediated autoimmune diseases.

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If the Company seeks to obtain regulatory approval for any of its product candidates, the Company expects to incur significant commercialization expenses.

The Company has sustained annual operating losses and expects to continue to generate operating losses for the foreseeable future.

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

The Company had cash and cash equivalents of $136,204 as of December 31, 2019.

Through December 31, 2019, the Company has incurred an accumulated deficit of $32,959.

Management expects to incur additional losses in the future as it continues its research and development and will need to raise additional capital to fully implement its business plan and to fund its operations.

The Company intends to raise such additional capital through a combination of equity offerings, debt financings, government funding arrangements, strategic alliances or other sources.

However, if such financing is not available at adequate levels and on a timely basis, or such agreements are not available on favorable terms, or at all, as and when needed, the Company will need to reevaluate its operating plan and may be required to delay or discontinue the development of one or more of its product candidates or operational initiatives.

The Company expects that its cash and cash equivalents as of December 31, 2019, will be sufficient to fund its projected operations for at least 12 months following the date of these financial statements.

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

As a result, the Company is unable to predict the timing or amount of increased expenses or when or if the Company will be able to achieve or maintain profitability.

Further, the Company is currently dependent on Penn for much of its preclinical research, clinical research and development activities and expects to be dependent upon Penn for initial manufacturing activities (Note 7).

Further, the Company is currently dependent on University of Pennsylvania (Penn) for much of its preclinical research, clinical research and development activities and initial manufacturing activities (Note 6).

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

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If the Company fails to become profitable or is unable to sustain profitability on a continuing basis, then it may be unable to continue its operations at planned levels and be forced to reduce its operations.

In December 2019, a novel strain of coronavirus surfaced in Wuhan, China and has since reached multiple other regions and countries.

The COVID-19 pandemic is evolving, and to date has led to the implementation of various responses, including government-imposed quarantines, travel restrictions and other public health safety measures, which have delayed the commencement of non-COVID-19-related clinical trials, among other

restrictions.

The Company’s financial results for the year ended December 31 , 2020 were not significantly impacted by COVID-19 , h owever, the Company cannot at this time predict the specific extent, duration, or full impact that the COVID-19 pandemic, including new information that may emerge concerning the severity of COVID-19, the impact of new strains of the virus, the effectiveness and availability of vaccines and the actions to contain COVID-19 or treat its impact will have on its financial condition, operations, and business plans, including its ability to raise additional capital, the timing and enrollment of patients in its ongoing and planned clinical trials, future financings and other expected milestones of its product candidates.

The Company has sustained annual operating losses since inception and expects to continue to generate operating losses for the foreseeable future.

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

The Company had cash and cash equivalents and investments of $108,662 as of December 31, 2020.

Through December 31, 2020, the Company has incurred an accumulated deficit of $66,298.

The Company intends to raise such additional capital through a combination of equity offerings, debt financings, government funding arrangements, strategic alliances or other sources.

The Company expects that its cash, cash equivalents and investments as of December 31, 2020 will be sufficient to fund its projected operations for at least 12 months from the date the Company’s Annual Report on Form 10-K is filed with the Securities and Exchange Commission (SEC).

Summary of Significant Accounting Policies

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The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of expenses during the reporting period.

Significant estimates and assumptions made in the accompanying financial statements include but are not limited to the fair value of common stock, stock-based compensation, the valuation allowance on the Company’s deferred tax assets, and the fair value of convertible debt.

Significant estimates and assumptions made in the accompanying financial statements include but are not limited to the fair value of common stock, stock-based compensation and the valuation allowance on the Company’s deferred tax assets.

The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate.

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Off-Balance Sheet Risk and Concentrations of Credit Risk

Financial instruments, which potentially subject the Company to significant concentration of credit risk, consist primarily of cash and cash equivalents, which are maintained at a federally insured financial institution.

Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist primarily of cash and cash equivalents, which are primarily invested in U.S.

treasury-based money market funds, and available-for-sale debt securities, which are invested in investment grade corporate bonds with high credit quality issuers .

These investments have maturities in 2021.

A portion of the Company’s cash is maintained at a federally insured financial institution.

The deposits held at this institution are 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 institution in which those deposits are held.

The cash in this account is swept daily into U.S.

treasury-based and U.S.

government-based money market funds.

The Company has no off‑balance sheet risk, such as foreign exchange contracts, option contracts, or other foreign hedging arrangements.

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Cash equivalents consist primarily of amounts invested in money market accounts.

Deferred Offering Costs

The Company capitalizes certain legal, professional accounting and other third-party fees that are directly associated with in-process equity financings as deferred offering costs until such financings are consummated.

After consummation of the equity financing, these costs are recorded in stockholders’ deficit as a reduction of additional paid-in capital generated as a result of the offering.

Should the in-process equity financing be abandoned, the deferred offering costs will be expensed immediately as a charge to operating expenses in the statements of operations.

Offering costs, including legal, accounting, and filing fees related to the IPO, were deferred and were offset against the offering proceeds upon the completion of the IPO.

Upon completion of the IPO, $3,408 of such deferred offering costs were reclassified to additional paid in capital.

There were no deferred offering costs capitalized as of December 31, 2019.

Investments are available-for-sale and carried at estimated fair value.

The Company’s valuations of available-for-sale debt securities are generally derived from independent pricing services based upon quoted prices in active markets for similar securities, with prices adjusted for yield and number of days to maturity, or based on industry models using data inputs, such as interest rates and prices that can be directly observed or corroborated in active markets.

Management determines the appropriate classification of its investments in debt securities at the time of purchase and at the end of each reporting period.

Investments with original maturities beyond three months at the date of purchase and which mature at, or less than, twelve months from the balance sheet date are classified as current.

Unrealized gains and losses are excluded from earnings and are reported as a component of comprehensive income.

The Company periodically evaluates whether declines in fair values of its available-for-sale securities below their book value are other-than-temporary.

This evaluation consists of several qualitative and quantitative factors including the severity and duration of the unrealized loss as well as the Company’s ability and intent to hold the available-for-sale security until a forecasted recovery occurs.

Additionally, the Company assesses whether it has plans to sell the security or if more likely than not it will be required to sell any available-for-sale securities before recovery of its amortized cost basis.

Realized gains and losses and declines in fair value judged to be other-than-temporary, if any, on available-for-sale securities are included in interest and other income, net.

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

Interest income on investments as well as amortization of discount or premium is included in interest income.

Property, Plant and Equipment

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Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Accrued Research and Development Costs

The Company records accrued liabilities for estimated costs of research and development activities conducted by service providers, which include activities under the Penn Agreement (Note 7), the conduct of sponsored research, preclinical studies and contract manufacturing activities.

