Candel Therapeutics, Inc. 10-Q

Item 1. Financial Statements. Candel Therapeutics, Inc. Condensed Consolidated Balance Sheets (In thousands, except share and per share amounts) (unaudited) JUNE 30, 2021 DECEMBER 31, 2020 Assets Current assets: Cash and cash equivalents $ 24,316 $ 35,053 Prepaid expenses and other current assets 110 93 Total current assets 24,426 35,146 Fixed assets, net 4,606 2,787 Other long-term assets 1,712 349 Total assets $ 30,744 $ 38,282 Liabilities, Convertible Preferred Stock and Stockholders’ Deficit Current liabilities: Accounts payable $ 759 $ 921 Accrued expenses 3,511 3,142 Paycheck protection program loan — 463 Other current liabilities 224 187 Total current liabilities 4,494 4,713 Deferred revenue 63 125 Deferred rent 581 632 Warrant liability 19,200 6,831 Long-term debt 521 483 Total liabilities 24,859 12,784 Commitments and contingencies (Note 14) Convertible preferred stock: Series B convertible preferred stock, $ 0.01 par value; 11,155,506 shares authorized, issued and outstanding at June 30, 2021 and December 31, 2020, liquidation preference of $ 30,896 at June 30, 2021 and December 31, 2020. 26,560 26,560 Series C convertible preferred stock, $ 0.01 par value; 6,032,170 shares authorized, issued and outstanding at June 30, 2021 and December 31, 2020, liquidation preference of $ 22,500 at June 30, 2021 and December 31, 2020. 22,500 22,500 Stockholders’ deficit: Common stock, $ 0.01 par value; 75,000,000 shares authorized at June 30, 2021 and December 31, 2020. Shares issued and outstanding 11,731,889 and 11,635,094 at June 30, 2021 and December 31, 2020, respectively. 117 116 Additional paid-in capital 22,437 20,493 Accumulated deficit ( 65,729 ) ( 44,171 ) Total stockholders’ deficit ( 43,175 ) ( 23,562 ) Total liabilities, convertible preferred stock and stockholders’ deficit $ 30,744 $ 38,282 The accompanying notes are an integral part of these condensed consolidated financial statements. 1 Candel Therapeutics, Inc. Condensed Consolidated Statements of Operations and Comprehensive Loss (In thousands, except share and per share amounts) (unaudited) THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, 2021 2020 2021 2020 Research and development service revenue, related party $ 31 $ 31 $ 63 $ 63 Operating expenses: Research and development 3,292 1,795 6,048 3,417 General and administrative 2,040 855 3,972 1,583 Total operating expenses 5,332 2,650 10,020 5,000 Loss from operations ( 5,301 ) ( 2,619 ) ( 9,957 ) ( 4,937 ) Other income (expense): Grant income 605 156 796 319 Interest, dividend and investment income (expense), net ( 15 ) 94 ( 28 ) 22 Change in fair value of warrant liability ( 12,369 ) ( 507 ) ( 12,369 ) ( 52 ) Total other income (expense), net ( 11,779 ) ( 257 ) ( 11,601 ) 289 Net loss $ ( 17,080 ) $ ( 2,876 ) $ ( 21,558 ) $ ( 4,648 ) Other comprehensive gain: Unrealized gain on available-for-sale securities — 307 — 73 Comprehensive loss $ ( 17,080 ) $ ( 2,569 ) $ ( 21,558 ) $ ( 4,575 ) Net loss per share attributable to common stockholders, basic and diluted $ ( 1.46 ) $ ( 0.25 ) $ ( 1.85 ) $ ( 0.40 ) Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted 11,720,530 11,614,754 11,684,374 11,614,551 The accompanying notes are an integral part of these condensed consolidated financial statements. 2 Candel ThErapeutics, Inc. Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Deficit (In thousands, except share and per share amounts) (unaudited) SERIES B CONVERTIBLE PREFERRED STOCK SERIES C CONVERTIBLE PREFERRED STOCK COMMON STOCK ADDITIONAL PAID-IN ACCUMULATED STOCKHOLDERS’ SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT DEFICIT Balance as of December 31, 2020 11,155,506 $ 26,560 6,032,170 $ 22,500 11,635,094 $ 116 $ 20,493 $ ( 44,171 ) $ ( 23,562 ) Options exercised — — — — 24,410 — 35 — 35 Warrants exercised — — — — 72,385 1 409 — 410 Stock-based compensation — — — — — — 1,250 — 1,250 Change in fair value of NC Ohio Trust Warrants — — — — — — 250 — 250 Net loss — — — — — — — ( 21,558 ) ( 21,558 ) Balance as of June 30, 2021 11,155,506 $ 26,560 6,032,170 $ 22,500 11,731,889 $ 117 $ 22,437 $ ( 65,729 ) $ ( 43,175 ) SERIES B CONVERTIBLE PREFERRED STOCK SERIES C CONVERTIBLE PREFERRED STOCK COMMON STOCK ADDITIONAL PAID-IN ACCUMULATED STOCKHOLDERS’ SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT DEFICIT Balance March 31, 2021 11,155,506 $ 26,560 6,032,170 $ 22,500 11,673,135 $ 117 $ 21,035 $ ( 48,649 ) $ ( 27,497 ) Warrants exercised — — — — 58,754 1 — 333 — 333 Stock-based compensation — — — — — — 819 — 819 Change in fair value of NC Ohio Trust Warrants — — — — — — 250 — 250 Net loss — — — — — — — ( 17,080 ) ( 17,080 ) Balance as of June 30, 2021 11,155,506 $ 26,560 6,032,170 $ 22,500 11,731,889 $ 117 $ 22,437 $ ( 65,729 ) $ ( 43,175 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 3 Candel ThErapeutics, Inc. Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Deficit (In thousands, except share and per share amounts) (unaudited) SERIES B CONVERTIBLE PREFERRED STOCK SERIES C CONVERTIBLE PREFERRED STOCK COMMON STOCK ADDITIONAL PAID-IN ACCUMULATED OTHER COMPREHENSIVE ACCUMULATED STOCKHOLDERS’ SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL LOSS DEFICIT DEFICIT Balance as of December 31, 2019 11,155,506 $ 26,560 6,032,170 $ 22,500 11,613,737 $ 116 $ 18,356 $ ( 19 ) $ ( 26,491 ) $ ( 8,038 ) Options exercised — — — — 1,017 — 1 — — 1 Stock-based compensation — — — — — — 51 — — 51 Change in fair value of NC Ohio Trust Warrants — — — — — — 220 — — 220 Unrealized gain on marketable securities — — — — — — — 73 — 73 Net loss — — — — — — — — ( 4,648 ) ( 4,648 ) Balance as of June 30, 2020 11,155,506 $ 26,560 6,032,170 $ 22,500 11,614,754 $ 116 $ 18,628 $ 54 $ ( 31,139 ) $ ( 12,341 ) SERIES B CONVERTIBLE PREFERRED STOCK SERIES C CONVERTIBLE PREFERRED STOCK COMMON STOCK ADDITIONAL PAID-IN ACCUMULATED OTHER COMPREHENSIVE ACCUMULATED STOCKHOLDERS’ SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL LOSS DEFICIT DEFICIT Balance March 31, 2020 11,155,506 $ 26,560 6,032,170 $ 22,500 11,614,754 $ 116 $ 18,325 $ ( 253 ) $ ( 28,263 ) $ ( 10,075 ) Stock-based compensation — — — — — — 83 — — 83 Change in fair value of NC Ohio Trust Warrants — — — — — — 220 — — 220 Unrealized gain on marketable securities — — — — — — — 307 — 307 Net loss — — — — — — — — ( 2,876 ) ( 2,876 ) Balance as of June 30, 2020 11,155,506 $ 26,560 6,032,170 $ 22,500 11,614,754 $ 116 $ 18,628 $ 54 $ ( 31,139 ) $ ( 12,341 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Candel Therapeutics, Inc. Condensed Consolidated Statements of Cash Flows (In thousands, except share and per share amounts) (Unaudited) SIX MONTHS ENDED JUNE 30, 2021 2020 Cash Flows from