UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM 10-Q

 

 

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2021

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                      to                     

 

Commission File Number 001-39138

 

 

 

JASPER THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   84-2984849

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

     

2200 Bridge Pkwy Suite #102

Redwood City, CA

  94065
(Address of Principal Executive Offices)   (Zip Code)

 

(650) 549-1400

(Registrant’s telephone number, including area code)

 

 

 

Securities registered pursuant to Section 12(b) of the Act

 

Title of Each Class   Trading Symbol   Name of Each Exchange on Which Registered
Voting Common Stock, par value $0.0001 per share   JSPR   The Nasdaq Stock Market LLC
Redeemable Warrants, each whole warrant exercisable for one share of Voting Common Stock at an exercise price of $11.50   JSPRW   The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   ☒     No   ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes   ☒     No   ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer   Accelerated filer
Non-accelerated filer   Smaller reporting company
      Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐     No  ☒

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

 

Class  

Number of Shares Outstanding

as of November 8, 2021

Voting Common Stock, $0.0001 par value   36,557,214
Non-Voting Common Stock, $0.0001 par value   1,296,022

 

 

 

 

 

 

JASPER THERAPEUTICS, INC.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED

SEPTEMBER 30, 2021

 

TABLE OF CONTENTS

 

    PAGE
  PART I. FINANCIAL INFORMATION  
     
Item 1. Financial Statements (Unaudited) 1
     
  Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020 1
     
  Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2021 and 2020 2
     
  Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Changes in Stockholders’ Equity (Deficit) for the three and nine months ended September 30, 2021 and 2020 3
     
  Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020 5
     
  Notes to Condensed Consolidated Financial Statements 6
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 26
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 39
     
Item 4 Controls and Procedures 40
     
  PART II. OTHER INFORMATION  
     
Item 1. Legal Proceedings 41
     
Item 1A. Risk Factors 41
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 89
     
Item 3. Defaults Upon Senior Securities 89
     
Item 4 Mine Safety Disclosures 89
     
Item 5. Other Information 89
     
Item 6 Exhibits 90
     
SIGNATURES 93

 

i

 

 

JASPER THERAPEUTICS, INC.

 

As used in this Quarterly Report on Form 10-Q, unless the context requires otherwise, references to the “Company”, “Jasper”, “we”, “us”, “our”, and similar terms refer to Jasper Therapeutics, Inc., a Delaware corporation formerly known as Amplitude Healthcare Acquisition Corporation (“AMHC”), and its consolidated subsidiary. References to “Old Jasper” refer to the private Delaware corporation that is now our wholly-owned subsidiary and named Jasper Tx Corp. (formerly known as Jasper Therapeutics, Inc.).

 

On September 24, 2021, we consummated the previously announced Business Combination (pursuant to the Business Combination Agreement, dated May 5, 2021, by and among AMHC, Ample Merger Sub, Inc. (“Merger Sub”) and Old Jasper). Pursuant to the terms of the Business Combination Agreement, a business combination (herein referred to as the “Business Combination” or “Reverse Recapitalization” for accounting purposes) between AMHC and Old Jasper was effected through the merger of Merger Sub with and into Old Jasper with Old Jasper surviving as AMHC’s wholly-owned subsidiary. In connection with the Business Combination, AMHC changed its name from Amplitude Healthcare Acquisition Corporation to Jasper Therapeutics, Inc.

 

Unless otherwise noted or the context requires otherwise, references to our “common stock” refer to our voting common stock, par value $0.0001 per share.

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Certain statements contained in this Quarterly Report on Form 10-Q may constitute “forward-looking statements” for purposes of federal securities laws. Such statements can be identified by the fact that they do not relate strictly to historical or current facts. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “will,” “would” and similar expressions (including the negative of any of the foregoing) may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking.

 

Forward-looking statements in this Quarterly Report on Form 10-Q may include, for example, but are not limited to, statements about:

 

our or our management team’s expectations, hopes, beliefs, intentions or strategies regarding the future, including those relating to the Business Combination and the expected benefits thereof;

 

our ability to research, discover and develop additional product candidates;

 

the success, cost and timing of our product development activities and clinical trials;

 

the potential attributes and benefits of our product candidates;

 

our ability to obtain and maintain regulatory approval for our product candidates;

 

ii

 

 

our ability to obtain funding for our operations;

 

our projected financial information, anticipated growth rate and market opportunity;

 

our ability to maintain the listing of our public securities on Nasdaq;

 

our public securities’ potential liquidity and trading;

 

our success in retaining or recruiting, or changes required in, officers, key employees or directors;

 

our ability to grow and manage growth profitably;

 

the implementation, market acceptance and success of our business model, developments and projections relating to our competitors and industry;

 

our ability to obtain and maintain intellectual property protection and not infringe on the rights of others;

 

our ability to identify, in-license or acquire additional technology;

 

our ability to maintain its existing license agreements and manufacturing arrangements; and

 

the effect of the COVID-19 pandemic on the foregoing.