Research and Development Expenses

Research and development costs include costs incurred for internal and external research and development activities and are expensed as incurred in the accompanying statements of operations.

Research and development costs consist of salaries and benefits, including associated stock-based compensation, and laboratory supplies and facility costs, as well as fees paid to entities that conduct certain research and development activities on the Company’s behalf.

The Company records accrued liabilities for estimated costs of research and development activities conducted by service providers, which include activities under agreements with Penn (Note 6), the conduct of sponsored research, preclinical studies and contract manufacturing activities.

The Company records the estimated costs of research and development activities based upon the estimated amount of services provided and includes these costs in accrued and other current liabilities and prepaid expenses and other current assets in the accompanying balance sheets and within research and development expense in the accompanying statements of operations.

Non-refundable advance payments made for goods or services that will be used or rendered for future research and development activities are deferred and capitalized and recognized as expense as the goods are received or the related services are rendered.

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

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The Company has not experienced any material differences between accrued costs and actual costs incurred since its inception.

Research and Development Expenses

Research and development costs include costs incurred for internal and external research and development activities and are expensed as incurred in the accompanying statements of operations.

Stock-based Compensation

The Company measures its stock-based awards granted to employees and non-employees based on the estimated fair values of the awards and recognizes the compensation over the requisite service period.

The Company measures its stock-based awards granted to employees and non-employees based on the estimated fair values of the awards on the respective grant dates.

The Company uses the Black-Scholes option-pricing model (Black-Scholes) to estimate the fair value of its stock-based awards.

The Company uses the simplified method in accordance with guidance provided by the Securities and Exchange Commission and calculates the expected term as the midpoint between the vesting date and the contractual term for certain awards with service or performance conditions.

Stock-based compensation is recognized using the straight-line method.

As stock-based compensation is based on awards ultimately expected to vest, it is reduced by forfeitures.

The Company accounts for forfeitures as they occur.

The Company recognizes compensation expense for time-based awards on a straight-line basis over the requisite service period, which is generally the vesting period of the award.

The Company accounts for forfeitures of stock option awards as they occur.

Prior to the Company’s IPO, the assumptions used in the Company's Black-Scholes option-pricing model represented management's best estimates and involve a number of variables, uncertainties and assumptions and the application of management's judgment, as they are inherently subjective.

The Company uses the asset and liability method of accounting for income taxes.

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however, the Company currently has no interest or penalties related to uncertain income tax benefits.

Comprehensive Loss

The Company did not have any items of comprehensive income or loss other than net loss for the years ended December 31, 2019 and 2018.

Net Loss Per Share

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Each share of non-voting common stock may be converted at any time into one share of voting common stock at the option of its holder by providing written notice to the Company, subject to the limitations provided for in the amended and restated certificate of incorporation.

The Company also considers its unvested shares of common stock held by the Company’s founders and, prior to its

conversion to common stock, its convertible preferred stock to be participating securities as, in the event a dividend is paid on common stock, the holders of convertible preferred stock and unvested shares of common stock would be entitled to receive dividends on a basis consistent with the common stockholders.

The net loss attributable to common stockholders is not allocated to the convertible preferred stock nor to the unvested shares of common stock as the holders of those securities do not have a contractual obligation to share in losses.

The Company also considers its unvested shares of common stock held by the Company’s founders and, prior to its conversion to common stock, its convertible preferred stock to be participating securities as, in the event a dividend is paid on common stock, the holders of convertible preferred stock and unvested shares of common stock would be entitled to receive dividends on a basis consistent with the common stockholders.

Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock, which excludes unvested shares of common stock.

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As the liquidation and dividend rights are identical, the undistributed losses are allocated on a proportionate basis.

Net loss attributable to common stockholders is calculated by adjusting the net loss of the Company for the deemed dividend associated with the exchange of Series A-2 Preferred for Series B Preferred.

Net loss attributable to common stockholders for the year ended December 31, 2019 is calculated by adjusting the net loss of the Company for the deemed dividend associated with the exchange of Series A-2 Preferred for Series B Preferred.

Diluted net loss per share attributable to common stockholders is computed under the if-converted method and assumes that all non-voting common stock has been converted to common stock.

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These amounts were recorded as general and administrative expense in the accompanying statements of operations.

As of December 31, 2019 and 2018, amounts owed under this arrangement totaled $36 and $50, respectively, and are included in accounts payable and other current liabilities in the accompanying balance sheets, respectively.

The Company engaged the services of its current Chief Executive Officer and President prior to his employment in October 2018.

For the year ended December 31, 2018, the costs incurred under this arrangement totaled $180, which was recorded as general and administrative expense in the accompanying statements of operations.

As of December 31, 2020 and 2019, amounts owed under this arrangement totaled $13 and $36, respectively, and are included in accounts payable in the accompanying balance sheets.

Emerging Growth Company Status

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As a result, these financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements Not Yet Adopted

In February 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-02, Leases (Topic 842), with guidance regarding the accounting for and disclosure of leases.

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This guidance will be effective for public companies for annual and interim periods beginning after December 15, 2018.

For all other entities, this standard is effective for annual reporting periods beginning after December 15, 2020, and interim periods within annual periods beginning after December 15, 2021.

For all other entities, including Emerging Growth Companies, this standard is effective for annual reporting periods beginning after December 15, 2020, and interim periods within annual periods beginning after December 15, 2021.

Early adoption is permitted.

The Company expects to adopt Topic 842 for its annual period ending December 31, 2021 but has yet to evaluate the effect that ASU 2016-02 will have on its financial statements or financial statement disclosures.

As an Emerging Growth Company, the Company expects to adopt Topic 842 for its annual period ending December 31, 2021 and has not yet finalized the assessment of the impact that ASU 2016-02 will have on its financial statements or financial statement disclosures.

Fair Value Measurements

As of December 31, 2019 and 2018, the Company had money market funds, which were valued by the Company based on quoted market prices, which represent a Level 1 measurement within the fair value hierarchy.

As of December 31, 2020 and 2019, the Company’s financial instruments included cash and cash equivalents, available-for-sale debt securities, accounts payable and accrued expenses.

The carrying amounts for cash and cash equivalents, accounts payable and accrued expenses reported in the Company’s financial statements for these instruments approximate their respective fair values because of the short-term nature of these instruments.