Operating Activities: Net loss $ ( 21,558 ) $ ( 4,648 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 33 40 Non-cash stock compensation expense 1,500 271 Non-cash interest expense 39 — Paycheck protection program loan forgiveness ( 464 ) — Change in fair value of warrant liability 12,369 52 Changes in operating assets and liabilities: Prepaid expenses and other current assets ( 18 ) 82 Accounts payable ( 177 ) 9 Accrued expenses ( 1,228 ) ( 9 ) Deferred revenue ( 63 ) ( 63 ) Deferred rent ( 13 ) 69 Other long term assets ( 506 ) 47 Net cash used in operating activities ( 10,086 ) ( 4,150 ) Cash Flows from Investing Activities: Sale of available-for-sale securities — 19,302 Purchase of fixed assets ( 939 ) ( 297 ) Net cash (used in) provided by investing activities ( 939 ) 19,005 Cash Flows from Financing Activities: Proceeds from paycheck protection program loan — 460 Proceeds from warrant exercises 410 — Proceeds from option exercises 35 1 Net cash provided by financing activities 445 461 Net (decrease) increase in cash ( 10,580 ) 15,316 Cash, cash equivalents and restricted cash at beginning of period 35,319 5,445 Cash, cash equivalents and restricted cash at end of period $ 24,739 $ 20,761 Supplemental Disclosures of Cash Flow Information: Cash paid for taxes $ 21 $ 19 Capital expenditures in accounts payable and accrued expenses $ 1,612 $ 14 The accompanying notes are an integral part of these condensed consolidated financial statements. 5 Candel Therapeutics, Inc. Notes to Condensed Consolidated financial statements (Amounts in thousands, except share and per share amounts) (unaudited) 1. Organization and basis of presentation Candel Therapeutics, Inc., formerly known as Advantagene, Inc (the “Company”) is a late clinical stage biotechnology company that was incorporated in Delaware in June 2003. On November 30, 2020, the Company changed its name to Candel Therapeutics, Inc. The Company is focused on helping patients fight cancer with oncolytic viral immunotherapies. The Company’s engineered viruses are designed to induce immunogenic cell death through direct viral – mediated cytotoxicity in cancer cells, thus releasing tumor neo-antigens and creating a pro-inflammatory microenvironment at the site of injection. This approach combines an in-depth knowledge of viral immunotherapy and extensive clinical experience across a wide range of indications. The Company has established two oncolytic viral immunotherapy platforms and its two product candidates, CAN-2409 and CAN-3110, are in clinical trials for a number of tumor types. The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations and the ability to secure additional capital to fund operations. Product candidates currently under development will require significant additional research and development efforts, including preclinical and clinical testing and regulatory approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure and extensive compliance-reporting capabilities. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will realize revenue from product sales. The Company has funded its operations primarily with proceeds from the sale of its capital stock and convertible notes. The Company has incurred recurring losses since its inception, including a net loss of $ 21,558 and $ 17,680 for the six months ended June 30, 2021 and the year ended December 31, 2020 , respectively. In addition, as of June 30, 2021, the Company had an accumulated deficit of $ 65,729 . The Company expects to continue to generate operating losses for the foreseeable future. On July 29, 2021, the Company completed its initial public offering of common stock, or the IPO, at which time the Company issued 9,000,000 shares of its common stock at a price to the public of $ 8.00 per share, and on August 13, 2021, the Company issued an additional 887,994 common shares at $ 8.00 per share as a partial exercise of the underwriters’ option to purchase additional shares, resulting in net proceeds to the Company of $ 71.5 million, after deducting underwriting discounts and commissions and offering expenses. Upon closing of the IPO, all outstanding shares of the Company’s convertible preferred stock automatically converted into 7,066,399 shares of common stock. The future viability of the Company is dependent on its ability to raise additional capital to finance its operations. The Company’s inability to raise capital as and when needed could have a negative impact on its financial condition and ability to pursue its business strategies. There can be no assurances that additional funding will be available on terms acceptable to the Company, or at all. The Company believes that existing resources will fund planned operations for at least 12 months from the date that these consolidated financial statements were available to be issued. Accordingly, the condensed consolidated financial statements have been prepared on a basis that assumes the Company continue as a going concern and contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business. Reverse stock split On July 14, 2021, the Company’s board of directors and stockholders approved a one-for-2.4579 reverse stock split of the Company’s issued and outstanding common stock and a proportional adjustment to the existing conversion ratios for the outstanding shares of convertible preferred stock which became effective on July 15, 2021. Accordingly, all share and per share amounts for all periods presented in the accompanying condensed consolidated financial statements and notes thereto have been retroactively adjusted, where applicable, to reflect the reverse stock split. 6 2. Summary of significant accounting policies Basis of presentation The accompanying condensed consolidated financial statements have been prepared in accordance with accounting standards set by the Financial Accounting Standards Board (FASB). The FASB sets generally accepted accounting principles (GAAP) that the Company follows to ensure its financial condition, results of operations, and cash flows are consistently reported. References to GAAP issued by the FASB in these notes to the financial statements are to the FASB Accounting Standards Codification (ASC). Principles of consolidation The condensed consolidated financial statements include the accounts of Candel Therapeutics, Inc. and its wholly owned subsidiary Candel Therapeutics Securities Corporation. All intercompany transactions and balances have been eliminated. Emerging growth company The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “Jobs Act”). Under the Jobs Act emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the Jobs Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that