What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2022-03-17 compared with 2021-03-16 · 235 added, 130 removed, 349 unchanged (51% of the section changed)

1 unchanged sentence

INDEX TO FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Balance Sheets as of December 31, 2021 and 202 0

Statements of Operations for the Years ended December 31, 2020 and 2019

Statements of Operations and Comprehensive Loss for the Years ended December 31, 2021 and 20 2 0

Statements of Changes in Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the Years ended December 31, 2021 and 20 2 0

4 unchanged sentences

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Prelude Therapeutics Incorporated (the Company) as of December 31, 2020 and 2019, the related statements of operations, changes in convertible preferred stock and stockholders’ equity (deficit) and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”).

We have audited the accompanying balance sheets of Prelude Therapeutics Incorporated (the Company) as of December 31, 2021 and 2020, the related statements of operations and comprehensive loss, changes in convertible preferred stock and stockholders’ equity (deficit) and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended in conformity with U.S.

23 unchanged sentences

Cash and cash equivalents

Marketable securities

Prepaid expenses and other current assets

Total current assets

Restricted cash

Property and equipment, net

Deferred offering costs

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

Right-of-use asset

Liabilities and stockholders’ equity

Current liabilities:

Capital lease obligation

Accounts payable

Accrued expenses and other current liabilities

Operating lease liability

Total current liabilities

1 unchanged sentence

Total liabilities

Convertible preferred stock, $0.0001 par value:

Series A convertible preferred stock:

No shares and 13,574,008 shares authorized at December 31, 2020 and 2019, respectively;

No shares and 11,736,119 shares issued and outstanding at December 31, 2020 and 2019, respectively

Series B convertible preferred stock:

No shares and 18,500,000 shares authorized at December 31, 2020 and 2019, respectively;

No shares and 7,628,846 shares issued and outstanding at December 31, 2020 and 2019, respectively

Series C convertible preferred stock:

No shares authorized, issued or outstanding at December 31, 2020 and 2019

Total convertible preferred stock

Commitments (note 8)

1 unchanged sentence

Voting common stock, $ 0.0001 par value:

487,149,741 and 42,000,000 shares

authorized at December 31, 2020 and 2019, respectively;

487,149,741 shares

36,200,299 and 32,595,301 shares issued and outstanding at December 31, 2021

1 unchanged sentence

Non-voting common stock, $ 0.0001 par value:

12,850,259 and no shares

authorized at December 31, 2020 and 2019, respectively;

and no shares issued and outstanding at December 31, 2020

12,850,259 shares

11,402,037 and 11,110,371

shares issued and outstanding at December 31, 2021

and 2020, respectively

Additional paid-in capital

Accumulated other comprehensive income (loss)

Accumulated deficit

Total stockholders’ equity (deficit)

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

Total stockholders’ equity

Total liabilities and stockholders’ equity

See accompanying notes to financial statements.

PRELUDE THERAPEUTICS INCORPORATED

STATEMENTS OF OPERATIONS

STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

Year ended December 31,

9 unchanged sentences

Weighted average common shares outstanding, basic and diluted

Comprehensive loss

Unrealized gain (loss) on marketable securities, net of tax

Comprehensive loss

See accompanying notes to financial statements.

1 unchanged sentence

STATEMENTS OF CHANGES IN CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

Convertible preferred stock

Stockholders’ equity (deficit)

1 unchanged sentence

Non-voting common stock

Accumulated Other

Comprehensive

Income (Loss)

(in thousands, except shares)

Balance at January 1, 2019

Exercise of stock options

Sale of Series B convertible preferred

stock, net of issuance costs of $152

Balance at December 31, 2020

Issuance of common stock upon exercise of stock options

Sale of common stock, net of offering costs of $ 739

Issuance of common stock under ESPP

Unrealized gain (loss) on marketable securities, net of tax

Stock-based compensation expense

including issuance of restricted

Balance at December 31, 2021

See accompanying notes to financial statements.

PRELUDE THERAPEUTICS INCORPORATED

STATEMENTS OF CHANGES IN CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) (CONTUNIUED)

Convertible preferred stock

Stockholders’ equity (deficit)

(in thousands, except shares)

Voting common stock

Non-voting common stock

Balance at January 1, 2020

Exercise of stock options

Sale of Series B convertible preferred

stock, net of issuance costs of $58

Sale of Series C convertible preferred

stock, net of issuance costs of $174

Sale of Series B convertible preferred stock, net of issuance costs of $ 58

Sale of Series C convertible preferred stock, net of issuance costs of $ 174

Conversion of convertible preferred stock upon initial public offering

Sale of common stock in initial public offering, net of issuance costs of $ 2,538

Stock-based compensation expense,

including issuance of restricted

Stock-based compensation expense, including issuance of RSAs

Balance at December 31, 2020

7 unchanged sentences

Depreciation and amortization

Noncash lease expense

Loss on disposal of property and equipment

Stock-based compensation

Amortization of premium and discount on marketable securities, net

Changes in operating assets and liabilities:

2 unchanged sentences

Accrued expenses and other liabilities

Operating lease liabilities

Net cash used in operating activities

Cash flows used in investing activities:

Purchases of marketable securities

Purchases of property and equipment

1 unchanged sentence

Cash flows provided by financing activities:

Proceeds from the sale of common stock, net of offering costs

Proceeds from the issuance of common stock upon initial public offering, net of offering costs

1 unchanged sentence

Proceeds from the sale of Series B convertible preferred stock, net of offering costs

Payment of offering costs associated with January 2021 offering

Payment of offering costs

Payment of capital lease obligation

Proceeds from the exercise of stock options

Proceeds from issuance of common stock in connection with the exercise of stock options

Proceeds from the issuance of common stock under ESPP

Net cash provided by financing activities

Net increase in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

Net (decrease) increase in cash and cash equivalents

Cash, cash equivalents and restricted cash at beginning of year

Cash, cash equivalents and restricted cash at end of year

Supplemental disclosures:

Operating lease right-of-use assets obtained in exchange for operating lease liabilities

Property and equipment in accounts payable

Unrealized gain (loss) on marketable securities

Offering costs in accrued expenses

Offering costs in accounts payable

Issuance of capital lease obligation in connection with purchase of property and equipment

See accompanying notes to financial statements.

2 unchanged sentences

Nature of Operations

Prelude Therapeutics Incorporated (the “Company”) was incorporated in Delaware on February 5, 2016 and is a clinical-stage biotechnology company focused on discovering and developing new medicines targeting chromatin function to treat cancer and rare diseases.

Prelude Therapeutics Incorporated (the “Company”) was incorporated in Delaware on February 5, 2016 and is a clinical-stage fully integrated oncology company built on a foundation of drug discovery excellence to deliver novel precision cancer medicines to underserved patients.

Since beginning operations, the Company has devoted substantially all its efforts to research and development, conducting preclinical and clinical studies, recruiting management and technical staff, administration, and raising capital.

7 unchanged sentences

In addition, the Company is dependent upon the services of its employees, consultants and contractors.

Since its inception, the Company has incurred operating losses and has an accumulated deficit of $107.4 million at December 31, 2020.

Since its inception, the Company has incurred operating losses and had an accumulated deficit of $ 219.1 million at December 31, 2021.

The Company has no revenue to date and devotes its efforts to research and development.

The Company anticipates incurring additional losses until such time, if ever, that it can generate significant sales of its product candidates currently in development.

The Company believes that its existing cash and cash equivalents, together with the net proceeds of $161.4 million from the sale of common stock in January 2021 (see Note 11), will be sufficient to fund its operating expenses and capital expenditure requirements into 2023.

The Company believes that its cash, cash equivalents and marketable securities as of December 31, 2021 will be sufficient to fund its operating expenses and capital expenditure requirements into the second half of 2024.

To fund its operating expenses and capital expenditure requirements after that date, the Company plans to seek additional funding through public or private equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements.

3 unchanged sentences

On March 10, 2020, the World Health Organization characterized the novel COVID-19 virus as a global pandemic.

There is significant uncertainty as to the likely effects of this disease which may, among other things, materially impact the Company’s planned clinical trials.

There is significant uncertainty as to the likely effects of this disease and emerging variants which may, among other things, materially impact the Company’s planned clinical trials.

This pandemic or outbreak could result in difficulty securing clinical trial site locations, CROs, and/or trial monitors and other critical vendors and consultants supporting the trial.

2 unchanged sentences

At the current time, the Company is unable to quantify the potential effects of this pandemic on its future financial statements.

Summary of Significant Accounting Policies

Basis of Presentation

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”).

Any reference in these notes to applicable guidance is meant to refer to GAAP as

PRELUDE THERAPEUTICS INCORPORATED

NOTES TO FINANCIAL STATEMENTS — Continued

found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) promulgated by the Financial Accounting Standards Board (“FASB”).

On September 18, 2020, in connection with the Company’s initial public offering (IPO) of common stock, the Company’s board of directors and stockholders approved a 1.1566-to-one reverse stock split of the Company’s issued and outstanding shares of common stock and convertible preferred stock.

All share and per share amounts in the financial statements and notes hereto have been retrospectively adjusted for all periods presented to give effect to the reverse stock split.

The completion of the IPO, as described above, impacts the comparability of certain amounts to the corresponding prior year period, including earnings per share.

Summary of Significant Accounting Policies

Basis of Presentation

The accompanying financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”).

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

Use of Estimates

2 unchanged sentences

Estimates and assumptions are periodically reviewed and the effects of the revisions are reflected in the accompanying financial statements in the period they are determined to be necessary.

Significant areas that require management’s estimates include the fair value of the Company’s common stock prior to the IPO, stock-based compensation assumptions, and accrued clinical trial expenses.