 

These forward-looking statements are based on current expectations and beliefs concerning future developments and their potential effects. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under the heading “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. Some of these risks and uncertainties may in the future be amplified by the COVID-19 pandemic, and there may be additional risks that we consider immaterial or which are unknown. It is not possible to predict or identify all such risks. Readers are cautioned not to place undue reliance on forward-looking statements because of the risks and uncertainties related to them and to the risk factors. We do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

 

iii

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

JASPER THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(unaudited)

 

   September 30,   December 31, 
Assets  2021   2020 
Current assets:        
Cash and cash equivalents  $100,905   $19,838 
Other receivables   
    600 
Prepaid expenses and other current assets   1,502    247 
Total current assets   102,407    20,685 
Property and equipment, net   3,278    693 
Operating lease right-of-use assets   1,183    1,336 
Restricted cash   345    345 
Other non-current assets   
    298 
Total assets  $107,213   $23,357 
           
Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)          
           
Current liabilities:          
Accounts payable  $2,247   $1,417 
Current portion of operating lease liabilities   490    
 
Accrued expenses and other current liabilities   6,422    2,595 
Total current liabilities   9,159    4,012 
Derivative tranche liability   
    8,158 
Non-current portion of operating lease liabilities   2,512    1,624 
Common stock warrant liability   7,400    
 
Earnout liability   8,794    
 
Other non-current liabilities   746    853 
Total liabilities   28,611    14,647 
           
Commitments and contingencies (Note 9)   
 
      
           
Redeemable convertible preferred stock: $0.0001 par value — none and 19,522,771 shares authorized at September 30, 2021 and December 31, 2020, respectively; none and 15,480,195 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively; liquidation value $41,165 December 31, 2020   
    43,840 
           
Stockholders’ equity (deficit)          
Preferred stock: $0.0001 par value — 10,000,000 shares and none authorized at September 30, 2021 and December 31, 2020, respectively;  none issued and outstanding at September 30, 2021 and December 31, 2020   
    
 
Common stock: $0.0001 par value — 492,000,000 and 50,218,502 shares authorized at September 30, 2021 and December 31, 2020, respectively; 37,816,310 and 2,770,702 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively   4    1 
Additional paid-in capital   136,991    1,682 
Accumulated deficit   (58,393)   (36,813)
Total stockholders’ equity (deficit)   78,602    (35,130)
Total liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit)  $107,213   $23,357 

 

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

 

1

 

 

JASPER THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except share and per share data)

(unaudited)

 

   Three Months Ended
September 30,
   Nine Months Ended
September 30,
 
   2021   2020   2021   2020 
Operating expenses                
Research and development  $7,188   $4,520   $16,764   $11,236 
General and administrative   2,891    1,488    7,987    3,489 
Total operating expenses   10,079    6,008    24,751    14,725 
Loss from operations   (10,079)   (6,008)   (24,751)   (14,725)
Interest and other expense, net   (9)   (111)   (4)   (93)
Change in fair value of earnout liability   6,226    
    6,226    
 
Change in fair value of derivative liability   
    (4,706)   (3,501)   (6,864)
Change in fair value of common stock warrant liability   450    
    450    
 
Total other income (expense), net   6,667    (4,817)   3,171    (6,957)
Net loss and comprehensive loss  $(3,412)  $(10,825)  $(21,580)  $(21,682)
Net loss per share attributable to common stockholders, basic and diluted  $(0.69)  $(6.14)  $(7.13)  $(12.81)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted   4,966,226    1,762,700    3,028,277    1,692,427 

 

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

 

2

 

 

JASPER THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands, except share data)

(unaudited)

 

   Preferred Stock   Common Stock   Additional
Paid-In
   Accumulated   Total
Stockholders’
Equity
 
   Shares (1)   Amount    Shares (1)    Amount   Capital   Deficit   (Deficit) 
Balance as of December 31, 2020  15,480,195   $43,840   2,770,702   $1   $1,682   $(36,813)  $(35,130)
Issuance of common stock upon exercise of stock options   
-
    
-
    2,872    
-
    2    
-
   $2 
Issuance of Series A-1 redeemable convertible preferred stock for cash   4,042,565    10,750    
-
    
-
    
-
    
-
    
-
 
Settlement of the redeemable convertible preferred stock tranche liability   -    11,659    -    
-
    
-
    
-
    
-
 
Vesting of founders’ restricted stock   -    
-
    -    
-
    3    
-
    3 
Stock-based compensation expense   -    
-
    -    
-
    327    
-
    327 
Net loss   -    
-
    -    
-
    
-
    (9,754)   (9,754)
Balance as of March 31, 2021   19,522,760    66,249    2,773,574    1    2,014    (46,567)   (44,552)
Issuance of common stock upon exercise of stock options   
-
    
-
    95,654    
-
    68    
-
    68 
Vesting of founders’ restricted stock   -    
-
    -    
-
    2    
-
    2 
Stock-based compensation expense   -    
-
    -    
-
    295    
-
    295 
Net loss   -    
-
    -    
-
    
-
    (8,414)   (8,414)
Balance as of June 30, 2021   19,522,760    66,249    2,869,228    1    2,379    (54,981)   (52,601)
Issuance of common stock upon exercise of stock options   
-
    
-
    186,520    
-
    132    
-
    132 
Conversion of redeemable convertible preferred stock into common stock in connection with the Reverse Recapitalization (Note 3)   (19,522,760)   (66,249)   21,722,661    2    66,247    -    66,249 
Issuance of common stock upon the Reverse Recapitalization and PIPE Financing, net of issuance costs    -    
-
    13,037,901    1    68,035    
-
    68,036 
Vesting of founders’ restricted stock   -    
-
    -    
-
    3    
-
    3 
Stock-based compensation expense   -    
-
    -    
-
    195    
-
    195 
Net loss   -    
-
    -    
-
    
-
    (3,412)   (3,412)
Balance as of September 30, 2021   
-
   $
-
    37,816,310   $4   $136,991   $(58,393)  $78,602 

 

(1)The shares of the Company’s common and redeemable convertible preferred stock, prior to the Reverse Recapitalization (as defined in Note 1) have been retroactively restated to reflect the exchange ratio of 0.282378, except for 100 shares of Series A-2 redeemable convertible preferred stock as described in Note 3.