is (i) no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the Jobs Act. As a result, these consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. Unaudited Interim Financial Information The accompanying condensed consolidated balance sheet as of June 30, 2021, the condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2021 and 2020, the condensed consolidated statements of convertible preferred stock and stockholders’ deficit for the three and six months ended June 30, 2021 and 2020, the condensed consolidated statements of cash flows for the six months ended June 30, 2021 and 2020, and the related interim disclosures are unaudited. These unaudited condensed consolidated financial statements include all adjustments necessary, consisting of only normal recurring adjustments, to fairly state the financial position and the results of the Company’s operations and cash flows for interim periods in accordance with U.S. GAAP. Interim period results are not necessarily indicative of results of operations or cash flows for a full year or any subsequent interim period. The accompanying condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included elsewhere in the Company’s final prospectus filed with the SEC on July 29, 2021 pursuant to rule 424(b)(4) relating to the registration statement on Form S-1 (File No. 333-257444). Use of estimates The preparation of the Company’s condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and related disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting period. On an ongoing basis, the Company’s management evaluates its estimates, which include but are not limited to management’s judgments of accrued expenses, fair value of common stock, valuation of share-based awards, valuations of warrants, fair value of debt and income taxes. Actual results could differ from those estimates. The Company utilizes significant estimates and assumptions in determining the fair value of its common stock. The Company has utilized various valuation methodologies in accordance with the framework of the American Institute of Certified Public Accountants Technical Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation (the Practice Aid), to estimate the fair value of its common stock and warrants. Each valuation methodology includes estimates and assumptions that require the Company’s judgment. These estimates and assumptions include a number of objective and subjective factors, including external market conditions, the prices at which the Company sold shares of preferred stock, the superior rights and preferences of securities senior to the Company’s common stock at the time of, and the likelihood of, achieving a liquidity event, such as an initial public offering or sale. Significant changes to the key assumptions used in the valuations could result in different fair values of common stock at each valuation date. 7 Comprehensive income (loss) Components of comprehensive income or loss, including net income or loss, are reported in the condensed consolidated financial statements in the period in which they are recognized. Other comprehensive income or loss is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. Net income (loss) and other comprehensive income (loss) are reported net of any related tax effect to arrive at comprehensive income (loss). Comprehensive loss includes net loss as well as other changes in stockholders’ equity that result from transactions and economic events other than those with stockholders. For the periods presented, the Company had no elements of other comprehensive loss other than its net loss and unrealized gain on marketable securities. Cash and cash equivalents The Company considers all highly liquid investments purchased with original final maturities of 90 days or less from the date of purchase to be cash equivalents. Cash and cash equivalents comprise marketable securities with maturities of less than 90 days when purchased. Cash equivalents are reported at fair value. Restricted cash The Company has $ 423 and $ 266 of restricted cash as of June 30, 2021 and December 31, 2020 which represents cash held in a restricted bank account under the terms of the Company’s Needham, Massachusetts facility lease and as security for the Company credit card. Fair value measurements Certain assets and liabilities of the Company are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable: ∎ Level 1—Quoted prices in active markets for identical assets or liabilities. ∎ Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data. ∎ Level 3—Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques. The carrying values of cash and cash equivalents, accounts payable, accrued expenses and Paycheck Protection Plan loan approximate their fair values due to the short-term nature of these assets and liabilities. The Company’s warrant liability is carried at fair value and is classified as Level 3 measurements. The carrying value of the Company’s long-term debt assumed from the Periphagen transaction is classified as Level 3 (See Note 3). Property and equipment Property and equipment consist of networking and computer equipment, furniture and fixtures and leasehold improvements. Property and equipment are recorded at cost, and depreciated using the straight-line method over the estimated useful lives of the respective assets: ASSET ESTIMATED USEFUL LIFE Networking and computer equipment 5 years Laboratory equipment 5 years Furniture and fixtures 5 years Leasehold improvements Shorter of the useful life or remaining lease term Leases The Company accounts for leases in accordance with ASC 840. Rent expense for leases is recognized on a straight-line basis beginning on the date premises were delivered. Minimum lease payments comprise of only base rent. 8 Concentrations of credit risk Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents and marketable securities. Periodically, the Company maintains deposits and investments in accredited financial institutions in-excess of the federally insured limits. The Company deposits its cash in financial institutions with a high credit quality and has not experienced any losses on such accounts and does not believe it is exposed to any unusual credit risk beyond the normal risk associated with commercial banking relationships. 