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

December 31, 2020

Quoted Prices in Active Markets for Identical Assets (Level 1)

Significant Other Observable Inputs (Level 2)

Significant Unobservable Inputs (Level 3)

Active Markets

for Identical

Assets (Level 1)

Financial assets

Cash equivalents:

Cash and cash equivalents:

Money market funds

Short-term investments:

Corporate bonds

December 31, 2019

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Money market funds

The following table presents a roll-forward of the aggregate fair values of the Company’s convertible notes (Note 6) for which fair value is determined by Level 3 inputs:

Balance—January 1, 2018

Initial fair value

Fair value adjustments

Conversion into convertible preferred stock

Balance—December 31, 2018

There were no transfers among Level categories in the periods presented.

The carrying value of cash, cash equivalents, accounts payable and accrued expenses that are reported on the balance sheets approximate their fair value due to the short-term nature of these assets and liabilities.

Money market funds are measured at fair value on a recurring basis using quoted prices and are classified as Level 1.

Investments are measured at fair value based on inputs other than quoted prices that are derived from observable market data and are classified as Level 2 inputs.

There were no transfers of assets between the fair value measurement levels during the years ended December 31, 2020 or 2019.

For debt securities classified as available-for-sale investments, the Company records unrealized gains or losses resulting from changes in fair value between measurement dates as a component of other comprehensive income.

The Company did not hold any available-for-sale securities as of December 31, 2019.

December 31, 2020

Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses

Financial assets

Money market funds

Included in cash and cash equivalents

Corporate bonds - due in one year or less

Included in short-term investments

Property, Plant and Equipment

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Compensation expense

Convertible Notes

In May 2018, the Company issued convertible notes (the Notes) with aggregate proceeds to the Company in an initial closing of $12,535, including $5,000 issued to Penn.

The Notes carried a stated interest rate of 7.5% per annum.

All unpaid principal, together with the then accrued interest, for the Notes was due and payable at the earlier of May 4, 2021 or upon an event of default.

The terms of the Notes provided for an additional milestone-based closing of $12,567 upon the achievement of certain Company-specific events.

The Notes contained a number of provisions addressing automatic and optional conversion, events of default and prepayment provisions.

The Notes were amended in September 2018 to adjust the terms of the automatic and optional conversion provisions.

In October 2018, the Notes were amended again to reduce the qualified financing threshold, make a qualified financing a milestone event, revise the structure of a milestone-based closing and reallocate milestone closing purchase rights to new purchasers and the existing noteholders.

On the same day, immediately following the amendment of the Notes, the Company completed a qualified financing, issuing 3,146,551 shares of Series A Preferred for gross proceeds of $12,744 (Note 8).

At this time, the Company issued 4,553,452 shares of Series A-1 Preferred in connection with the milestone-based closing resulting in $12,567 of proceeds ($2.76 per share) and the Notes together with interest accrued thereon ($409) were converted into 2,819,267 shares of Series A-1 Preferred and 1,873,777 shares of Series A-2 Preferred, reflecting a conversion price per share of $2.76.

On issuance, the Company elected to account for the Notes at fair value with any changes in fair value being recognized through the statements of operations until the Notes settled.

In this connection, the Company’s policy is to report a single non-operating income/(expense) line item to record fair value adjustments on convertible notes and does not report interest expense as a separate line item in the statements of operations.

On issuance, total debt issuance costs of $53 were expensed and recognized as general and administrative expense in the accompanying statements of operations.

On issuance, the fair value of the Notes was determined to be equal to $12,535, which is the principal amount of the Notes.

The fair value of the Notes upon settlement was determined based on the fair value of the Series A-1

Preferred and Series A-2 Preferred issued, which was determined to be $3.39 per share of Series A-1 Preferred and Series A-2 Preferred, using an option pricing method (OPM) framework and utilized the back-solve method for inferring and allocating the equity value predicated on the capital raise that transpired just prior to the valuation date.

This method was selected as the Company concluded that the contemporaneous financing transaction was an arm’s-length transaction.

Application of the OPM back-solve method involves making assumptions for the expected time to liquidity, volatility and risk-free rate and then solving for the value of equity such that value for the most recent financing equals the amount paid.

The OPM allocation of total equity value was determined with reference to a recent financing transaction and the Company assumed a 71% volatility rate, a 1.3-year estimated term and a probability weighted average discount for lack of marketability of 35%.

For the year ended December 31, 2018, the Company recognized $6,244 in in the accompanying statements of operations as other expense—fair value adjustments on the Notes, which reflects (i) the difference between the conversion price per share of the Series A-1 Preferred and Series A-2 Preferred ($2.76) into which the Notes were converted, and the fair value of such Series A-1 Preferred and Series A-2 Preferred, (ii) the difference between the price per share paid for the Series A-1 Preferred ($2.76) in the milestone-based closing and the fair market value of such Series A-1 Preferred and (iii) interest accrued on the Notes ($409).

All outstanding Notes were converted to 2,819,267 shares of Series A-1 Preferred and 1,873,777 shares of Series A-2 Preferred in October 2018 and no Notes were outstanding as of December 31, 2019 and 2018.

Commitments and Contingencies

Operating Lease Agreement

In February 2019, the Company entered into an operating lease agreement for new office space in Philadelphia, Pennsylvania.

The lease term commenced in May 2019 and will expire in July 2022.

The initial annual base rent is $261, and such amount will increase by 2% annually on each anniversary of the commencement date.

The Company records rent expense on a straight-line basis over the lease term.

Rent expense related to this lease agreement recognized in the accompanying statement of operations was $178 for the year ended December 31, 2019.

As of December 31, 2019, the future minimum payments for operating leases are as follows:

License Agreement with the Trustees of the University of Pennsylvania

In August 2018, the Company entered into a license agreement with Penn (the Penn Agreement) and activated the license in October 2018 pursuant to which the Company obtained (a) a non-exclusive, non-sublicensable worldwide license to certain of Penn’s intellectual property to conduct research, product development, clinical trials, cell manufacturing and other activities, and (b) an exclusive, worldwide, royalty-bearing right and license, with a right to sublicense, on a target-by-target basis, under certain of Penn’s intellectual property to make, use, sell, offer for sale, import, and otherwise commercialize products for the treatment of autoimmune and alloimmune diseases.

In July 2019, the Penn Agreement was amended and restated to include CHOP as a party to the agreement.

Unless earlier terminated, the Penn Agreement expires on the expiration or abandonment or other termination of the last valid claim in Penn’s intellectual property licensed by the Company.

The Company may terminate the Penn Agreement at any time for convenience upon 60 days written notice.

In the event of an uncured, material breach, Penn may terminate the Penn Agreement upon 60 days written notice.

Under the terms of the Penn Agreement, the Company issued 481,318 shares of common stock, with a value of $1,155, recorded as a research and development expense in the accompanying statements of operations for the year ended December 31, 2018.