 

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

 

3

 

 

JASPER THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands, except share data)

(unaudited)

 

   Preferred Stock   Common Stock   Additional
Paid-In
   Accumulated   Total
Stockholders’
 
   Shares (1)   Amount   Shares (1)   Amount   Capital   Deficit   Deficit 
Balance as of December 31, 2019  11,255,430   $25,836   2,695,264   $1   $409   $(5,144)  $(4,734)
Issuance of Series A-1 redeemable convertible preferred stock for cash   182,197    484    
-
    
-
    
-
    
-
    
-
 
Vesting of founders’ restricted stock   -    
-
    -    
-
    2    
-
    2 
Stock-based compensation expense   -    
-
    -    
-
    1    
-
    1 
Net loss   -    
-
    -    
-
    
-
    (1,434)   (1,434)
Balance as of March 31, 2020   11,437,627    26,320    2,695,264    1    412    (6,578)   (6,165)
Vesting of founders’ restricted stock   -    
-
    -    
-
    3    
-
    3 
Stock-based compensation expense   -    
-
    -    
-
    456    
-
    456 
Net loss   -    
-
    -    
-
    
-
    (9,423)   (9,423)
Balance as of June 30, 2020   11,437,627    26,320    2,695,264    1    871    (16,001)   (15,129)
Vesting of founders’ restricted stock   -    
-
    -    
-
    3    
-
    3 
Stock-based compensation expense   -    
-
    -    
-
    316    
-
    316 
Net loss   -    
-
    -    
-
    
-
    (10,825)   (10,825)
Balance as of September 30, 2020   11,437,627   $26,320    2,695,264   $1   $1,190   $(26,826)  $(25,635)

 

(1) The shares of the Company’s common and redeemable convertible preferred stock, prior to the Reverse Recapitalization (as defined in Note 1) have been retroactively restated to reflect the exchange ratio of 0.282378, except for 100 shares of Series A-2 redeemable convertible preferred stock as described in Note 3.

  

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

 

4

 

 

JASPER THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

   Nine Months Ended
September 30,
 
   2021   2020 
Cash flows from operating activities        
Net loss  $(21,580)  $(21,682)
Adjustments to reconcile net loss to net cash used in operating activities          
Depreciation and amortization expense   183    
 
Non-cash lease expense   153    
 
Stock-based compensation expense   817    773 
Change in fair value of derivative liability   3,501    6,864 
Change in fair value of common stock warrant liability   (450)   
 
Change in fair value of earnout liability   (6,226)   
 
Changes in operating assets and liabilities:          
Other receivables   600    
 
Prepaid expenses and other current assets   (286)   (847)
Other non-current assets   
    48 
Accounts payable   1,220    1,602 
Accrued expenses and other current liabilities   3,072    (34)
Other non-current liabilities   (98)   402 
Net cash used in operating activities   (19,094)   (12,874)
Cash flows from investing activities          
Purchases of property and equipment   (1,717)   
 
Net cash used in investing activities   (1,717)   
 
Cash flows from financing activities          
Net proceeds from Reverse Recapitalization and PIPE Financing   95,271    
 
Proceeds from issuance of redeemable convertible preferred stock, net of issuance costs   10,750    484 
Proceeds from exercise of common stock options   202    
 
Payment of Reverse Recapitalization related expenses   (4,345)   
 
Net cash provided by financing activities   101,878    484 
Net increase (decrease) in cash, cash equivalents and restricted cash   81,067    (12,390)
Cash, cash equivalents and restricted cash          
Cash, cash equivalents and restricted cash at beginning of the year   20,183    27,163 
Cash, cash equivalents and restricted cash at end of the year  $101,250   $14,773 
           
Supplemental and non-cash items reconciliations:          
Accounts payable and accrued expenses for purchases of property and equipment  $108   $
 
Non-cash leasehold improvements  $1,378   $
 
Vesting of founders restricted stock  $8   $9 
Reverse Recapitalization related expenses unpaid at period end  $651   $
 
Conversion of redeemable convertible preferred stock into common stock in connection with Reverse Recapitalization  $(66,249)  $
 
Net liabilities assumed upon the closing of Reverse Recapitalization  $(7,222)  $
 
Recognition of earnout liability  $15,020   $
 
Recognition (settlement) of derivative tranche liability  $(11,659)  $
 

Deferred issuance costs reclassified to additional paid in capital

  $

4,996

  

$

 

 

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

 

5

 

 

JASPER THERAPEUTICS, INC.

NOTES TO UNAUDITED INTERIM CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1. ORGANIZATION AND DESCRIPTION OF BUSINESS

 

Description of Business

 

Jasper Therapeutics, Inc. (“Jasper” or the “Company”), formerly known as Amplitude Healthcare Acquisition Corporation (“AMHC”), is a clinical-stage biotechnology company dedicated to enabling cures through hematopoietic stem cell transplants. The Company is focused on the development and commercialization of safer, more effective conditioning agents and stem cell grafts to allow for expanded use of curative therapy with stem cell transplantation and gene therapies. Its drug development pipeline includes multiple product candidates designed to improve stem cell transplants. The lead compound, JSP191, is in clinical development as a conditioning antibody that clears hematopoietic (blood and bone marrow) stem cells from bone marrow in patients undergoing hematopoietic cell transplantation. The Company is also developing engineered hematopoietic stem cell products. The Company is headquartered in Redwood City, California.