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 proceeds generated as a result of the offering. Should a planned equity financing be abandoned, the deferred offering costs would be expensed immediately as a charge to operating expenses in the consolidated statement of operations. As of June 30, 2021 and December 31, 2020, the Company has included $ 1.3 million and $ 83 , respectively, of deferred offering costs in other long-term assets. Research and development costs and accruals Research and development expenses include salaries and benefits, materials and supplies, preclinical and clinical trial expenses, stock-based compensation expense, depreciation of equipment, contract services and other outside expenses. The Company has entered into various research and development-related contracts with clinical and research institutions, contract research organizations, and other companies. These agreements are generally cancelable, and related payments are recorded as research and development expenses as incurred. Costs of certain development activities, such as manufacturing, pre-clinical and clinical trial expenses, are recognized based on an evaluation of the progress to completion of specific tasks. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected in the financial statements as prepaid or accrued research and development costs. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are deferred and capitalized. The capitalized amounts are expensed as the related goods are delivered or the services are performed. Costs incurred in obtaining technology licenses and intellectual property are charged to research and development expenses as acquired in-process research and development if the technology licensed or intellectual property acquired has not reached technological feasibility and has no alternative future use. Net loss per share Basic net loss per share is computed by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is computed using the weighted-average number of shares of common stock outstanding during the period and, if dilutive, the weighted-average number of potential shares of common stock. Diluted net loss per share is the same as basic net loss per share for the three and six months ended June 30, 2021 and 2020 since all potential shares of common stock instruments are anti-dilutive as a result of the loss for such periods. The Company’s convertible preferred stock contractually entitles the holders of such shares to participate in dividends but does not contractually require the holders of such shares to participate in losses of the Company. Accordingly, in periods in which the Company reports a net loss, such losses are not allocated to such participating securities. In periods where the Company reports a net loss attributable to common stockholders, diluted net loss per share is the same as basic net loss per share, since dilutive shares of common stock are not assumed to have been issued if their effect is anti-dilutive. The Company reported a net loss attributable to common stockholders for the three and six months ended June 30, 2021 and 2020. 9 3. Fair value of financial assets and liabilities The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values: FAIR VALUE MEASUREMENTS AS OF JUNE 30, 2021 USING: LEVEL 1 LEVEL 2 LEVEL 3 TOTAL Liabilities: Long-term debt $ — $ — $ 521 $ 521 Warrant liability — — 19,200 19,200 Total $ — $ — $ 19,721 $ 19,721 FAIR VALUE MEASUREMENTS AS OF DECEMBER 31, 2020 USING: LEVEL 1 LEVEL 2 LEVEL 3 TOTAL Liabilities: Long-term debt $ — $ — $ 483 $ 483 Warrant liability — — 6,831 6,831 Total $ — $ — $ 7,314 $ 7,314 Valuation of long-term debt The Company’s valuation technique used to measure the fair value of the long-term debt assumed from the Periphagen transaction was a present value calculation based upon a credit rating estimated for the Company at the time the debt was assumed. The determined credit rating used by the Company was CCC based upon the financial position and stage of the Company. The estimated rate was 15.83 % for an unsecured note due in November 2027 for a CCC rated company. The fair value of the long-term debt based on this approach plus the accrued interest represents a Level 3 measurement within the fair value hierarchy. Valuation of warrant liability In connection with the Series B Convertible Preferred Stock issuance, the Company issued warrants to purchase shares of common stock of which certain warrants are shown as a liability on the balance sheet, see Note 8. The fair value of the warrant liability was determined based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The fair value of the warrant liability uses various valuation methods, including the Monte Carlo method, the option-pricing method, probability-weighted expected return and the hybrid method, all of which incorporate assumptions and estimates, to value the common stock warrants. The hybrid method is often used when a company is expecting a liquidity event in the near future and is a combination of the option-pricing and probability-weighted expected return methods. Estimates and assumptions impacting the fair value measurement include the fair value per share of the underlying shares of common stock, risk-free interest rate, expected dividend yield, expected volatility of the price of the underlying preferred stock, and the remaining contractual term of the warrants. The most significant assumption in the model impacting the fair value of the common stock warrants is the fair value of the Company’s common stock as of each remeasurement date. The Company determines the fair value per share of the underlying common stock by taking into consideration the most recent sales of preferred stock, results obtained from third-party valuations and additional factors that are deemed relevant. The following table provides a roll forward of the aggregate fair values of the Company’s liabilities, for which fair value is determined by Level 3 inputs: SERIES B WARRANT LIABILITY PROMISSORY NOTE Balance at December 31, 2020 $ 6,831 $ 483 Change in fair value 12,369 38 Balance at June 30, 2021 $ 19,200 $ 521 10 4. Fixed assets, net Fixed assets, net consisted of the following: JUNE 30, 2021 DECEMBER 31, 2020 Construction in progress $ 2,762 $ 1,216 Laboratory equipment 1,537 1,237 Furniture and fixtures 112 112 Networking and computer equipment 68 47 Leasehold improvements 294 309 Total fixed assets $ 4,773 $ 2,921 Less accumulated depreciation ( 167 ) ( 134 ) Fixed assets, net $ 4,606 $ 2,787 Depreciation and amortization expense for the three months ended June 30, 2021 and 2020 was $ 21 and $ 22 , respectively. Depreciation and amortization expense for the six months ended June 30, 2021 and 2020 was $ 33 and $ 40 , respectively. 