The most significant estimate relates to accrued clinical trial expenses.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist of cash and cash equivalents.

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist of cash, cash equivalents, and marketable securities.

The Company maintains deposits in federally insured financial institutions in excess of federally insured limits.

4 unchanged sentences

Fair Value of Financial Instruments

Management believes that the carrying amounts of the Company’s financial instruments, including cash, accounts payable, accrued expenses and a capital lease obligation, approximate fair value due to the short-term nature of these instruments.

Cash Equivalents

Management believes that the carrying amounts of the Company’s financial instruments, including cash, restricted cash, accounts payable, and accrued expenses, approximate fair value due to the short-term nature of these instruments.

Cash, Cash Equivalents and Restricted cash

The Company’s cash equivalents include short-term highly liquid investments with an original maturity of 90 days or less when purchased and are carried at fair value in the accompanying balance sheets.

Restricted cash comprises a letter of credit for the benefit of the landlord in connection with the Company’s new lease facility.

See note 8 for further details.

The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the balance sheet that total to the amounts shown in the statement of cash flows:

(in thousands)

Cash and cash equivalents

Restricted cash

Total cash, cash equivalents, and restricted cash shown in statement of cash flows

PRELUDE THERAPEUTICS INCORPORATED

NOTES TO FINANCIAL STATEMENTS — Continued

Marketable Securities

The Company’s marketable securities consist of investments in corporate debt securities and commercial paper that are classified as available-for-sale.

The securities are carried at fair value with the unrealized gains and losses, net of tax, included in accumulated other comprehensive income (loss), a component of stockholders’ equity (deficit).

Realized gains and losses and declines in value determined to be other than temporary are included in the Company’s statements of operations.

The Company classifies marketable securities that are available for use in current operations as current assets on the balance sheets.

Property and Equipment

12 unchanged sentences

If the expected cash flows are less than the carrying value of the asset, then the asset is considered to be impaired and its carrying value is written down to fair value, based on the related estimated discounted future cash flows.

Deferred offering costs

The Company capitalizes costs that are directly associated with in-process equity financings until such financings are consummated, at which time such costs are recorded against the gross proceeds from the applicable financing.

If a financing is abandoned, deferred offering costs are expensed.

Deferred offering costs were $0.3 million at December 31, 2020.

Comprehensive loss

Comprehensive loss includes net loss and certain changes in stockholders’ equity (deficit) that are excluded from net loss.

The Company’s comprehensive loss was equal to net loss for the years ended December 31, 2020 and 2019.

The Company’s comprehensive loss for the year ended December 31, 2021 comprised net loss and unrealized gain(loss) on marketable securities.

The Company’s comprehensive loss was equal to net loss for the year ended December 31, 2020.

Stock-Based Compensation

The Company measures share-based awards at their grant-date fair value and records compensation expense on a straight-line basis over the vesting period of the awards.

Estimating the fair value of share-based awards requires the input of subjective assumptions, including, prior to the IPO, the estimated fair value of the Company’s common stock, and, for stock options, the expected life of the options and stock price volatility.

Estimating the fair value of share-based awards requires the input of subjective assumptions, including, for stock options, the expected life of the options and stock price volatility.

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

30 unchanged sentences

The weighted-average number of shares of common stock outstanding used in the basic net loss per share calculation does not include unvested restricted stock awards as these instruments are considered contingently issuable shares until they vest.

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

Diluted net loss per share of common stock includes the effect, if any, from the potential exercise of stock options, and the effect from unvested restricted stock awards and restricted stock units which would result in the issuance of incremental shares of common stock.

For diluted net loss per share, the weighted-average number of shares of common stock is the same for basic net loss per share due to the fact that when a net loss exists, dilutive securities are not included in the calculation as the impact is anti-dilutive.

The Company’s convertible preferred stock and unvested restricted

The Company’s unvested restricted stock awards

PRELUDE THERAPEUTICS INCORPORATED

NOTES TO FINANCIAL STATEMENTS — Continued

stock entitles the holder to participate in dividends and earnings of the Company, and, if the Company were to recognize net income, it would have to use the two-class method to calculate earnings per share.

The two-class method is not applicable during periods with a net loss, as the holders of the convertible preferred stock and unvested restricted stock have no obligation to fund losses.

entitles the holder to participate in dividends and earnings of the Company, and, if the Company were to recognize net income, it would have to use the two-class method to calculate earnings per share.

The two-class method is not applicable during periods with a net loss, as the holders of the unvested restricted stock awards have no obligation to fund losses.

The following potentially dilutive securities have been excluded from the computation of diluted weighted-average shares of common stock outstanding, as they would be anti-dilutive:

Series A convertible preferred stock

Series B convertible preferred stock

Unvested restricted stock awards

Unvested restricted stock units

Stock options

6 unchanged sentences

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

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU No.

2016-02, Leases (“ASC 842”), which requires a lessee to record a right-of-use asset and a corresponding lease liability on the balance sheet for most leases including operating leases.