 

On September 24, 2021 (the “Closing Date”), the Company consummated the previously announced business combination (the “Business Combination” or “Reverse Recapitalization” for accounting purposes) pursuant to the terms of the Business Combination Agreement, dated as of May 5, 2021 (the “BCA”), by and among AMHC, Ample Merger Sub, Inc., a then-wholly-owned subsidiary of AMHC (“Merger Sub”), and the pre-Business Combination Jasper Therapeutics, Inc. (now named Jasper Tx Corp.) (“Old Jasper”). Pursuant to the terms of the BCA, on the Closing Date, (i) Merger Sub merged with and into Old Jasper, with Old Jasper as the surviving company in the Business Combination, and, after giving effect to such Business Combination, Old Jasper became a wholly-owned subsidiary of AMHC and changed its name to “Jasper Tx Corp.”, and (ii) AMHC changed its name to “Jasper Therapeutics, Inc.”.

 

In addition, concurrently with the execution of the BCA, certain investors (“PIPE Investors”) entered into Subscription Agreements with AMHC whereby such investors subscribed for the purchase of an aggregate of 10,000,000 shares of AMHC’s Class A Common Stock at a price of $10.00 per share for aggregate gross proceeds of $100.0 million (“PIPE Financing”). The PIPE Financing was consummated concurrently with the closing of the Business Combination.

 

Please refer to Note 3, “Reverse Recapitalization”, for further details of the Business Combination.

 

Liquidity and Need for Additional Capital 

 

The Company has incurred significant losses and negative cash flows from operations since its inception. During the nine months ended September 30, 2021 and 2020, the Company incurred net losses of $21.6 million and $21.7 million, respectively. During the nine months ended September 30, 2021 and 2020, the Company had negative operating cash flows of $19.1 million and $12.9 million, respectively. As of September 30, 2021, the Company had an accumulated deficit of $58.4 million. The Company expects to continue to incur substantial losses, and its ability to achieve and sustain profitability will depend on the successful development, approval, and commercialization of product candidates and on the achievement of sufficient revenues to support the Company’s cost structure.

 

Cash and cash equivalents, inclusive of the net proceeds from the Business Combination and PIPE Financing, were $100.9 million as of September 30, 2021, which management believes are sufficient to support its operations for at least one year from the issuance date of these condensed consolidated financial statements. Therefore, based on management's updated evaluation of the Company's ability to continue as a going concern, management has concluded the factors that previously raised substantial doubt about the Company's ability to continue as a going concern no longer exist as of the issuance date of these unaudited condensed consolidated financial statements. Additional funds are necessary to maintain current operations and to continue research and development activities, and the Company will need to raise additional financing to continue its products’ development for the foreseeable future, and until it becomes profitable. The Company’s management plans to monitor expenses and raise additional capital through a combination of public and private equity, debt financings, strategic alliances, and licensing arrangements. The Company’s ability to access capital when needed is not assured and, if capital is not available to the Company when, and in the amounts needed, the Company may be required to significantly curtail, delay or discontinue one or more of its research or development programs or the commercialization of any product candidate, or be unable to expand its operations or otherwise capitalize on our business opportunities, as desired, which could materially harm the Company’s business, financial condition and results of operations.

 

Coronavirus Pandemic

 

In March 2020, the World Health Organization declared the global novel coronavirus disease 2019 (“COVID-19”) outbreak a pandemic. The Company is following, and will continue to follow, recommendations from the U.S. Centers for Disease Control and Prevention as well as federal, state, and local governments regarding working-from-home practices for non-essential employees as well as return-to-work policies and procedures. The Company expects to continue to take actions as may be required or recommended by government authorities or as the Company determines are in the best interests of its employees and other business partners in light of the pandemic.

 

6

 

 

While the Company’s operations to date have not been significantly impacted by the COVID-19 pandemic, it cannot at this time predict the specific extent, duration, or full impact that the COVID-19 pandemic will have on its business, financial condition and operations, including planned clinical trials and clinical development timelines. The Company experienced slower than anticipated patient enrollment in its SCID clinical trial in 2020 due to reluctance of these immunocompromised patients to travel and undergo hospitalization during the pandemic. The Company may continue to experience interruptions to its clinical trials due to the COVID-19 pandemic, including the spread of variants. The impact of the COVID-19 pandemic on the Company’s financial performance will depend on future developments, including the duration and spread of the pandemic, its impact on the Company’s clinical trial enrollment, trial sites, contract research organizations (“CROs”), contract manufacturing organizations (“CMOs”), and other third parties with whom it does business, its impact on regulatory authorities and the Company’s key scientific and management personnel, progress of vaccination and related governmental advisories and restrictions. These developments and the impact of the COVID-19 pandemic on the financial markets and the overall economy are highly uncertain and cannot be predicted. If the financial markets or the overall economy are impacted for an extended period, the Company’s business may be materially adversely affected.

 

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The condensed consolidated financial statements and accompanying notes are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and regulations of the U.S. Securities and Exchange Commission for interim financial reporting.