5. Accrued expenses Accrued expenses consisted of the following: JUNE 30, 2021 DECEMBER 31, 2020 Payroll and employee related expenses $ 1,105 $ 1,198 Third-party research and development expenses 1,342 1,299 Professional fees and other 1,064 645 $ 3,511 $ 3,142 6. Borrowings under Paycheck Protection Program On March 27, 2020, President Trump signed the Coronavirus Aid, Relief and Economic Security (the CARES Act), which, among other things, outlines the provisions of the Paycheck Protection Program (the PPP). Section 1106 of the CARES Act contains provisions for the forgiveness of all or a portion of a PPP loan, subject to the satisfaction of certain requirements. The amount eligible for forgiveness is, subject to certain limitations, the sum of the Company’s payroll costs, rent and utilities paid by the Company during the 24-week period beginning on the funding date of the PPP loan. On April 28, 2020, the Company, as obligor, entered into a promissory note evidencing an unsecured loan in the approximate amount of $ 460 under the PPP pursuant to the CARES Act. The note matures two years after the date of the loan disbursement and bears interest at a fixed annual rate of 1.00 %, with the first six months of principal and interest deferred. Under the terms of the CARES Act, as amended by the Flexibility Act, and the PPP, the Company can apply for and be granted forgiveness for all or a portion of the loan issued under the PPP and the loan is expected to be forgiven to the extent the proceeds are used in accordance with the PPP to cover payroll, mortgage interest, rent, and utility costs incurred by the Company over the 24-week period following the loan disbursement date. In April 2021, the loan of $ 464 was forgiven and has been recorded as a component of grant income in the condensed consolidated statements of operations and comprehensive loss. 7. Capital stock Convertible preferred stock As of June 30, 2021 and December 31, 2020, the Company has authorized 17,187,676 shares of Preferred Stock (the Preferred Stock) and has designated 11,155,506 shares as Series B Convertible Preferred Stock (Series B Preferred) and 6,032,170 shares as Series C Convertible Preferred Stock (Series C Preferred). Since the Preferred Stock is redeemable upon a liquidation event, which is not considered to be within the Company’s control, it has been classified in temporary equity on the accompanying consolidated balance sheets. The carrying value of the Preferred Stock is the proceeds received less issuance costs. Upon closing of the IPO, all outstanding shares of the Company’s convertible preferred stock automatically converted into 7,066,399 shares of common stock. 11 Issuances of Preferred Stock On November 13, 2018, the Company entered into a Series B Preferred Stock Agreement whereby the Company was authorized to issue 11,155,506 shares of Series B Preferred, $ 0.01 par value, at a purchase price of $ 2.7696 per share. The Company issued 9,026,618 shares of Series B Preferred for gross proceeds of $ 25,000 . As further consideration, the purchaser of Series B Preferred received two warrants to purchase, in the aggregate, up to 7,344,982 shares of the common stock of the Company for $ 6.81 per share. See Note 8 for description of the warrants issued in connection with the issuance of the Series B Preferred. The Preferred Stock has the following rights, preferences, privileges and restrictions: Voting The holders of Preferred Stock are entitled to vote together with all other holders of the Company’s voting stock on an “as converted” basis on all matters submitted to a vote of the holders. The Series B Preferred and Series C Preferred stockholders will vote as separate classes on certain issues that solely affect their rights and privileges. Conversion Each share of Preferred Stock is convertible into one share of common stock, subject to change per certain anti-dilution provisions in the Company’s charter and the reverse stock split discussed below. All shares of Preferred Stock are subject to a mandatory conversion into common stock upon the closing of the sale of shares of common stock to the public of at least $ 25,000 in a firm commitment underwritten public offering pursuant an effective registration statement under the Securities act of 1933 or upon a vote by or written consent of the requisite number stockholders. Liquidation preference Upon a voluntary or involuntary liquidation, dissolution or winding up of the Company, proceeds would be distributed in the following order: First, to the holders of the Series C Preferred in an amount for each such share of Series C Preferred equal to the greater of (i) two and one-half times the Series C Preferred original issuance price, plus any dividends declared but unpaid thereon or (ii) such amount per share as would have been payable had all shares of Series C Preferred been converted into common stock immediately prior to such liquidation event. If the Company has insufficient assets to permit payment of such amounts in full, the assets of the Company will be distributed to the holders of Series C Preferred pro rata in proportion to the amounts to which each such holder would otherwise be entitled. Second, to the holders of the Series B Preferred in an amount for each such share of Series B Preferred equal to the greater of (i) the Series B Preferred original issuance price, plus any dividends declared but unpaid thereon or (ii) such amount per share as would have been payable had all shares of Series B Preferred been converted into common stock immediately prior to such liquidation event. If the Company has insufficient assets to permit payment of such amounts in full, the assets of the Company will be distributed to the holders of Series B Preferred pro rata in proportion to the amounts to which each such holder would otherwise be entitled. Third, upon the distribution of liquidation preference amounts in full to the holders of Preferred Stock, the remaining assets of the Company available for distribution to stockholders shall be distributed among the common stock pro rata based on the number of shares of common stock held by such holders. Redemption The Preferred Stock is not subject to mandatory redemption except in the case of a merger or sale of the Company that has been approved by greater than 50% of the Series C Preferred and the Series B Preferred. Common stock The Company has authorized 75,000,000 shares of $ 0.01 par value common stock at June 30, 2021 and December 31, 2020 of which 11,731,889 and 11,635,094 are issued and outstanding as of June 30, 2021 and December 31, 2020, respectively. Common shares are voting and dividends may be paid when, as and if declared by the board of directors, subject to the limitations and preferences of the Preferred Stock. 