Lessees will classify leases as either finance or operating leases and lessors classify all leases as sales-type, direct financing or operating leases.

The statement of operations presentation and expense recognition for lessees for finance leases is similar to that of capital leases under ASC 840 with separate interest and amortization expense with higher periodic expense in the earlier periods of a lease.

For operating leases, the statement of operations presentation and expense recognition is similar to that of operating leases under ASC 840 with single lease cost recognized on a straight-line basis.

The standard is effective for the Company beginning January 1, 2022, with early adoption permitted, using a modified retrospective approach.

While the Company continues to evaluate the provisions of ASC 842 to determine how it will be impacted, the primary effect of adopting the new standard will be to record a right-of-use asset and a lease liability on the balance sheet for all leases with a term of greater than twelve months regardless of their classification.

The adoption of ASC 842 is not expected to have a material impact on the Company's results of operations or cash flows.

Recently Adopted Accounting Pronouncements

On January 1, 2021 , the Company adopted ASC 842 issued by the FASB in February 2016, which was subsequently supplemented by clarifying guidance to improve financial reporting of leasing transactions.

The new lease accounting guidance requires lessees to recognize lease liabilities and right-of-use assets on the balance sheet for all leases with initial terms longer than 12 months and provides enhanced disclosures on key information of leasing arrangements.

The Company adopted the new standard using the modified retrospective transition method utilizing the optional transition method and elected the package of practical expedients.

Accordingly, prior periods were not restated to reflect the adopted standard.

In accordance with the guidance in ASC 842, components of a lease should be split into three categories:

lease components (e.g., land, building, etc.), non-lease components (e.g., common area maintenance, maintenance, consumables, etc.), and non-components (e.g., property taxes, insurance, etc.).

The Company has elected the practical expedient to account for the lease and non-lease components of each of its operating leases as a single lease component and allocate all of the contract consideration to the lease component only.

Upon adoption, the Company recorded a right of use asset of $ 2.5 million and corresponding operating lease liabilities of $ 2.5 million, with an offset to accrued expenses and other current liabilities of approximately $ 64,000 to eliminate deferred rent on the balance sheets.

At lease commencement, the Company records a lease liability based on the present value of lease payments over the expected lease term including any options to extend the lease that the Company is reasonably certain to exercise.

The Company calculates the present value of lease payments using an incremental borrowing rate as the Company’s leases do not provide an implicit interest rate.

The Company’s incremental borrowing rate for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms.

At the lease commencement date, the Company records a corresponding right-of-use lease asset based on the lease liability, adjusted for any lease incentives received and any initial direct costs paid to the lessor prior to the lease commencement date.

The Company may enter into leases with an initial term of 12 months or less (“Short-Term Leases”).

For Short-Term Leases, the Company records the rent expense on a straight-line basis and does not record the leases on the balance sheet.

PRELUDE THERAPEUTICS INCORPORATED

NOTES TO FINANCIAL STATEMENTS — Continued

entered into a short-term lease in June 2021 and elected the short-term lease exemption that allows the Company to record the rent expense on a straight-line basis and does not require the recognition of a right-of-use asset or corresponding operating lease liability.

Refer to Note 8 for the Company’s lease disclosures.

After lease commencement, the Company measures its leases as follows:

(i) the lease liability based on the present value of the remaining lease payments using the discount rate determined at lease commencement and (ii) the right-of-use lease asset based on the re-measured lease liability, adjusted for any unamortized lease incentives received, any unamortized initial direct costs and the cumulative difference between rent expense and amounts paid under the lease agreement.

Any lease incentives received, and any initial direct costs incurred are amortized on a straight-line basis over the expected lease term.

Rent expense is recorded on a straight-line basis over the expected lease term.

The adoption of the new lease accounting standard did not have a material impact on the Company’s results of operations or cash flows for the year ended December 31, 2021.

Accounting guidance not yet adopted

In June 2016, the FASB issued ASU No.

2016-13, “ Financial Instruments-Credit Losses:

Measurement of Credit Losses on Financial Instruments ” which has subsequently been amended by ASU No.

2019-04, ASU No.

2019-05, ASU No.

2019-10, ASU No.

2019-11, and ASU No.

2020-03 (“ASU 2016-03”).

This guidance replaces the incurred loss impairment methodology under current U.S.

GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

This guidance is effective for the Company for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022 and must be adopted using a modified retrospective approach, with certain exceptions.

The Company is currently evaluating the impact of this standard on its financial statements and related disclosures.

In November 2021, the FASB issued ASU No.

2021-10, “Government Assistance:

Disclosures by Business Entities about Government Assistance” .

The amendments in this Update improve financial reporting by requiring disclosures that increase the transparency of transactions with a government.

The amendments require the following annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy (i) the type of transaction (ii) the accounting for the transaction, and (iii) the effect of the transaction on the entity’s financial statements.