 

The accompanying condensed financial statements are consolidated for the three months and nine months ended September 30, 2021 and include the accounts of Jasper Therapeutics, Inc. (i.e., former AMHC) and its wholly-owned subsidiary, Old Jasper, following the Reverse Recapitalization as further discussed in Note 3, “Reverse Recapitalization”. All other accompanying financial statements as of December 31, 2020 and for the three months and nine months ended September 30, 2020 include only the accounts of Old Jasper. All intercompany transactions and balances have been eliminated upon consolidation.

 

All historical share data and per-share amounts were retrospectively adjusted to reflect the effect of the exchange ratio of 0.2823780 per one share, which was determined at the closing of the Reverse Recapitalization, except for the 100 shares of Series A-2 redeemable convertible preferred stock. The Series A-2 shares were not subject to the exchange ratio as a part of the recapitalization; rather, the shares were converted into 2,200,000 shares of common stock upon the closing of the business combination. Refer to Note 10 for further discussion regarding the terms of these shares.

 

Certain information and footnote disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these condensed consolidated financial statements should be read in conjunction with the audited financial statements for the years ended December 31, 2020 and 2019 and the related notes included in the Company’s final Prospectus filed with the Securities and Exchange Commission on October 26, 2021 pursuant to Rule 424(b) under the Securities Act of 1933, as amended, relating to the Registration Statement on Form S-1 (the “Prospectus”). The information as of December 31, 2020 included in the condensed consolidated balance sheets was derived from the Company’s audited financial statements. The condensed consolidated financial statements were prepared on the same basis as the audited financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments necessary for a fair statement of the Company’s financial position as of September 30, 2021 and the results of operations and cash flows for the three and nine months ended September 30, 2021 and 2020. The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

 

Other than policies noted below, there have been no significant changes to the significant accounting policies disclosed in Note 2 of the audited financial statements as of December 31, 2020 and 2019 and for the years ended December 31, 2020 and 2019 included in the Prospectus.

 

Use of Estimates

 

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, assumptions and judgements that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of income and expenses during the reporting periods. Significant estimates and assumptions made in the accompanying condensed consolidated financial statements include but are not limited to the valuation of common and redeemable convertible preferred stock before the Reverse Recapitalization, the determination of the incremental borrowing rate used for operating lease liabilities, valuation of derivative liability, valuation of earnout liability and the measurement of stock-based compensation expense. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could materially differ from those estimates.

 

7

 

 

Common Stock Warrants Liability

 

The Company has outstanding warrants to purchase 4,999,993 shares of its common stock (the “Common Stock Warrants”), all of which were issued in connection with AMHC’s initial public offering and entitle a holder to purchase one share of the Company’s common stock at an exercise price of $11.50 per share. The Common Stock Warrants are publicly traded and exercisable during the exercise period, which started on October 24, 2021 and ends on September 24, 2026, for cash or, in certain circumstances, on a cashless basis. These warrants are accounted as derivative financial instruments. As long as the Company continues to have shares of non-voting common stock outstanding, the Common Stock Warrants do not meet the equity classification guidance and are accounted as liabilities at fair value. Warrants are subsequently remeasured at each reporting date with changes in fair value recorded in the condensed consolidated statements of operations and comprehensive loss until exercise or expiration. Upon conversion of all shares of non-voting common stock into shares of voting common stock, the Common Stock Warrants will meet the equity classification guidance and will be reclassified to equity at the then-current fair value.

 

Contingent Earnout Liability

 

At the closing of the Business Combination, the Company recognized the earnout liability related to the Sponsor Support Agreement, dated May 5, 2021 and amended on September 24, 2021, by and among the Company, Amplitude Healthcare Holdings LLC (the “Sponsor”) and Old Jasper (as amended, the “Sponsor Support Agreement”), related to 1,050,000 shares of common stock issued to Amplitude Healthcare Holdings, LLC (“Sponsor”) that were placed in escrow (the “Earnout Shares”). These shares will be released from escrow upon meeting specific triggering events that depend on the Company common stock price during the specified periods in three tranches. In accordance with ASC 815-40, the Earnout Shares are not indexed to the common stock and therefore are accounted as a liability at fair value at the Closing Date and subsequently remeasured at each reporting date with changes in fair value recorded in the condensed consolidated statements of operations and comprehensive loss. The Company will reassess the classification of the Earnout Shares as triggering events are met or expire.

 

Cash, Cash Equivalents, and Restricted Cash

 

The following table provides a reconciliation of cash and restricted cash reported within the condensed consolidated balance sheets that sum to the total amount shown in the condensed consolidated statements of cash flows (in thousands):

 

   September 30,
2021
   December 31,
2020
 
Cash and cash equivalents  $100,905   $19,838 
Restricted cash   345    345 
Total cash, cash equivalents and restricted cash  $101,250   $20,183 

 

Cash and cash equivalents consist of checking bank accounts and investments in money market funds with an original maturity of three months or less at the time of purchase. The recorded carrying amount of cash and cash equivalents approximates their fair value. Restricted cash relates to the letter of credit secured in conjunction with the operating lease (Note 9).