The Company also reimbursed Penn for its prior out-of-pocket expenses with respect to the filing, prosecution and maintenance of Penn’s intellectual property licensed by the Company.

The payment, totaling $89, is included in general and administrative expense in the accompanying statements of operations for the year ended December 31, 2018.

Under the terms of the Penn Agreement, the Company is obligated to pay $2,000 annually for three years beginning August 2018 for funding to the laboratories of each of Drs.

Milone and Payne (see Sponsored Research Agreements—Penn ).

During the term of the Penn Agreement until the first commercial sale of the first product, the Company is obligated to pay Penn a non-refundable, non-creditable annual license maintenance fee of $10.

Collaborations, Licensing Agreements and other Agreements

Amended and Restated License Agreement with the Trustees of the University of Pennsylvania and Children’s Hospital of Philadelphia

In August 2018, the Company entered into a license agreement with Penn, as amended and restated in July 2019 to include CHOP as a party, and as amended in May 2020 (the License Agreement) pursuant to which the Company obtained (a) a non-exclusive, non-sublicensable worldwide license to certain of Penn’s intellectual property to conduct research, product development, clinical trials, cell manufacturing and other activities, and (b) an exclusive, worldwide, royalty-bearing right and license, with a right to sublicense, on a target-by-target basis, under certain of Penn’s intellectual property to make, use, sell, offer for sale, import, and otherwise commercialize products for the treatment of autoimmune and alloimmune diseases.

Unless earlier terminated, the License Agreement expires on the expiration or abandonment or other termination of the last valid claim in Penn’s intellectual property licensed by the Company.

The Company may terminate the License Agreement at any time for convenience upon 60 days written notice.

In the event of an uncured, material breach, Penn may terminate the License Agreement upon 60 days written notice.

Under the terms of the License Agreement, the Company was obligated to pay $2,000 annually for three years beginning August 2018 for funding to the laboratories of each of Drs.

Milone and Payne (see Sponsored Research Agreements ).

During the term of the License Agreement until the first commercial sale of the first product, the Company is obligated to pay Penn a non-refundable, non-creditable annual license maintenance fee of $10.

In May 2020, the Company paid Penn an additional, non-refundable, non-creditable license fee of $33 under the amended License Agreement.

The Company is required to pay certain milestone payments upon the achievement of specified clinical and commercial milestones.

Milestone payments are reduced by a certain percentage for the second product that achieves a milestone, by an additional percentage for the third product that achieves a milestone, and so on, for each subsequent product that achieves a milestone.

In the event that the Company is able to successfully develop and launch multiple products under the Penn Agreement, total milestone payments could approach $20,000.

In the event that the Company is able to successfully develop and launch multiple products under the License Agreement, total milestone payments could be approximately $ 2 1 ,000 .

Penn is also eligible to receive tiered royalties at percentage rates in the low single-digits, subject to an annual minimum royalty, on annual worldwide net sales of any products that are commercialized by the Company or its sublicensees that contain or incorporate, or are covered by, the intellectual property licensed by the Company.

To the extent the Company sublicenses its license rights under the Penn Agreement, Penn would be eligible to receive tiered sublicense income at percentage rates in the mid-single to low double-digits.

No amounts were due under the Penn Agreement as of December 31, 2019.

To the extent the Company sublicenses its license rights under the License Agreement, Penn would be eligible to receive tiered sublicense income at percentage rates in the mid-single to low double-digits.

There were no amounts due under the License Agreement as of December 31, 2020.

Sponsored Research Agreements

The Company has sponsored research agreements with two faculty members at Penn, who are also scientific co-founders of the Company and members of the Company’s scientific advisory board.

Under the agreements, the Company has committed to funding a defined research plan for three years through April 2021.

The total estimated three-year cost of $8,524 under the two agreements satisfies the Company’s annual obligation under the Penn Agreement (see License Agreement with the University of Pennsylvania above).

In May 2020, one of the agreements was amended to expand the scope of sponsored research.

In August 2020, this agreement was further amended to extend the term of the original research plan.

Under the amended agreements, the Company has committed to funding a defined research plan through February 2023.

The total estimated cost of $11,781 under the agreements satisfies the Company’s annual obligation under the License Agreement (see Amended and Restated License Agreement with the Trustees of the University of Pennsylvania above).

As of December 31, 2020, $7,090 of cost has been incurred pursuant to these agreements.

For the years ended December 31, 2020 and 2019, the Company recognized research and development expense of $2,995 and $2,137, respectively, related to these agreements in the accompanying statements of operations.

As of December 31, 2019 and 2018, $1,588 and $884, respectively, of advance payments are included in prepaid expenses and other current assets in the accompanying balance sheets.

As of December 31, 2020 and 2019, $1,851 and $1,588 respectively, of advance payments are included in Prepaid expenses and other current assets in the accompanying balance sheets and there was $217 included in Accrued and other current liabilities in the accompanying balance sheets as of December 31, 2020.

Master Translational Research Services Agreement

In October 2018, the Company entered into a services agreement (the Services Agreement) with Penn for additional research and development services from various laboratories within Penn.

I n October 2018, the Company entered into a services agreement (the Services Agreement) with Penn for additional research and development services from various laboratories within Penn.

The research and development activities are detailed in separately executed Penn organization-specific addenda.

Research and development expense related to executed addenda under the master translational research service agreement with Penn recognized in the accompanying statements of operations for the year ended December 31, 2019 was $2,355.

Amounts due under the master translational research service agreement with Penn were $94 as of December 31, 2019 and is included in accrued liabilities.

The Company may incur expenses up to $900 through the remaining term of the Addendum in 2020 related to the manufacture of vector under the Center for Advanced Retinal and Ocular Therapeutics, or CAROT, Addendum.

In May 2020, the Company amended its Addendum with the Center for Advanced Retinal and Ocular Therapeutics (CAROT) to expand access to vector manufacturing.

The Company may incur additional expenses up to $1,360 through the remaining term of the CAROT Amended Addendum.

Subscription and Technology Transfer Agreement

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Under this agreement, the Company recognized $250 of research and development expense for the year ended December 31, 2019.

Manufacturing Agreements

Under agreement with a manufacturer, the Company is progressing a staged plan for vector development and may incur up to $1,300 in committed spend.

No expense was recognized under this agreement for the year ended December 31, 2020.

Collaboration and License Agreement

In July 2020, the Company entered into a collaboration and license agreement with Artisan Bio, Inc.

(Artisan), wherein the Company and Artisan agreed to collaborate to potentially enhance certain pipeline products of the Company at specific targets using Artisan’s gene editing and engineering technology.