12 Reverse stock split On July 14, 2021, the Company’s board of directors and stockholders approved a one-for 2.4579 reverse stock split of the Company’s issued and outstanding common stock and a proportional adjustment to the existing conversion ratios for the outstanding shares of convertible preferred stock which became effective on July 15, 2021. Accordingly, all share and per share amounts for all periods presented in the accompanying condensed consolidated financial statements and notes thereto have been retroactively adjusted, where applicable, to reflect the reverse stock split. Initial public offering The Company completed the IPO, including the partial exercise of the underwriters’ option to purchase additional shares, at which time the Company issued 9,887,994 shares of its common stock at a price to the public of $ 8.00 per share, resulting in net proceeds to the Company of $ 71.5 million, after deducting underwriting discounts and commissions and offering expenses. Upon closing of the IPO, all outstanding shares of the Company’s Preferred Stock automatically converted into 7,066,399 shares of common stock. 8. Warrants The Company has the following warrants outstanding for the purchase of common stock as of June 30, 2021: WARRANT SHARES OF COMMON STOCK SUBJECT TO WARRANTS EXERCISE PRICE PER SHARE EXPIRATION DATES Series A Warrants 16,541 $ 5.67 August 2021 Series B Warrants 3,672,484 $ 6.81 November 2023 Series B Conditional Warrants 3,672,484 $ 6.81 November 2023 NC Ohio Trust 162,740 $ 1.46 March 2029 Series A warrants In connection with the issuance of Series A Preferred Stock in 2016, the Company issued 220,805 five-year warrants to purchase shares of Series A Preferred Stock at an exercise price of $ 3.20 per share (the Series A Warrants). In 2018 upon the conversion of the Series A Preferred Stock into common stock, the Series A Warrants became exercisable for common stock at an exercise price of $ 2.304 per share and the number of warrants outstanding increased to 306,732 . Pursuant to the reverse stock split in 2021, the number of warrants outstanding was reduced proportionately, and the exercise price is $ 5.67 per share. The Series A Warrants expire through August 2021 , if not exercised. Series B warrants In connection with the November 13, 2018 issuance of Series B Preferred, the Company issued warrants to purchase 3,672,484 shares of common stock for $ 6.81 per share to the purchaser of the Series B preferred (the Series B Warrants) which are exercisable upon issuance. In addition, the Company issued to the same stockholder additional five-year warrants for the purchase of 3,672,484 shares of common for $ 6.81 per share which are only exercisable in the event that the Company completes a future financing that meets certain financial milestones (the Conditional Series B Warrants). The Series B Warrants and the Conditional Series B Warrants contain provisions allowing cashless exercise. The Company recorded the Series B Warrants as a component of stockholder’s equity at the time of issuance at their estimated fair value of $ 2,124 and recorded the Conditional Series B Warrants as a liability on the consolidated balance sheet as the number of shares used to calculate the settlement is not a fixed number of shares. The Conditional Series B Warrants are remeasured to their fair value at each reporting date with changes in the fair value recognized as a component of other income (expense), net in the consolidated statements of operations and comprehensive loss. The Company will continue to recognize changes in the fair value of the conditional warrant liability until each Conditional Series B Warrant is exercised, expires or qualifies for equity classification. The Conditional Series B Warrant liability fair value was $ 13,861 and $ 6,831 as of June 30, 2021 and December 31, 2020, respectively. 13 On June 24, 2021, the Company’s board of directors approved and on July 14, 2021 the stockholders approved, effective upon the closing of the IPO, an amendment to the terms of the Series B Warrant and the Series B Conditional Warrants were amended to extend the expiration date from November 2023 to November 2025 . In addition, the terms of the Conditional Series B Warrants such that in the event the future financing milestones are achieved, the warrants would only be exercisable in conjunction with the sale of the Company or in November 2025 through a cashless exercise. NC Ohio trust warrants On March 20, 2019, the Company established the NC Incorporated Ohio Trust, an irrevocable trust funded by the Company. The beneficiary in the trust agreement has provided past services to the Company for more than 15 years and is a non-employee. The warrant provides the beneficiary the right to purchase 162,740 shares of the Company’s common stock, $ 0.01 par value at an exercise price of $ 3.59 per share, subject to adjustments as specified in the warrant agreement. The arrangement is unknown to the beneficiary as the arrangement is a silent trust. The Company recognizes the warrants as compensation expense within the consolidated statement of operations and comprehensive loss when the warrants are granted or at the service inception date if the service inception date precedes the grant date. In the period in which the grant date occurs, cumulative compensation cost shall be adjusted to reflect the cumulative effect of measuring compensation cost based on the fair value at the grant date rather than the fair value previously used at the service inception date or subsequent reporting dates. As of June 30, 2021 and December 31, 2020, a grant date was not established as there was not a mutual understanding of key terms. The Company remeasures the fair value of the award at each reporting date, as the service date preceded the grant date. The value of the warrants for 162,740 shares of common stock was $ 945 and $ 695 as of June 30, 2021 and December 31, 2020, respectively, and was recorded as stock compensation expense within research and development expense and a credit to stockholders’ equity in the consolidated financial statements. 