 

Net Loss per Share Attributable to Common Stockholders

 

Basic net loss per common share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, without consideration of potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders adjusted for income (expenses), net of tax, related to any diluted securities, by the weighted-average number of shares of common stock and potentially dilutive securities outstanding for the period. For purposes of the diluted net loss per share calculation, the redeemable convertible preferred stock, common stock subject to repurchase, common stock subject to restricted stock awards, the Earnout Shares, the Common Stock Warrants and stock options are considered to be potentially dilutive securities.

 

Basic and diluted net loss attributable to common stockholders per share is presented in conformity with the two-class method required for participating securities. The Company considers all series of its redeemable convertible preferred stock, common stock subject to repurchase, common stock subject to restricted stock awards and the Earnout Shares to be participating securities as the holders are entitled to receive dividends on a pari passu basis in the event that a dividend is paid on common stock. The Company’s participating securities do not have a contractual obligation to share in the Company’s losses. As such, the net loss is attributed entirely to common stockholders. For the three and nine months ended September 30, 2021 and 2020, the diluted net loss per common share was the same as basic net loss per common share, as the impact of potentially dilutive securities was antidilutive to the net loss per common share. The Earnout Shares and common stock subject to restricted stock awards are contingently issuable shares and are not included in the diluted net loss per share calculation until contingencies are resolved.

 

8

 

 

Segment Reporting

 

The Company has determined it operates as a single operating and reportable segment. The Company’s chief operating decision maker, its Chief Executive Officer, manages the Company’s operations on a consolidated basis for the purposes of allocating resources.

 

New Accounting Pronouncements Not Yet Adopted

 

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which removes certain exceptions to the general principles in Topic 740 and improves consistent application of and simplifies U.S. GAAP for other areas of Topic 740 by clarifying and amending existing guidance. For private companies, this ASU is effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early adoption is permitted. The Company is currently evaluating the impact of this guidance on its financial statements.

 

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”). The amendments in ASU 2020-04 provide optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this ASU are effective for all entities as of March 12, 2020 through December 31, 2022. An entity may elect to apply the amendments for contract modifications by Topic or Industry Subtopic as of any date from the beginning an interim period that includes or is subsequent to March 12, 2020, or prospectively from the date that the financial statements are available to be issued. Once elected for a Topic or an Industry Subtopic, the amendments must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic. The Company is currently evaluating the impact of the adoption of this ASU on the Company’s financial statements and related disclosures.

 

In August 2020, the FASB issued ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40). This ASU simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. Specifically, the ASU removes: i) major separation models required under U.S. GAAP and ii) certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contract to qualify for the exception. For public companies, this ASU is effective for interim and annual reporting periods beginning after December 15, 2021. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2022. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of this ASU on the Company’s financial statements and related disclosures.

 

NOTE 3. REVERSE RECAPITALIZATION

 

On the Closing Date, the Company consummated the Business Combination in accordance with the BCA. Merger Sub merged with Old Jasper, with Old Jasper as the surviving company and as a wholly-owned subsidiary of AMHC. AMHC was renamed Jasper Therapeutics, Inc. and Old Jasper was renamed Jasper Tx Corp.

 

Prior to the closing, holders of 9,262,099 shares of AMHC’s Class A common stock exercised their right to redeem such shares for cash at a price of approximately $10.01 per share for aggregate payments of $92.7 million, which was paid from the AMHC trust account.

 

In accordance with the Subscription Agreements between AMHC and the PIPE Investors, AMHC issued to the PIPE Investors 10,000,000 shares of AMHC’s Class A common stock at a price of $10.00 per share, for gross proceeds of $100.0 million. The PIPE Financing was consummated concurrently with the closing of the Business Combination.

 

9

 

 

In accordance with the BCA, at the closing of the Business Combination each share of Old Jasper common stock and Old Jasper redeemable convertible preferred stock outstanding immediately prior to the closing was automatically cancelled, extinguished and converted into the number of shares of the Company’s common stock or, in certain circumstances, the Company’s non-voting common stock, based on Old Jasper’s equity value of $275.0 million divided by $10.00. The exchange ratio agreed between the parties was one-for-0.282378 share of the Company’s common stock for all Old Jasper stockholders, except for Amgen Inc. (“Amgen”). Amgen’s 100 shares of Series A-2 redeemable convertible preferred stock were converted into 2,200,000 shares of the Company’s common stock, which represented 8% of the Old Jasper equity value, as per the terms of the Amgen’s agreement with Old Jasper. Each vested and unvested option to purchase shares of Old Jasper’s common stock outstanding at the closing was converted into a comparable option to purchase shares of the Company’s common stock, with the same terms after giving effect of the exchange ratio. Each unvested award of restricted shares of Old Jasper common stock outstanding immediately prior to the closing was converted into a comparable right to receive restricted shares of the Company’s common stock, after giving effect of the same exchange ratio.

 

In connection with the Business Combination, immediately prior to the closing, (i) the Sponsor forfeited 200,000 shares of AMHC’s Class B Common Stock, (ii) each share of AMHC’s Class B common stock outstanding was converted into one share of AMHC’s Class A Common Stock, and (iii) following such conversion, an aggregate of 13,037,901 shares of AMHC’s Class A Common Stock (inclusive of 10,000,000 shares of AMHC’s Class A Common Stock that were issued to the PIPE Investors) was converted into an equivalent number of shares of the Company’s voting common stock. In accordance with the Sponsor Support Agreement, 1,050,000 shares received by the Sponsor were placed in escrow and will be released upon meeting triggering events as defined in the agreement and as described in Note 8 below.