If the Artisan technology

is applied to any of the Company’s products, the Company will be responsible for the development, manufacturing, and commercialization of any such products.

Under the terms of the agreement, the Company was required to pay Artisan a nominal upfront fee, as well as costs associated with research and development activities.

Artisan is eligible to receive future research, development and regulatory milestones, and is also eligible to receive sales milestones and tiered royalties on net sales of products that incorporate the Artisan technology.

The Company can terminate the agreement at will upon advance written notice with payment of a nominal cancellation fee.

Commitments and Contingencies

Operating Lease Agreement

In February 2019, the Company entered into an operating lease agreement for new office space in Philadelphia, Pennsylvania.

The lease term commenced in May 2019 and will expire in July 2022.

The initial annual base rent is $261, and such amount will increase by 2% annually on each anniversary of the commencement date.

The Company records rent expense on a straight-line basis over the lease term.

Rent expense related to this lease agreement recognized in the accompanying statement of operations was $266 and $178 for the years ended December 31, 2020 and 2019.

As of December 31, 2020, the future minimum payments for operating leases are as follows:

Other Purchase Commitments

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Preferred Stock

The Company has 10,000,000 shares of authorized preferred stock as of December 31, 2020, none of which is issued or outstanding.

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Convertible Preferred Stock

The Company has issued Series A Preferred, Series A-1 Preferred, Series A-2 Preferred, and Series B Preferred (collectively, the Convertible Preferred Stock).

The Company classifies Convertible Preferred Stock outside of stockholders’ equity (deficit) because the shares contain deemed liquidation rights that are a contingent redemption feature not solely within the control of the Company.

The following table summarizes the Company’s Convertible Preferred Stock:

The Company has issued Series A Preferred, Series A-1 Preferred, Series A-2 Preferred, and Series B Preferred of Convertible Preferred Stock.

The Company classified Convertible Preferred Stock outside of stockholders’ equity (deficit) because the shares contained deemed liquidation rights that were a contingent redemption feature not solely within the control of the Company.

Series A Preferred

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Balance—December 31, 2018

Issuance on conversion

of convertible notes

Issuance on milestone

closing of convertible

Issuance costs

Balance—December 31, 2018

Exchange, including

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Balance—December 31, 2019

In October 2018, the Company issued 3,146,551 shares of Series A Preferred, resulting in gross proceeds of $12,744.

Series A-1 Preferred and Series A-2 Preferred were issued October 2018 upon conversion of the Notes and in connection with the milestone closing of the Notes (Note 6).

In January 2019, the Company’s certificate of incorporation was amended to increase the authorized shares of Convertible Preferred Stock to 20,762,168 shares, and the Company issued 6,963,788 shares of Series B Preferred, resulting in gross proceeds of $50,000.

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The Company determined the terms of the Series B Preferred to be materially, qualitatively different than the terms of the Series A-2 Preferred and, as such, applied extinguishment accounting with respect to the Series A-2 Preferred received in the exchange resulting in removal of the carrying amount of the Series A-2 Preferred received ($4,764), the addition of the Series B Preferred issued at fair value determined with reference to the contemporaneous issuance of Series B Preferred ($10,090) and the difference ($5,326) determined to be a deemed dividend recorded to additional paid-in capital (to the extent of paid-in capital) and accumulated deficit within stockholders’ deficit on the balance sheet.

The holders of the Convertible Preferred Stock had various rights, preferences and privileges as follows:

Voting Rights

Series A-2 Preferred are non-voting shares.

Each share of Series A Preferred, Series A-1 Preferred and Series B Preferred (the Voting Preferred Stock) shall be entitled to cast the number of votes equal to the number of whole shares of common stock into which such shares of Voting Preferred Stock are convertible as of the record date for determining stockholders entitled to vote on such matter holds a number of votes equal to the number of shares of common stock into which it is convertible.

Generally, holders of Voting Preferred Stock shall vote together with the holders of common stock as a single class and on an as-converted into common stock basis.

Holders of shares of Series A Preferred and Series A-1 Preferred, exclusively and as a separate class, are entitled to elect three members of the board of directors.

Holders of shares of common stock are entitled to elect one member of the board of directors.

The holders of common stock and Convertible Preferred Stock, voting together as a single class on an as-converted basis, are entitled to elect the balance (two) of the total number of directors of the Company.

The holders of shares of Convertible Preferred Stock shall be entitled to receive, on a pari passu basis, dividends, out of any assets legally available therefor, prior and in preference to any declaration or payment of any dividend (other than dividends on shares of common stock payable in shares of common stock) on the common stock, at a rate of (i) $0.24 per annum for each share of Series A Preferred, (ii) $0.1656 per annum for each share of Series A-1 Preferred, (iii) $0.1656 per annum for each share of Series A-2 Convertible Preferred Stock and (iv) $0.4308 per annum for each share of Series B Preferred, in each case, as adjusted for any stock splits, stock dividends, combinations, subdivisions, or other similar recapitalization affecting such shares.

Dividends are payable when, as and if declared by the board of directors, and such dividends shall not be cumulative.

The holders of each series of Convertible Preferred Stock can waive any dividend preference that the holders of such series of Convertible Preferred Stock shall be entitled to receive upon the affirmative vote or written consent of the holders of at least a majority of the shares of such series of Convertible Preferred Stock then outstanding, voting together as a separate series, and on an as-converted to common stock basis.

After payment of such dividends on the shares of Convertible Preferred Stock, any additional dividends or distributions shall be distributed among all holders of common stock and Convertible Preferred Stock in proportion to the number of shares of common stock that would be held by each such holder if all shares of Convertible Preferred Stock were converted to common stock at the then effective conversion price.

Optional Conversion Rights

Each share of Convertible Preferred Stock shall be convertible, at the option of the holder, at any time and from time to time, and without the payment of additional consideration by the holder thereof, into such number of fully paid shares of common stock as is determined by dividing the applicable original issuance price by the conversion price in effect at the time of conversion.

The respective applicable conversion prices for the Convertible Preferred Stock is subject to adjustment upon any future stock split, stock dividend, combination, reclassification or similar event affecting the Convertible Preferred Stock or any series thereof.

Such applicable conversion prices for the Convertible Preferred Stock and the rate at which the Convertible Preferred Stock may be converted into shares of common stock, shall be subject to adjustment as provided.

In connection with the IPO, each 1.5 outstanding share of Convertible Preferred Stock converted into one share of common stock.