This guidance is effective for the Company for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021 with early adoption permitted.

The Company is currently evaluating the impact of this standard but does not expect that it will have a material impact on its financial statements and related disclosures.

Marketable Securities

The following is a summary of the Company’s marketable securities as of December 31, 2021.

The Company did not have any marketable securities as of December 31, 2020.

(in thousands)

Amortized Cost

Gross unrealized gain

Gross unrealized loss

Marketable securities

Corporate debt securities

Commercial paper

The Company’s marketable securities generally have contractual maturity dates of 18 months or less.

As of December 31, 2021, the Company had 25 securities with a total fair market value of $ 221.8 million in an unrealized loss position.

The Company believes that any unrealized losses associated with the decline in value of its securities is temporary and is primarily related to the change in market interest rates since purchase and believes that it is more likely than not that it will be able to hold its debt securities to maturity .

PRELUDE THERAPEUTICS INCORPORATED

NOTES TO FINANCIAL STATEMENTS — Continued

Fair Value of Financial Instruments

3 unchanged sentences

Depending on the nature of the assets and liabilities, various valuation techniques and assumptions are used when estimating fair value.

The Company follows the provisions of ASC 820, for financial assets and liabilities

PRELUDE THERAPEUTICS INCORPORATED

NOTES TO FINANCIAL STATEMENTS — Continued

measured on a recurring basis.

The Company follows the provisions of ASC 820, for financial assets and liabilities measured on a recurring basis.

The guidance requires fair value measurements be classified and disclosed in one of the following three categories:

8 unchanged sentences

Cash equivalents (Money Market Funds)

Marketable securities

Corporate debt securities

Commercial paper

December 31, 2020:

6 unchanged sentences

Furniture and fixtures

Construction in progress

Less accumulated depreciation

Property and equipment, net

Depreciation and amortization expense was $0.5 million and $0.4 million for the years ended December 31, 2020 and 2019, respectively.

In September 2019, the Company signed a 12-month capital lease for $0.4 million of lab equipment with an effective interest rate of 9.67%.

At December 31, 2020, the Company had $0.1 million of accumulated amortization related to the capital lease.

At December 31, 2020, the Company has no further lease payments under the capital lease.

PRELUDE THERAPEUTICS INCORPORATED

NOTES TO FINANCIAL STATEMENTS — Continued

Accrued Expenses

Accrued expenses consisted of the following:

In September 2019, the Company signed a 12 -month capital lease for $ 0.4 million of lab equipment with an effective interest rate of 9.67 %.

At December 31, 2020, the Company had $ 0.1 million of accumulated amortization related to the capital lease.

At December 31, 2020, the Company had no further lease payments under the capital lease.

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:

(in thousands)

1 unchanged sentence

Research and development

Operating Leases

The Company leases office and laboratory space in Wilmington, Delaware under two separate noncancelable leases, which expire in December 2022 and March 2021, respectively.

The Company has an option to renew both leases for additional 1-year and 6-months periods, respectively.

The leases are classified as operating leases and the Company recognizes rent expense on a straight-line basis over the lease terms.

The Company recognized rent expense of $1.2 million and $0.9 million during the years ended December 31, 2020 and 2019, respectively, related to these leases.

The future minimum lease payments under the Company’s operating lease agreements as of December 31, 2020 are $1.4 million for both 2021 and for 2022, with no commitments thereafter.

The Company leases office and laboratory space in Wilmington, Delaware under a noncancelable lease (the “Lease”), which expires in December 2022.

The Lease was amended during the third quarter of 2021 to include additional office and laboratory space to accommodate the Company’s growth.

The Company has an option to renew the Lease for an additional 1 -year period.

This option to extend was not recognized as part of the Company’s measurement of the right-of-use asset and operating lease liability as of December 31, 2021 .

The discount rate used to account for the Company’s operating lease under ASC 842 is the Company’s estimated incremental borrowing rate of 10.0 %.

The future minimum lease payments under the Lease at December 31, 2021 are as follows:

(in thousands)

Total undiscounted lease payments

Less imputed interest

Current lease liability

During the fourth quarter of 2021, the Company entered into a lease agreement (the Chestnut Run Lease) with a commencement date of the earlier of (i) the Landlord Work Substantial Completion Date (as such term is defined in the Chestnut Run Lease), or (ii) the date the Company takes possession of the premises for the conduct of the Company’s business (the Commencement Date).

The Chestnut Run Lease premises includes approximately 81,000 square feet, located at Chestnut Run Plaza in Wilmington, Delaware (the Premises).

The Premises contains both office and lab space the Company intends to use for administrative, research and development and other activities.

Upon the Chestnut Run Lease commencement, the Company will recognize a right-of-use asset and operating lease liability in accordance with ASC 842.

The Chestnut Run Lease has an initial term of 162 months with 3 five-year extension options and certain expansion rights.

The aggregate estimated rent payments due over the initial term of the Chestnut Run Lease is approximately $ 33.8 million.

