What changed in this filing

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Item 9A. Controls and Procedures

2021-03-09 compared with 2020-03-23 · 169 added, 158 removed, 475 unchanged (41% of the section changed)

Controls and Procedures.

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Management’s Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Financial Officer (Our principal accounting officer) and Chief Executive Officer (Our principal executive officer), we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act)) as of December 31, 2020.

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Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure.

Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Management recognizes that any controls

and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based on our management’s evaluation (with the participation of our Chief Executive Officer and our Chief Financial Officer), as of the end of the period covered by this report, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

This Annual Report on Form 10-K does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report from our independent registered public accounting firm due to a transition period established by the rules of the Securities and Exchange Commission for newly public companies.

Additionally, for so long as we remain an "emerging growth company" under the JOBS Act, our independent registered public accounting firm is not required to attest to the effectiveness of our internal control over financial reporting.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the Exchange Act.

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

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

Based upon the assessments, management has concluded that as of December 31, 2020 our internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP.

This Annual Report on Form 10-K does not include an attestation report from our independent registered public accounting firm due to a transition period established by the rules of the Securities and Exchange Commission for newly public companies.

Additionally, for so long as we remain an “emerging growth company” under the JOBS Act or a “smaller reporting company,” our independent registered public accounting firm is not required to attest to the effectiveness of our internal control over financial reporting.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

We have not experienced any material impact to our internal controls over financial reporting despite the fact that most of our employees are working remotely due to the COVID-19 pandemic.

We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness.

Inherent Limitations on Effectiveness of Controls

Internal control over financial reporting may not prevent or detect all errors and all fraud.

Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Other Information.

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Restated Bylaws

August 14, 2019

April 15, 2020

Form of Common Stock Certificate

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2014 Equity Incentive Plan, as amended, and forms of award agreements.

2019 Equity Incentive Plan, to become effective on the date immediately prior to the date the registration statement is declared effective, and forms of award agreements.

2019 Employee Stock Purchase Plan, to become effective on the date the registration statement is declared effective, and forms of award agreements.

2019 Equity Incentive Plan, and forms of award agreements.

2019 Employee Stock Purchase Plan, and forms of award agreements.

Amended and Restated Executive Employment Agreement, by and between the Registrant and Edward M.

Kaye, effective as of October 21, 2020

November 12, 2020

Amended and Restated Executive Employment Agreement, by and between the Registrant and Stephen J.

Tulipano, effective as of October 21, 2020.

November 12, 2020

Amended and Restated Executive Employment Agreement, by and between the Registrant and Barry Ticho, effective as of October 21, 2020.

Change of Control and Severance Agreement, by and between the Registrant and Edward M.

Kaye, effective as of October 21, 2020.

November 12, 2020

Change of Control and Severance Agreement, by and between the Registrant and Stephen J.

Tulipano, effective as of October 21, 2020.

November 12, 2020

Change of Control and Severance Agreement, by and between the Registrant and Barry Ticho, effective as of October 21, 2020.

Filed/Furnished

Lease Agreement, dated August 20, 2018, by and between Homology Medicines, Inc., and the Registrant.

Lease Agreement dated January 2, 2019, by and between MIT 139 Main Street Leasehold LLC., and the Registrant.

License Agreement, dated July 31, 2015, by and between Cold Spring Harbor Laboratory and the Registrant.

June 12, 2019

License Agreement, dated April 18, 2016, by and between the University of Southampton and the Registrant.

June 12, 2019

Employment Agreement, dated October 5, 2017, by and between the Registrant and Edward M.

Kaye, as amended.

Filed/Furnished

Employment Agreement, dated November 20, 2015, by and between the Registrant and Huw M.

Employment Agreement, dated September 8, 2017, by and between the Registrant and Barry J.

Ticho, as amended.

Employment Agreement, dated January 7, 2018, by and between the Registrant and Gene Liau.

Employment Agreement, dated February 12, 2019, by and between the Registrant and Stephen J.

Consulting Agreement, dated October 24, 2014, by and between the Registrant and Adrian R.

Scientific Advisory Board Agreement

August 10, 2020

Controlled Equity Offering Sales Agreement, dated as of July 10, 2020, between the Registrant, Cantor Fitzgerald & Co.

and Stifel, Nicolaus & Company, Incorporated.

July 10, 2020

Subsidiary of the Registrant.

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Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Certification of Principal Executive Officer Pursuant to 18 U.S.C.

Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Certification of Principal Financial Officer Pursuant to 18 U.S.C.

Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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(Principal Financial and Accounting Officer)

/s/ Samuel W.

March 9, 2021

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Krainer, Ph.D.

/s/ Arthur A.

March 9, 2021

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March 9, 2021

STOKE THERAPEUTICS, INC.