 

Immediately after giving effect to the Reverse Recapitalization, there were 36,520,288 shares of the Company’s voting common stock outstanding (which includes 611,818 shares of our common stock subject to restricted stock awards), 1,296,022 shares of the Company’s non-voting common stock outstanding and 2,721,557 shares of the Company’s common stock subject to outstanding options to purchase shares of the Company’s common stock.

 

The Business Combination is accounted for as a reverse recapitalization under U.S. GAAP. This determination is primarily based on Old Jasper’s stockholders comprising a relative majority of the voting power of the Company and having the ability to nominate the members of the Company’s board, Old Jasper’s operations prior to the acquisition comprising the only ongoing operations of the Company, and Old Jasper’s senior management comprising a majority of the senior management of the Company. Under this method of accounting, AMHC is treated as the “acquired” company for financial reporting purposes. Accordingly, for accounting purposes, the financial statements of the Company represent a continuation of the financial statements of Old Jasper with the Business Combination being treated as the equivalent of the Company issuing stock for the net assets of AMHC, accompanied by a reverse recapitalization. The net assets of AMHC are stated at historical costs, with no goodwill or other intangible assets recorded. Operations prior to the Business Combination are presented as those of Old Jasper. 

 

In connection with the Business Combination, the Company received $95.3 million in net proceeds. This amount was comprised of $5.5 million of cash held in AMHC’s trust account from its initial public offering (after payment of redemptions and public offering expenses paid at the closing of the Business Combination) and $100.0 million of cash received by AMHC in connection with the PIPE Financing, net of AMHC’s transaction costs and placement agents’ fees of $9.0 million and operating expenses payments of $1.2 million. The Company incurred $5.0 million of transaction costs, consisting of legal, professional, and banking fees, which were recorded as a reduction to additional paid-in capital.

 

The Company also recognized AMHC’s net assets of $0.6 million, the fair value of common stock warrant liability of $7.9 million, and the fair value of earnout liability of $15.0 million.

 

The number of shares of common stock issued and outstanding immediately following the consummation of the Business Combination was:

 

   Number of
Shares
 
Common stock of AMHC outstanding prior to the Business Combination   12,500,000 
Less: shares forfeited by Sponsor   (200,000)
Less: redemption of AMHC shares   (9,262,099)
Common stock of AMHC   3,037,901 
Shares issued in PIPE Financing   10,000,000 
Business Combination and PIPE Financing shares   13,037,901 
Old Jasper shares   24,778,409 
Total shares of common stock immediately after the Business Combination   37,816,310 

 

10

 

 

NOTE 4. FAIR VALUE MEASUREMENTS

 

The Company measures certain financial assets and liabilities at fair value on a recurring basis. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value:

 

Level 1 – Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;
   
Level 2 – Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and
   
Level 3 – Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.

 

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value.

 

Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability.

 

The fair value of Level 1 securities is determined using quoted prices in active markets for identical assets. Level 1 securities consist of highly liquid money market funds. In addition, restricted cash collateralized by money market funds is a financial asset measured at fair value and is a Level 1 financial instrument under the fair value hierarchy.

 

Financial assets and liabilities are considered Level 2 when their fair values are determined using inputs that are observable in the market or can be derived principally from or corroborated by observable market data, such as pricing for similar securities, recently executed transactions, cash flow models with yield curves, and benchmark securities. In addition, Level 2 financial instruments are valued using comparisons to like-kind financial instruments and models that use readily observable market data as their basis. The Company had no financial instruments classified at Level 2 as of September 30, 2021 and December 31, 2020.

 

Financial assets and liabilities are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies, or similar techniques and at least one significant model assumption or input is unobservable. Level 3 liabilities that are measured at fair value on a recurring basis included the derivative tranche liability, which was extinguished in February 2021, and earnout liability, which was recognized in connection with the Business Combination in September 2021.

 

During the periods presented, the Company has not changed the manner in which it values liabilities that are measured at estimated fair value using Level 3 inputs. There were no transfers within the hierarchy during the three or nine months ended September 30, 2020 and 2021.

 

The following tables set forth the fair value of the Company’s financial assets and liabilities measured on a recurring basis by level within the fair value hierarchy (in thousands):

 

   September 30, 2021 
   Level 1   Level 2   Level 3   Total 
Financial assets                
Money market funds  $99,905   $
   $
   $99,905 
Total fair value of assets  $99,905   $
   $
   $99,905 
                     
Financial liabilities                    
Common stock warrant liability  $7,400   $
   $
   $7,400 
Earnout liability   
    
    8,794   $8,794 
Total fair value of liabilities  $7,400   $
   $8,794   $16,194 

 

11

 

 

   December 31, 2020 
   Level 1   Level 2   Level 3   Total 
Financial assets                
Money market funds  $18,778   $
   $
   $18,778 
Total fair value of assets  $18,778   $
   $
   $18,778 
                     
Financial liabilities                    
Derivative tranche liability  $
   $
   $8,158   $8,158 
Total fair value of liabilities  $
   $
   $8,158   $8,158 

 

The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial liabilities (in thousands):

 

  

Derivative

tranche liability

  

Earnout

liability

 
         
Fair value as of January 1, 2020  $4,053   $
     —
 
Initial fair value of derivative instrument   
    
 
Change in fair value included in other expense   6,864    
 
Settlement of obligation   
    
 
Fair value as of September 30, 2020  $10,917   $
 
           
Fair value as of January 1, 2021   8,158    
 
Initial fair value of earnout liability   
    15,020 
Change in fair value included in other expense (income)   3,501    (6,226)
Settlement of obligation   (11,659)   
 
Fair value as of September 30, 2021  $
   $8,794 

 

The redeemable convertible preferred stock tranche liability was measured using the option pricing method by estimating the value using the Black-Scholes model. The significant inputs used in the Black-Scholes model includes the fair value of the redeemable convertible preferred stock, the risk-free interest rate, the expected volatility and the expected term when each tranche will be settled. The fair value of the derivative tranche liability equaled its intrinsic value, a difference between the issued redeemable convertible preferred stock shares’ fair value and the price paid by investors, at the date of settlement in February 2021.