The estimated rent payments due over the next five years is as follows:

(in thousands)

PRELUDE THERAPEUTICS INCORPORATED

NOTES TO FINANCIAL STATEMENTS — Continued

The Company paid a security deposit in the form of a letter of credit of $ 4.0 million which is included in the balance sheet as restricted cash as of December 31, 2021.

The security deposit may be reduced to $ 0.5 million over time in accordance with the terms of the Chestnut Run Lease .

In June 2021, the Company entered into a 12 -month noncancelable lease, which commenced on July 1, 2021 and will expire on June 30, 2022 , and has remaining lease payments of approximately $ 0.2 million in 2022.

The Company adopted the short-term lease election as afforded by ASC 842 and did not recognize a right-of-use asset and operating lease liability related to this short-term lease.

Rent expense for the years ended December 31, 2021 and 2020 was $ 1.8 million and $ 1.2 million, respectively.

Employment Agreements

4 unchanged sentences

The Company provides a safe harbor match with a maximum amount of 3 % of the participant’s compensation.

The Company has not yet made any matching contributions since inception.

During 2021 the Company made matching contributions of $ 0.5 million.

The Company did no t make any matching contributions in 2020.

Research Collaboration Agreement

In September 2021, the Company entered into a research collaboration agreement estimated to last for approximately one year (the “Darwin Health Agreement”) with Darwin Health, Inc.

(“DarwinHealth”).

Under the terms of the Darwin Health Agreement, DarwinHealth will utilize their drug discovery technologies and certified methodologies in precision oncology to advance and accelerate clinical development for certain of the Company’s programs across a broad range of tumor subtypes.

The Company will pay DarwinHealth a total of $ 3.0 million in three equal installments over the one-year term (the “Research Term”) to fund the research and, if the Company adopts any of DarwinHealth’s development ideas, the Company will be responsible for the development, manufacturing, and commercialization of any such products.

For the year ended December 31, 2021, research and development expense related to this agreement recognized in the statement of operations was $ 1.0 million.

In addition to research funding, DarwinHealth is eligible to receive future research, development and regulatory milestones of up to $ 3.0 million for each product candidate and is also eligible to receive tiered royalties in the low single digits on net sales of each product developed using DarwinHealth’s development technologies or methods.

However, within eighteen-months following the Research Term, the Company, in its sole discretion, may notify DarwinHealth that it will not utilize its development ideas and will be entitled to receive a refund of $ 0.5 million.

Other Research and Development Arrangements

4 unchanged sentences

In May 2019, the Company issued an aggregate of 7,628,846 shares of Series B convertible preferred stock (“Series B”) to existing investors at $ 3.9325 per share for aggregate net proceeds of $ 29.8 million.

Pursuant to the Series B Stock Purchase Agreement, the Series B investors could elect to purchase an aggregate of 7,628,846 additional shares of the Company’s Series B at a fixed purchase price of $3.9325 per share (the “Series B Future Tranche Right”).

The Company determined that the Series B Future Tranche Right did not meet the definition of a freestanding financial instrument as it was not legally detachable.

The Series B Future Tranche Right was also evaluated as an embedded derivative and the Company determined it did not meet the definition of a derivative instrument for which

PRELUDE THERAPEUTICS INCORPORATED

NOTES TO FINANCIAL STATEMENTS — Continued

bifurcation would be required.

Pursuant to the Series B Stock Purchase Agreement, the Series B investors could elect to purchase an aggregate of 7,628,846 additional shares of the Company’s Series B at a fixed purchase price of $ 3.9325 per share (the “Series B Future Tranche Right”).

The Company determined that the Series B Future Tranche Right did not meet the definition of a freestanding financial instrument as it was not legally detachable.

The Series B Future Tranche Right was also evaluated as an embedded derivative and the Company determined it did not meet the definition of a derivative instrument for which bifurcation would be required.

In March 2020, the Company’s Series B investors exercised their Future Tranche Right and purchased 7,628,846 shares of Series B for net proceeds of approximately $ 29.9 million.

4 unchanged sentences

In addition, immediately prior to the closing of the IPO on September 29, 2020, (i) all of the Company’s outstanding shares of convertible preferred stock converted into an aggregate of 30,437,423 shares of common stock (of which, 11,110,371 shares are non-voting common stock) and (ii) the Company filed an amended and restated certificate of incorporation to, among other things, increase the number of authorized shares of common stock to 500,000,000 .

Follow-on Offering

In January 2021, the Company sold 2,875,000 shares of its common stock at a public offering price of $ 60.00 per share.

The Company received net proceeds of $ 161.4 million after deducting underwriting discounts, commissions, and other offering expenses paid by the Company.

The Company has two classes of common stock;

9 unchanged sentences

New awards can only be granted under the 2020 Equity Incentive Plan (the “Plan”).

The total number of shares initially authorized under the Plan was 4,680,000.