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Consolidated statements of operations and comprehensive loss

Consolidated statements of stockholders’ equity (deficit)

Consolidated statements of stockholders’ equity

Consolidated statements of cash flows

Notes to consolidated financial statements

Report of independent regist ered public accounting firm

Report of independent registered public accounting firm

To the Stockholders and Board of Directors

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We have audited the accompanying consolidated balance sheets of Stoke Therapeutics, Inc.

and subsidiary (the Company) as of December 31, 2019 and 2018, the related consolidated statements of operations and comprehensive loss, stockholders’ equity (deficit), and cash flows for each of the years in the two year period ended, December 31, 2019 and the related notes (collectively, the consolidated financial statements).

and subsidiary (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the years in the two year period ended, December 31, 2020 and the related notes (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the two year period ended December 31, 2020, in conformity with U.S.

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Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated 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 consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

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Prepaid expenses and other current assets

Deferred financing costs

Interest receivable

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Restricted cash

Operating lease right-of-use assets

Property and equipment, net

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Stockholders’ equity

Preferred Stock, par value of $0.0001 per share;

10,000,000 shares authorized, none issued and outstanding as of December 31, 2019;

and no shares authorized, issued or outstanding as of December 31, 2018

Convertible Preferred Stock, par value of $0.0001 per share;

no shares authorized, issued or outstanding at December 31, 2019;

225,584,874 shares authorized, 22,677,585 shares issued and outstanding as of December 31, 2018, aggregate liquidation preference of $130,850 at December 31, 2018

Common stock, par value of $0.0001 per share;

300,000,000 and 278,527,249 shares authorized, 32,861,842 and 727,413 shares issued and outstanding as of December 31, 2019 and 2018, respectively

300,000,000 shares authorized, 36,577,149 and 32,861,842 shares issued and outstanding as of December 31, 2020 and 2019, respectively

Additional paid-in capital

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Net loss and comprehensive loss

Net loss per share attributable to common stockholders—basic and diluted

Net loss per share—basic and diluted

Weighted average common shares outstanding—basic and diluted

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Stoke Therapeutics, Inc.

Consolidated statements of stockholders’ equity (deficit)

Consolidated statements of stockholders’ equity

(in thousands, except share and per share amounts)

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Issuance of common stock upon exercise of stock options

Issuance of convertible Preferred Stock, net of issuance costs of $378

Issuance of common stock upon initial public offering, net of underwriting discounts, commissions, and offering costs

Conversion of preferred stock to common stock

Balance as of December 31, 2019

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Issuance of common stock upon exercise of stock options

Issuance of common stock upon initial public offering, net of underwriting discounts, commissions, and offering costs

Conversion of preferred stock to common stock

Issuance of common stock related to employee stock purchase plan

Issuance of common stock upon follow-on offering, net of underwriting discounts, commissions, and offering costs

Balance as of December 31, 2020

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Loss on disposal of property and equipment

Reduction in the carrying amount of right of use assets

Changes in assets and liabilities:

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Cash flows from financing activities:

Proceeds from issuance of convertible Preferred Stock

Preferred Stock Issuance Cost

Proceeds from issuance of common stock upon initial public offering

Payments of initial public offering costs

Proceeds from exercise of stock options

Proceeds from issuance of common stock upon public offerings

Payment of offering costs

Proceeds from issuance of common stock upon exercise of stock options

Proceeds from Employee Stock Purchase Plan

Deferred financing costs

Net cash provided by financing activities

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Supplemental Disclosure of Non-Cash Investing and Financing Activities:

Property and equipment included in accrued expenses and accounts payable

Issuance of convertible Preferred Stock in exchange for simple agreement for future equity

Right-of-use assets recognized in exchange for operating leases upon

adoption of Topic 842

Property and equipment included in accrued expense and accounts payable

Deferred offering costs not yet paid

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

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The Company is an early-stage biopharmaceutical company pioneering a new way to treat the underlying causes of severe genetic diseases by precisely upregulating protein expression.

Shelf Registration

In July 2020, the Company filed a universal Shelf Registration statement on Form S-3 (the “Registration Statement”) with the Securities and Exchange Commission (the “SEC”).

The Registration Statement was declared effective by the SEC on July 20, 2020, and contains two prospectuses:

a base prospectus, which covers the offering, issuance and sale by the Company of up to a maximum aggregate offering price of $400,000,000 of our common stock, preferred stock, debt securities, warrants to purchase our common stock, preferred stock or debt securities, subscription rights to purchase our common stock, preferred stock or debt securities and/or units consisting of some or all of these securities;

and a sales agreement prospectus covering the offering, issuance and sale by us of up to a maximum aggregate offering price of $150,000,000 of our common stock that may be issued and sold under a Controlled Equity Offering Sales Agreement.