Mandatory Conversion Rights

Each share of Convertible Preferred Stock automatically converts into the number of shares of common stock determined in accordance with the conversion rate upon either:

(a) the closing of a public offering of common stock at a price of at least $18.23 per share resulting in at least $50,000 of gross proceeds, or (b) written consent of a majority of the holders of the then outstanding shares of Convertible Preferred Stock.

In the event of a mandatory conversion of Preferred Stock as a result of a Qualified IPO, each holder of Preferred Stock may elect to receive non-voting Common Stock in lieu of all or a portion of such holder’s voting Common Stock.

The non-voting shares of Common Stock shall have the same rights and preferences as the Common Stock but shall be non-voting.

The Convertible Preferred Stock was converted into 6,495,015 shares of voting Common Stock and 6,409,519 shares of non-voting Common Stock as a result of the Company’s IPO in October 2019.

No Convertible Preferred Stock was outstanding as of December 31, 2019.

The holders of Convertible Preferred Stock then outstanding shall be entitled to be paid (a) out of the consideration payable to stockholders in the event of a merger, consolidation, or reorganization involving the Company or a subsidiary or on the sale, lease, transfer, exclusive license or other disposition by the Company or a subsidiary of all or substantially all assets of the not elected otherwise by a requisite of holders of the Series A Preferred, or (b) out of the available proceeds the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of shares of Convertible Preferred Stock then outstanding shall be entitled to be paid, on a pari passu basis, before any payment shall be made to the holders of common stock by reason of their ownership thereof, an amount per share equal to the greater of (i) the applicable original issue price, plus any dividends declared but unpaid thereon, or (ii) such amount per share as would have been payable had all shares of Convertible Preferred Stock been converted into common stock immediately prior to such event.

If upon any such event, the assets of the Company available for distribution to its stockholders shall be insufficient to pay the holders of the outstanding shares of Convertible Preferred Stock the full amount to which they shall be entitled, the holders of shares of Convertible Preferred Stock shall share ratably, on a pari passu basis, in any distribution of the assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.

Anti-Dilution

Holders of Convertible Preferred Stock are afforded certain anti-dilution protection with respect to corporate events such as stock splits and recapitalizations.

The Company’s Convertible Preferred Stock is not redeemable but does contain deemed liquidation rights in the event of a merger, consolidation, or reorganization involving the Company or a subsidiary or on the sale, lease, transfer, exclusive license or other disposition by the Company or a subsidiary of all or substantially all assets of the Company, and unless elected otherwise by a requisite of holders of the Series A Preferred.

Pursuant to the Amended and Restated Certificate of Incorporation filed in August 2018, the Company was authorized to issue a total of 21,147,115 shares of common stock, of which 3,848,320 shares were issued and outstanding at December 31, 2018.

In January 2019, the Company’s certificate of incorporation was further amended to authorize the issuance of 29,000,000 shares of common stock.

In October 2019, the Company’s certificate of incorporation was further amended to authorize the issuance of 143,590,481 shares of voting common stock and 6,409,519 shares of non-voting common stock.

The shares of Convertible Preferred Stock had various rights, including voting and dividend rights, preferences and privileges, including optional and mandatory conversion rights.

In October 2019, the Convertible Preferred Stock was converted into 12,904,534 shares of Common Stock.

Certain holders of the Company’s Convertible Preferred Stock elected to have such shares convert into 6,409,519 shares of non-voting Common Stock following the closing of the Company’s IPO.

The non-voting shares of Common Stock have the same rights and preferences as the Common Stock but are non-voting.

No Convertible Preferred Stock was outstanding as of December 31, 2020 or 2019.

Pursuant to the Company’s Third Amended and Restated Certificate of Incorporation filed in October 2019, the Company is authorized to issue 143,590,481 shares of voting common stock and 6,409,519 shares of non-voting common stock.

Holders of voting common stock shall have the exclusive right to vote for the election of directors of the Company and on all other matters requiring stockholder action.

In connection with the issuance of the Notes in May 2018 (Note 6), several of the Company’s founders agreed to modify their shares of common stock outstanding to include vesting provisions that require continued service to the Company in order to vest in those shares.

Each share of the Company’s non-voting common stock may be converted at any time into one share of common stock at the option of its holder by providing written notice to the Company, subject to the limitations provided for in the amended and restated certificate of incorporation.

In August 2020, 1,733,904 shares of non-voting common stock were converted to voting common stock.

At-The-Market Offering Sales Agreement

On November 10, 2020, the Company filed a Shelf Registration Statement in relation to the registration of common stock, preferred stock, debt securities, warrants and/or units of any combination thereof for the purposes of selling, from time to time, the Company’s common stock, debt securities or other equity securities in one or more offerings.

The Company also simultaneously entered into a Sales Agreement with Cowen and Company, LLC, to provide for the offering, issuance and sale of up to an aggregate amount of $75.0 million of the Company’s common stock from time to time in “at-the-market” offerings under the Shelf Registration Statement and subject to the limitations thereof.

No shares have been sold under the Sales Agreement as of December 31, 2020.

Share-based Payment Awards

In May 2018, several of the Company’s founders agreed to modify their shares of common stock outstanding to include vesting provisions that require continued service to the Company in order to vest in those shares.

As such, the 2,904,000 modified shares of common stock became compensatory upon such modification.

The fair value of the awards on the modification date was determined to be $0.74 per share of common stock, by calibrating to the recent Notes issuance considering the maximum conversion price and the seniority of the Notes.

The fair value of the awards on the modification date was determined to be $0.74 per share of common stock, based on the issuance of convertible notes in May 2018, considering the maximum conversion price and the seniority of the notes.

The total compensation cost resulting from the modification was $2,126.

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During the year ended December 31, 2019, the Company recognized $529 and $177 of this amount in research and development expense and general and administrative expense, respectively.

Common stockholders are entitled to dividends, if and when declared by the board of directors, subject to the prior rights of the Convertible Preferred Stockholders.

As of December 31, 2019, no dividends on common stock had been declared.

Non-Voting Common Stock Election

In October 2019, certain holders of the Company’s Convertible Preferred Stock elected to have such shares convert into 6,409,519 shares of non-voting Common Stock following the closing of the Company’s IPO.

The non-voting shares of Common Stock shall have the same rights and preferences as the Common Stock, but shall be non-voting.

2018 Stock Option and Grant Plan

In September 2018, the Company adopted the 2018 stock option and grant plan (the 2018 Plan), which provided for the Company to sell or issue common stock, or other stock-based awards, to employees, members of the board of directors and consultants of the Company.

The 2018 Plan was administered by the board of directors, or at the discretion of the board of directors, by a committee of the board of directors.