9. Stock options, restricted stock and stock—based compensation The Company’s 2015 Stock Plan, as amended, (the 2015 Plan) provides for the Company to sell or issue common shares or restricted common stock, or to grant incentive stock options or nonqualified stock options for the purchase of common stock, to employees, members of the board of directors and consultants of the Company. The 2015 Plan is administered by the board of directors and exercise prices, vesting and other restrictions are determined at its discretion. All stock option grants are non-statutory stock options except option grants to employees (including officers and directors) intended to qualify as incentive stock options under the Internal Revenue Code of 1986, as amended. Incentive stock options may not be granted at less than the fair market value of the Company’s common stock on the date of grant, as determined in good faith by the board of directors at its sole discretion. Nonqualified stock options may be granted at an exercise price established by the board of directors at its sole discretion and the vesting periods may vary. Vesting periods are generally four years and are determined by the board of directors. Stock options become exercisable as they vest. Options granted under the 2015 Plan expire no more than ten years from the date of grant. As of June 30, 2021, the total number of shares of common stock that may be issued under the 2015 Plan was 5,336,263 shares. On July 14, 2021, the Company’s 2021 Equity Incentive Plan, or the 2021 Plan, was approved by the Company’s stockholders, and became effective upon completion of the IPO and will serve as the successor to the 2015 Plan. There are 2,054,000 shares of common stock reserved for issuance under the 2021 Plan. The 2015 Plan continues to govern the terms and conditions of the outstanding awards under the 2015 Plan although, there will be no additional awards under the 2015 Plan. As of June 30, 2021, the total number of shares remaining available for future grants under the 2015 Plan was 2,972 . Stock option activity is summarized as follows: NUMBER OF STOCK OPTIONS WEIGHTED- AVERAGE EXERCISE PRICE Outstanding as of December 31, 2020 4,013,311 $ 1.52 Granted 632,631 4.97 Cancelled or forfeited ( 13,200 ) 1.55 Exercised ( 24,410 ) 1.46 Outstanding as of June 30, 2021 4,608,332 $ 1.60 Exercisable as of June 30, 2021 1,051,560 $ 1.36 Unvested as of June 30, 2021 3,556,772 $ 1.53 14 The fair value of stock options granted was estimated on the grant date using the Black-Scholes option pricing model based on the following weighted-average assumptions: THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, 2021 2020 2021 2020 Expected option life (years) 5.00 - 6.25 - 5.00 - 6.25 6.25 - 10.00 Risk-free interest rate 0.89% - 1.12% - 0.89% - 1.12% 0.58% - 0.76% Expected volatility 85.87% - 89.02% - 85.87% - 89.02% 74.867% - 78.91% Expected dividend yield 0 % - 0 % 0 % Exercise price $4.97 - $6.64 - $4.97 - $6.64 $1.55 Fair value of common stock $4.97 - $6.64 - $4.97 - $6.64 $1.38 - $1.77 The total fair value of stock options vested during the three and six months ended June 30, 2021 was $ 100 and $ 406 , respectively. The total fair value of stock options vested during the three and six months ended June 30, 2020 was $ 0 and $ 3 , respectively. Stock-based compensation expense for the three and six months ended June 30, 2021 and 2020 was classified in the condensed consolidated statements of operations and comprehensive loss as follows: THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, 2021 2020 2021 2020 Research and development $ 400 $ 256 $ 516 $ 172 General and administrative 669 47 984 99 Total stock based compensation expense $ 1,069 $ 303 $ 1,500 $ 271 As of June 30, 2021, total unrecognized compensation cost related to the unvested stock-based awards was $ 6.06 million. The unvested stock-based awards are expected to be recognized over a weighted average period of 2.73 years as of June 30, 2021. 10. Income taxes During the six months ended June 30, 2020 and 2021, the Company recorded a full valuation allowance on federal and state deferred tax assets since management does not forecast the Company to be in a profitable position in the near future. As a result of the COVID-19 pandemic, the CARES Act was enacted on March 27, 2020 to provide relief for taxpayers. The CARES Act contain a significant number of provisions that may impact on the Company’s accounting for income taxes. The Company has considered several key corporate provisions within the CARES Act, has evaluated its potential impact and does not anticipate it to impact its income tax positions. 11. Exclusive licensing agreement with a related party In March 2014, the Company entered into an exclusive licensing agreement with Ventagen, LLC (Ventagen) which provides Ventagen the right to develop products for commercial sale and distribution within Mexico, Belize, Guatemala, Honduras, El Salvador, Costa Rica, Nicaragua, Panama, Colombia, and Bolivia. Ventagen paid the Company $ 1,000 upon the signing of the agreement and agreed to a fixed future payment to the Company of $ 2,500 . The future payment will be made upon the achievement of $ 5,000 of sales of an approved product by Ventagen and is subject to reduction if Ventagen’s costs to develop an approved product exceeds $ 4,000 . In addition to the upfront payment and the future payment, Ventagen agreed to purchase from the Company all manufactured product that is required for clinical or commercial purposes at a price of cost plus 25 % of the wholesale price of the approved product subject to a minimum or maximum price. In the event the Company is unable or unwilling to manufacture supply under the terms of the agreement, Ventagen has the right to manufacture its own supply and will be required to pay a fixed fee per dose sold. The Company also agreed to provide certain services to Ventagen related to Ventagen’s development plan. Stockholders of the 15 Company own 49.5 % of the voting stock of Ventagen, including 47 % by the Company’s founders who are currently senior executives and significant stockholders of the Company, and trusts for the benefit of their children. The Company is recognizing the $ 1,000 upfront license fee as research and development service revenue, related party, as the Company’s license agreement with Ventagen is within the scope of ASC 606. The license agreement met the contract existence criteria and contained distinct, identifiable performance obligations for which the stand-alone selling prices were readily determinable and allocable. The terms of the agreement contained multiple, distinct performance obligations, including transfer of a license for the territory, research and development oversight for the trials run by Ventagen, and clinical data sharing. The Company estimated the transaction prices, including any variable consideration, at contract inception and determined the fair value of such obligations. The performance obligation associated with the license transfer was satisfied at a point in time, or at contract inception; however, the Company assigned no value to the license transfer. The remaining $ 1,000 transaction price was allocated between the research and development oversight and clinical data sharing. The Company is recognizing revenue for these obligations over an 8 -year period, beginning in 2015, by measuring the progress towards satisfaction of the