The specific terms of any securities to be offered pursuant to the base prospectus will be specified in a prospectus supplement to the base prospectus.

The $150,000,000 of common stock that may be offered, issued and sold under the sales agreement prospectus is included in the $400,000,000 of securities that may be offered, issued and sold by the Company under the base prospectus.

As of December 31, 2020, the Company has not issued any securities in connection with the Controlled Equity Offering Sales Agreement.

Follow-on public offering

On November 24, 2020, pursuant to a prospectus supplement to the Registration Statement, we completed an underwritten public offering, of our common stock and issued and sold 2,875,000 shares of common stock at a public offering price of $39.00 per share, which included 375,000 shares sold upon full exercise of the underwriters’ option to purchase additional shares of common stock resulting in net proceeds of $104.9 million after deducting underwriting discounts and commissions and estimated offering expenses.

Initial public offering

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The Company expects that its operating losses and negative cash flows will continue for the foreseeable future.

As of the issuance date of its consolidated financial statements for the year ended December 31, 2019, the Company expects that its cash and cash equivalents will be sufficient to fund its operating expenses and capital expenditure requirements through at least twelve months from the issuance date of its consolidated financial statements.

As of the issuance date of its consolidated financial statements for the year ended December 31, 2020, the Company expects that its cash and cash equivalents will be sufficient to fund its operating expenses and capital expenditure requirements into 2024.

The Company plans to seek additional funding through public or private equity offerings, debt financings, other collaborations, strategic alliances and licensing arrangements.

The Company may not be able to obtain financing on acceptable terms, or at all, and the Company may not be able to enter into strategic alliances or other arrangements on favorable terms, or at all.

The terms of any financing may adversely af fect the holdings or the rights of the Company’s stockholders.

If the Company is unable to obtain funding, the Company could be required to delay, reduce or eliminate research and development programs, product portfolio expansion or future commercializatio n efforts, which could adversely affect its business prospects.

The terms of any financing may adversely affect the holdings or the rights of the Company’s stockholders.

If the Company is unable to obtain funding, the Company could be required to delay, reduce or eliminate research and development programs, product portfolio expansion or future commercialization efforts, which could adversely affect its business prospects.

Summary of significant accounting policies and recent accounting pronouncements

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and its wholly-owned subsidiary.

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 Update (“ASU”) of the Financial Accounting Standards Board (“FASB”).All intercompany transactions between and among the Company and its’ consolidated subsidiary have been eliminated.

All intercompany transactions between and among the Company and its’ consolidated subsidiary have been eliminated.

Use of estimates

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

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

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

After consummation of the equity financing, these costs are recorded in the consolidated statement of stockholders’ equity as a reduction of additional paid-in capital.

Property and equipment

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Amounts incurred are classified as general and administrative expenses in the accompanying consolidated statements of operations and comprehensive loss.

The Company’s real estate operating leases provide for scheduled annual rent increases throughout the lease term.

The Company recognizes the effects of the scheduled rent increases on a straight-line basis over the full term of the leases.

Tenant improvement allowances, if any, provided by a landlord are recorded as deferred rent and amortized as reduction to rent expense over the lease term.

In February 2016, the FASB issued ASU No.

2016-02, Leases (Topic 842).

This standard established a right-of-use model that requires all lessees to recognize right-of-use assets and lease liabilities on their balance sheet that arise from leases as well as provide disclosures with respect to certain qualitative and quantitative information related to a company's leasing arrangements.

The Company adopted Topic 842 on January 1, 2020 using the modified retrospective approach and elected to apply the transition method that allows companies to continue applying guidance under the lease standard in effect at that time in the comparative period financial statements and recognize a cumulative-effect adjustment to the balance sheet on the date of adoption.

The Company has also elected the package of practical expedients to not reassess its prior conclusions about lease identification, lease classification and indirect costs and to not separate lease and non-lease components.

Upon adoption of Topic 842 on January 1, 2020, the Company recorded right-of-use assets of $ 2.2 million, operating lease liabilities of $ 2.2 million and the elimination of deferred rent of $ 0.03 million.

Adoption of the standard did no t result in the Company recording a cumulative effect adjustment.

The Company determines whether an arrangement is a lease at inception.

The Company accounts for a lease when it has the right to control the leased asset for a period of time while obtaining substantially all of the assets’ economic benefits.

The Company determined that it held operating leases for office and laboratory space as of January 1, 2020.

Operating lease right-of-use assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the lease commencement date.

The discount rate used to determine the present value of the lease payments is the Company’s incremental borrowing rate based on the information available at lease inception, as the Company did not have information to determine the rate implicit in the leases.