The exercise prices, vesting and other restrictions were determined at the discretion of the board of directors, or their committee if so delegated, except that the exercise price per share of stock options may not be less than 100% of the fair market value of the share of common stock on the date of grant and the term of stock option may not be greater than 10 years.

The Company generally granted stock-based awards with service conditions only (service-based awards), although there has been one grant with performance conditions.

The Company generally granted stock-based awards with service conditions only (service-based awards), although there was one grant with performance conditions.

As of December 31, 2020, there are no unvested options with performance conditions.

Stock options granted under the 2018 Plan generally vest over three to four years.

There were 1,959,411 options granted under the 2018 Plan prior to the plan termination upon consummation of the Company’s IPO in October 2019.

There were 1,959,411 options granted under the 2018 Plan prior to the Company’s IPO in October 2019.

No further grants may be made under the 2018 Plan subsequent to the IPO.

2019 Stock Option and Incentive Plan

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The 2019 Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock units, restricted stock awards, unrestricted stock awards, cash-based awards and dividend equivalent rights to the Company’s officers, employees, directors and consultants.

The number of shares initially reserved for issuance under the 2019 Plan is 2,342,288, which shall be cumulatively increased on January 1, 2020 and each January 1 thereafter by 4% of the number of shares of the Company’s common stock outstanding on the immediately preceding December 31 or such lesser number of shares determined by the Company’s board of directors or compensation committee of the board of directors.

A summary of the stock option activity under the 2018 Plan and the 2019 Plan is presented below:

The number of shares initially reserved for issuance under the 2019 Plan was 2,342,288, which will be increased each January 1 thereafter by 4% of the number of shares of the Company’s common stock outstanding on the immediately preceding December 31 or such lesser number of shares determined by the Company’s board of directors or compensation committee of the board of directors.

On January 1, 2 021, the total number of shares under the 2019 Plan was increased by 962,511 shares.

As of December 31, 2020, there were 2,314,303 shares remaining available for issuance.

A summary of the stock option activity is presented below:

Exercise Price

Outstanding as of January 1, 2019

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The aggregate intrinsic value of options granted is calculated as the difference between the exercise price of the options and the estimated fair value of the Company’s common stock.

The weighted average grant-date fair value of stock options granted during the year ended December 31, 2019 and 2018 was $5.24 and $1.91,

respectively.

The aggregate grant-date fair value of options vested during the year ended December 31, 2019 and 2018 was $753 and $26, respectively.

The weighted average grant-date fair value of stock options granted during the year ended December 31, 2020 and 2019 was $8.31 and $5.24, respectively.

The fair value of each award is estimated using Black-Scholes based on the following assumptions:

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These assumptions include:

Fair value of common stock —Historically, because there has been no public market for the Company’s common stock, the fair value of the Company’s common stock underlying stock-based awards was estimated on each grant date by the Company’s board of directors.

Fair value of common stock —Prior to the Company’s IPO in October 2019, the fair value of the Company’s common stock underlying stock-based awards was estimated on each grant date by the Company’s board of directors.

In order to determine the fair value of the Company’s common stock underlying stock-based awards, the Company’s board of directors considered, among other things, a valuation of the Company’s common stock prepared by an unrelated third-party valuation firm in accordance with the guidance provided by the American Institute of Certified Public Accountants Practice Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation .

Expected term —The expected term represents the period that stock-based awards are expected to be outstanding.

The expected term for option grants is determined using the simplified method.

The simplified method deems the term to be the average of the time-to-vesting and the contractual life of the stock-based awards.

Expected volatility —As a privately held company historically, the Company has limited trading history for its common stock and, as such, the expected volatility is estimated based on the average volatility for comparable publicly traded biotechnology companies over a period equal to the expected term of the stock-based awards.

The expected term for option grants is determined using the simplified method, which is the midpoint between the vesting period and the contractual term of the option.

Expected volatility —As a privately held company prior to the Company’s IPO in October 2019, the Company has limited trading history for its common stock and, as such, the expected volatility is estimated based on the average volatility for comparable publicly traded biotechnology companies over a period equal to the expected term of the stock-based awards.

The comparable companies were chosen based on their similar size, stage in the life cycle or area of specialty.

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General and administrative

As of December 31, 2019, there was $6,797 of unrecognized compensation cost related to unvested option awards, including $176 with respect to one grant with performance-based vesting terms, which is expected to be recognized over a weighted-average period of 2.2 years.

As of December 31, 2020, there was $9,809 of unrecognized compensation cost related to unvested option awards, which is expected to be recognized over a weighted-average period of 2.8 years .

As of December 31, 2020, there was $239 of unrecognized compensation cost related to unvested founder stock awards, which is expected to be recognized over a weighted-average period of 0.3 years.

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The 2019 Employee Stock Purchase Plan (2019 ESPP) was approved by the Company’s board of directors on October 14, 2019, and became effective on October 23, 2019.

A total of 234,229 shares of common stock were initially reserved for issuance under the 2019 ESPP, which shall be cumulatively increased on January 1, 2020 and each January 1 thereafter through January 1, 2029 by the least of (i) 234,229 shares of common stock, (ii) 1% of the number of shares of the Company’s common stock outstanding on the immediately preceding December 31 or (iii) such lesser number of shares determined by the 2019 ESPP’s administrator.

The 2019 ESPP allows eligible employees to purchase shares during certain offering periods.

A total of 234,229 shares of common stock were initially reserved for issuance under the 2019 ESPP, and will be increased each January 1 thereafter through January 1, 2029 by the least of (i) 234,229 shares of common stock, (ii) 1% of the number of shares of the Company’s common stock outstanding on the immediately preceding December 31 or (iii) such lesser number of shares determined by the 2019 ESPP’s administrator.

On January 1, 2021, the total number of shares under the 2019 ESPP was increased by 234,229 shares.

Employee contributions are made through payroll deductions of up to 15% of eligible compensation over the offering period.

A participant may not accrue rights to purchase more than $25 worth of the Company’s common stock for each calendar year in which such right is outstanding.

At the end of each offering period, shares of the Company’s common stock may be purchased at 85% of the lesser of the Company’s common stock on (i) the first trading day of the relevant offering period and (ii) the last trading day of the relevant offering period.

The first offering period commenced on July 1, 2020 and ended on November 30, 2020.

Thereafter, offerings will be six months in duration and will commence on each December 1 and June 1.

The Company recognized stock-based compensation expense of $18 during the year ended December 31, 2020 related to the 2019 ESPP.

The reconciliation of federal statutory income tax rate to the Company’s effective income tax rate is as follows:

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Research and development credit, net

Non-deductible items

Non-deductible items and other

Change in valuation allowance

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The state net operating losses begin to expire in 2037.

