What changed in this filing

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Item 9A. Controls and Procedures

2023-03-08 compared with 2022-03-09 · 190 added, 142 removed, 568 unchanged (37% of the section changed)

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Evaluation of Disclosure Controls and Procedures

Our management, under the supervision and with the participation of our Principal Executive Officer (our Chief Executive Officer) and Principal Financial Officer (our Chief Financial Officer), has evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2021.

Our management, under the supervision and with the participation of our Principal Executive Officer (our Chief Executive Officer) and Principal Financial and Accounting Officer (our Chief Financial Officer), has evaluated the effectiveness of our disclosure controls and procedures as of period end.

The term “disclosure controls and procedures,”

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Management recognizes that any disclosure 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 the evaluation of our disclosure controls and procedures as of December 31, 2021, our Principal Executive Officer and Principal Financial Officer have concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Based on the evaluation of our disclosure controls and procedures as of December 31, 2022, our Principal Executive Officer and Principal Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Management's Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of consolidated financial statements for external purposes in accordance with U.S.

generally accepted accounting principles or “GAAP”.

Internal control over financial reporting is a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of our company;

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors;

Provide reasonable assurances regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material adverse effect on our financial statements.

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2022, the end of our fiscal year.

Management based its assessment on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework).

Management’s assessment included evaluation of elements such as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies,

and our overall control environment.

Based on this assessment, management has concluded that our internal controls over financial reporting were effective as of December 31, 2022 and provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with GAAP.

We reviewed the results of management’s assessment with the Audit Committee of our Board of Directors.

Attestation Report of the Registered Public Accounting Firm

This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting.

Our report was not subject to attestation by our independent registered public accounting firm pursuant to the rules of the Securities and Exchange Commission for “emerging growth companies”

that permit us to provide only management’s report in this report.

Changes in Internal Control over Financial Reporting

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the three months ended December 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Internal Controls

In designing and evaluating the disclosure controls and procedures, management does not expect that our internal control over financial reporting will prevent or detect all errors and all fraud.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systems are met.

Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.

The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Our management, including our Chief Executive Officer and Chief Financial Officer, believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level.

However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud.

Other Information.

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(incorporated by reference to Exhibit 4.4 to the Registrant’s Registration Statement on S-1 filed with the Securities and Exchange Commission on April 23, 2021).

Description of the Registrant’s securities registered pursuant to Section 12 of the Securities and Exchange Act of 1934, as amended.

Description of the Registrant’s securities registered pursuant to Section 12 of the Securities and Exchange Act of 1934, as amended (incorporated by reference to Exhibit 4.4 to the Registrant's Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 9, 2022).

Lease, by and between TScan Therapeutics, Inc.

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Lease by and between PPF OFF 828-830 Winter Street LLC and the Registrant, dated August 13, 2019 (incorporated by reference to Exhibit 10.6 to the Registrant’s Registration Statement on S-1 filed with the Securities and Exchange Commission on April 23, 2021).

Option & Exclusive License Agreement by and between the Registrant and QIAGEN Sciences LLC, dated as of November 5, 2020 (incorporated by reference to Exhibit 10.7 to the Registrant’s Registration Statement on S-1 filed with the Securities and Exchange Commission on April 23, 2021).

Collaboration and License Agreement by and between the Registrant and Novartis Institutes for Biomedical Research, dated as of March 27, 2020 (incorporated by reference to Exhibit 10.8 to the Registrant’s Registration Statement on S-1 filed with the Securities and Exchange Commission on April 23, 2021).

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Employment Agreement, dated July 28, 2021, by and between the Registrant and Zoran Zdraveski (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 10, 2021).

Employment Agreement, dated June 8, 2022, by and between the Registrant and Debora Barton (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 10, 2022).

Form of Indemnification Agreement between the Registrant and each of its directors and executive officers (incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form S-1, filed with the Securities and Exchange Commission on April 23, 2021).

Loan and Security Agreement, dated September 9, 2022, by and among TScan Therapeutics, Inc., K2 HealthVentures LLC and Ankura Trust Company, LLC (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on September 12, 2022).

Consent of Independent Registered Public Accounting Firm.

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** Furnished herewith

# Indicates a management contract or any compensatory plan, contract or arrangement.

Certain portions of this exhibit have been omitted because they are not material and would likely cause competitive harm to the registrant if disclosed.

Form 10-K Summary

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

and its subsidiary (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, 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).

and subsidiary (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of operations, 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 as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

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Restricted cash

Long-term deposit

Liabilities, Convertible Preferred Stock and Stockholders' Equity (Deficit)

Long-term deposit and other assets

Liabilities and Stockholders' Equity

Current liabilities:

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Operating lease liability, net of current portion

Long-term debt and accrued interest

Other long term liabilities

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Commitments and contingencies (Note 9)

Convertible preferred stock (Note 6)

Stockholders' equity (deficit):

Preferred stock, $ 0.0001 par value;

10,000,000 and 7,063,112 shares authorized;

no shares issued and outstanding at December 31, 2021 and 2020, respectively

Stockholders' equity:

Voting common stock, $ 0.0001 par value;

300,000,000 and 165,210,543 shares authorized;

300,000,000 shares authorized;

19,082,820 and 18,881,333 shares issued;

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Non-voting common stock, $ 0.0001 par value;

10,000,000 and 0 shares authorized;

5,143,134 and 0 shares issued;

and 5,143,134 and 0 shares outstanding at December 31, 2021 and 2020, respectively

10,000,000 shares authorized;

5,143,134 shares issued and outstanding

Additional paid-in capital

Accumulated deficit

Total stockholders' equity (deficit)

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

Total stockholders' equity

Total liabilities and stockholders' equity

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

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Loss from operations

Other income:

Interest and other income (loss), net

Other (expense) income:

Interest and other income, net

Interest expense

Total other income

Net loss per share, basic and diluted

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Balances at January 1, 2021

Issuance of Series C convertible preferred stock (net of issuance costs of $ 270 thousand)

Issuance of common stock (net of issuance costs of $ 10.4 million)

Conversion of convertible preferred stock to common stock and non-voting common stock upon closing of initial public offering

Exercise of stock options

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Balances at December 31, 2021

Issuance of Series C convertible preferred stock (net of issuance costs of $ 270 thousand)

Issuance of common stock (net of issuance costs of $ 10.4 million)

Conversion of convertible preferred stock to common stock and non-voting common stock upon closing of initial public offering

Exercise of stock options

Vesting of restricted common stock

Issuance of common stock under ESPP plan

Stock-based compensation expense

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Depreciation expense

Non-cash interest expense related to note payable

Stock-based compensation

Loss of sale of property and equipment

Changes in current assets and liabilities:

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Proceeds from exercise of stock options

Issuance of common stock under ESPP plan

Proceeds from initial public offering, net of issuance costs

Proceeds from issuance of term loan, net of issuance costs paid to lender

Payments of debt issuance costs

Net cash provided by financing activities

Net increase (decrease) in cash, cash equivalents and restricted cash

Cash, cash equivalents, and restricted cash - beginning of year

Cash, cash equivalents, and restricted cash - end of year

Net (decrease) increase in cash, cash equivalents and restricted cash

Cash, cash equivalents, and restricted cash - beginning of period

Cash, cash equivalents, and restricted cash - end of period

Summary of cash, cash equivalents and restricted cash reported within the consolidated balance sheets:

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Restricted cash

Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows

Supplemental cash flow information:

Total cash, cash equivalents, and restricted cash

Supplemental disclosure of cash flow information:

Cash paid for interest

Supplemental disclosure of non-cash investing and financing activities:

Lease liability arising from obtaining right-of-use asset

Purchase of property and equipment in accounts payable and accrued liabilities

Conversion of convertible preferred stock to common stock upon closing of initial public offering

Right-of-use-assets obtained in exchange for operating lease liabilities

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

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Initial Public Offering

In July 2021, the Company completed an initial public offering ("IPO") in which the Company issued and sold 6,666,667 shares of its voting common stock at a public offering price of $ 15.00 per share, for aggregate gross proceeds of $ 100 million and its shares started trading on the Nasdaq Global Market under the ticker symbol “TCRX.”

In July 2021, the Company completed an IPO in which the Company issued and sold 6,666,667 shares of its voting common stock at a public offering price of $ 15.00 per share, for aggregate gross proceeds of $ 100 million and its shares started trading on the Nasdaq Global Market under the ticker symbol “TCRX.”

The Company received $ 89.6 million in net proceeds after deducting $ 7.0 million in underwriting discounts and commissions, and $ 3.4 million in offering costs borne by the Company.

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The accompanying consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business.

The Company has primarily funded its operations with proceeds from sales of convertible preferred stock, the IPO completed in July 2021 and with payments received under its license and collaboration agreements.

The Company has primarily funded its operations with proceeds from sales of convertible preferred stock, the IPO completed in July 2021, issuance of convertible debt in September 2022 and with payments received under its license and collaboration agreements.

Since its inception, the Company has incurred recurring losses, including net losses of $ 66.2 million and $ 48.6 million for the years ended December 31, 2022 and 2021, respectively.

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The Company expects that its cash and cash equivalents as of December 31, 2022 will be sufficient to fund the Company’s operations for at least the next twelve months from the date of the issuance of the financial statements.

Impact of COVID-19

In December 2019, a novel strain of coronavirus, which causes the disease known as COVID-19, was reported to have surfaced in Wuhan, China.

Since then, COVID-19 coronavirus has spread globally.

In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic.

The ongoing COVID-19 global and national health emergency has caused significant disruption in the international and United States economies and financial markets.

The spread of COVID-19 has caused illness, quarantines, cancellation of events and travel, business and school shutdowns, reduction in business activity and financial transactions, labor shortages, supply chain interruptions and overall economic and financial market instability and business disruptions for the Company and many of the Company’s vendors.

In response to public health directives and orders and to help minimize the risk of the virus to employees, the Company has taken a series of actions aimed at safeguarding the Company’s employees and business associates, including implementing a flexible

work-at-home policy.

These disruptions could result in increased costs of execution of development plans or may negatively impact the quality, quantity, timing and regulatory usability of data that the Company would otherwise be able to collect.

While these disruptions are currently expected to be temporary, there is considerable uncertainty around the duration of these disruptions.

Therefore, the related financial impact and duration cannot be reasonably estimated at this time.

To date, the Company has not experienced material business disruptions, including with its vendors, as a result of the COVID-19 pandemic.

The Company will need to obtain substantial additional funding through equity offerings, debt financings, collaborations, strategic alliances and/or licensing arrangements in order to fund its research and development and ongoing operating expenses.

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

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

Any collaborations, strategic alliances or licensing arrangements may require the Company to relinquish rights to certain of its technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to the Company.

If the Company is unable to obtain funding, the Company could be forced to delay, limit, reduce or eliminate some or all of its research and development programs, pipeline expansion or future commercialization efforts or grant rights to develop and market product candidates, which could adversely affect its business prospects.

Although management will continue to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient funding on terms acceptable to the Company to fund continuing operations when needed or at all.

Summary of Significant Accounting Policies

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The accompanying consolidated financial statements reflect the operations of the Company and the Company’s wholly owned subsidiary, TScan Securities Corporation.

The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America ("US GAAP").

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

The accompanying consolidated financial statements have been prepared in conformity with US GAAP.

Any reference in these notes to applicable guidance is meant to refer to the authoritative US GAAP as found in the Accounting Standards Codification, or ASC, and Accounting Standards Update, or ASU, of the Financial Accounting Standards Board, or FASB.

Principles of Consolidation

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Restricted Cash

In connection with the Company’s facility lease agreements, the Company is required to provide a letter of credit of $ 0.6 million and $ 4.4 million for the benefit of the landlords to serve as security deposits.

In connection with the Company’s facility lease agreements, the Company is required to provide letters of credit totaling of $ 5.0 million for the benefit of the landlords to serve as security deposits.

As of December 31, 2022 and 2021 , the cash securing the letter of credit was classified as restricted cash (non-current) on the consolidated balance sheets.

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Leasehold improvements

Shorter of the asset’s estimated useful life or the remaining lease term

Shorter of the asset's estimated useful life or the remaining lease term

Major additions and betterments are capitalized;

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As the rate implicit on the Company’s leases are not readily determination, the Company uses an estimate of its incremental borrowing rate for secured borrowings with terms similar to the lease term based on the information available at the lease commencement date in determining the present value of lease payments.

Operating lease right-of-use assets also include the effect of any lease payments made and excludes

lease incentives.

Operating lease right-of-use assets also include the effect of any lease payments made, including lease payments made in advance of lease commencement and excludes lease incentives.

The lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

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rights to develop, manufacture and commercialize its product candidates as well as options to acquire additional rights.

The terms of these arrangements typically include payment to the Company of one or more of the

The terms of these arrangements typically include payment to the Company of one or more of the following:

nonrefundable, upfront license fees;

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Deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns.

Under this method, deferred tax assets and liabilities are determined based on the

difference between the consolidated financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

Under this method, deferred tax assets and liabilities are determined based on the difference between the consolidated financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

A valuation allowance is provided to reduce the deferred tax asset to an amount, which, more likely than not, will be realized.

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The Company’s convertible preferred stock was classified outside of stockholders’

deficit because the holders of such shares have liquidation rights in the event of a deemed liquidation that, in certain situations, are not solely within the control of the Company.

deficit because the holders of such shares had liquidation rights in the event of a deemed liquidation that, in certain situations, are not solely within the control of the Company.

Stock-Based Compensation

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Diluted net loss per share is calculated by adjusting weighted average common shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, determined using the treasury-stock and if-converted methods.

For purposes of the diluted net income (loss) per share calculation, convertible preferred stock and stock options are considered to be common stock equivalents.

For purposes of the diluted net income (loss) per share calculation, convertible debt and stock options are considered to be common stock equivalents.

All common stock equivalents have been excluded from the calculation of diluted net loss per share as their effect would be anti-dilutive for all periods presented.

Therefore, basic and diluted net loss per share were the same for all periods presented.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments—Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments, or ASU 2016-13 .

The provisions of ASU 2016-13 modify the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology and require a consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses rather than as a direct write-down to the security.

ASU 2016-13 requires a cumulative effect adjustment to the consolidated balance sheet as of the beginning of the first reporting period in which the guidance is effective.

ASU 2016-13 will be effective for the Company beginning January 1, 2023.

The Company does not expect that adoption of this standard will have a material impact on its consolidated financial statements and related disclosures.

Recently Adopted Accounting Pronouncement

In August 2020, the FASB issued ASU No.

2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, or ASU 2020-06 , which simplified the accounting for certain financial instruments with characteristics of liabilities and equity, including certain convertible instruments and contracts on an entity’s own equity.

Specifically, the new standard removed the separation models required for convertible debt with cash conversion features and convertible instruments with beneficial conversion features.

It also removed certain settlement conditions that are currently required for equity contracts to qualify for the derivative scope exception and simplified the diluted earnings per share calculation for convertible instruments.

The Company adopted this new standard effective September 1, 2022.

The adoption of ASU 2020-06 did not have a material impact on the Company’s condensed financial statements but was applied to the convertible debt agreement discussed in Note 10.

Property and Equipment

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Furniture and fixtures

Capitalized software

Construction-in-progress

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The carrying value of accounts payable and accrued expenses that are reported on the consolidated balance sheets approximate their fair value due to the short-term nature of these liabilities.

The Company entered into new convertible long-term debt in September 2022;

given the recent issuance of that debt, the carrying value approximates fair value.

Accrued Expenses and Other Current Liabilities

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Total accrued expenses and other current liabilities

Stockholders' Equity

As of December 31, 2020, the preferred stock consisted of the following (in thousands, except for share data):

December 31, 2020

Preferred Stock Authorized

Preferred Stock Issued and Outstanding

Carrying Value

Issuable Upon

Series A Preferred Stock

Series B Preferred Stock

The preferred stock has the following rights and privileges:

Holders of the preferred stock were entitled to receive non-cumulative dividends when, as and if declared by the Board.

The Company did not declare dividends on any classes of preferred or common stock

In the event of any liquidation, dissolution, or winding-up of the Company, which would include the sale of the Company, the preferred stock was senior to common stock.

The holders of preferred stock were entitled to the number of votes equal to the number of shares of common stock into which the shares of preferred stock held by each were then convertible.

The holders of preferred stock were able to convert, at any time, each share of preferred stock into shares of common stock at the stated conversion price.

In July 2021, the Company completed the initial public offering ("IPO") in which the Company issued and sold 6,666,667 shares of its voting common stock at a public offering price of $ 15.00 per share, for aggregate gross proceeds of $ 100 million and its shares started trading on the Nasdaq Global Market under the ticker symbol “TCRX.”

The Company received $ 89.6 million in net proceeds after deducting $ 7.0 million in underwriting discounts and commissions, and $ 3.4 million in offering costs borne by the Company.

Upon the completion of the Company’s IPO in July 2021, all outstanding shares of the Company’s preferred stock were converted into 15,616,272 shares of common stock (of which 5,143,134 shares are non-voting common stock).

As a result, as of December 31, 2021 , no shares of preferred stock are outstanding.

Stock-Based Compensation

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The 2021 Equity Incentive Plan (the 2021 Plan) was approved by the Company’s Board on April 22, 2021 and became effective immediately, although no awards were permitted to be granted under the 2021 Plan until July 15, 2021.

The 2021 Plan replaced the 2018 Plan.

However, awards outstanding under the 2018 Plan continue to be go verned by their existing terms.

There were 3,278,048 shares of common stock initially reserved for issuance under the 2021 Plan, plus up to 268,397 shares reserved for issuance under, or issued pursuant to or subject to awards granted under, the 2018 Plan.

As of December 31, 2021, there were 2,848,904 sh ares of common stock available for issuance under the 2021 Plan.

The 2021 Plan replaced the 2018 Plan, however, awards outstanding under the 2018 Plan continue to be go verned by their existing terms.

In addition, shares of common stock subject to awards granted under the 2018 Plan that cease to be subject to such awards by forfeiture or otherwise after the termination of the 2018 Plan will be available for issuance under the 2021 Plan.

There were 3,278,048 shares of common stock initially reserved for issuance under the 2021 Plan and as of December 31, 2022, there were 1,539,040 sh ares of common stock available for issuance.

The number of shares reserved for issuance under the 2021 Plan will be increased automatically on the first business day of each fiscal year, commencing in 2022 and ending in 2031.

The aggregate number of common shares that may be issued under the 2021 Plan shall automatically increase by a number equal to the lesser of (a) 4 % of the total number

of shares of common stock actually issued and outstanding on the last day of the preceding fiscal year or (b) a number of shares common stock determined by the Company’s Board.

The aggregate number of common shares that may be issued under the 2021 Plan shall automatically increase by a number equal to the lesser of (a) 4 % of the total number of shares of common stock actually issued and outstanding on the last day of the preceding fiscal year or (b) a number of shares common stock determined by the Company’s Board.

2021 Employee Stock Purchase Plan

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A total of 254,390 shares of common stock were initially reserved for issuance under the 2021 ESPP.

As of December 31, 2021 , there were 254,390 shares of common stock available for issuance under the 2021 ESPP.

As of December 31, 2022, there were 146,380 shares issued and 347,085 shares of common stock available for issuance under the 2021 ESPP.

The number of shares reserved for issuance will automatically be increased on the first business day of each fiscal year, commencing on January 1, 2022 and ending on January 1, 2041.

The aggregate number of shares of common stock that may be issued under the 2021 ESPP shall automatically increase by a number equal to the least of (i) one percent ( 1 %) of the total number of shares of common stock actually issued and outstanding on the last day of the preceding fiscal year, or (ii) a number of shares of common stock determined by the Company’s Board.

Shares issued under the 2021 ESPP will be compensatory.

Stock Options

In general, stock options typically vest over four years and have a maximum term of 10 years.

Also, the Company typically grants stock options to employees and non-employees at exercise prices deemed by the Board to be equal to the fair value of the common stock at the time of grant.

The fair value of the common stock has been determined by the Board at each measurement date based on a variety of different factors, including the results obtained from third party appraisals, the Company’s financial position and historical financial performance, the status of development of the Company’s services, the current climate in the marketplace, the illiquid nature of the common stock, the effect of the rights and preferences of the preferred stockholders, and the prospects of a liquidity event, among others.

Stock-based compensation expense for the year ended December 31, 2021 and 2020 was classified in the consolidated statement of operations as follows (in thousands):

Stock Compensation

Stock-based compensation expense related to stock options and the stock purchase plan for the years ended December 31, 2022 and 2021 was classified in the consolidated statement of operations as follows (in thousands):

Research and development

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Total stock-based compensation expense

The Company utilized the Black-Scholes option-pricing model to estimate the fair value of stock options awarded to employees.

The Black-Scholes option-pricing model requires several key assumptions.

The key assumptions used to apply this pricing model were as follows:

Stock Options

The Company typically grants stock options at exercise prices deemed by the Board to be equal to the fair value of the common stock at the time of grant.

In the periods prior to the IPO, the fair value of the common stock was determined by the Board at each measurement date based on a variety of different factors, including the results obtained from independent third-party appraisals, the Company’s financial position and historical financial performance, the status of development of the Company’s programs, the current climate in the marketplace, the illiquid nature of the common stock, the effect of the rights and preferences of the preferred stockholders, and the prospects of a liquidity event, among others.

In the periods following the IPO, the fair value is determined based upon the quoted price of the Company’s common stock.

The fair value of stock option grants is estimated using the Black-Scholes option-pricing model.

The Company historically has been a private company and lacks company-specific historical and implied volatility information.

Therefore, it estimates its expected stock volatility based on the historical volatility of a publicly traded set of peer companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded stock price.

For options with service-based vesting conditions, the expected term of the Company’s stock options has been determined utilizing the “simplified”

method for awards that qualify as “plain-vanilla”

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

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

Expected dividend yield is based on the fact that the Company has never paid cash dividends and does no t expect to pay any cash dividends in the foreseeable future.

The weighted-average for each of the assumptions the Company used to determine the grant-date fair value of options granted were as follows :

Year Ended December 31,

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Expected volatility of underlying common stock

The risk-free interest rate was based on rates associated with U.S.

Treasury issues approximating the expected life of the stock options.

The expected term of stock options granted to employees was determined using the simplified method, which represents the midpoint of the contractual term of the stock option and the weighted-average vesting period of the option.

The Company uses the simplified method because it does not have sufficient historical stock option exercise data to provide a reasonable basis upon which to estimate the expected term.

The expected dividend-yield assumption was based on the Company’s expectation of no future dividend payments.

The expected volatility of the underlying stock was based on the average historical volatility of comparable publicly traded companies based on weekly price returns as reported by a pricing service, as the Company does not have a trading history for its common stock.

The following table summarizes the stock option a ctivity under the 2018 Plan and 2021 Plan:

The following table summarizes the stock option a ctivity:

Outstanding January 1, 2022

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The purchase price of each share of restricted common stock was $ 0.001 per share.

A summary of the activity for the year ended December 31, 2021 is as follows:

Average Grant

Unvested restricted stock as of January 1, 2021

Unvested restricted stock as of December 31, 2021

The aggregate fair value of restricted stock awards that vested during the year ended December 31, 2021 was nominal.

There were 116,870 shares unvested as of January 1, 2022, all of which vested in 2022, leaving no unvested shares remaining at December 31, 2022.

The aggregate fair value of restricted stock awards that vested during the years ended December 31, 2022 and 2021 was nominal.

During the years ended December 31, 2022 and 2021, the Company did not record an income tax provision due to the losses incurred and a full valuation allowance provided on the net deferred tax assets.

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Leasehold liability

Capitalized R&D costs

Total deferred tax assets

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Net deferred tax assets and liabilities

In determining the need for a valuation allowance, the Company has given consideration to its cumulative losses.

The Company has assessed the available means of recovering deferred tax assets, including the ability to carryback net operating losses, the existence of reversing taxable temporary differences, the availability of tax planning strategies and forecasted future taxable income.

The Company maintains a full valuation allowance against its net deferred tax assets.

In determining the need for a valuation allowance, the Company has given consideration to its cumulative book income and loss positions.

taxable income.

As of December 31, 2022, the Company maintains a full valuation allowance against its net deferred tax assets.

The valuation allowance increased by $ 22.4 and $ 15.8 million during the years ended December 31, 2022 and 2021, respectively.

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The Company accounted for uncertain tax positions using a more likely than not threshold for recognizing and resolving uncertain tax positions.

The evaluation of uncertain tax positions is based on factors that include, but are not limited to, changes in tax law, the

measurement of tax positions taken or expected to be taken in tax returns, the effective settlement of matters subject to audit, new audit activity and changes in facts or circumstances related to a tax position.

The evaluation of uncertain tax positions is based on factors that include, but are not limited to, changes in tax law, the measurement of tax positions taken or expected to be taken in tax returns, the effective settlement of matters subject to audit, new audit activity and changes in facts or circumstances related to a tax position.

The Company evaluates uncertain tax positions on an annual basis and adjusts the level of the liability to reflect any subsequent changes in the relevant facts surrounding the uncertain positions.

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(Novartis) to collaborate on their research efforts to discover and develop novel TCR-T therapies.

At the inception date of the Novartis Agreement, Novartis or its affiliates held an ownership interest of more than 10 % in the Company, and at December 31, 2022, Novartis held less than 10 % of the common shares outstanding.

Under the Novartis Agreement, the Company will identify and characterize TCRs in accordance with a research plan, transfer data arising from the research plan.

Novartis will have the option to license and develop TCRs for up to three novel targets identified in performance of the collaboration during the collaboration period of the Novartis Agreement.

Novartis will also have rights of first negotiation for certain additional targets and TCRs identified in performance of the collaboration during a defined collaboration period of the Novartis Agreement and for 180 days after such collaboration period ends (which collaboration period will end no later than March 2023).

If during such 180-day right of first negotiation period, the Company notifies Novartis of the Company’s intent to grant a third party a license to a target or TCR identified in the collaboration, then Novartis may obtain the exclusive right to negotiate a license to such target or TCR for an additional 270 days by providing the Company with a term sheet to license such target or TCR within 90 days of the Company’s notice of such intent.

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The Company determined there is a single performance obligation due to the services being highly interrelated and are therefore not distinct in the context of the contract.

The Company combined the pre-option research services and data reporting into a single performance obligation Novartis has an exclusive option to obtain a commercial license for up to three Targets (as defined in the Novartis Agreement) to pursue further development and commercialization of the respective Target.

Pursuant to the Novartis Agreement, the option for Novartis to license, develop, and commercialize Targets is not a performance obligation at the outset of the Novartis Agreement as it is a customer option that does not represent a material right.

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Additionally, during the years ended December 31, 2022 and 2021, the Company incurred $ 4.5 million and $ 3.3 million, respectively of costs associated with the Novartis Agreement that were recorded within research and development expenses in the statements of operations.

Additionally, as of December 31, 2021, the Company had current and long-term deferred revenue of $ 11.4 million and $ 1.5 million, respectively due to

Novartis Agreement.

As of December 31, 2020 , the Company had current and long-term deferred revenue of $ 10.6 million and $ 8.8 million, respectively due to Novartis Agreement.

The research term is anticipated to end during March 2023 and the balance of deferred revenue, which was $ 3.9 million as of December 31, 2022, is classified as current.

As of December 31, 2021, the Company had current and long-term deferred revenue of $ 11.4 million and $ 1.5 million, respectively, from the Novartis Agreement.

Commitments and Contingencies

In August 2019, the Company entered a lease for laboratory and office space with a term that expires on September 30, 2024 , subject to certain renewal options, which are not deemed highly probable of renewal.

In August 2019, the Company entered a lease for laboratory and office space located at 830 Winter Street Waltham, Massachusetts with a term that expires on September 30, 2024 , subject to certain renewal options, which are not deemed highly probable of renewal.

The Company provided a letter of credit in the amount of $ 0.6 million as security for the lease which expires January 31, 2025 .

The cash securing the letter of credit is classified as restricted cash on the consolidated balance sheet.

In April 2020, laboratory and office space were secured through a sublease that commenced in June 2020 and will continue through March 2026.

The Company provided a cash deposit of $ 0.2 million in conjunction with the execution of the lease which is classified as a long-term asset on the consolidated balance sheet.

O n November 1, 2021, the Company entered a new lease for laboratory and office space.

This lease will commence when the Company obtains possession of the underlying asset, which is expected to be November 1, 2022.

The Company provided a letter of credit in the amount of $ 4.4 million as a security for the lease, which expires on November 30, 2022 , at which point the letter will automatically renew each calendar year up to but not beyond April 1, 2033.

The cash securing the letter of credit is classified as restricted cash on the consolidated balance sheet.

Annual fixed rent will start at $ 7.6 million increasing 3 % annually to $ 9.9 million through the original term of the lease, which is ten years and two months following the lease commencement date.

The cash securing the letter of credit of $ 0.6 million is classified as restricted cash on the consolidated balance sheet.

In April 2020, laboratory and office space also located at 830 Winter Street was secured through a sublease that commenced in June 2020.

The expected term of the lease upon commencement was through March 2026, however, in October 2022 the lease was terminated.

O n November 1, 2021, the Company entered a lease for laboratory and office space located at 880 Winter Street Waltham, Massachusetts with a term that expires on December 31, 2032 .

This lease commenced when the Company obtained possession of the underlying asset on October 28, 2022 at which time the Company recorded a right-of-use asset of $ 57.7 million and a corresponding lease liability of $ 53.5 million , which represents the present value of future payments under the lease.

The discount rate used to calculate the net present value of future payments was the Company’s incremental borrowing rate at the Lease Commencement Date, which was 9.9 %.

At the time of lease commencement, prepaid rent o f $ 4.2 million was reclassed to the right-of-use asset.

The Company provided a letter of credit in the amount of $ 4.4 million as a security for the lease, which renews each calendar year up to but not beyond April 1, 2033.

The cash securing the letter of credit of $ 4.4 m illion is classified as restricted cash on the consolidated balance sheet.

Annual fixed rent payments of $ 7.6 million will commence on January 1, 2023 through the original term of the lease, subject to annual increases of 3 %.

Summary of lease cost

The Company lease cost was $ 1.3 million and $ 1.3 million for the years ended December 31, 2021 and 2020, respectively.

These amounts include short-term and variable lease costs, which were not significant in any period presented.

Supplemental disclosure of cash flow information related to leases was as follows (in thousands):

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows for operating leases

The weighted-average remaining lease term and discount rate were as follows:

Weighted-average remaining lease term (in years)

Weighted-average discount rate

The following table represents the maturity of the Company’s operating lease liabilities as of December 31, 2021 (in thousands):

Year Ending December 31,

Total future minimum lease payments (1)

The following table summarizes the presentation in the Company's consolidated balance sheets of its operating leases (in thousands):

As of December 31,

Operating lease assets

Operating lease liabilities, current

Operating lease liabilities, net of current portion

Total operating lease liabilities

The following table summarizes the effect of lease costs in the Company's consolidated statement of operations (in thousands):

Years Ended December 31,

Operating lease costs

Short-term lease costs

Variable lease costs

Total lease costs

During the years ended December 31, 2022 and 2021, the Company made cash payments for operating leases of $ 2.0 million and $ 1.9 million, respectively.

As of December 31, 2022, future payments of operating lease liabilities are as follows (in thousands):

As of December 31, 2022

2027 and thereafter

Total future payments of operating lease liabilities

imputed interest

Present value of operating lease liability

(1) As of December 31, 2021 , the Company entered into an additional operating lease which had not yet commenced and is therefore not part of the table above nor included in the lease right-of-use asset and liability.

This lease will commence when the Company obtains possession of the underlying asset, which is expected to be November 1, 2022.

Present value of operating lease liabilities

As of December 31, 2022, the weighted average remaining lease term was 9.7 years and the weighted average incremental borrowing rate used to determine the operating lease liability was 9.8 % .

As of December 31, 2021 the weighted average remaining lease term was 3.4 years and the weighted average incremental borrowing rate used to determine the operating lease liability was 8.0 % .

Brigham and Women’s License Agreement

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The founder assigned his rights and obligations under the royalty agreement to one of his affiliated entities in January 2021.

Loan and Security Agreement

On September 9, 2022 (the Closing Date), the Company entered into a Loan and Security Agreement (the Loan Agreement) with K2 HealthVentures LLC (K2HV), pursuant to which convertible term loans in an aggregate principal amount of up to $ 60 million is available to the Company in three tranches, subject to certain terms and conditions.

The Company drew the first tranche of $ 30 million from K2HV on the Closing Date.

The Company has the option to draw the second tranche of $ 10 million upon the achievement of certain financial and clinical milestones and an uncommitted third tranche of $ 20 million may be funded by joint agreement of the Company and K2HV.

On the Closing Date, the Company paid a facility fee of $ 0.4 million to K2HV and is subject to an additional 1 % of the principal amount of any amount drawn on third tranche.

The term loans mature on September 1, 2026 (the Maturity Date), and will be subject to interest only payments for 24 months, which can be extended to 36 months upon achievement of certain financial and clinical milestones, following which the term loans will amortize in equal monthly installments until maturity.

The Company has the ability to repay the loan at any time either in cash or in shares, subject to applicable premiums as specified in the Loan Agreement.

The term loans will accrue interest at a per annum rate equal to the greater of (i) 8.75 % and (ii) the sum of (A) the prime rate (as last quoted in The Wall Street Journal) and (B) 4.75 %, subject to a cap of 9.90 %.

At December 31, 2022 the applicable interest rate is 9.90 %.

The lenders may elect at any time following the closing prior to the payment in full of the term loans to convert any portion of the principal amount of the term loans then outstanding into shares of the Company's common stock.

The first tranche of the loan is convertible at the option of K2HV at a conversion price of $ 4.785 per share and future tranches will be convertible as specified in the agreement, provided that, such price shall be subject to the applicable conversion price floor and other adjustments in accordance with the Loan Agreement.

The embedded conversion option meets the derivative accounting scope exception since the embedded conversion option is indexed to the Company’s own common stock and qualifies for classification within stockholders’

The Company has the option to prepay all, but not less than all, of the outstanding principal balance of the term loans under the Loan Agreement subject to a prepayment fee ranging from 4 % to 1 % depending upon when the prepayment occurs.

The Company is obligated to pay a final fee equal to 6.00 % of the aggregate amount of the term loans funded (the Exit Fee), to occur upon the earliest of (i) the maturity date, (ii) the acceleration of the term loans, and (iii) the prepayment of the term loans.

If, upon equity conversion, K2HV receives gross proceeds in an amount equal to at least 1.5 multiplied by the principal amount converted from the sale or other disposition of such Conversion Shares (as defined in the Loan Agreement), then as to such principal amount, the Exit Fee will be reduced to zero.

The Company’s obligations under the Loan Agreement are secured by a first priority security interest in substantially all of its assets (other than intellectual property), subject to certain exceptions.

The Loan Agreement contains customary representations and warranties, and also includes customary events of default, including payment default, breach of covenants, change of control, and material adverse effects.

The Loan Agreement restricts certain activities, such as disposing of the Company’s business or certain assets, incurring additional debt or liens or making payments on other debt, making certain investments and declaring dividends, acquiring or merging with another entity, engaging in transactions with affiliates or encumbering intellectual property, among others.

During the term of the Loan Agreement, the Company must maintain minimum unrestricted cash and cash equivalents equal to 5.0 times the average monthly cash burn measured over the trailing three-month period.

Upon the occurrence of an event of default, a default interest rate of an additional 5 % per annum may be applied to the outstanding loan balances, and the Lender may declare all outstanding obligations immediately due and payable and exercise all of its rights and remedies as set forth in the Loan Agreement and under applicable law.

The Company recorded $ 0.9 million in interest expense for the year ended December 31, 2022 .

The effective interest rate on the Loan Agreement, including the amortization of the debt discount and issuance costs, and accretion of the Exit Fee, was 13.13 % at December 31, 2022.

Future principal payments as of December 31, 2022 are as follows:

Total principal payments

Final payment fee

unamortized debt discount and final fee

Long-term debt

Retirement Plan

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The Company excluded the following potential common shares from the computation of diluted net loss per share for the periods indicated because including them would have had an anti-dilutive effect:

Series A Preferred Stock (as converted to common stock)

Series B Preferred Stock (as converted to common stock)

Unvested restricted common stock

Options to purchase common stock

Related-Party Transactions

Novartis and its affiliates hold shares of voting and non-voting common stock and is the customer in the Novartis Agreement discussed in Note 9.

Common stock issuable upon conversion of Loan Agreement

Unvested restricted common stock

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