Lease expense for operating leases is recognized on a straight-line basis over the reasonably assured lease term based on the total lease payments (which include initial direct costs and lease incentives).

The expense is included in operating expenses in the consolidated statements of operations.

The Company’s lease agreements also contain variable payments, primarily maintenance-related costs, which are expensed as incurred and not included in the measurement of the right-of-use assets and lease liabilities.

The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the estimated future tax consequences attributable to temporary differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax base.

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The Tax Cuts and Jobs Act (the TCJA) was enacted on December 22, 2017.

The TCJA reduce d the U.S.

The TCJA reduced the U.S.

federal corporate tax rate from a top rate of 35% to a flat rate of 21%.

The Company continues to mon itor for legislative developments, issuance of regulations and technical memorandum to provide further clarification and/or interpretations of the TCJA and will adjust its consolidated financial statements as needed.

Net loss per share

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

The Company considers its convertible preferred stock (Preferred Stock) to be participating securities as in the event a dividend is paid on common stock, the holders of Preferred Stock would be entitled to receive dividends on a basis consistent with the common stockholders.

Under the two-class method, the net loss attributable to common stockholders is not allocated to the Preferred Stock as the holders of the Preferred Stock do not have a contractual obligation to share in losses.

Under the two-class method, basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock.

The Company continues to monitor for legislative developments, issuance of regulations and technical memorandum to provide further clarification and/or interpretations of the TCJA and will adjust its consolidated financial statements as needed.

Segment and geographic information

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Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act, until such time as those standards apply to private companies.

The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it is (i) no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act.

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

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Specifically, as a smaller reporting company, the Company may choose to present only the two most recent fiscal years of audited financial statements in its Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.

Recently adopted Accounting Pronouncements

In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718):

Scope of Modification Accounting , which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718.

The amendments in this ASU should be applied prospectively to an award modified on or after the adoption date.

The Company adopted ASU 2017-09 effective January 1, 2018, and the adoption of ASU 2017-09 did not impact the Company’s consolidated financial statements or financial statement disclosures.

Recently issued accounting pronouncements

In February 2016, the FASB issued ASU No.

2016-02, Leases (Topic 842).

For Income Statement purposes, a dual model was retained requiring leases to be classified as either operating or finance.

Operating leases result in straight line expense while finance leases results in a front-loaded expense pattern.

In July 2018, the FASB issues ASU 2018-11, which provided for an alternative transfer method by allowing entities to apply Topic 842 as of the adoption date.

The Company has also elected the package of practical expedients to not reassess our prior conclusions about lease identification, lease classification and indirect costs and to not separate lease and non-lease components.

Upon adoption of Topic 842 on January 1, 2020, the Company recorded right-of-use assets of $2.2 million and operating lease liabilities of $2.2 million and the elimination of deferred rent of $0.03 million.

Adoption of the standard did not result in the Company recording a cumulative effect adjustment to retained earnings.

In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815):

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For all other entities, the amendments in Part I of this update are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020.

The Company intends to adopt Part I of this update on January 1, 2020.

Early adoption is permitted for all entities, including adoption in an interim period.

The Company is currently assessing the potential impact of adopting ASU 2017-11 on its consolidated financial statements and financial statement disclosures and does not expect that the adoption of this update will have a material impact on its consolidated financial statements.

We adopted this update on January 1, 2020, and the adoption did not have a material impact on our consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820), Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement”.

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ASU 2018-13 will be effective for all entities, for fiscal years beginning after December 15, 2019 with early adoption permitted.

The Company intends to adopt this standard on January 1, 2020 and does not expect that the adoption of this update will have a material impact on its consolidated financial statements.

We adopted this update on January 1, 2020, and the adoption did not have a material impact on our consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes.

This guidance removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods.

It also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group.

This ASU is effective for interim and annual periods beginning after December 15, 2020, and early adoption is permitted.

The Company is

currently evaluating the impact of this standard on its consolidated financial statements and related disclosures , but we do not expect that this standard will have a material impact on our consolidated financial statements .

Fair value measurements

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Money market funds are publicly traded mutual funds and are presented as cash equivalents on the consolidated balance sheets as of December 31, 2020 and 2019.

The following table presents a roll-forward of the fair value of the Simple Agreement for Future Equity (SAFE) for which fair value is determined by Level 3 inputs:

Balance as of January 1, 2018

Fair value adjustment

Conversion into Preferred Stock, January 2018

Balance as of December 31, 2018

Fair value of the SAFE on issuance was determined to be equal to the proceeds received.

Fair value of the SAFE on conversion into Preferred Stock (see Notes 6 and 8) was determined to be equal to the fair value of the 788,042 Preferred Stock received ($3.0 million).