Of this amount, 4,485,907 shares were available for future grants as of December 31, 2020.

The number of shares of the Company’s common stock that may be issued pursuant to rights granted under the Plan shall automatically increase on January 1st of each year, commencing on January 1, 2021 and continuing for ten years, in an amount equal to five percent of the total number of shares of the Company’s common stock outstanding on December 31st of the preceding calendar year, subject to the discretion of the board of directors or compensation committee to determine a lesser number of shares shall be added for such year.

As such, on January 1, 2021, 2,185,283 shares were added to the Plan.

The Plan provides for the granting of common stock, incentive stock options, nonqualified stock options, restricted stock awards, and/or stock appreciation rights to employees, directors, and other persons, as determined by the Company’s board of directors.

The Company’s stock options vest based on the terms in each award agreement, generally over four-year periods with 25% of options vesting after 1 year and then monthly thereafter, and have a term of ten years.

In September 2020, the Company also adopted the 2020 Employee Stock Purchase Plan (the “ESPP”), which includes 520,000 shares of common stock reserved for future issuance.

No shares have been issued from the ESPP as of December 31, 2020.

The number of shares of the Company’s common stock that may be issued pursuant to rights granted under the ESPP shall automatically increase on January 1st of each year, commencing on January 1, 2021 and continuing for ten years, in an amount equal to one percent of the total number of shares of the Company’s common stock outstanding on December 31st of the preceding calendar year, subject to the discretion of the board of directors or compensation committee to determine a lesser number of shares shall be added for such year.

As such, on January 1, 2021, 437,056 shares were added to the ESPP.

The total number of shares initially authorized under the Plan was 4,680,000 , which was increased on January 1, 2021 and will automatically increase on January 1st of each year, continuing for ten years , in an amount equal to five percent of the total number of shares of the Company’s common stock outstanding on December 31st of the preceding calendar year, subject to the discretion of the board of directors or compensation committee to determine a lesser number of shares shall be added for such year.

At December 31, 2021, 5,314,849 shares were available for future grants and on January 1, 2022, 2,380,116 shares were added to the Plan.

The Plan provides for the granting of common stock, incentive stock options, nonqualified stock options, restricted stock awards, restricted stock units and/or stock appreciation rights to employees, directors, and other persons, as determined by the Company’s board of directors.

The Company’s stock options vest based on the terms in each award

PRELUDE THERAPEUTICS INCORPORATED

NOTES TO FINANCIAL STATEMENTS — Continued

agreement, generally over four-year periods with 25 % of options vesting after 1 year and then monthly thereafter, and have a term of ten years .

The Company measures stock-based awards at their grant-date fair value and records compensation expense on a straight-line basis over the vesting period of the awards.

21 unchanged sentences

The weighted-average grant date fair value of options granted was $ 22.80 and $ 10.12 per share for the years ended December 31, 2021 and 2020, respectively.

The aggregate intrinsic value of options exercised was $0.4 million and for the year ended December 31, 2020.

The Company recorded stock-based compensation expense of $ 4.8 million and $0.4 million for the years ended December 31, 2020 and 2019, respectively, related to stock options.

As of December 31, 2020, the total

The aggregate intrinsic value of options exercised was $ 26.9 million for the year

PRELUDE THERAPEUTICS INCORPORATED

NOTES TO FINANCIAL STATEMENTS — Continued

unrecognized compensation expense related to unvested stock option awards was $ 45.8 million, which the Company expects to recognize over a weighted-average period of 3.54 years .

ended December 31, 2021 .

The Company recorded stock-based compensation expense of $ 19.9 million and $ 4.8 million for the years ended December 31, 2021 and 2020 , respectively, related to stock options.

As of December 31, 2021 , the total unrecognized compensation expense related to unvested stock option awards was $ 68.4 million, which the Company expects to recognize over a weighted-average period of 3.03 years .

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

3 unchanged sentences

Expected dividend yield

Restricted Stock Awards

Restricted Stock Awards and Units

The Company issues restricted stock awards (“RSA”) to employees that generally vest over a four-year period with 25 % of awards vesting after 1 year and then monthly thereafter.

1 unchanged sentence

The fair value of an RSA is equal to the fair market value price of the Company’s common stock on the date of grant.

RSA expense is amortized straight-line over the vesting period.

RSA expense is recorded on a straight-line basis over the vesting period.

The following table summarizes activity related to RSA stock-based payment awards:

4 unchanged sentences

As of December 31, 2021, the total unrecognized expense related to all RSAs was $ 1.3 million, which the Company expects to recognize over a weighted-average period of 1.83 years.

The Company issues restricted stock units (“RSU”) to employees that generally vest over a four-year period with 25 % of awards vesting after 1 year and then quarterly thereafter.

Any unvested shares will be forfeited upon termination of services.

