What changed in this filing

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Item 1. Financial Statements

2020-11-09 compared with 2020-08-13 · 159 added, 121 removed, 330 unchanged (46% of the section changed)

4 unchanged sentences

(In thousands, except share and per share data)

September 30,

Current assets:

4 unchanged sentences

Restricted cash

Liabilities and Stockholders' Equity

Liabilities and Stockholders' Equity (Deficit)

Current liabilities:

6 unchanged sentences

Total liabilities

Commitments and contingencies (Note 2 and 11)

Convertible preferred stock - 0 and 207,164,404 authorized, issued, and

outstanding as of June 30, 2020 and December 31, 2019, respectively

Commitments and contingencies (Note 11)

Convertible preferred stock - 207,164,404 authorized, issued, and

outstanding as of December 31, 2019.

No shares authorized, issued, and

outstanding as of September 30, 2020.

Stockholders' equity (deficit):

Preferred stock, $0.0001 par value:

10,000,000 and 0 shares authorized;

no shares issued and outstanding as of June 30, 2020 and

December 31, 2019, respectively

10,000,000 shares authorized and

no shares issued and outstanding as of September 30, 2020;

shares issued and outstanding as of December 31, 2019

Common stock, $0.0001 par value:

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52,120,062 and 9,073,002 shares

issued at June 30, 2020 and December 31, 2019, respectively;

50,896,833 and 7,034,047 shares outstanding at June 30, 2020

issued at September 30, 2020 and December 31, 2019, respectively;

51,024,270 and 7,034,047 shares outstanding at September 30, 2020

and December 31, 2019, respectively

1 unchanged sentence

Accumulated deficit

Total stockholders' equity

Total liabilities and stockholders' equity

Total stockholders' equity (deficit)

Total liabilities and stockholders' equity (deficit)

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

3 unchanged sentences

(In thousands, except share and per share data)

Three Months Ended

Six Months Ended

Three Months Ended September 30,

Nine Months Ended September 30,

Operating expenses:

18 unchanged sentences

(In thousands, except share data)

Convertible Preferred

Convertible Preferred Stock

Stockholders'

13 unchanged sentences

Balance at June 30, 2020

Adjustment to issuance costs related to June 2020 private placement

Vesting of share-based awards

Stock-based compensation

Balance at September 30, 2020

Convertible Preferred

8 unchanged sentences

Balance at June 30, 2019

Vesting of share-based awards

Share-based compensation expense

Balance at September 30, 2019

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

3 unchanged sentences

(In thousands)

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

Cash flows from operating activities:

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Purchases of property and equipment

Proceeds from sale of fixed assets

Net cash used in investing activities

Proceeds from sale of equipment

Net cash provided by (used in) investing activities

Cash flows from financing activities:

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Supplemental disclosure of financing activities

Unpaid offering costs included in accrued expenses

Payment to non-participating Compass LLC investors within accrued

Conversion of preferred units

Deferred offering costs included in accrued expenses

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

18 unchanged sentences

No fractional shares of the Company’s common stock were issued in connection with the Merger, and holders of Compass LLC Units received cash in lieu thereof.

On June 19, 2020, the Company sold 12,096,442 shares of its common stock pursuant to the initial closing of a private placement offering for up to 14,000,000 shares of its common stock at a purchase price of $5.00 per share, or the Offering Price.

The aggregate gross proceeds from the initial closing of the Offering were approximately $60.5 million (before deducting placement agent fees and total expenses in connection with the initial closing of the Offering, which are estimated at approximately $6.9 million).

The Merger and the Blocker Mergers were treated as a recapitalization and reverse acquisition for financial reporting purposes.

Compass Therapeutics is considered the acquirer for accounting purposes, and the Company’s historical financial statements before the Merger will be replaced with the historical financial statements of Compass Therapeutics before the Merger in future filings with the SEC.

Compass Therapeutics is considered the acquirer for accounting purposes, and the Company’s historical financial statements before the Merger have been replaced with the historical financial statements of Compass Therapeutics in this and future filings with the SEC.

As a result, the vested and outstanding common units held by Compass LLC members have been presented as outstanding shares of the Company’s common stock for all periods presented.

All outstanding preferred units of Compass LLC are presented as convertible preferred stock for all presented and until such units were converted into shares of the Company’s common stock at the time of the Merger.

All outstanding preferred units of Compass LLC are presented as convertible preferred stock for all periods and until such units were converted into shares of the Company’s common stock at the time of the Merger.

On June 19, 2020, the Company completed a private placement and sold 12,096,442 shares of its common stock at a purchase price of $5.00 per share and received net proceeds of $54.2 million.

The Company is subject to risks and uncertainties common to companies in the biotechnology and pharmaceutical industries.

5 unchanged sentences

Since its inception, the Company has funded its operations primarily with proceeds from the sale of its equity securities and borrowings under loan agreements.

The Company has incurred recurring losses since its inception and had an accumulated deficit of $133.9 million at June 30, 2020.

The Company has incurred recurring losses since its inception and had an accumulated deficit of $143.0 million at September 30, 2020.

The Company expects to continue to generate operating losses for the foreseeable future.

The Company expects that its cash and cash equivalents will be sufficient to fund its operating expenses and capital expenditure requirements through the fourth quarter of 2021.

The Company expects that its cash and cash equivalents will be sufficient to fund its operating expenses and capital expenditure requirements into the first quarter of 2022.

The future viability of the Company beyond that point is dependent on its ability to raise additional capital to finance its operations.

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The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19, the actions taken to contain it or mitigate its impact, and the economic impact on local, regional, national and international markets.

The Company has been carefully monitoring the COVID-19 pandemic and its potential impact on its business, and has taken important steps to help ensure the safety of employees and their families and to reduce the spread of COVID-19 community-wide.

A State of Emergency was declared in Massachusetts on March 10, 2020 and all non-essential businesses were ordered to close on March 23, 2020.

Since biopharmaceutical companies are essential businesses, the Company was able to remain open and continue to pursue its operations, including the ongoing research and development activities.

In mid-March 2020, the Company has established a work-from-home policy for all employees since, while ensuring essential staffing levels in the Company’s operations remain in place, including maintaining key personnel in its laboratory facilities and vivarium.

Consistent with Federal and Massachusetts laws and regulations, and upon the reopening of businesses announced on May 18, 2020, the Company has gradually resumed its ordinary business and enabled its employees to return to back to work in its offices and labs, while maintaining flexibility with employees who have special situations or needs.

The Company has implemented stringent safety measures designed to comply with applicable federal, state and local guidelines instituted in response to the COVID-19 pandemic.

To date, the Company has been able to continue to pursue its Phase 1 clinical trial without delays or major difficulties However, the Company is continuing to assess the potential impact of the COVID-19 pandemic to current and future business and operations, including expenses and clinical trials as well as the Company’s industry and the healthcare system.

Due to the evolving and uncertain global impacts of the COVID-19 pandemic, the Company cannot precisely determine or quantify the impact this pandemic will have on its business operations for the remainder of fiscal 2020.

The extent to which COVID-19 may impact the Company’s results of operations will depend on a variety of factors and future developments, which are highly uncertain and cannot be predicted with confidence, including the ultimate geographic spread of the disease, the duration, scope and severity of the pandemic, the duration and extent of travel restrictions and social distancing in the U.S.

and other countries, business closures or business disruptions and the effectiveness of actions taken in the U.S.

and other countries to contain and treat COVID-19.

For ongoing and planned clinical trials, the Company has experienced some temporary delays or disruptions due to the COVID-19 pandemic, including limited or reduced patient access to trial investigators, hospitals and trial sites, delayed initiation of new clinical trial sites and limited on-site personnel support at various trial sites, which could adversely impact the Company’s development plans, including the initiation of planned clinical trials and its ability to conduct ongoing clinical trials.

There may also be local orders affecting one or more trial sites, which may trigger mandated changes to the Company’s clinical trial protocols or temporary suspensions in the affected trial sites.

In addition, quarantines, stay-at-home, executive and similar government orders, or the perception that such orders, shutdowns or other restrictions on the conduct of business operations have occurred and could continue to occur or be expanded in scope or duration, which could adversely impact ongoing and planned clinical trials, employees and business operations, personnel at third-party suppliers and other vendors in the U.S.

and other countries, the availability, cost or supply of materials, which may cause delays or disruptions to development plans for the Company’s product candidates, and sales and marketing activities for any product candidates for which the Company may receive marketing approval in the U.S.

or other geographies in the future.

Summary of Significant Accounting Policies

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Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and as amended by Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”).

In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all normal and recurring adjustments (which consist primarily of accruals, estimates and assumptions that impact the financial statements) considered necessary to present fairly the Company’s financial position as of June 30, 2020 and its results of operations and changes in stockholders’ equity (deficit) for the three and six months ended

June 30, 2020 and 2019 and cash flows for the six months ended June 30, 2020 and 2019.

Operating results for the six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

In the opinion of managemen t, the accompanying unaudited condensed consolidated financial statements include all normal and recurring adjustments (which consist primarily of accruals, estimates and assumptions that impact the financial statements) considered necessary to present fai rly the Company’s financial position as of September 30, 2020 and its results of operations and changes in convertible preferred stock and stockholders’ equity (deficit) for the three and nine months ended September 30, 2020 and 2019 and cash flows for the nine months ended September 30, 2020 and 2019 .

Operating results for the nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020 .

The condensed consolidated balance sheet at December 31, 2019 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements.

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Cash equivalents are stated at cost, which approximates market value.

C ash equivalents consisted of money market funds of $62.1 million and $22.8 million at June 30, 2020 and December 31, 2019, respectively.

C ash equivalents consisted of money market funds of $52.2 million and $22.8 million at September 30, 2020 and December 31, 2019, respectively.

Concentrations of Credit Risk and Off-Balance Sheet Risk

6 unchanged sentences

Asset Classification

Estimated Useful Life

Furniture and fixtures

15 unchanged sentences

The impairment loss would be based on the excess of the carrying value of the impaired asset group over its fair value, determined based on discounted cash flows.

The Company did not record any impairment losses on long-lived assets during the six months ended June 30, 2020 and 2019.

The Company did not record any impairment losses on long-lived assets during the nine months ended September 30, 2020 and 2019.

Fair Value Measurements

6 unchanged sentences

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

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

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

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

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

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

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

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

3 unchanged sentences

The carrying values of other current assets and accounts payable approximate their fair value due to the short‑term nature of these assets and liabilities.

The carrying values of the Company’s loan approximated its fair value as of June 30, 2020 and December 31, 2019 due to its variable interest rate.

The carrying values of the Company’s loan approximated its fair value as of September 30, 2020 and December 31, 2019 due to its variable interest rate.

The fair value of the loan related embedded derivative (see Note 4) was determined based on Level 3 measurements.

15 unchanged sentences

Stock-Based Compensation

Through December 2019, Compass Therapeutics LLC issued Class A and Class C common units to various employees, directors and consultants.

Prior to the Merger, Compass Therapeutics LLC issued Class A and Class C common units to various employees, directors and consultants.

The units constituted “profits interests” for tax purposes and were accounted for as share-based payment arrangements.

Compass LLC measured the estimated fair value of the unit-based awards on the date of grant and recognized compensation expense over the requisite service period, which was generally the vesting period of the respective award.

Upon consummation of the Merger, all outstanding vested units were converted into shares of common stock and all outstanding unvested units were converted into shares of restricted stock that will continue to vest over the remaining term of the original award.

The Company recor ds compensation expense for all stock-based awards granted to employees and non-employees as stock-based at fair value a nd records compensation expense on a straight-line basis over the vesting period of the award .

The Company measures the estimated fair value of the stock-based award on the date of grant.

The Company accounts for forfeitures as they occur.

Upon consummation of the Merger, all outstanding vested units were converted into shares of common stock and all outstanding unvested units were converted into shares of restricted stock that continue to vest over the remaining term of the original award.

Subsequent to the Merger, the Company has granted stock options to various employees, directors and consultants.

The Company recognizes the grant ‑date fair value of stock ‑based awards issued to employees and nonemployee board members as compensation expense on a straight ‑line basis over the vesting period of the award.

The Company uses the Black ‑Scholes option pricing model to determine the grant ‑date fair value of stock options and adjusts expense for forfeitures in the periods they occur.

Net Loss per Share

Basic loss per share is computed by dividing net loss applicable to common stockholders by the weighted average number of shares of common stock outstanding during each period.

Diluted loss per share includes the effect, if any, from the potential exercise or conversion of securities, such as unvested convertible preferred units and warrants that would result in the issuance of incremental shares of common stock.

In computing the basic and diluted net loss per share applicable to common stockholders, the weighted average number of shares remains the same for both calculations due to the fact that when a net loss exists, dilutive shares are not included in the calculation as the impact is anti-dilutive.

The following potentially dilutive securities outstanding as of June 30, 2020 and 2019 have been excluded from the computation of diluted weighted average shares outstanding, as they would be anti-dilutive:

Common stock issued upon vesting of share-based

Preferred stock as converted

Warrants to purchase common stock

Basic loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during each period.

Diluted loss per share includes the effect, if any, from the potential exercise or conversion of securities, such as convertible preferred stock, stock options, unvested restricted stock and common stock warrants that would result in the issuance of incremental shares of common stock.

In computing the basic and diluted net loss per share, the weighted average number of shares remains the same for both calculations due to the fact that when a net loss exists, dilutive shares are not included in the calculation as the impact is anti-dilutive.

The following potentially dilutive securities outstanding as of September 30, 2020 and 2019 have been excluded from the computation of diluted weighted average shares outstanding, as they would be anti-dilutive:

September 30,

Convertible preferred stock

Stock options

Nonvested restricted stock

Common stock warrants

Recently Issued Accounting Pronouncements

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

Fair Value Measurements as of June 30, 2020:

Fair Value Measurements as of September 30, 2020 Using:

Cash equivalents - money market funds

2 unchanged sentences

Total liabilities

Fair Value Measurements as of December 31, 2019:

Fair Value Measurements as of December 31, 2019 Using:

Cash equivalents - money market funds

7 unchanged sentences

Changes in the fair value of the derivative liability were recognized as a component of other income (expense), net in the condensed consolidated statements of operations.

The success fee was paid in full following the close of the Merger.

The success fee was paid in full following the closing of the Merger in June 2020.

The fair value of the derivative liability recognized 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 derivative liability was determined using the probability-weighted expected return method, which considered as inputs the type, timing and probability of occurrence of a change-of-control event, the future equity financing and cash settlement of the loans;

the potential amount of the paymen t under each of these potential settlement scenarios;

the potential amount of the payment under each of these potential settlement scenarios;

and the risk-adjusted discount rate reflecting the expected risk profile for each of the potential settlement scenarios.

3 unchanged sentences

Payment of success fee

Balance at June 30, 2020

Balance at September 30, 2020

Property and Equipment

Property and equipment consist of the following (in thousands):

September 30,

Furniture and fixtures

2 unchanged sentences

Total property and equipment–at cost

Accumulated depreciation and amortization

Accumulated depreciation

Property and equipment, net

Total depreciation and amortization expense for three months ended June 30, 2020 and 2019, was $0.4 million and $0.5 million, respectively.

Total depreciation and amortization expense for six months ended June 30, 2020 and 2019, was $0.9 million and $1.1 million, respectively.

Total depreciation and amortization expense for three months ended September 30, 2020 and 2019, was $0.4 million and $0.5 million, respectively.

Total depreciation and amortization expense for nine months ended September 30, 2020 and 2019, was $1.3 million and $1.6 million, respectively.

Accrued Expenses

Accrued expenses consist of the following (in thousands):

September 30,

Compensation and benefits

3 unchanged sentences

The aggregate principal amount of debt outstanding consisted of the following (in thousands):

September 30,

Current portion of debt

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The loans bear interest at the greater of (i) 6.25% and (ii) the prime rate plus an applicable margin of 2.0%.

The interest rate was 6.75% at June 30, 2020.

The interest rate was 6.

2 5% at September 30, 2020.

In an event of default, as defined in the agreement, the interest rate applicable to borrowings would be increased by 5.0%.

The Company made interest - only payments through March 31, 2020.

Beginning in April 2020, the Company is obligated to make equal monthly principal payments of $625,000 through March 31, 2022 when the notes mature.

Beginning in April 2020, the Company is obligated to ma ke equal monthly principal payments of $ 625,000 through March 31, 2022 when the notes mature.

The loan agreement allows for prepayment of the outstanding principal at any time, subject to a prepayment charge that is dependent on the prepayment date.

The debt agreement contained provisions whereby the Company was obligated to pay a success fee of $1.1 million upon the achievement of certain liquidity events.

Upon consummation of the Merger, the Company success fee payment became due and was paid in its entirety as of June 30, 2020.

Upon consummation of the Merger, the Company success fee payment became due and was paid in its entirety in June 2020.

The 2018 Credit Facility contains a negative pledge on the Company’s intellectual property and also contains customary indemnification obligations and customary events of default, including, among other things, (i) non‑payment, (ii) breach of warranty, (iii) non‑performance of covenants and obligations, (iv) default on other indebtedness, (v) judgments, (iv) change of control, (vii) bankruptcy and insolvency, (viii) impairment of security, (ix) key permit events, (x) key person event, (xi) regulatory matters, (xii) and key contracts.

In addition, the Company must maintain a minimum cash balance of $6.0 million beginning in April 2020.

In the event of default under the 2018 Credit Facility, the Company would be required to pay interest on principal and all other due and unpaid obligations at the current rate in effect plus 5%.

The borrowings are collateralized by substantially all of the Company’s assets, excluding intellectual property, and contains affirmative and negative covenants including restrictions on the Company’s ability to incur additional indebtedness, pay dividends, encumber its property, or engage in certain fundamental business transactions, such as mergers or acquisitions of other businesses.

The Company was in compliance with its covenants as of June 30, 2020.

The Company recognized interest expense of $0.2 million and $0.3 million during the three months ended June 30, 2020 and 2019 and $0.5 million and $0.6 million during the six months ended June 30, 2020 and 2019, respectively.

As of June 30, 2020, the aggregate minimum future principal payments due in connection with the 2018 Loan Agreement, as amended, are as follows (in thousands):

The Company must maintain a minimum cash balance of $6.0 million beginning in April 2020.

The Company was in compliance with its covenants as of September 30, 2020.

The Company recognized interest expense of $0.2 million and $0.3 million during the three months ended September 30, 2020 and 2019 and $0.7 million and $0.9 million during the nine months ended September 30, 2020 and 2019, respectively.

As of September 30, 2020, the aggregate minimum future principal payments due in connection with the 2018 Loan Agreement, as amended, are as follows (in thousands):

Year Ending December 31,

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Convertible Preferred Stock

In connection with the Merger, as discussed in Note 1, the Company issued 30,629,606 shares of its common stock to holders of convertible preferred membership interests of Compass Therapeutics LLC.

No convertible preferred securities were outstanding as of June 30, 2020.

In connection with the Merger, as discussed in Note 1, the Company issued 30,629,606 shares of its common stock to holders of convertible preferred interests of Compass Therapeutics LLC.

No convertible preferred securities were outstanding as of September 30, 2020.

As of December 31, 2019, convertible preferred stock consisted of the following shares outstanding :

In connection with the Merger, as discussed in Note 1, the Company issued 8,425,750 shares of its common stock to holders of common membership interests of Compass Therapeutics LLC and issued 1,000,000 shares to the former shareholders of Olivia Ventures Inc.

With respect to 15 holders of an aggregate of 131,472 Compass Therapeutics LLC common membership interests who were not accredited investors, the Company paid an aggregate of approximately $69 thousand in cash in consideration for cancelling such membership interests in connection with the Merger.

Preferred Stock

Shares Issued

and Outstanding

In connection with the Merger, as discussed in Note 1, the Company issued 1,000,000 shares of common stock to the former shareholders of Olivia Ventures Inc.

The Company paid $69,000 to several nonaccredited investors of Compass Therapeutics LLC in lieu of issuing shares.

In addition, 2,930,836 shares of the Company’s common stock were reserved for issuance under the 2020 Stock Option and Incentive Plan.

The Company also sold 12,096,442 shares of its common stock pursuant to the initial closing of a private placement offering for up to 14,000,000 shares of its common stock at a purchase price of $5.00 per share.

The Company also sold 12,096,442 shares of its common stock pursuant to the closing of a private placement offering at a purchase price of $5.00 per share.

Stock-Based Compensation

Prior to the Merger, the Company issued profits interests and used an option pricing model to value the profits interests granted.

The assumptions used to value profits interests granted during the six months ended June 30, 2020 and 2019 are as follows:

Expected term (in years)

Risk-free rate

Expected volatility

Expected dividend yield

Compass LLC unit-based awards granted to employees and non-employees were accounted for as unit-based compensation expense at fair value.

The estimated fair value of the unit-based award was measured on the date of grant.

The fair value of the underlying units based on input from Compass LLC management and approved by the Compass LLC Board, which utilized the Compass LLC enterprise value determined utilizing various methods including the back-solve method, the option-pricing method (“OPM”) or a hybrid of the probability-weighted expected return method (“PWERM”) and the OPM.

The total enterprise value is then allocated to the various outstanding equity instruments, including the unit-based awards, utilizing the option-pricing model.

The fair value of each Compass LLC unit was estimated on the date of grant using the Black-Scholes option-pricing model, which required inputs based on certain subjective assumptions, including the expected unit price volatility, the expected term of the unit, the risk-free interest rate for a period that approximates the expected term of the units and Compass LLC’s expected dividend yield.

The fair value of each restricted equity award is estimated on the date of grant based on the fair value of the Compass LLC’s common units on that same date.

As there was no public market for its common units, Compass LLC determined the volatility for awards granted based on an analysis of reported data for a group of guideline companies that issued options with substantially similar terms.

The expected volatility has been determined using a weighted-average of the historical volatility measures of this group of guideline companies.

The Company expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded common stock.

The expected term of the Compass LLC’s units granted to employees had been determined utilizing the “simplified” method for awards that qualified as “plain-vanilla” awards.

The risk-free interest rate is determined by reference to the U.S.

Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award.

Compass LLC had not paid cash dividends on its common units;

therefore, the expected dividend yield was assumed to be zero.

Following the closing of the Merger , the fair value of the Company’s awards for common stock to which market value is of the Company’s common stock must be determined, will be based on the closing price of the Company’s common stock as reported on the date of the grant.

The weighted-average grant-date fair value for profits interests granted was $0.23 per unit during the six months ended June 30, 2020.

Compensation expense from profits interests for the three months ended June 30, 2020 and 2019 was $0.2 million and $0.2 million, respectively, and $0.4 million and $0.4 million for the six months ended June 30, 2020 and 2019, respectively.

Stock-based compensation expense for the three and nine months ended September 30, 2020 and 2019 was classified in the consolidated statement of operations and comprehensive loss as follows (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

Research and development

General and administrative

Estimating Fair Value of Equity Awards

The fair value of each equity award was determined by the Company on the date of grant and by using the methods and assumptions discussed below.

Certain of these inputs are subjective and generally require judgment to determine.

Expected Term :

The expected term of the equity award represents the weighted average period the award is expected to be outstanding.

The Company uses the simplified method for estimating the expected term as provided by the Securities and Exchange Commission.

The simplified method calculates the expected term as the average time to vesting and the contractual life of the award.

Expected volatility – Due to the Company’s limited operating history and lack of company-specific historical or implied volatility, the expected volatility assumption was determined by examining the historical volatilities of a group of industry peers whose share prices are publicly available.

Risk-free interest rate – The risk-free rate assumption is based on the U.S.

Treasury instruments, the terms of which were consistent with the expected term of the Company’s equity award.

Expected dividend – The Company has not paid and does not intend to pay dividends.

Following the closing of the Merger and upon establishing a public trading market for the Company’s securities, the fair value of the Company’s common stock used to value equity awards will be based on the closing price of the Company’s common stock as reported on the date of the grant.

Restricted Stock

Prior to the Merger, Compass LLC maintained an incentive pool of unit-based awards that were granted to board members, employees and consultants and accounted for as unit-based compensation.

Upon consummation of the Merger, all outstanding vested profits interests units were converted into shares of the Company’s common stock.

Unvested profits interests units were converted into restricted shares of the Company’s common stock and will continue to vest under the same terms as the original profits interests.

A summary of the Company’s unvested restricted stock activity and related information during the six months ended June 30, 2020 is as follows:

Unvested units were converted into restricted shares of the Company’s common stock and will continue to vest under the same terms as the original profits interests.

A summary of the Company’s restricted share activity during the nine months ended September 30, 2020 is as follows:

Weighted Average

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Forfeited or canceled

Nonvested, June 30, 2020

The Company has recognized the following compensation cost related to employee and non-employee stock-based compensation activities (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Research and development

General and administrative

As of June 30, 2020, remaining unrecognized compensation cost related to unvested restricted stock awards to be recognized in future periods totaled $2.0 million, which is expected to be recognized over a weighted‑average period of 1.86 years.

In June 2020, the Company adopted the 2020 Stock Option and Incentive Plan (“2020 Plan”).

The 2020 Plan allows for 2,930,836 shares of the Company’s common stock and will automatically increase each January 1, beginning on January 1, 2021, by the lesser of (i) 4% of the outstanding number of shares of our common stock on the immediately preceding December 31 or (ii) such number of shares as determined by the plan administrator no later than the immediately preceding December 31.

No awards have been issued or are outstanding under the 2020 Plan as of June 30, 2020.

Nonvested, September 30, 2020

The weighted-average grant-date fair value for Compass LLC profits interests granted was $2.34 per unit.

No restricted share awards have been granted following the Merger.

As of September 30, 2020, remaining unrecognized compensation cost related to unvested restricted stock awards to be recognized in future periods totaled $1.8 million, which is expected to be recognized over a weighted average period of 1.9 years.

The fair value of each profits interest was estimated on the date of grant using the weighted average assumptions in the table below:

Nine Months Ended September 30,

Expected term (in years)

Risk-free rate

Expected volatility

Expected dividend yield

Stock Options

In June 2020, the Company’s board of directors adopted the 2020 Stock Option and Incentive Plan (the “2020 Plan”) and reserved 2,930,836 shares of common stock for issuance under this plan and subject to automatic annual increases as defined in the plan.

As of September 30, 2020, 1,305,367 shares remain available for future grant.

The 2020 Plan authorizes the board of directors or a committee of the board to grant incentive stock options, nonqualified stock options and restricted stock awards to eligible officers, employees, consultants and directors of the Company.

Options generally vest over a period of four years and have a contractual life of ten years from the date of grant.

The following table summarizes the stock option activity for the 2020 Plan:

Exercise Price

Life (in years)

Outstanding at January 1, 2020

Forfeited/cancelled

Outstanding at September 30, 2020

Vested at September 30, 2020

For the nine months ended September 30, 2020, the weighted average grant date fair value for options granted was $3.42.

The aggregate intrinsic value for options vested and outstanding as of and for the nine months ended September 30, 2020 was de minimis.

As of September 30, 2020, the unrecognized compensation cost related to outstanding options was $3.3 million, expected to be recognized over a weighted average period of approximately 2.1 years.

The weighted average assumptions used in the Black-Scholes option pricing model to determine the fair value of stock options granted to employees and directors during the nine months ended September 30, 2020 were as follows:

September 30,

Expected term (in years)

Risk-free rate

Expected volatility

Expected dividend yield

License, Research and Collaboration Agreements

2 unchanged sentences

The Company entered into a collaboration agreement with Adimab, LLC on October 16, 2014.

As of June 30, 2020, future milestone payments in connection with this agreement amounted to $2.0 million.

As of September 30, 2020, future milestone payments in connection with this agreement amounted to $2.0 million.

The agreement also includes provisions for payment of royalties at rates ranging in the single digits as a percentage of future net sales within a specified term from the first commercial sale.

The Company recorded no research and development during the three months ended June 30, 2020 and 2019, respectively, and $0 million and $0.5 million during six months ended June 30, 2020 and 2019, respectively.

There were no milestone payments made during the three and nine months ended September 30, 2020.

The Company made milestone payments of $1.0 million and $1.5 million in research and development during the three and nine months ended September 30, 2019, respectively, upon filing an IND for its product candidates associated with this license and first dosing of patient.

Other License and Research Agreements

The Company has entered into several license agreements with various academic and healthcare institutions to in-license certain intellectual property rights and know-how relevant to its programs.

As part of the consideration related to these license agreements, the Company made cash payments of $21 thousand and $0.1 million during the three and six months ended June 30, 2020, respectively.

The Company recorded research and development expense of $58 thousand and $0.1 million during the three months ended June 30, 2020 and 2019, respectively, and $0.2 million and $0.3 million during the six months ended June 30, 2020 and 2019, respectively.

As part of the consideration related to these license agreements, the Company made cash payments of $63,000 and $0.2 million during the three and nine months ended September 30, 2020, respectively.

The Company recorded research and development expense of $64,000 and $79,000 during the three months ended September 30, 2020 and 2019, respectively, and $0.2 million and $0.4 million during the nine months ended September 30, 2020 and 2019, respectively.

In addition, the Company also committed to make certain clinical and regulatory milestone payments in the aggregate of $0.5 million associated with the in-licensed technology.

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The Company also leases a vivarium and storage space in Cambridge, MA.

All leases expire January 31, 2021.

The future minimum rental payments under the leases as of June 30, 2020 are as follows:

The leases expire January 31, 2021.

The lease agreements have annual scheduled payment increases and the Company is recognizing the rent expense on a straight‑line basis over the lease term.

Rental expense was $0.5 million and $0.5 million for the three months ended September 30, 2020 and 2019, respectively, and $1.5 million and $1.4 million for the nine months ended September 30, 2020 and 2019, respectively.

The future minimum rental payments under the leases as of September 30, 2020 are as follows:

Year Ending December 31,

Rental expense was $0.5 million and $0.5 million for the three months ended June 30, 2020 and 2019, respectively, and $1.0 million and $0.9 million for the six months ended June 30, 2020 and 2019, respectively.

Related Parties and Related-Party Transactions

1 unchanged sentence

The Company’s co-founder has a direct ownership interest in Adimab, LLC.

The Company recorded research and development expense of $0 million and $0.5 in connection with this agreement during six months ended June 30, 2020 and 2019, respectively.

The Company recorded research and development expense of $0 million and $1.5 in connection with this agreement during nine months ended September 30, 2020 and 2019, respectively.

On September 18, 2017, the Company entered into a software license and services agreement with StackWave, LLC.

A former employee of the Company is the co-founder and has a direct ownership interest in StackWave, LLC.

The Company recorded capitalized software of $0.2 million and $0.7 million for the six months ended June 30, 2020 and 2019, respectively.

Subsequent Events

In July 2020, the Company entered into a manufacturing agreement with a contract manufacturing organization, or CMO, for the good manufacturing practice, or GMP, of the Company’s second clinical candidate, the bi-specific antibody CTX-8371.

The CMO is eligible to receive up to $4.85 million in payments as certain protocol and manufacturing stages are completed.

The contract is cancelable by the Company or CMO upon written notification to the other party within a specified period of time.

The Company recorded research and development expense of $17,000 for the nine months ended September 30, 2020 and capitalized software of $0.2 million and $0.7 million for the nine months ended September 30, 2020 and 2019, respectively.

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-Q

Item 1. Financial Statements