There were no transfers among Level 1, Level 2, or Level 3 categories in the periods presented.

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Other current liabilities

Simple agreement for future equity

In October 2017, the Company entered into the SAFE with an investor, receiving $3.0 million in exchange for the investor’s right to participate in a future equity financing.

The SAFE contained a number of conversion and redemption provisions, including settlement upon liquidity or dissolution events.

The Company elected the fair value option of accounting for the SAFE (see Note 3).

In January 2018, the investor exercised its rights to convert the SAFE in connection with the Company’s equity financing (See Note 8) and exchanged the SAFE for 788,042 shares of Series A-2 convertible Preferred Stock (Series A-2 Preferred).

Commitments and contingencies

Operating lease

In August 2018, the Company entered into an agreement to lease approximately 23,000 square feet of space for a term of three years.

Lease terms are triple net lease commencing at $0.9 million per year, then with three percent annual base rent increases plus operating expenses, real estate taxes, utilities and janitorial fees.

Lease terms are triple net lease commencing at $0.9 million per year, then with 3% annual base rent increases plus operating expenses, real estate taxes, utilities and janitorial fees.

The lease commencement date was December 10, 2018.

In December 2018, the Company entered into an agreement to lease 2,485 square feet of space for a term of three years.

The lease includes one renewal option for an additional two years.

Lease terms commence at $0.2 million per annum, with 2.5 percent annual base rent increases plus operating expenses, real estate taxes, utilities and janitorial fees.

In December 2018, the Company entered into an agreement to lease 2,485 square feet of space for an initial term of three years.

The lease includes one renewal option for an additional two years, however, any time after the initial term the landlord may relocate the Company from the premises to a space reasonably comparable in size and utility.

As the Company does not have the right to control the use of the identified asset after the initial term, the renewal option was excluded from the lease liability calculation.

Lease terms commence at $0.2 million per annum, with 2.5% annual base rent increases plus operating expenses, real estate taxes, utilities and janitorial fees.

The lease commencement date was May 1, 2019.

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

Rent expense incurred under operating leases was approximately $1.1 million and $0.3 million for the years ended December 31, 2019 and 2018, respectively.

Future minimum lease payments under non-cancellable leases as of December 31, 2020 are as follows (in thousands):

Total lease payments

Less imputed interest

Present value of lease liabilities

Lease balances as of December 31, 2020 are as follows (in thousands):

Operating right-of-use assets

Current Portion of operating lease liabilities

Non-current portion of operating lease liabilities

Total operating lease liabilities

The weighted average remaining lease term and weighted average discount rate of our operating leases as of December 31, 2020 are as follows:

Weighted average remaining lease term in years

Weighted average discount rate

In accordance with Topic 842, lease expense incurred under operating leases was approximately $1.1 million for the year ended December 31, 2020.

For the year ended December 31, 2019, rent expense incurred was approximately $1.1 million.

Consulting Agreement

In October 2014, we entered into a consulting agreement with a member of our board of directors, who is also an employee of Cold Spring Harbor Laboratory (CSHL), to provide consulting services related to scientific research related to the development of antisense-based drugs, therapies, diagnostic and research tools, products, services and intellectual property.

We recognized expense of $0.1 million in each of the years ended December 31, 2019 and 2018, respectively, for such consulting services.

The initial term of this agreement was five years and has been extended by the mutual consent of the Company and the board member.

In October 2014, the Company entered into a consulting agreement with a member of the Company’s board of directors, who is also an employee of Cold Spring Harbor Laboratory (“CSHL”), to provide consulting services related to scientific research related to the development of antisense-based drugs, therapies, diagnostic and research tools, products, services and intellectual property.

The Company recognized expenses of $0.02 million each for the years ended December 31, 2020 and 2019.

The initial term of this agreement was five years and the parties mutually agreed not to extend the consulting agreement in April 2020.

Scientific Advisory Board Agreement

In June 2020, the Company entered into a scientific advisory board agreement with a member of the Company’s board of directors, who is also an employee of CSHL, to provide scientific advisory services related to the Company’s Targeted Augmentation of Nuclear Gene Output (“TANGO”) antisense oligonucleotide technology and other antisense oligonucleotide technologies, as well as current and future therapeutic targets and programs.

The Company recognized expense of $0.05 million in the year ended December 31, 2020, for such scientific advisory services.

The term of this agreement is 12 months.

License and research agreements

In July 2015, the Company entered into a worldwide license agreement, or the CSHL Agreement, with CSHL, with respect to Targeted Augmentation of Nuclear Gene Output (TANGO) patents.

In July 2015, the Company entered into a worldwide license agreement, or the CSHL Agreement, with CSHL, with respect to TANGO patents.