The local net operating losses expire in 2039.

The local net operating losses begin to expire in 2039.

As of December 31, 2020, the Company had federal research and development tax credit carryforwards of $1,317, which begin to expire in 2038.

Under the provisions of Sections 382 and 383 of the Internal Revenue Code of 1986,

as amended (the IRC), these net operating losses, credit carryforwards and other tax attributes may be subject to limitation based on previous significant changes in ownership and upon future significant changes in ownership of the Company, as defined by the IRC.

Under the provisions of Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the IRC), these net operating losses, credit carryforwards and other tax attributes may be subject to limitation based on previous significant changes in ownership and upon future significant changes in ownership of the Company, as defined by the IRC.

The Company files income tax returns in the U.S.

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The Company evaluates tax positions for recognition using a more-likely-than-not recognition threshold, and those tax positions eligible for recognition are measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon the effective settlement with a taxing authority that has full knowledge of all relevant information.

As of December 31, 2020, the Company had no unrecognized income tax benefits that would affect the Company’s effective tax rate if recognized.

Net Loss Per Share

For the year ended December 31, 2019, the Company had voting and non-voting common stock outstanding.

The Company calculates basic and diluted net loss per share attributable to common stockholders in conformity with the two-class method required for participating securities.

For the years ended December 31, 2020 and 2019, the Company had voting and non-voting common stock outstanding.

Since the rights of the voting and non-voting common stock are identical, except with respect to voting, the undistributed losses of the Company have been allocated on a proportionate basis to the two classes.

Diluted net loss per share is calculated using the if-converted method, which assumes conversion of all non-voting common stock to voting common stock.

Year ended December 31, 2020

Voting common stock

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Net loss per share, diluted

For the year ended December 31, 2018, basic and diluted net loss per share is:

Basic and diluted net loss per share:

Net loss attributable to common stockholders

Weighted average number of shares used in basic and

diluted per share computation

Year ended December 31, 2019

Voting common stock

Non-voting common stock

Basic net loss per share:

Allocation of undistributed losses attributable to common stockholders

Weighted average number of shares used in basic per share computation

Net loss per share, basic

Diluted net loss per share:

Allocation of undistributed losses for basic computation

Reallocation of undistributed losses as a result of conversion of

non-voting to voting common shares

Allocation of undistributed losses

Weighted average number of shares used in basic per share computation

Conversion of non-voting to voting common shares outstanding

Weighted average number of shares used in diluted per share computation

Net loss per share, diluted

1 unchanged sentence

For the Year Ended December 31,

Convertible preferred stock

Stock options to purchase common stock

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In 2019, the Company made a safe harbor nonelective contribution of 3% of eligible compensation on behalf of all employees.

Effective January 1, 2020, the Plan provides for matching contributions on a portion of participant contributions pursuant to the 401(k) Savings Plan’s matching formula, up to 4% of eligible compensation.

Effective January 1, 2020, the Plan provided for matching contributions on a portion of participant contributions pursuant to the 401(k) Savings Plan’s matching formula, up to 4% of eligible compensation.

All matching contributions and participant contributions vest immediately.

Contributions totaled $203 and $74 for the years ended December 31, 2020 and 2019, respectively, and have been recorded in the statements of operations.

Subsequent Events

In January 2021, the Company entered into a Development and Manufacturing Services Agreement (Wuxi Agreement) with WuXi Advanced Therapies (Wuxi) to serve as the Company’s cell processing manufacturing partner for the anticipated MuSK-CAART Phase 1 clinical trial.

The Company has the right to terminate the Wuxi Agreement for convenience or other reasons specified in the Wuxi Agreement upon prior written notice.

If the Company terminates the Wuxi Agreement, it will be obligated to pay an early termination fee of $1,500.

In February 2021, the Company entered into a research service agreement with CHOP for vector manufacturing, with a total cost of $670, expected to be incurred during 2021.

EXHIBIT INDEX

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333-234017) filed on September 30, 2019)

Description of Securities

Description of Securities (incorporated by reference to Exhibit 4.3 of the Registrant’s Annual Report on Form 10-K (File No.

001-39103) filed on March 30, 2020)

2018 Stock Option and Grant Plan, as amended, and form of award agreements thereunder (incorporated by reference to Exhibit 10.1 of the Registrant’s Registration Statement on Form S-1 (File No.

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(incorporated by reference to Exhibit 10.13 to the Registrant’s Registration Statement on Form S-1, filed with the SEC on September 30, 2019)

Consulting Agreement, dated as of May 7, 2018, between the Registrant and Danforth Advisors, LLC (incorporated by reference to Exhibit 10.14 to the Registrant’s Registration Statement on Form S-1 , filed with the SEC on September 30, 2019)

Amendment No.

1 to Consulting Agreement, dated as of May 7, 2019, between the Registrant and Danforth Advisors, LLC (incorporated by reference to Exhibit 10.15 to the Registrant’s Registration Statement on Form S-1 , filed with the SEC on September 30, 2019)

Employment Agreement between the Registrant and Steven Nichtberger (incorporated by reference to Exhibit 10.16 to the Registrant’s Registration Statement on Form S-1, filed with the SEC on September 30, 2019)

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Employment Agreement between the Registrant and Brian Stalter (incorporated by reference to Exhibit 10.20 to the Registrant’s Registration Statement on Form S-1, filed with the SEC on September 30, 2019)

Non-Employee Director Compensation Policy

Non-Employee Director Compensation Policy (incorporated by reference to Exhibit 10.1 to the Registrant’s Annual Report on Form 10-K (File No.

001-39103) filed on March 30, 2020)

Amendment No.

1, dated May 27, 2020, to the Sponsored Research Agreement, dated April 23, 2018, between the Registrant and the Trustees of the University of Pennsylvania (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No.

001-39103) filed on May 28, 2020)

First Amendment, dated May 27, 2020, to the Amended and Restated License Agreement, dated July 23, 2019, among the Registrant, the Trustees of the University of Pennsylvania and the Children’s Hospital of Philadelphia (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File No.

001-39103) filed on May 28, 2020)

Amendment to CAROT Master Services Addendum to Master Translational Research Services Agreement, dated as of May 18, 2020 between the Registrant and the Trustees of the University of Pennsylvania (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q (File No.

001-39103) filed on August 6, 2020)

Amendment No.

2, dated August 17, 2020, to the Sponsored Research Agreement, dated April 23, 2018, as amended by Amendment No.

1 dated May 27, 2020, between the Registrant and the Trustees of the University of Pennsylvania (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q (File No.

001-39103) filed on November 10, 2020)

List of Subsidiaries of the Registrant

47 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures