LENZ Therapeutics, Inc. 10-K

Item 8. Financial Statements and Supplementary Data Index to Consolidated Financial Statements Report of Independent Registered Accounting Firm (PCAOB ID No. 42 ) 99 Consolidated Balance Sheets 100 Consolidated Statements of Operations And Comprehensive Loss 102 Consolidated Statements of Convertible Preferred and Common Stock and Stockholders’ Equity ( Deficit ) 103 Consolidated Statements of Cash Flows 105 Notes to Consolidated Financial Statements 106 98 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of LENZ Therapeutics, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of LENZ Therapeutics, Inc. (the Company) as of December 31, 2024 and 2023, the related consolidated statements of operations and comprehensive loss, convertible preferred and common stock and stockholders’ equity (deficit) and cash flows for each of the two years in the period ended December 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2022. San Diego, California March 19, 2025 99 Table of Contents LENZ THERAPEUTICS, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except for shares and par value) December 31, 2024 2023 Assets Current assets: Cash and cash equivalents $ 20,158 $ 35,140 Marketable securities 188,872 30,654 Prepaid expenses and other current assets 2,773 1,450 Restricted cash 114 — Total current assets 211,917 67,244 Property and equipment, net 651 54 Operating lease right-of-use asset 1,338 318 Deferred offering costs — 2,739 Other assets 1,398 21 Total assets $ 215,304 $ 70,376 Liabilities, convertible preferred and common stock and stockholders’ equity (deficit) Current liabilities: Accounts payable $ 4,257 $ 5,711 Accrued liabilities 6,149 12,803 Total current liabilities 10,406 18,514 Operating lease liability, net 814 192 Other noncurrent liabilities — 121 Preferred stock warrants liability — 871 Total liabilities 11,220 19,698 Commitments and contingencies (Note 7) Convertible preferred and common stock: Series A convertible preferred stock, par value of $ 0.001 per share; no shares and 22,791,777 shares authorized at December 31, 2024 and 2023, respectively; no shares and 21,977,282 shares issued and outstanding at December 31, 2024 and 2023, respectively — 44,621 Series A-1 convertible preferred stock, par value of $ 0.001 per share; no shares and 2,950,548 shares authorized at December 31, 2024 and 2023, respectively; no shares and 2,950,548 issued and outstanding at December 31, 2024 and 2023, respectively — 9,893 Series B convertible preferred stock, par value of $ 0.001 per share; no shares and 28,019,181 shares authorized at December 31, 2024 and 2023, respectively; no shares and 28,019,181 issued and outstanding at December 31, 2024 and 2023, respectively — 82,976 Class B convertible common stock, par value of $ 0.001 per share; no shares and 2,744,184 shares authorized at December 31, 2024 and 2023, respectively; no shares and 2,744,184 shares issued and outstanding at December 31, 2024 and 2023, respectively — 5,900 Total convertible preferred and common stock — 143,390 Stockholders' equity (deficit) (1) : Common stock, par value of $ 0.00001 per share; 300,000,000 and 16,017,929 shares authorized at December 31, 2024 and 2023, respectively; 27,531,490 and 2,004,783 shares issued at December 31, 2024 and 2023, respectively; and 27,518,439 and 1,969,360 shares outstanding at December 31, 2024 and 2023, respectively 1 10 100 Table of Contents Additional paid-in capital 348,901 2,517 Accumulated deficit ( 145,014 ) ( 95,245 ) Accumulated other comprehensive income 196 6 Total stockholders’ equity (deficit) 204,084 ( 92,712 ) Total liabilities, convertible preferred and common stock and stockholders’ equity (deficit) $ 215,304 $ 70,376 See accompanying notes to consolidated financial statements. (1) Retroactively recast for the reverse recapitalization as described in Note 3. 101 Table of Contents LENZ THERAPEUTICS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (in thousands, except share and per share data) Year Ended December 31, 2024 2023 Operating expenses: Research and development $ 29,801 $ 59,504 Selling, general and administrative 28,809 12,925 Total operating expenses 58,610 72,429 Loss from operations ( 58,610 ) ( 72,429 ) Other income: Other income 289 93 Interest income 8,553 2,189 Total other income, net 8,842 2,282 Net loss before income taxes $ ( 49,768 ) $ ( 70,147 ) Income tax expense (benefit) 1 ( 179 ) Net loss ( 49,769 ) ( 69,968 ) Other comprehensive income (loss): Unrealized gain on marketable securities 190 6 Comprehensive loss $ ( 49,579 ) $ ( 69,962 ) Net loss per share, basic and diluted $ ( 2.34 ) $ ( 35.71 ) Weighted-average common shares outstanding, basic and diluted (1) 21,281,038 1,959,091 See accompanying notes to consolidated financial statements. (1) Retroactively recast for the reverse recapitalization as described in Note 3. See Note 2 for further information on weighted-average common shares outstanding. 102 Table of Contents LENZ THERAPEUTICS, INC. CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED AND COMMON STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) (in thousands, except share data) Convertible Preferred and Common Stock Stockholders' Equity (Deficit) Series A Convertible Preferred Stock Series A-1 Convertible Preferred Stock Series B Convertible Preferred Stock Class B Convertible Common Stock Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income Stockholders' Equity (Deficit) Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Balance as of December 31, 2023 (1) 21,977,282 $ 44,621 2,950,548 $ 9,893 28,019,181 $ 82,976 2,744,184 $ 5,900 1,969,360 $ 10 $ 2,517 $ ( 95,245 ) $ 6 $ ( 92,712 ) Conversion of convertible preferred stock and Class B convertible common stock to common stock as a result of the Merger and reset to par of $ 0.00001 ( 21,977,282 ) ( 44,621 ) ( 2,950,548 ) ( 9,893 ) ( 28,019,181 ) ( 82,976 ) ( 2,744,184 ) ( 5,900 ) 11,260,672 ( 10 ) 143,400 — — 143,390 Issuance of common stock to Graphite stockholders as a result of the Merger — — — — — — — — 8,320,485 — 116,145 — — 116,145 Issuance of common stock from private placements, net — — — — — — — — 5,138,512 — 79,513 — — 79,513 Reclassification of warrant liability to equity — — — — — — — — — — 1,918 — — 1,918 Merger transaction costs — — — — — — — — — — ( 5,070 ) — — ( 5,070 ) Unrealized gain on marketable securities — — — — — — — — — — — — 190 190 Exercise of stock options and common warrants — — — — — — — — 801,983 1 4,037 — — 4,038 Vesting of early exercised stock options — — — — — — — — 27,427 — 76 — — 76 Share-based compensation — — — — — — — — — — 6,365 — — 6,365 Net loss — — — — — — — — — — — ( 49,769 ) — ( 49,769 ) Balance as of December 31, 2024 — $ — — $ — — $ — — $ — 27,518,439 $ 1 $ 348,901 $ ( 145,014 ) $ 196 $ 204,084 See accompanying notes to consolidated financial statements. (1) Retroactively recast for the reverse recapitalization as described in Note 3. 103 Table of Contents LENZ THERAPEUTICS, INC. CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED AND COMMON STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) (1) (in thousands, except share data) Convertible Preferred and Common Stock Stockholders' Deficit Series A Convertible Preferred Stock Series A-1 Convertible Preferred Stock Series B Convertible Preferred Stock Class B Convertible Common Stock Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income Stockholders' Deficit Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Balance as of December 31, 2022 21,977,282 $ 44,621 2,950,548 $ 9,893 — $ — 2,744,184 $ 5,900 1,946,988 $ 10 $ 1,098 $ ( 25,277 ) $ — $ ( 24,169 ) Issuance of Series B convertible preferred stock, net of issuance costs — — — — 28,019,181 82,976 — — — — — — — — Unrealized gain on marketable securities — — — — — — — — — — — — 6 6 Vesting of early exercised stock options — — — — — — — — 22,372 — 76 — — 76 Share-based compensation — — — — — — — — — — 1,343 — — 1,343 Net loss — — — — — — — — — — — ( 69,968 ) — ( 69,968 ) Balance as of December 31, 2023 21,977,282 $ 44,621 2,950,548 $ 9,893 28,019,181 $ 82,976 2,744,184 $ 5,900 1,969,360 $ 10 $ 2,517 $ ( 95,245 ) $ 6 $ ( 92,712 ) See accompanying notes to consolidated financial statements. (1) Retroactively recast for the reverse recapitalization as described in Note 3. 104 Table of Contents LENZ THERAPEUTICS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Year Ended December 31, 2024 2023 Cash flows from operating activities Net loss $ ( 49,769 ) $ ( 69,968 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 58 15 Loss on disposal of property and equipment 16 — Accretion of discounts on marketable securities ( 4,017 ) ( 1,057 ) Change in fair value of preferred stock warrants 1,047 ( 123 ) Share-based compensation expense 6,365 1,343 Changes in operating assets and liabilities: Prepaid expenses and other current assets 25 761 Accounts payable ( 4,279 ) 856 Accrued liabilities ( 7,460 ) 7,783 Other assets ( 1,377 ) 10 Net cash used in operating activities ( 59,391 ) ( 60,380 ) Cash flows from investing activities Purchases of marketable securities ( 241,911 ) ( 52,091 ) Proceeds from maturities of marketable securities 87,900 22,500 Purchases of property and equipment ( 468 ) ( 30 ) Net cash used in investing activities ( 154,479 ) ( 29,621 ) Cash flows from financing activities Proceeds from issuance of Series B convertible preferred stock, net of issuance costs — 82,976 Deferred offering costs — ( 2,479 ) Proceeds from issuance of common stock, net of issuance costs 79,513 — Cash, cash equivalents, and restricted cash acquired in connection with the Merger 117,824 — Merger transaction costs ( 2,373 ) — Proceeds from exercises of stock options 4,038 203 Net cash provided by financing activities 199,002 80,700 Net decrease in cash, cash equivalents, and restricted cash ( 14,868 ) ( 9,301 ) Cash and cash equivalents, beginning of the period 35,140 44,441 Cash, cash equivalents, and restricted cash, end of the period $ 20,272 $ 35,140 Supplemental cash flow information Conversion of Series A, A-1, and B convertible preferred stock to common stock $ 137,490 $ — Conversion of Class B convertible common stock to common stock $ 5,900 $ — Reclassification of warrant liability to equity $ 1,918 $ — Prepaid expenses and other current assets assumed in the Merger $ 1,313 $ — Accounts payable and accrued liabilities assumed in the Merger $ 2,950 $ — Right-of-use assets assumed in the Merger in exchange for operating lease liabilities $ 74 $ — Right-of-use assets obtained in exchange for operating lease liabilities $ 1,116 $ 190 Property and equipment included in accounts payable and accrued expenses $ 203 $ — Deferred offering costs included in accounts payable and accrued expenses $ — $ 260 See accompanying notes to consolidated financial statements. 105 Table of Contents LENZ THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization and Liquidity Description of the Business LENZ Therapeutics, Inc. (“LENZ” or the “Company”), formerly known as Graphite Bio, Inc. (“Graphite”), was incorporated in Ontario, Canada in June 2017 as Longbow Therapeutics Inc., and was reincorporated in the State of Delaware in October 2019. The Company has a wholly owned subsidiary, LENZ Therapeutics Operations, Inc. (“LENZ OpCo”), previously named Lenz Therapeutics, Inc., which became a corporation in Delaware on October 28, 2020 upon the filing of a Certificate of Conversion to convert Presbyopia Therapies, LLC, a Delaware limited liability company (formed in September 2013), to a Delaware corporation. The Company is a pre-commercial biopharmaceutical company focused on the development and commercialization of innovative therapies to improve vision. Reverse Merger Transaction On March 21, 2024, Graphite and LENZ OpCo completed a merger transaction in accordance with the terms and conditions of the Agreement and Plan of Merger (the “Merger Agreement”) dated November 14, 2023, pursuant to which, among other matters, Generate Merger Sub, Inc., a wholly-owned subsidiary of Graphite, merged with and into LENZ OpCo, with LENZ OpCo surviving the merger as the surviving corporation and a wholly-owned subsidiary of Graphite (the “Merger”). In connection with the Merger, Graphite changed its name to “LENZ Therapeutics, Inc.” The Merger was accounted for as a reverse recapitalization, with LENZ OpCo being treated as the acquirer for accounting purposes. See discussions of the transactions in connection with the Merger in Note 3. Liquidity As of December 31, 2024, the Company has devoted substantially all of its efforts to product development and has not realized product revenue from its planned principal operations. The Company has a limited operating history, and the sales and income potential of the Company’s business and market are unproven. The Company has experienced net losses since its inception and, as of December 31, 2024, had an accumulated deficit of $ 145.0 million. The Company expects to incur additional losses in the future as it continues its research and development efforts, advances its product candidate through clinical development, seeks regulatory approval for LNZ100, prepares for commercialization, hires additional personnel, protects its intellectual property, and grows its business. The Company may need to raise additional capital to support its continuing operations and pursue its long-term business plan, including the development and commercialization of its product candidate, if approved. Such activities are subject to significant risks and uncertainties. As of December 31, 2024, the Company had cash, cash equivalents, and marketable securities of $ 209.1 million, which is available to fund future operations. The Company believes that its existing cash, cash equivalents, and marketable securities as of December 31, 2024 will be sufficient to support operations for at least the next 12 months from the issuance date of these consolidated financial statements. 2. Summary of Significant Accounting Policies Basis of Presentation and Principles of Consolidation The accompanying consolidated financial statements were prepared based on the accrual method of accounting in accordance with U.S. generally accepted accounting principles (“GAAP”). 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 Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”). The consolidated financial statements include only normal recurring adjustments, necessary for the fair presentation of the Company’s financial position and its results of operations and its cash flows for the periods presented. All intercompany accounts and transactions have been eliminated in consolidation. Since LENZ OpCo was determined to be the accounting acquirer in connection with the Merger, for periods prior to the Merger, the consolidated financial statements were prepared on a stand-alone basis for LENZ OpCo and did not include the combined entities' activity or financial position. Subsequent to the Merger, the consolidated financial statements as of and for the year ended December 31, 2024 included Graphite’s activity from March 21, 2024 through December 31, 2024, and assets and liabilities at their acquisition date fair value. Historical share and per share figures of LENZ OpCo have been retroactively recast based on the Merger exchange ratio of 0.2022 . 106 Table of Contents Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period. Estimates used in preparing the accompanying financial statements include, but are not limited to, estimates related to the research and development accruals, preferred stock warrants liability, and share-based compensation. Although actual results could differ from those estimates, management does not believe that such differences would be material. Concentration of Credit Risk and Other Risks and Uncertainties Financial instruments, which potentially subject the Company to a concentration of credit risk, consist primarily of cash and cash equivalents and marketable securities. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. The Company has not experienced any losses in such accounts and management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held. Cash and Cash Equivalents The Company considers all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents. The Company deposits its cash primarily in traditional checking and savings accounts and money market funds with a financial institution. Restricted cash of $ 0.1 million as of December 31, 2024 related to a security deposit in the form of a letter of credit issued in connection with one of the Company's leases, which expires in March 2025. Marketable Securities The Company classifies marketable securities as available-for-sale, as the sale of such investments may be required prior to maturity to implement management strategies, and therefore classified all marketable securities with maturity dates beyond three months at the date of purchase as current assets in the accompanying consolidated balance sheets. As of December 31, 2024, the Company had no intent to sell any marketable securities prior to maturity. Marketable securities classified as available-for-sale are carried at fair value with the unrealized gains and losses included in other comprehensive income as a component of stockholders’ deficit until realized. Any premium or discount arising at purchase is amortized and/or accreted to interest income as an adjustment to yield over the life of the instrument. Realized gains and losses were calculated using the specific identification method and recorded as interest income or expense. The Company invests in available-for-sale securities consisting of commercial paper, U.S. Treasury securities, U.S government. agency securities, and corporate debt securities. Available-for-sale securities are classified as marketable securities on the Company's consolidated balance sheets. Management evaluates whether unrealized losses on available-for-sale marketable securities are the result of credit worthiness of the securities held or other non-credit related factors. If an unrealized loss is the result of credit quality factors, the Company recognizes an allowance reflective of the current estimate of credit losses expected to be incurred over the life of the financial instrument on a specific identification basis upon initial recognition and at each reporting period. If a reduction in value is a result of other factors, losses are recognized within comprehensive loss unless either the Company intends to sell the security or it is more likely than not the Company will be required to sell the security. Based on a review of these marketable securities, the Company concluded none of the unrealized loss is the result of a credit loss as of December 31, 2024, because the Company does not intend to sell these securities, and it is not more-likely-than-not that the Company will be required to sell these securities before the recovery of their amortized cost basis. Long-term Investment Long-term investments without a readily determinable fair value are accounted for using the cost method. The cost method is applied when there is no active market for the investment, thus the fair value cannot be reliably determined. The cost of long-term investments include the purchase price, and are adjusted to fair value based on any observable changes in market value or any impairment losses. The Company had one long-term equity investment which was classified as a non-current asset in the consolidated balance sheets, as the Company had no intent to sell or dispose of the long-term investment within one year of the balance sheet date. Equity investments without a readily determinable fair value are remeasured from time to time based on observable price changes in orderly transactions for an identical or similar investment. Changes in fair value due to observable price changes 107 Table of Contents are recorded as other income (expense) in the consolidated statements of operations and comprehensive loss in the period in which they occur. Impairment of long-term investments is assessed periodically or whenever there are indicators of potential impairment. An impairment loss is recognized if the carrying amount of the investment exceeds its recoverable amount. The recoverable amount is determined based on the higher of the investment's fair value less costs to sell or its value in use. Any impairment losses are recognized in the consolidated statements of operations and comprehensive loss as an expense in the period in which they occur. Allowance for Credit Losses For available-for-sale securities in an unrealized loss position, the Company first assesses whether it intends to sell, or if it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through earnings. For available-for-sale securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the severity of the impairment, any changes in interest rates, market conditions, changes to the underlying credit ratings and forecasted recovery, among other factors. The credit-related portion of unrealized losses, and any subsequent improvements, are recorded in interest income through an allowance account. Any impairment that has not been recorded through an allowance for credit losses is included in other comprehensive income (loss) on the consolidated balance sheets. The Company excludes the applicable accrued interest from both the fair value and amortized cost basis of available-for-sale securities for purposes of identifying and measuring an impairment. Accrued interest receivable on available-for-sale securities is recorded within prepaid expenses and other current assets on the consolidated balance sheets. The Company’s accounting policy is to not measure an allowance for credit loss for accrued interest receivable and to write-off any uncollectible accrued interest receivable as a reversal of interest income in a timely manner, which is considered to be in the period in which it’s determined the accrued interest will not be collected. Property and Equipment, Net Property and equipment are recorded at cost and depreciated over their estimated useful lives using the straight-line method. Upon retirement or disposal, the cost and related accumulated depreciation are removed from the balance sheet and the resulting gain or loss is recognized within operating expenses based on the difference between the proceeds received and the net book value of the disposed asset. Routine expenditures for maintenance and repairs are expensed as incurred. Estimated useful lives for property and equipment are as follows: Estimated Useful Life Computer equipment 3 years Furniture and fixtures 5 years Computer software 3 years Machinery and equipment 5 years Leasehold improvements Shorter of expected useful life or lease term Leases The Company determines if an arrangement is or contains a lease at inception by assessing whether it conveys the right to control the use of an identified asset in exchange for consideration. If a lease is identified, classification is determined at lease commencement. To date, all of the Company’s leases have been determined to be operating leases. Operating lease liabilities are recognized at the present value of the future lease payments at the lease commencement date. The Company’s leases do not provide an implicit interest rate and therefore the Company estimates its incremental borrowing rate to discount lease payments. The incremental borrowing rate reflects the estimated interest rate that the Company would have to pay to borrow on a collateralized basis, an amount equal to the lease payments in a similar economic environment over a similar term. Operating lease right-of-use (“ROU”) assets are determined based on the corresponding lease liability adjusted for any lease payments made at or before commencement, initial direct costs, and lease incentives. The operating lease ROU asset also includes impairment charges if the Company determines the ROU asset is impaired. The Company considers a lease term to be the noncancelable period that it has the right to use the underlying asset, including any periods where it is reasonably assured the Company will exercise the option to extend the contract. Operating lease expenses are 108 Table of Contents recognized, and the ROU assets are amortized on a straight-line basis over the lease term. Sublease income, if any, is recognized on a straight-line basis over the sublease term as a reduction to the Company's operating lease cost within general and administrative expenses in our consolidated statements of operations and comprehensive loss. The Company has elected not to separate lease and non-lease components for its leased assets and accounts for all lease and non-lease components of its agreements as a single lease component. The Company has elected not to recognize leases with terms of one year or less on the consolidated balance sheets. Deferred Offering Costs The Company capitalizes costs that are directly associated with equity financings until such financings are consummated, at which time such costs are recorded against the gross proceeds of the offering. Should an in-process equity financing be abandoned, the deferred offering costs will be expensed immediately as a charge to operating expenses in the consolidated statements of operations and comprehensive loss. The Company capitalized deferred offering costs of $ 2.7 million as of December 31, 2023 related to the Merger. The Company had no capitalized deferred offering costs as of December 31, 2024. Research and Development Expenses and Related Prepaid Assets and Accrued Liabilities Research and development costs are expensed as incurred. Research and development expenses primarily consist of internal research and development expense, including personnel-related expenses (such as salaries, benefits and noncash stock-based compensation) and external research and development expenses incurred under arrangements with vendors conducting research and development services on the Company's behalf, such as contract research organizations ("CROs") and contract manufacturing organizations ("CMOs"). Payments made prior to the receipt of goods or services to be used in research and development are capitalized, evaluated for current or long-term classification, and included in prepaid expenses and other current assets or other assets in the consolidated balance sheets based on when the goods are received or the services are expected to be received or consumed, and recognized in research and development expenses when they are incurred. The Company is required to estimate expenses resulting from its obligations under contracts with vendors, service providers and clinical site agreements in connection with conducting clinical trials. The financial terms of these contracts are subject to negotiations which vary from contract to contract and may result in cash flows that do not match the periods over which materials or services are provided. The Company estimates and records accrued expenses for the related research and development activities based on the level of services performed but not yet invoiced pursuant to agreements established with its service providers, according to the progress of clinical trials or related activities, and discussions with applicable personnel and service providers as to the progress or state of consummation of goods and services. During the course of a clinical trial, the rate of expense recognition is adjusted if actual results differ from the Company’s estimates. Management estimates accrued expenses as of each balance sheet date in its consolidated financial statements based on the facts and circumstances known at that time. The clinical trial accrual is dependent in part upon the timely and accurate reporting of CROs, CMOs and other third-party vendors. Although the Company does not expect its estimates to be materially different from amounts actually incurred, its estimates may vary from the actual results. To date, the Company has not experienced material differences between its accrued expenses and actual expenses. Preferred Stock Warrants Liability The Company issued freestanding warrants to purchase shares of its Series A convertible preferred stock (Series A Convertible Preferred). Prior to the Merger, the Company revalued the warrants at each balance sheet date utilizing an option pricing method that back solved the fair value of the warrants based on recent financing transactions and also considered the enterprise value of the Company when considering potential exit events. Changes in fair value were recognized as increases or reductions to other income (expense), net in the consolidated statements of operations and comprehensive loss. The fair value of these warrants were classified as a non-current liability in the consolidated balance sheet since the underlying Series A Convertible Preferred stock was potentially redeemable. Pursuant to the Merger Agreement, the Series A Convertible preferred stock warrants became warrants to purchase shares of the Company's common stock. As a result of the Merger, the warrants no longer met the requirements for liability accounting and, as such, the Company adjusted the value of the warrants to the estimated fair value as of the Merger date and reclassified them to stockholders' equity. 109 Table of Contents Share-Based Compensation The Company maintains equity incentive plans as a long-term incentive for employees, directors, and non-employee service providers. All share-based payments to employees and directors, including grants of incentive stock options, nonqualified stock options, restricted stock awards, unrestricted stock awards, or restricted stock units, are recognized as expense based on their grant date fair values. T he Company recognizes expense on a straight-line basis over the requisite service period, which is generally the vesting period of the respective award. Stock-based compensation is classified in the consolidated statements of operations and comprehensive loss based on the function to which the related services are provided. The Company has elected to account for forfeitures as they occur. Stock Options The Company estimated the fair value of options granted using the Black-Scholes option pricing model for stock option grants to both employees and non-employees. The Black-Scholes option pricing model requires inputs based on certain subjective assumptions. A discussion of management’s methodology for developing the assumptions used in the valuation model follows: Fair Value of Common Stock —Prior to the Merger, there was no public market for LENZ OpCo’s common stock. The fair value of LENZ OpCo’s common stock was determined by the board of directors with input from management and consideration of third-party valuation reports. In the absence of a public trading market, and as a clinical-stage company with no significant revenue, LENZ OpCo believed that it was appropriate to consider a range of factors to determine the fair market value of the common stock at each grant date, including input from management and valuations of LENZ OpCo's common stock by a third-party valuation firm. In determining the fair value of its common stock, LENZ OpCo used methodologies, approaches, and assumptions consistent with the American Institute of Certified Public Accountants’ ("AICPA") Audit and Accounting Practice Aid Series: Valuation of Privately Held Company Equity Securities Issued as Compensation . In addition, LENZ OpCo considered various objective and subjective factors, including (1) the achievement of clinical and operational milestones by LENZ OpCo; (2) the significant risks associated with LENZ OpCo's stage of development; (3) capital market conditions for life science companies, particularly similarly situated, privately held, early-stage life science companies; (4) LENZ OpCo's available cash, financial condition, and results of operations; (5) the most recent sales of LENZ OpCo's convertible preferred stock; and (6) the preferential rights of LENZ OpCo's outstanding convertible preferred stock and Class B convertible common stock. Subsequent to the Merger, the Company used the closing stock price on the grant date to determine the grant date fair value, adjusted for special dividends, if any. Expected Dividend Yield —The expected dividend yield is based on the Company’s historical and expected dividend payouts. The Company has historically paid no dividends, other than the special dividend paid by Graphite immediately prior to the close of the Merger, and does not anticipate dividends to be paid in the future. Expected Equity Volatility —Due to the lack of a public market for LENZ OpCo’s common stock and the lack of company-specific historical and implied volatility data, LENZ OpCo based its computation of expected volatility on the historical volatility of a representative group of public companies with similar characteristics (e.g., public entities of similar size, complexity, stage of development, and industry focus). The historical volatility is calculated based on a period of time commensurate with the expected term assumption. Subsequent to the Merger, the Company used an average volatility for comparable publicly-traded biopharmaceutical companies over a period equal to the expected term of the stock award grant as the Company does not yet have sufficient historical trading history for its own stock. Risk-Free Interest Rate —The risk-free interest rate is based on a United States Treasury instrument whose term is consistent with the expected term of the stock options. Expected Term —The Company used the simplified method as prescribed by the Securities and Exchange Commission Staff Accounting Bulletin No. 107, Share-Based Payment , to calculate the expected term for options granted to employees as it does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term. 110 Table of Contents Income Taxes The Company uses the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax base. Deferred tax assets and liabilities are measured using effective tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax expense or benefit is the result of changes in the deferred tax assets and liabilities. Valuation allowances are established when necessary to reduce deferred tax assets where, based upon the available evidence, the Company concludes that it is more-likely-than-not that some or all of the deferred tax assets will not be realized. In evaluating its ability to recover deferred tax assets, the Company considers all available positive and negative evidence, including its operating results, ongoing tax planning, and forecasts of future taxable income on a jurisdiction-by-jurisdiction basis. Because of the uncertainty of the realization of deferred tax assets, the Company has recorded a valuation allowance against its net deferred tax assets. Liabilities are provided for tax benefits for which realization is uncertain. Such benefits are only recognized when the underlying tax position is considered more-likely-than-not to be sustained on examination by a taxing authority, assuming they possess full knowledge of the position and facts. Interest and penalties related to uncertain tax positions are recognized in the provision of income taxes. As of December 31, 2024 and December 31, 2023, the Company had incurred no interest or penalties related to uncertain income tax benefits. The Company’s policy is to include interest and penalties related to unrecognized income tax benefits as a component of income tax expense. The Company has no accruals for interest or penalties in the consolidated balance sheets as of December 31, 2024 and December 31, 2023 and has not recognized interest or penalties in the consolidated statements of operations for the years ended December 31, 2024 or 2023. Net Loss Per Share Basic net loss per share was calculated by dividing net loss attributed to common stockholders by the weighted-average number of shares of common stock outstanding during the period, without consideration for common stock equivalents. Stock options, common stock warrants, and ESPP (as defined in Note 9) shares pending issuance were considered potentially dilutive to common stock. Prior to the Merger, the convertible preferred stock and Class B convertible common stock were not participating securities, because they did not participate in losses. Stock options, preferred stock warrants, Class A warrants, Class B convertible common stock, and convertible preferred stock were considered potentially dilutive common stock. The Company computed diluted net loss per share attributable to common stockholders after giving consideration to all potentially dilutive common stock outstanding during the period, determined using the treasury-stock and if-converted methods, except where the effect of including such securities was antidilutive. Prior to the Merger, the Company made adjustments to diluted net loss attributed to common stockholders to reflect the reversal of gains on the change in the value of preferred stock warrants liability, assuming conversion of warrants to acquire convertible preferred stock at the beginning of the period or at time of issuance, if later, to the extent that those preferred stock warrants are dilutive. Diluted net loss per share was the same as basic net loss per share, since the effects of potentially dilutive securities were antidilutive given the net loss for each period presented. For the year ended December 31, 2024, net loss per share included the weighted-average shares outstanding as a result of the Merger, and shares issued in conjunction with both the March 2024 PIPE Financing (as defined in Note 3) and the July 2024 PIPE Financing (as defined in Note 8). Other Comprehensive Income (Loss) Other comprehensive income (loss) represents the change in the Company’s stockholders’ equity (deficit) from all sources other than investments by or distributions to stockholders. The Company’s other comprehensive income is the result of unrealized gains on marketable securities. Segment Reporting Operating segments are defined as components of an entity about which separate discrete information is available for evaluation by the chief operating decision maker ("CODM"), or decision-making group, in deciding how to allocate resources and in assessing performance. The Company’s Chief Executive Officer acts as the CODM. The CODM views the Company’s operations and manages its business as one operating segment operating exclusively in the United States. The Company’s singular focus is on the development and commercialization of innovative therapies to improve vision, and has generated limited revenue since inception. The CODM utilizes consolidated net loss to monitor budgeted versus actual results, and to assess the overall financial performance and operational efficiency of the business. The CODM manages and 111 Table of Contents allocates resources to the operations of the Company on an entity-wide basis using net loss as the primary performance measure. Asset information provided to the CODM is consistent with those reported on the consolidated balance sheets and are attributable to the United States. The table below shows a reconciliation of the Company's net loss, including the significant expense categories regularly provided to and reviewed by the CODM, as computed under U.S. GAAP, to the Company's total consolidated net loss in the consolidated statements of operations: Year Ended December 31, 2024 2023 Operating expenses: Research and development expenses (1) $ 27,907 $ 59,061 Selling, general, and administrative expenses (1) 24,338 12,025 Share-based compensation expense 6,365 1,343 Total operating expenses 58,610 72,429 Loss from operations ( 58,610 ) ( 72,429 ) Other income: Other income 289 93 Interest income 8,553 2,189 Net loss before income taxes ( 49,768 ) ( 70,147 ) Income tax expense (benefit) 1 ( 179 ) Net loss $ ( 49,769 ) $ ( 69,968 ) __________________ (1) Amounts exclude share-based compensation expense. Recently Adopted Accounting Pronouncements In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures , to improve existing disclosure requirements for segment reporting, primarily through enhanced disclosures about significant segment expenses and new disclosures requirements applicable to entities with a single reportable segment. This guidance is effective for annual periods beginning after December 15, 2023 and interim periods beginning after December 15, 2024, on a retrospective basis. The Company adopted this guidance for the annual period ending December 31, 2024, and the adoption did not have a significant impact on the consolidated financial statements. Recently Issued Accounting Pronouncements In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures . The update requires a public business entity to disclose, on an annual basis, a tabular rate reconciliation using both percentages and currency amounts, broken out into specified categories with certain reconciling items further broken out by nature and jurisdiction to the extent those items exceed a specified threshold. In addition, all entities are required to disclose income taxes paid, net of refunds received disaggregated by federal, state/local, and foreign jurisdictions if the amount is at least 5% of total income tax payments, net of refunds received. Adoption of the ASU allows for either the prospective or retrospective application of the amendment and is effective for the Company for annual periods beginning after December 15, 2024, with early adoption permitted. The Company has not yet completed its assessment of the impact of ASU 2023-09 on the Company’s financial statements. In November 2024, the FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses , which requires additional disclosure about specific expense categories included in the income statement. This guidance is effective for annual periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027, with early adoption permitted. The Company has not yet completed its assessment of the impact of ASU 2024-03 on the Company’s financial statements. 3. Merger and Related Transactions As described in Note 1, LENZ OpCo merged with a wholly owned subsidiary of Graphite on March 21, 2024. The Merger was accounted for as a reverse recapitalization under GAAP. LENZ OpCo was considered the accounting acquirer for 112 Table of Contents financial reporting purposes. This determination was based on the facts that, immediately following the Merger: former LENZ OpCo stockholders owned a substantial majority of the voting rights of the combined company; LENZ OpCo designated a majority ( five of seven ) of the initial members of the board of directors of the combined company; and no members of Graphite's senior management held key positions in senior management of the combined company. The transaction was accounted for as a reverse recapitalization of Graphite by LENZ OpCo similar to the issuance of equity for the net assets of Graphite, which were primarily cash and cash equivalents and other non-operating assets. It was concluded that any in-process research and development assets that remained as of the Merger were immaterial. Under reverse recapitalization accounting, the assets and liabilities of Graphite were recorded at their fair value, which approximated book value due to their short-term nature. The Company's consolidated financial statements reflect 8,670,653 shares and options held by the former stockholders and option holders of Graphite. Graphite assumed each outstanding and unexercised option to purchase LENZ OpCo’s common stock, whether vested or not vested, and assumed each outstanding and unexercised warrant to purchase LENZ OpCo’s common stock or preferred stock, which became options and warrants to purchase shares of Graphite common stock. At the closing of the Merger, each outstanding share of LENZ OpCo’s common stock and preferred stock, and options and warrants to purchase LENZ OpCo’s common stock and preferred stock were converted into the right to receive or purchase 0.2022 shares of Graphite’s common stock, which resulted in the issuance by Graphite of an aggregate of 15,409,102 shares of, and options and warrants to purchase, Graphite common stock to the stockholders, option holders, and warrant holders of LENZ OpCo. In connection with the Merger Agreement, the Company concurrently entered into a subscription agreement (the “Subscription Agreement”) with certain institutional investors (the “PIPE investors”) pursuant to which, among other things, the Company agreed to issue to the PIPE investors shares of LENZ common stock immediately following the Merger in a private placement transaction for an aggregate purchase price of $ 53.5 million (the “March 2024 PIPE Financing”). Immediately following the consummation of the Merger and March 2024 PIPE Financing, LENZ OpCo, Graphite stockholders, and the PIPE investors collectively owned approximately 56 %, 31 %, and 13 % of the Company, respectively, on a fully diluted basis. As part of the reverse recapitalization, LENZ OpCo received $ 112.6 million of cash and cash equivalents, net of transaction costs. LENZ OpCo also acquired assets, primarily prepaid and other current assets, of approximately $ 1.5 million and assumed payables and accruals of approximately $ 3.2 million. LENZ OpCo also incurred transaction costs of approximately $ 5.1 million, which was recorded as a reduction to additional paid-in capital in the accompanying consolidated statements of convertible preferred and common stock and stockholders' equity. The Company also recorded a one-time charge of $ 0.3 million for the acceleration of the Graphite stock awards that is recorded in the consolidated statements of operations and comprehensive loss for the year ended December 31, 2024. 4. Financial Instruments The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or non-recurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: Level 1—Observable inputs such as quoted prices in active markets. Level 2—Inputs, other than the quoted prices in active markets that are observable either directly or indirectly. Level 3—Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. 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. Accordingly, the degree of judgment exercised by management in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value of the instrument. The carrying amounts of the Company’s financial instruments, including cash equivalents classified within the Level 1 designation, prepaid and other current assets, accounts payable, and accrued liabilities approximate fair value due to their short maturities. Cash equivalents, marketable securities, and the preferred stock warrants liability are recorded at fair value on a 113 Table of Contents recurring basis. Equity investments without a readily determinable fair value are recorded at cost and adjusted to fair value based on observable price changes in orderly transactions for identical or similar investment of the same issuer. None of the Company’s non-financial assets or liabilities are recorded at fair value on a non-recurring basis. Assets and liabilities measured at fair value on a recurring basis are as follows (in thousands): Fair Value Measurements at Reporting Date Total Level 1 Level 2 Level 3 At December 31, 2024: Cash equivalents Money market funds $ 17,693 $ 17,693 $ — $ — U.S. government securities 999 — 999 — U.S. treasury securities 997 997 — — Total cash equivalents measured at fair value $ 19,689 $ 18,690 $ 999 $ — Marketable securities Commercial paper $ 58,823 $ — $ 58,823 $ — U.S. treasury securities 46,309 46,309 — — Corporate debt securities 43,669 — 43,669 — U.S. government agency securities 40,071 — 40,071 — Total marketable securities measured at fair value $ 188,872 $ 46,309 $ 142,563 $ — At December 31, 2023: Cash equivalents Money market funds $ 7,962 $ 7,962 $ — $ — Total cash equivalents measured at fair value $ 7,962 $ 7,962 $ — $ — Marketable securities Commercial paper $ 18,751 $ — $ 18,751 $ — U.S. government agency securities 9,925 — 9,925 — U.S. treasury securities 1,978 1,978 — — Total marketable securities measured at fair value $ 30,654 $ 1,978 $ 28,676 $ — Liabilities Convertible preferred stock warrants $ 871 $ — $ — $ 871 Total liabilities measured at fair value $ 871 $ — $ — $ 871 114 Table of Contents The following table presents the amortized cost and estimated fair market value of our cash equivalents and marketable securities as of the dates presented (in thousands): December 31, 2024 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Cash equivalents: Money market funds $ 17,693 $ — $ — $ 17,693 U.S. government securities 999 — — 999 U.S. treasury securities 997 — — 997 Marketable securities: Commercial paper $ 58,798 $ 56 $ ( 31 ) $ 58,823 U.S. treasury securities 46,231 80 ( 2 ) 46,309 Corporate debt securities 43,634 49 ( 14 ) 43,669 U.S. government agency securities 40,013 60 ( 2 ) 40,071 Totals $ 208,365 $ 245 $ ( 49 ) $ 208,561 December 31, 2023 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Marketable securities: Commercial paper $ 18,742 $ 9 $ — $ 18,751 U.S. government agency securities 9,927 1 ( 3 ) 9,925 U.S. treasury securities 1,977 1 — 1,978 Totals $ 30,646 $ 11 $ ( 3 ) $ 30,654 The following table presents available-for-sale securities by contractual maturity date as of December 31, 2024 (in thousands): December 31, 2024 Amortized Cost Estimated Fair Value Due in one year or less $ 173,772 $ 173,959 Due after one year but within five years 14,904 14,913 Total $ 188,676 $ 188,872 As of December 31, 2024, twenty-four of the Company's marketable securities with a fair market value of $ 36.7 million were in an immaterial aggregate gross unrealized loss position; these twenty-four marketable securities have all been in a gross unrealized loss position for less than one year. Based on a review of these marketable securities, the Company believes none of the unrealized loss is the result of a credit loss as of December 31, 2024, because the Company does not intend to sell these securities, and it is not more-likely-than-not that the Company will be required to sell these securities before the recovery of their amortized cost basis. Refer to Note 2 for further discussion on the Company's evaluation of unrealized losses on available-for-sale securities. Accrued interest receivable on marketable securities was $ 1.1 million and $ 0.1 million as of December 31, 2024 and December 31, 2023, respectively, and was recorded within prepaid expenses and other current assets in the consolidated balance sheets. We have not written off any accrued interest receivables for the years ended December 31, 2024 and 2023. The Company did not transfer any assets measured at fair value on a recurring basis between levels during the years ended December 31, 2024 and 2023. 115 Table of Contents The following table presents activity for the preferred stock warrants liability during the year ended December 31, 2024 (in thousands): Preferred Stock Warrants Liability Balance at December 31, 2023 $ 871 Change in fair value 1,047 Conversion of preferred stock warrants liability to equity ( 1,918 ) Balance at December 31, 2024 $ — The warrants’ estimated fair value as of the Merger date utilized the Black-Scholes model and the following input assumptions: risk free interest rate ( 4.3 % - 4.4 %), expected term ( 3.6 - 4.1 years), dividend yield ( 0 %), volatility ( 103.0 % - 104.0 %) and exercise price ($ 10.64 per common share). No fair value liabilities exist as of December 31, 2024. Upon completion of the Merger, the preferred stock warrants became exercisable into shares of common stock and will no longer continue to be remeasured at each reporting date. Refer to Note 2 for further discussion on the valuation of the preferred stock warrants liability. Equity investment without a readily determinable fair value In conjunction with the Merger, the Company obtained an investment in common stock of an unfunded privately held, pre-clinical life sciences company, which the Company initially carried at no value. In May 2024, the private company executed a seed funding round (“Seed Financing”), which triggered an anti-dilution provision under the License and Option Agreement (“Option Agreement”), resulting in the issuance of additional shares of common stock. The Company identified the Seed Financing as an observable price change under the measurement alternative, and adjusted the equity investment from zero to an estimated fair value of $ 1.3 million at the time of the Seed Financing. There were no other adjustments to the carrying value of the Company's investment without a readily determinable fair value on both a cumulative basis or for the year ended December 31, 2024. 5. Property and Equipment, net Property and equipment, net consisted of the following (in thousands): December 31, 2024 2023 Furniture and fixtures $ 311 $ 64 Computer software 144 — Machinery and equipment 112 5 Leasehold improvements 100 12 Computer equipment 52 — Property and equipment, gross 719 81 Less: accumulated depreciation ( 68 ) ( 27 ) Property and equipment, net $ 651 $ 54 As of December 31, 2024, all the Company’s property and equipment was located in the United States. 116 Table of Contents 6. Accrued Liabilities Accrued liabilities consist of the following (in thousands): December 31, 2024 2023 Accrued payroll and related expenses $ 3,564 $ 1,998 Sales, general, and administrative accrued expenses 1,109 376 Research and development accrued expenses 808 10,289 Operating lease liability, current portion 567 137 Other accrued liabilities 101 3 Total accrued liabilities $ 6,149 $ 12,803 7. Commitments and Contingencies Operating Leases Commencing on April 1, 2022, LENZ OpCo entered into a lease agreement for office space in Del Mar, California, which was subsequently amended to expand the office space leased and extend the term (the “Del Mar lease”). In April 2024, the Company entered into a lease agreement for office space in Solana Beach, California (the “Lomas lease”). As of December 31, 2024 and December 31, 2023, the weighted average remaining lease term was 2.5 years and 2.3 years, respectively, and the weighted average discount rate used to determine the right-of-use assets and corresponding operating lease liabilities was 7.7 % and 7.0 %, respectively. Cash paid for operating leases approximated rent expense for the periods presented. Maturities of the operating lease liabilities as of December 31, 2024 for the Del Mar and Lomas leases are as follows (in thousands): 2025 577 2026 511 2027 361 Total undiscounted lease payments 1,449 Less: present value adjustment ( 141 ) Operating lease liabilities $ 1,308 Rent expense for the years ended December 31, 2024 and 2023 was $ 0.4 million and $ 0.1 million, respectively. Legal Proceedings From time to time, the Company may be subject to legal proceedings and claims arising in the ordinary course of business. The Company is not currently a party to or aware of any proceedings that it believes will have, individually or in the aggregate, a material adverse effect on it's business, financial condition or results of operations. Indemnifications In the normal course of business, the Company enters into agreements that contain a variety of representations and provide for general indemnification. Its exposure under these agreements is unknown because it involves claims that may be made against the Company in the future. To the extent permitted under Delaware law, the Company has agreed to indemnify its directors and officers for certain events or occurrences while the director or officer is, or was serving, at a request in such capacity. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations. As of December 31, 2024 and December 31, 2023, the Company did not have any material indemnification claims that were probable or reasonably possible and consequently has not recorded related liabilities. 117 Table of Contents 8. Stockholders' Equity Convertible Preferred Stock Immediately prior to the closing of the Merger and as of December 31, 2023, LENZ OpCo had authorized 53,761,506 shares of preferred stock with a par value of $ 0.001 . Immediately prior to the closing of the Merger and as of December 31, 2023, there were 21,977,282 shares of Series A, 2,950,548 shares of Series A-1, and 28,019,181 shares of Series B Convertible Preferred Stock (Series B) issued and outstanding. Immediately prior to the closing of the Merger and as of December 31, 2023, the total liquidation preference of issued and outstanding Series A, Series A-1, and Series B was $ 47.3 million, $ 10.0 million, and $ 83.5 million, or $ 2.15 per share, $ 3.3892 per share, and $ 2.9801 per share, respectively. At the closing of the Merger, the 52,947,011 shares of LENZ OpCo preferred stock were exchanged for 10,705,829 shares of Graphite’s common stock. Common Stock As of December 31, 2023, LENZ OpCo had authorized two series of common stock, designated Class A common stock and Class B convertible common stock. Immediately prior to the closing of the Merger and as of December 31, 2023, there were 11,838,624 and 9,915,013 shares of Class A common stock issued, respectively, and 11,668,867 and 9,739,818 shares of Class A common stock outstanding, respectively. Immediately prior to the closing of the Merger and as of December 31, 2023, there were 2,744,184 shares of Class B convertible common stock issued and outstanding. At the closing of the Merger, 11,838,624 and 11,668,867 issued and outstanding shares of Class A common stock, respectively, were exchanged for 2,393,729 and 2,359,408 shares of issued and outstanding shares of Graphite's common stock, respectively. Additionally, at the closing of the Merger, 2,744,184 shares of Class B convertible common stock were exchanged for 554,843 shares of Graphite's common stock. At the closing of the Merger on March 21, 2024, legacy Graphite stockholders held 8,320,485 shares of common stock. Concurrent with the closing of the Merger on March 21, 2024, the Company completed the March 2024 PIPE Financing of 3,559,565 shares for an aggregate purchase price of $ 53.5 million. On July 14, 2024, the Company entered into a Stock Purchase Agreement (the “Purchase Agreement”) for a private placement with Ridgeback Capital Investments, L.P. (“July 2024 PIPE Financing”). Pursuant to the Purchase Agreement, the Company agreed to sell 1,578,947 shares of the Company’s common stock, par value 0.00001 per share, at a purchase price of $ 19.00 per share. The gross proceeds of the July 2024 PIPE Financing were $ 30.0 million. The July 2024 PIPE Financing closed on July 17, 2024. Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders. Other than the special dividend paid by Graphite immediately prior to the close of the Merger, no dividends have been declared or paid by the Company through December 31, 2024, and any such dividends are not cumulative. Common stock reserved for future issuance consist of the following: December 31, 2024 Common stock warrants 164,676 Common stock options granted and outstanding 2,989,927 Shares available for issuance under incentive plans 1,544,122 Shares available under the 2024 Employee Stock Purchase Plan 250,995 Total 4,949,720 Warrants LENZ OpCo had issued warrants to acquire Class A common stock and Series A convertible preferred stock. The warrants to purchase 470,000 shares of Class A common stock had an exercise price of $ 0.21 per share and were issued in December 2020 with an expiration date in February 2024. In February 2024, prior to expiration, the holder exercised 470,000 warrants, resulting in $ 0.1 million of proceeds. These shares were subsequently exchanged for 95,034 shares of common stock at the closing of the Merger. 118 Table of Contents The Series A preferred stock warrants had an exercise price of $ 2.15 per share and were issued in October 2020 with an expiration date in October 2027. There were no exercises of the Series A preferred stock warrants for any of the periods presented. In connection with the Merger, the Series A preferred stock warrants were converted to 164,676 common stock warrants of the Company at an exercise price of $ 10.64 , and were subsequently reclassified to stockholders’ equity at their fair value of $ 1.9 million. 9. Share-Based Compensation 2020 Equity Incentive Plan and 2024 Equity Incentive Plan LENZ OpCo adopted an equity incentive plan in 2020 (the “2020 Plan”), which provides for the granting of incentive stock options, non-statutory stock options, and other equity awards to LENZ OpCo’s employees, officers, directors, and consultants. Pursuant to the Merger Agreement, Graphite assumed the 2020 Plan and all stock options issued and outstanding under the 2020 Plan. The Company adopted the 2024 Equity Incentive Plan (the “2024 Plan”) at the closing of the Merger. Upon adoption, there were 3,011,948 shares of the Company’s common stock available for grant under the 2024 Plan. Additionally, the share reserve is subject to annual increases of an amount equal to the least of 4,517,922 shares, 5 % of the Company’s outstanding common stock on the last day of the preceding fiscal year, or a lesser amount determined by the Company’s board of directors. As of December 31, 2024, 1,529,400 shares of the Company’s common stock have been granted under the 2024 Plan. As of December 31, 2024, the aggregate number of shares of common stock authorized under the 2020 Plan and the 2024 Plan, as amended, was 3,066,672 shares. 2024 Employee Stock Purchase Plan The Company adopted the 2024 Employee Stock Purchase Plan (the “2024 ESPP”) at the closing of the Merger. Upon adoption, there were 250,995 shares of the Company’s common stock reserved for issuance under the 2024 ESPP. Additionally, the share reserve is subject to annual increases of an amount equal to the least of 376,493 shares, 1 % of the Company’s outstanding common stock on the last day of the preceding fiscal year, or an amount determined by the Company’s board of directors. As of December 31, 2024, no shares of the Company’s common stock have been issued under the 2024 ESPP. Stock Options Stock options granted under the 2020 Plan and the 2024 Plan generally vest over three or four years and expire after 10 years. The per share exercise price for stock options granted by LENZ OpCo was set at the fair value per share of common stock as determined by the board of directors as of the date of grant. The board of directors of LENZ OpCo determined the value of LENZ OpCo’s Class A common stock considering many factors, including third-party valuation of LENZ OpCo’s Class A common shares, as well as additional factors, which may have changed since the date of the most recent contemporaneous valuation through the date of grant. Post Merger, the Company uses the closing stock price on the grant date for fair value. 119 Table of Contents A summary of stock option activity for awards under the 2020 Plan and the 2024 Plan is presented below: Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Lives (years) Aggregate Intrinsic Value (in thousands) Outstanding as of December 31, 2023 1,883,938 $ 3.76 7.4 $ 18,691 Granted 1,529,400 $ 16.44 Assumed in the Merger 322,557 $ 10.44 Exercised ( 712,004 ) $ 5.53 Forfeited ( 33,964 ) $ 7.86 Outstanding as of December 31, 2024 2,989,927 $ 10.50 8.2 $ 55,531 Exercisable as of December 31, 2024 1,082,601 $ 4.04 7.3 $ 26,897 Vested and expected to vest 2,940,323 $ 10.49 8.4 $ 54,661 The weighted-average grant date fair value of options granted during the years ended December 31, 2024 and 2023 was $ 16.44 and $ 5.30 per share, respectively. As of December 31, 2024, there was $ 18.7 million of unrecognized compensation cost related to unvested share-based compensation arrangements granted under the 2020 Plan and 2024 Plan, which is expected to be recognized over a weighted average period of 2.9 years. Share-based compensation expense was as follows (in thousands): Year Ended December 31, 2024 2023 Selling, general and administrative $ 4,471 $ 900 Research and development 1,894 443 Total $ 6,365 $ 1,343 The assumptions used in the Black-Scholes option pricing model for stock options granted were as follows: Year Ended December 31, 2024 2023 Expected term 5.8 - 6.1 years 6.0 years Expected volatility 93.0 % - 106.2 % 92.0 % - 92.7 % Risk free interest rate 3.8 % - 4.5 % 3.9 % - 4.6 % Expected dividend yield 0.0 % 0.0 % During the year ended December 31, 2024, the Company modified the vesting terms of outstanding stock options issued to a senior level employee upon their separation. This constituted an equity modification under ASC Topic 718 and resulted in the recognition of an additional $ 0.6 million of share-based compensation expense during the year ended December 31, 2024. Liability for Early Exercise of Stock Options Certain individuals were granted the ability to early exercise their stock options. The shares of common stock issued from the early exercise of unvested stock options are restricted and continue to vest in accordance with the original vesting schedule. The Company has the option to repurchase any unvested shares at the original purchase price upon any voluntary or involuntary termination. The shares purchased by the employees and non-employees pursuant to the early exercise of stock options are not deemed, for accounting purposes, to be outstanding until those shares vest. The cash received in exchange for exercised and unvested shares related to stock options granted is recorded as a liability for the early exercise of stock options on the accompanying consolidated balance sheets, and will be transferred into common stock and additional paid-in capital as the shares vest. As of December 31, 2024 and December 31, 2023, there were 13,052 and 35,424 unvested shares issued under early exercise provisions subject to repurchase by the Company, respectively. The 120 Table of Contents liability associated with early exercised stock options at December 31, 2024 was not material. At December 31, 2023, the Company recorded $ 0.1 million associated with early exercised stock options in other long-term liabilities. 10. Net Loss Per Share The Company’s potential dilutive securities have been excluded from the computation of diluted net loss per share as the effect would be anti-dilutive. Therefore, the weighted average number of common shares 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 common shares, presented based on amounts outstanding at period end, from the computation of diluted net loss per share attributable to common stockholders for the period indicated because including them would have had an anti-dilutive effect: December 31, 2024 2023 Convertible preferred stock — 10,705,829 Class B convertible common stock — 554,843 Preferred stock warrants — 164,676 Common stock options granted and outstanding 2,989,927 1,883,938 Warrants to purchase common stock 164,676 95,034 2024 ESPP shares to be purchased 1,718 — Total 3,156,321 13,404,320 11. Income Taxes Net loss before income taxes for the years ended December 31, 2024 and 2023 was derived solely from U.S. sources. The Company has not reflected any benefit of such net operating loss carryforwards in the financial statements due to the full valuation allowance recorded against net deferred tax assets. The components of the income tax expense (benefit) were as follows (in thousands): Year Ended December 31, 2024 2023 Current Federal $ — $ ( 164 ) State 1 ( 15 ) Total current 1 ( 179 ) Deferred Federal — — State — — Total deferred — — Total income tax expense (benefit) $ 1 $ ( 179 ) A reconciliation of the Company’s income tax expense (benefit) to the amount computed by applying the federal statutory income tax rate is summarized as follows (in thousands): Year Ended December 31, 2024 2023 Expected tax benefit computed at federal statutory rate $ ( 10,452 ) $ ( 14,731 ) State income taxes, net of federal tax benefit ( 2,117 ) ( 1,153 ) Research and development credit carryforwards ( 2,119 ) ( 5,472 ) Reserve for uncertain tax positions 2,328 1,517 Prior year permanent differences 586 ( 699 ) Current year permanent differences 377 120 121 Table of Contents Other 515 236 Change in valuation allowance 10,883 20,003 Income tax expense (benefit) $ 1 $ ( 179 ) Significant components of the Company’s net deferred tax assets (liabilities) are summarized as follows (in thousands): Year Ended December 31, 2024 2023 Deferred tax assets Net operating loss carryforwards $ 15,543 $ 3,975 Research and development credit carryforwards 8,162 6,269 Capitalized research and development 28,294 15,282 Other 1,795 1,284 Total deferred tax assets 53,794 26,810 Valuation allowance ( 53,174 ) ( 26,736 ) Net deferred tax assets 620 74 Deferred tax liabilities Other ( 620 ) ( 74 ) Total deferred tax liabilities 620 74 Net deferred tax assets $ — $ — The Tax Cuts and Jobs Act (TCJA) requires taxpayers to capitalize and amortize research and development (R&D) expenditures under section 174 for tax years beginning after December 31, 2021. This rule became effective for the Company during the year ended December 31, 2022, resulting in the capitalization of R&D costs, net of amortization, of approximately $ 128.3 million and $ 66.0 million as of December 31, 2024 and December 31, 2023, respectively. The Company will continue to amortize these costs for tax purposes over 5 years for R&D performed in the U.S. and over 15 years for R&D performed outside the U.S. Deferred income tax assets and liabilities are recorded for differences between the financial statement and tax basis of the assets and liabilities that will result in taxable or deductible amounts in the future based on enacted laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The Company evaluated the available evidence supporting the realization of its gross deferred tax assets, including the amount and timing of future taxable income, and has determined it is more likely than not that the assets will not be realized. Due to uncertainties surrounding the realizability of the deferred tax assets, the Company maintains a full valuation allowance against its deferred tax assets at December 31, 2024 and 2023. The Company had a valuation allowance of $ 53.2 million at December 31, 2024 to offset the net deferred tax assets as realization of such assets is uncertain. The valuation allowance increased by $ 26.5 million during the year ended December 31, 2024. At December 31, 2024, the Company's federal and state net operating loss (NOL) and tax credit carryforwards were as follows: Amount Expiration Years Net operating losses, federal (starting from January 1, 2018) $ 72,899 Do not expire Net operating losses, state 3,908 2040 - 2044 Tax credits, federal 7,646 2040 - 2044 Tax credits, state 653 2042 Utilization of NOL carryforwards and other tax attributes, including those obtained through the Merger, may be subject to substantial annual limitation under Section 382 of the Internal Revenue Code of 1986, as amended, due to ownership change limitations that have occurred previously or that could occur in the future. An ownership change occurs, generally, 122 Table of Contents if the percentage of stock of the loss corporation owned by one or more 5% shareholders has increased by more than 50 percentage points relative to the lowest percentage of stock of the loss corporation owned by the same 5% shareholders at any time during the testing period (generally, the three-year period preceding a testing date). These ownership changes may limit the amount of NOL carryforwards and tax credits that can be utilized annually to offset future taxable income. State NOL carryforwards and other state tax attributes may be similarly limited. During the year ended December 31, 2024, the Company completed a Section 382 analysis, and determined that an ownership change more likely than not occurred on March 21, 2024 as a result of the Merger. The ownership change resulted in a limitation that will reduce the total amount of NOL carryforwards and tax credits disclosed that can be utilized to offset future taxable income. The Company adjusted the carryforward attributes accordingly, with an offsetting adjustment to the valuation allowance. Subsequent ownership changes may affect the limitation in future years. The Company recognizes a tax benefit from an uncertain tax position when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Income tax positions must meet a more likely than not recognition at the effective date to be recognized. As of December 31, 2024 and 2023, the Company had no unrecognized tax benefits that, if recognized and realized, would affect the effective tax rate due to the valuation allowance against deferred tax assets. The following table summarizes the changes to the Company’s gross unrecognized tax benefits (in thousands): Year Ended December 31, 2024 2023 Balance at beginning of year $ 1,953 $ 131 Increases (decreases) related to prior year tax positions ( 5 ) 6 Increases related to current year tax positions 2,334 1,816 Balance at end of year $ 4,282 $ 1,953 The Company's policy is to recognize interest and penalties related to income tax matters as income tax expense. The Company had no accrual for interest or penalties on the Company's balance sheets at December 31, 2024 or 2023, and has not recognized interest and/or penalties in the consolidated statements of operations and comprehensive loss for the years ended December 31, 2024 and 2023. As of December 31, 2024 and 2023, the Company had unrecognized tax benefits of $ 3.5 million and $ 1.7 million, respectively, which if recognized currently, should not impact the effective tax rate due to the Company maintaining a full valuation allowance. The Company does not expect that there will be a significant change in the unrecognized tax benefit over the next twelve months. The Company is subject to taxation in the U.S. federal and various state jurisdictions. All of the Company’s tax years are subject to examination by federal and state tax authorities due to the carryforward of unutilized net operating losses and R&D credits. Further the Company is not currently under examination by any federal, state or local tax authority. 12. License Agreements In April 2022, the Company entered into a license and collaboration agreement providing an exclusive license (the “CORXEL License,” formerly referred to as the “Ji Xing License”) to certain of the Company’s intellectual property (“IP”) for use in the treatment of presbyopia in humans in mainland China, Hong Kong Special Administrative Region, Macau Special Administrative Region, and Taiwan (collectively, “Greater China”). The Company also agreed to negotiate a separate agreement for the purchase of clinical and commercial supply of products containing the IP for clinical and commercial requirements at cost plus a negotiated percentage and granted a right of first negotiation to obtain a regional license on other products the Company might develop outside the field of presbyopia for commercialization in Greater China. The Company received nonrefundable, non-creditable upfront payments totaling $ 15.0 million as initial consideration under the CORXEL License, which represents the transaction price at inception. In addition, the Company is also eligible to receive up to $ 95.0 million of regulatory and sales milestones, as well as tiered mid single-digit to low double-digit royalties on net sales in Greater China. Additional consideration to be paid to the Company upon reaching regulatory and sales milestones is excluded from the transaction price. Future milestone payments are fully contingent as the risk of significant revenue reversal will only be resolved depending on future regulatory approval and sales level outcomes. The sales-based royalty fee qualifies for the royalty constraint exception and does not require an estimate of the future transaction price. The sales-based royalty fee is considered variable consideration and will be recognized as revenue as such sales occur, if any. 123 Table of Contents The Company assessed the promises made under the CORXEL License and concluded the CORXEL License comprises a single performance obligation providing the right to use functional intellectual property. The $ 15.0 million transaction price allocated to that single performance obligation was recognized on completion of the transfer of the CORXEL License during the year ended December 31, 2022. No contractual milestones were met under the CORXEL License during the years ended December 31, 2024 or 2023. 13. Employee Benefit Plan The Company sponsors a 401(k) retirement plan to provide retirement benefits for all eligible employees. Participating employees may voluntarily contribute up to limits provided by Internal Revenue Service regulations. For the years ended December 31, 2024 and 2023, the Company made contributions to the plan of $ 0.3 million and $ 0.2 million, respectively. 14. Related Party Transactions In March 2023, LENZ OpCo issued 22,146,905 shares of its Series B preferred stock for total cash proceeds of $ 66.0 million to investors, including to significant shareholders that had designated members on LENZ OpCo’s board of directors. Through the Subscription Agreement and March 2024 PIPE Financing executed in conjunction with the Merger, the Company issued 3,343,330 shares to investors that had designated members on the Company's board of directors. A member of the Company’s Board of Directors currently serves as a member of the board of directors of one of the Company’s vendors, and has served in that capacity since 2023. LENZ OpCo entered into a Master Services Agreement with this vendor in December 2023 to provide manufacturing services. Accordingly, the Company considers the vendor to be a related party. For the years ended December 31, 2024 and 2023, fees incurred for services performed by the vendor were $ 0.5 million and $ 0.3 million, respectively, and were charged to research and development expenses. The Company had $ 0.1 million due to the vendor within accounts payable as of December 31, 2024. 124 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure As previously reported on our Current Report on Form 8-K filed with the SEC on March 22, 2024, on March 21, 2024, the audit committee of the Board of Directors approved a resolution appointing Ernst & Young LLP (“EY”) as our independent registered public accounting firm for the fiscal year ending December 31, 2024. EY served as the independent registered public accounting firm of LENZ OpCo prior to the Merger. Accordingly, Deloitte & Touche LLP (“Deloitte”), Graphite’s independent registered public accounting firm prior to the Merger, was informed on March 21, 2024 that it was dismissed as our independent registered public accounting firm. The reports of Deloitte on Graphite’s financial statements as of and for the most recent fiscal year ending December 31, 2023 did not contain an adverse opinion or a disclaimer of opinion, and were not qualified or modified as to uncertainties, audit scope or accounting principles. During Graphite’s fiscal year ending December 31, 2023 and the subsequent interim period through March 21, 2024, there were no disagreements between Graphite and Deloitte on any matter of accounting principles or practices, financial disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Deloitte, would have caused it to make reference to the subject matter of the disagreements in its reports on Graphite’s financial statements for such year. During Graphite’s fiscal year ending December 31, 2023 and the subsequent interim period through March 21, 2024, there were no “reportable events” (as defined in Item 304(a)(1)(v) of Regulation S-K under the Exchange Act). During the fiscal year ending December 31, 2023 and the subsequent interim period through March 21, 2024, neither the Company, nor any party on behalf of the Company, consulted with EY with respect to either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of the audit opinion that might be rendered with respect to the Company's consolidated financial statements, and no written report or oral advice was provided to the Company by EY that was an important factor considered by the Company in reaching a decision as to any accounting, auditing or financial reporting issue, or (ii) any matter that was subject to any disagreement (as that term is defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) or a reportable event (as that term is defined in Item 304(a)(1)(v) of Regulation S-K).