Under the CSHL Agreement, the Company receives an exclusive (except with respect to certain government rights and non-exclusive licenses), worldwide license under certain patents and applications relating to TANGO.

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Under the Southampton Agreement, the Company receives an exclusive, worldwide license under certain licensed patents and applications relating to TANGO.

As part of the Southampton Agreement, the Company paid 0.06 million pounds sterling (approximately $0.07 million as of the date thereof) as an up-front license fee.

Under the Southampton Agreement, the Company may be obligated to make additional payments that are contingent upon certain milestones being achieved, as well as royalties on future product sales.

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Convertible preferred stock

As of December 31, 2018, the Company’s amended and restated certificate of incorporation authorized the Company to issue 22,677,585 shares of $0.0001 par value convertible preferred stock, 4,980,168 are designated Series A convertible preferred stock (Series A Preferred), 7,617,746 are designated Series A-2 Preferred and 10,079,671 are designated Series B convertible preferred stock (Series B Preferred) (collectively, the Preferred Stock).

Upon closing of the IPO, the Company’s outstanding convertible preferred stock automatically converted into shares of common stock.

Upon conversion of the convertible preferred stock, the Company reclassified their carrying value of the convertible preferred stock to common stock and additional paid-in capital.

On June 6, 2019, the Company’s stockholders approved an amendment to the Company’s Amended and Restated Certificate of Incorporation which became effective on June 21, 2019 upon which the authorized capital stock of the Corporation consisted of 300 million shares of common stock, $0.0001 per share par value, and 10 million shares of undesignated preferred stock, $0.0001 per share par value.

On June 21, 2019, the Company completed its IPO and in conjunction therewith, all outstanding convertible preferred stock was converted into common stock.

Accordingly, as of December 31, 2020 and 2019, there was no preferred stock outstanding.

The following table summarizes the Company’s issued and outstanding Preferred Stock:

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Balance, December 31, 2018

Issuance upon conversion of SAFE

Issuance, net of issuance costs of $120

Issuance, net of issuance costs of $258

Balance, December 31, 2018

Conversion to Common Stock upon initial public offering

Conversion to Common

Stock upon initial

public offering

Balance, December 31, 2019

The Company’s Preferred Stock has the following rights and preferences, privileges and restrictions:

Voting rights

On any matter presented to the stockholders of the Company for their action or consideration at any meeting of stockholders of the Company, each holder of outstanding shares of Preferred Stock shall be entitled to cast the number of votes equal to the number of whole shares of Common Stock into which the shares of Preferred Stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter.

Except as provided by law or by the other provisions of the certificate of incorporation of the Company, holders of Preferred Stock shall vote together with the holders of Common Stock as a single class.

For so long as any shares of Preferred Stock remain outstanding, the holders of record of the shares of Preferred Stock, exclusively and as a separate class, shall be entitled to elect two directors of the Company.

The holders of shares of Preferred Stock shall be entitled to receive non-cumulative dividends at the rate of eight percent of the original issue price (see below) of such series of such Preferred Stock per annum on such shares of Preferred Stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Preferred Stock) when, as, and if declared by the Board of Directors (the Preferred Dividend).

The Company shall not declare, pay or set aside any dividends on shares of any other class or series of capital stock of the Company (other than dividends on shares of Common Stock payable in shares of Common Stock) unless the holders of the Preferred Stock then outstanding shall first receive, or simultaneously receive, a dividend on each outstanding share of Preferred Stock in an amount at least equal to the sum of (i) the amount of the Preferred Dividend then accrued on such share of Preferred Stock for the calendar year in which such dividends are being paid hereunder and not previously paid and (ii) (A) in the case of a dividend on common stock or any class or series that is convertible into common stock, that dividend per share of Preferred Stock as would equal the product of (l) the dividend payable on each share of such class or series determined, if applicable, as if all shares of such class or series had been converted into common stock and (2) the number of shares of common stock issuable upon conversion of a share of such Preferred Stock, in each case calculated on the record date for determination of holders entitled to receive such dividend or (B) in the case of a dividend on any class or series that is not convertible into common stock, at a rate per share of Preferred Stock determined by (1) dividing the amount of the dividend payable on each share of such class or series of capital stock by the original issuance price of such class or series of capital stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to such class or series) and (2) multiplying such fraction by an amount equal to the original issue price (see below) of such Preferred Stock;

provided that, if the Company declares, pays or sets aside, on the same date, a dividend on shares of more than one class or series of capital stock of the Company, the dividend payable to the holders of a series of Preferred Stock shall be calculated based upon the dividend on the class or series of capital stock that would result in the highest dividend to such series of Preferred Stock.

The original issue price shall mean $8.9289 per share of Series B Preferred, subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series B Preferred, $2.3794 per share of Series A Preferred, subject to a ppropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series A Preferred, and $3.8069 per share of Series A-2 Preferred, subject to appropriate adjustment in the event of an y stock dividend, stock split, combination or other similar recapitalization with respect to the Series A-2 Preferred.

Optional conversion rights

Each share of Preferred Stock shall be convertible, at the option of the holder thereof, at any time and from time to time, and without the payment of additional consideration by the holder thereof, into such number of fully paid and non-assessable shares of common stock as is determined by dividing the original issue price of such share of Preferred Stock by the conversion price (as described below) of such share of Preferred Stock in effect at the time of conversion.

The conversion price for each share of Preferred Stock shall initially be equal to the original issue price of such share of Preferred Stock.

Such initial conversion price, and the rate at which shares of Preferred Stock may be converted into shares of common stock, is subject to adjustment.

Mandatory conversion rights

Upon either (a) an initial public offering valuing the company at least $275,000 and for total offering proceeds not less than $75,000 or (b) the date and time, or the occurrence of an event, specified by vote or written consent of (i) a majority of the then-outstanding shares of Series A Preferred and Series A-2 Preferred, voting as a single class and (b) a majority of the outstanding Series B Preferred Stock voting together as a single class, then all outstanding shares of Preferred Stock shall automatically be converted into shares of common stock, at the then effective conversion rate.

In the event of (i) any voluntary or involuntary liquidation, dissolution or winding up of the Company or (ii) the merger or consolidation of the Company or a subsidiary relinquishing a majority of the voting power of the capital stock, or the sale, lease, transfer, exclusive license or other disposition of all or substantially all assets of the Company (Deemed Liquidation Event), the holders of shares of Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders before any payment shall be made to the holders of common stock by reason of their ownership thereof, an amount per share equal to the original issue price of such share of Preferred Stock, plus any dividends declared but unpaid thereon.

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

In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company or Deemed Liquidation Event, after the payment of all preferential amounts required to be paid to the holders of shares of Preferred Stock the remaining assets of the Company available for distribution to its stockholders shall be distributed among the holders of the shares of Preferred Stock and common stock, pro rata based on the number of shares held by each such holder, treating for this purpose all such securities as if they had been converted to common stock pursuant to the terms of the certificate of incorporation of the Company immediately prior to such liquidation, dissolution or winding up of the Company.

Anti-Dilution

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

The Company’s convertible Preferred Stock is not redeemable except in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company or a Deemed Liquidation Event, and only if elected by a majority of the Company’s Board of Directors.

In June 2014, the Company issued 502,638 shares of common stock to its two founders.

The shares vest at a rate of 1/3 on the first anniversary date and in 36 equal monthly installments thereafter.

These shares were fully vested as of December 31, 2018.

In July 2015, the Company issued 164,927 shares of common stock to CSHL in exchange for an exclusive license to a patent (Note 7).

Share-Based Compensation

In June 2014, the Company’s board of directors and stockholders approved the 2014 Equity Incentive Plan (the 2014 Plan) under which it may grant incentive stock options, non-qualified stock options, restricted stock awards, unrestricted stock awards, or restricted stock units to purchase up to 679,222 shares of common stock to employees, officers, directors and consultants of the Company.

In January 2018, the Company increased the number of shares of common stock reserved for issuance under the 2014 Plan to 4,652,098 shares.

In June 2019, the Company’s board of directors and stockholders approved the 2019 Equity Incentive Plan (the “2019 Plan”) which became effective on June 17, 2019 and replaced the Company’s 2014 Equity Incentive Plan (the “2014 Plan”).

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As of December 31, 2020 there were no shares available for future issuance under the 2014 Plan and 2,431,303 shares were available under the 2019 Plan.

During the year ended December 31, 2019, the Company granted options to purchase 1,234,569 shares of common stock to certain of its employees, and directors, respectively.

During the years ended December 31, 2020 and December 31, 2019, the Company granted options to purchase 1,231,532 and 1,234,569 shares of common stock to certain of its employees, and directors, respectively.

The options vest over four years except for certain options granted to members of our board of directors which vest over one or three years and are exercisable at a per share price equal to the fair value of the common stock on the grant date.

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The aggregate intrinsic value of stock options exercised during the year ended December 31, 2020 and 2019 was approximately $27.3 million and $10.5 million, respectively.

Stock-based compensation

Stock-based compensation and stock options

The Company recorded stock-based compensation expense of $5.8 million and $1.9 million during the years ended December 31, 2020 and 2019, respectively.

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The Company initially reserved 315,000 shares of common stock for sale under the ESPP.

At December 31, 2020, the Company had 288,808 shares available for issuance under the plan.

The average grant date fair value per share under the plan was $25.46 for 2020.

The total ESPP stock-based compensation expense for the year ended December 31, 2020 was $0.3 million.

The number of shares reserved for issuance under the ESPP will increase automatically on January 1st of each of the first ten calendar years following the first offering date by the number of shares equal to the lesser of 1% of the total outstanding shares of the Company’s common stock as of the immediately preceding December 31 or a lower amount determined by the Company’s board of directors.

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Weighted-average number of common shares, basic

Net loss per common share attributable to

common stockholders, basic and diluted

The Company’s potential dilutive securities, which include Preferred Stock and common stock options, 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 commo n 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:

Preferred Stock

Net loss per share, basic and diluted

The Company’s potential dilutive securities, which include common stock options and ESPP purchase rights, 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 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 for the periods indicated because including them would have had an anti-dilutive effect:

Outstanding options to purchase common stock

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Both federal and state research and development tax credit carry forwards may be available to reduce future tax liabilities and expire at various dates beginning in 2030.

In accordance with Statement of ASC 740, Accounting for Income Taxes , management of the Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets, which are comprised principally of net operating loss carryforwards.

In accordance with ASC 740, Accounting for Income Taxes , management of the Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets, which are comprised principally of net operating loss carryforwards.

Management has determined that it is more likely than not that the Company will not recognize the benefits of federal and state deferred tax assets and, as a result, a full valuation allowance of $37.2 million and $17.9 million was established at December 31, 2020 and 2019, respectively.

The change in the valuation allowance was an increase of $19.3 million and $10.3 million in 2020 and 2019, respectively.

Utilization of the net operating loss carryforwards and research and development tax credit carryforwards may be subject to a substantial annual limitation under Sec tions 382 and 383 of the Internal Revenue Code of 1986, as amended (the Code) due to ownership changes that have occurred previously or that could occur in the future.

These ownership changes may limit the amount of carryforwards that can be utilized annua lly to offset future taxable income.

The Company has not conducted a formal study to assess whether a change of control has occurred or whether there have been multiple changes of control since inception due to the significant complexity and cost associate d with such a study.

If the Company has experienced a change of control, as defined for purposes of Section 382 and 383 of the Code, at any time since inception, utilization of the net operating loss carryforwards or research and development tax credit car ryforwards may be subject to an annual limitation under Section 382 and 383 of the Code, which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term tax-exempt rate, and then cou ld be subject to additional adjustments, as required.

The CARES Act temporarily repealed the 80% taxable income limitation for tax years beginning before January 1, 2021.

Federal NOL carry forwards generated from 2018 or later and Federal NOL carryforwards to taxable years beginning after December 31, 2020 will be subject to the 80% limitation.

Also, under the CARES Act, federal NOLs arising in 2018, 2019 and 2020 can be carried back 5 years.

New legislation or regulation which could affect our tax burden could be enacted by any governmental authority.

The Company cannot predict the timing or extent of such tax-related developments which could have a negative impact on our financial results.

Additionally, the Company uses its best judgment in attempting to quantify and reserve for these tax obligations.

However, a challenge by a taxing authority, the Company’s ability to utilize tax benefits such as carryforwards or tax credits, or a deviation from other tax-related assumptions could have a material adverse effect on our business, results of operations, or financial condition.

Utilization of the net operating loss carryforwards and research and development tax credit carryforwards may be subject to a substantial annual limitation under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the Code) due to ownership changes that have occurred previously or that could occur in the future.

These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income.

If the Company has experienced a change of control, as defined for purposes of Section 382 and 383 of the Code, at any time since inception, utilization of the net operating loss carryforwards or research and development tax credit carryforwards may be subject to an annual limitation under Section 382 and 383 of the Code, which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term tax-exempt rate, and then could be subject to additional adjustments, as required.

Any limitation may result in expiration of a portion of the net operating loss carryforwards or research and development tax credit carryforwards before utilization.

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The 401(k) Plan covers all employees who meet defined minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pretax basis.

The Company is not required to make and has not made any contributions to the 401(k) Plan for the years ended December 31, 2019 and 2018.

On January 1, 2020, the Company began to make matching contributions up to 4% of annual salary for those employees who are participating in the 401(k) Plan.

For the year ended December 31, 2020, the Company made matching contributions of $0.02 million.

The Company was not required to make and did not make any contributions to the 401(k) Plan for the year ended December 31, 2019.

Selected Quarterly Financial Information (Unaudited)

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Loss from operations

Net loss per share attributable to

common stockholders, basic and

Net loss per share, basic and diluted

2019 Quarter End

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Loss from operations

Net loss per share attributable to

common stockholders, basic and

Net loss per share, basic and diluted

Subsequent events

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

What changed 10-K

Item 9A. Controls and Procedures