The following table summarizes activity related to RSU stock-based payment awards:

Outstanding at January 1, 2021

Outstanding at December 31, 2021

PRELUDE THERAPEUTICS INCORPORATED

NOTES TO FINANCIAL STATEMENTS — Continued

The Company recorded stock-based compensation expense of $ 20 thousand for the year ended December 31, 2021 related to RSUs.

At December 31, 2021 the total unrecognized expense related to the RSUs was $ 0.3 million, which the Company expects to recognize over 3.76 years.

Employee Stock Purchase Plan

The Company has an Employee Stock Purchase Plan (the “ESPP”), which as of December 31, 2021 had 931,342 shares of common stock reserved for future issuance.

The Company issued 25,714 shares under the ESPP in 2021.

The number of shares of the Company’s common stock that may be issued pursuant to rights granted under the ESPP shall automatically increase on January 1st of each year and continuing for ten years beginning in 2021, in an amount equal to one percent of the total number of shares of all classes of the Company’s common stock outstanding on December 31st of the preceding calendar year, subject to the discretion of the board of directors or compensation committee to determine a lesser number of shares shall be added for such year.

As such, on January 1, 2022, 476,023 shares were added to the ESPP.

Under the ESPP, eligible employees can purchase the Company’s common stock through accumulated payroll deductions at such times as are established by the compensation committee.

Eligible employees may purchase the Company’s common stock at 85 % of the lower of the fair market value of the Company’s common stock on the first day of the offering period or on the last day of the offering period.

Eligible employees may contribute up to 15 % of their eligible compensation.

Under the ESPP, a participant may not accrue rights to purchase more than $ 25,000 worth of the Company’s common stock for each calendar year in which such right is outstanding.

The ESPP is considered compensatory under the FASB stock compensation rules.

Accordingly, share-based compensation expense is determined based on the option’s grant-date fair value as estimated by applying the Black Scholes option-pricing model and is recognized over the withholding period.

The Company recognized share-based compensation expense of $ 0.2 million for the year ended December 31, 2021 related to the ESPP.

The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and liabilities were as follows:

4 unchanged sentences

Stock-based compensation

Accrued expense

Lease liabilities

Gross deferred tax assets

2 unchanged sentences

Deferred tax liability

Stock-based compensation

Right-of-use assets

Total deferred tax liabilities

Net deferred tax assets

In assessing the need for a valuation allowance, management must determine that there will be sufficient taxable income to allow for the realization of deferred tax assets.

Based upon the historical and anticipated future losses, management has determined that the deferred tax assets do not meet the more likely than not threshold for realizability.

Accordingly, a full valuation allowance has been recorded against the Company’s net deferred tax assets as of December 31, 2020 and 2019.

Accordingly, a full valuation allowance has been recorded against the Company’s net deferred tax assets as of December 31, 2021 and December

PRELUDE THERAPEUTICS INCORPORATED

NOTES TO FINANCIAL STATEMENTS — Continued

The valuation allowance increased by $ 42.5 million and $ 17.5 million during the years ended December 31, 2021 and 2020 , respectively.

2 unchanged sentences

State tax, net of federal benefit

Return to provision

Permanent differences

1 unchanged sentence

Change in valuation allowance

The following table summarizes carryforwards of federal, state and local net operating losses (“NOL”) and research tax credits:

The following table summarizes carryforwards of federal and state net operating losses (“NOL”) and research tax credits:

(in thousands)

4 unchanged sentences

The NOL carryforwards begin expiring in 2036 for federal and Delaware state income tax purposes, however;

all federal and Delaware state NOL carryforwards generated subsequent to January 1, 2018, are able to be carried forward

PRELUDE THERAPEUTICS INCORPORATED

NOTES TO FINANCIAL STATEMENTS — Continued

indefinitely.

As of December 31, 20 20 , the Company also had federal and Delaware research and development tax credit carryforwards of $ 4 .

7 million and $ 43,000 , respectively that will begin to expire in 2036 , unless previously utilized.

all federal and Delaware state NOL carryforwards generated subsequent to January 1, 2018, are able to be carried forward indefinitely.

As of December 31, 2021, the Company also had federal and Delaware research and development tax credit carryforwards of $ 11.2 million and $ 43 thousand, respectively, that will begin to expire in 2036 and 2031 , respectively, unless previously utilized.

The NOL and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities.

6 unchanged sentences

As of December 31, 2021, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts have been recognized in the Company’s statement of operations.

Due to NOL and tax credit carry forwards that remain unutilized, income tax returns for tax years from 2016, 2017, 2018 and 2019 remain subject to examination by the taxing jurisdictions.

Due to NOL and tax credit carry forwards that remain unutilized, income tax returns for all tax years remain subject to examination by the taxing jurisdictions.

The NOL carryforwards remain subject to review until utilized.

Subsequent Event

In January 2021, the Company sold 2,875,000 shares of its common stock at a public offering price of $60.00 per share.

The Company received net proceeds of $161.4 million after deducting underwriting discounts, commissions, and other offering expenses paid by the Company.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data