performance obligations. As clinical oversight and clinical data sharing occurs over the 8—year clinical trial period, the revenue is recognized over the same period in which the cost for these services is incurred. The Company defers recognition of the portion of the $ 1,000 non-refundable upfront license fee for the portion of the performance obligations that are not satisfied. The Company recognized revenue of $ 31 and $ 63 in each of the three and six month periods ended June 30, 2021 and 2020, respectively. The license agreement includes a $ 2,500 potential future milestone payment due to the Company upon successful completion of certain separate, distinct events. At this time, the Company cannot estimate when the milestone-related performance obligations are expected to be achieved and will recognize revenue once satisfaction is probable. There was no additional variable consideration, significant financing components, noncash consideration, or consideration payable to the customer in this agreement. 12. Commitments and contingencies Guarantees The Company has identified the guarantees described below as disclosable, in accordance with ASC 460, Guarantees . As permitted under Delaware law, the Company indemnifies its officers and directors for certain events or occurrences while the officer or director is, or was, serving at the Company’s request in such capacity. The maximum potential amount of future payments the Company could be required to make is unlimited; however, the Company has directors’ and officers’ insurance coverage that should limit its exposure and enable it to recover a portion of any future amounts paid. The Company is a party to a number of agreements entered into in the ordinary course of business that contain typical provisions that obligate the Company to indemnify the other parties to such agreements upon the occurrence of certain events. Such indemnification obligations are usually in effect from the date of execution of the applicable agreement for a period equal to the applicable statute of limitations. The aggregate maximum potential future liability of the Company under such indemnification provisions is uncertain. The Company leases office space under a seven-year noncancelable operating lease. The Company has standard indemnification arrangements under this lease that require it to indemnify the landlord against all costs, expenses, fines, suits, claims, demands, liabilities, and actions directly resulting from any breach, violation, or nonperformance of any covenant or condition of the lease. As of June 30, 2021, the Company had no t experienced any losses related to these indemnification obligations, and no material claims with respect thereto were outstanding. The Company does not expect significant claims related to these indemnification obligations and, consequently, concluded that the fair value of these obligations is negligible, and no related reserves have been established. Legal proceedings The Company is not a party to any litigation and does not have contingency reserves established for any litigation liabilities. 16 13. Net loss per share Net loss per share Basic and diluted net loss per share attributable to common stockholders was calculated as follows: THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, Numerator: 2021 2020 2021 2020 Net loss attributable to common stockholders $ ( 17,080 ) $ ( 2,876 ) $ ( 21,558 ) $ ( 4,648 ) Denominator: Weighted-average shares of common stock outstanding-basic and diluted 11,720,530 11,614,754 11,684,374 11,614,551 Net loss per share attributed to common stockholders-basic and diluted $ ( 1.46 ) $ ( 0.25 ) $ ( 1.85 ) $ ( 0.40 ) The Company’s potentially dilutive securities have been excluded from the computation of dilutive net loss per share as the effect would be to reduce the net loss per share. Therefore, the weighted-average number of shares of common stock outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same. The Company excluded the following potential shares of common stock from the computation of diluted net loss per share attributable to common stockholders because including them would have had an anti-dilutive effect. THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, 2021 2020 2021 2020 Series B Preferred (as converted to common stock) 4,538,578 4,538,578 4,538,578 4,538,578 Series C Preferred (as converted to common stock) 2,454,195 2,454,195 2,454,195 2,454,195 Outstanding warrants for common stock 7,524,270 7,632,518 7,524,270 7,632,518 Outstanding stock options (as converted to common stock) 4,608,332 994,686 4,608,332 994,686 19,125,375 15,619,977 19,125,375 15,619,977 14. Subsequent events Equity Compensation Plans On July 10, 2021, the Company’s 2021 Equity Incentive Plan, or the 2021 Plan, was adopted by the board of directors and was approved by the stockholders on July 14, 2021, and became effective upon completion of the IPO and serves as the successor to the 2015 Plan and reserved 2,054,000 shares of common stock under the 2021 Plan. The 2021 Plan authorizes the award of stock options, restricted stock awards, or RSAs, stock appreciation rights, or SARs, restricted stock units, or RSUs, cash awards, performance awards and stock bonus awards. Under the 2021 Plan, shares of common stock, plus any reserved shares not issued or subject to outstanding grants under the 2015 Plan on the effective date of the 2021 Plan are reserved for issuance pursuant to awards granted under the 2021 Plan. The number of shares reserved for issuance under the 2021 Plan will increase automatically on January 1 of each year from 2022 through 2030 by the number of shares equal to the lesser of 4 % of the aggregate number of outstanding shares of common stock as of the immediately preceding December 31, or a number as may be determined by the compensation committee of the board of directors. On July 10, 2021, the Company’s 2021 Employee Stock Purchase Plan, or the ESPP, was adopted by the board of directors and was approved by the stockholders on July 14, 2021, and became effective upon the completion of the IPO. The Company has initially reserved 17 293,000 shares of common stock for sale under the ESPP. The aggregate number of shares reserved for sale under the ESPP will increase automatically on January 1st of each of the first ten calendar years after the first offering date by the number of shares equal to the lesser of 1 % of the total outstanding shares of common stock as of the immediately preceding December 31 (rounded to the nearest whole share) or a fixed number, or a number of shares as may be determined by the compensation committee of the board of directors in any particular year.