 

The estimated fair value of the earnout liability is determined using Monte Carlo simulation model, which uses a distribution of potential outcomes on a monthly basis over the earnout period prioritizing the most reliable information available. The assumptions utilized in the calculation are based on the achievement of certain stock price milestones, including the current Company’s common stock price, expected volatility, risk-free rate and expected term.

 

The following table presents quantitative information about the inputs and valuation methodologies used for the Company’s fair value measurements classified in Level 3 of the fair value hierarchy at September 30, 2021:

 

   Fair value   Valuation  Significant

 
   (in thousands)   methodology  unobservable input  
Earnout liability  $8,794   Monte Carlo Simulation  Common stock price  $10.26 
           Expected term (in years)   3.00 
           Expected volatility   70.00%
           Risk-free interest rate   0.53%

 

12

 

 

The following table presents quantitative information about the inputs and valuation methodologies used for the Company’s fair value measurements classified in Level 3 of the fair value hierarchy at December 31, 2020:

 

   Fair value   Valuation  Significant

 
   (in thousands)   methodology  unobservable input  
Derivative tranche liability  $8,158   Black–Scholes  Expected term (in years)   0.16 
           Expected volatility   47.02%
           Risk-free interest rate   0.08%
           Expected dividend yield   0.00%

 

NOTE 5. CONDENSED CONSOLIDATED BALANCE SHEET COMPONENTS

 

Prepaid expenses and other current assets

 

The following table summarizes the details of prepaid expenses and other current assets as of the dates set forth below (in thousands):

 

   September 30,
2021
   December 31,
2020
 
Prepaid insurance  $754   $
 
Tax credit receivable   298    
 
Research and development prepaid expenses   226    177 
Other prepaid expenses   187    43 
Rent deposit   27    27 
Other current assets   10    
 
Total  $1,502   $247 

 

Accrued Expenses and Other Current Liabilities

 

The following table summarizes the details of accrued expenses and other current liabilities as of the dates set forth below (in thousands):

 

   September 30,
2021
  

December 31,

2020

 
CMO accrued expenses  $2,500   $925 
Research and development accrued expenses   1,709    338 
Accrued employee and related compensation expenses   722    783 

Reverse Recapitalization accrued expenses

   621    
 
License option liability, current   400    400 
Other   470    149 
Total   $6,422   $2,595 

 

Other non-current liabilities

 

The following table summarizes the details of other non-current liabilities as of the dates set forth below (in thousands):

 

   September 30,
2021
  

December 31,

2020

 
CIRM grant liability  $600   $600 
Collaborator’s deposit   100    
 
License option liability, non-current   
    200 
Restricted stock liability   46    53 
Total   $746   $853 

 

13

 

 

NOTE 6. CIRM GRANT

 

In November 2020, California Institute for Regenerative Medicine (“CIRM”) awarded the Company $2.3 million in support of the research project related to a monoclonal antibody that depletes blood stem cells and enables chemotherapy-free transplants. The award is payable to the Company upon achievement of milestones over the next three years that are primarily based on patients’ enrollment to the Company’s clinical trials. Funds received under this grant may only be used for allowable project costs specifically identified with the CIRM-funded project. Such costs can include but are not limited to salary for personnel, itemized supplies, consultants, and itemized clinical study costs. Under the terms of the grant, both CIRM and the Company will co-fund the research project and the amount of the Company’s co-funding requirement is predetermined as a part of the award. Under the terms of the CIRM grant, the Company is obligated to pay royalties and licensing fees based on a 0.1% of net sales of CIRM-funded product candidates or CIRM-funded technology per $1.0 million of CIRM grant. As an alternative to revenue sharing, the Company has the option to convert the award to a loan. In the event the Company exercises its right to convert the award to a loan, it would be obligated to repay the loan within ten business days of making such election. Repayment amounts vary dependent on when the award is converted to a loan, ranging from 60% of the award granted to amounts received plus interest at the rate of the three-month LIBOR rate plus 25% per annum. Since the Company may be required to repay some or all of the amounts awarded by CIRM, the Company accounted for this award as a liability. Given the uncertainty in amounts due upon repayment, the Company has recorded amounts received without any discount or interest recorded, and upon determination of amounts that would become due, the Company will adjust accordingly. As of December 31, 2020, the Company met a milestone and had recorded $0.6 million in other receivables for the milestone that was met and $0.6 million in other long-term liabilities related to this grant. The Company received an aggregate of $0.6 million from CIRM in January and March 2021. As of September 30, 2021, the Company recorded $0.6 million in other long-term liabilities related to this grant.

 

NOTE 7. SIGNIFICANT AGREEMENTS

 

Amgen License Agreement

 

On November 21, 2019, the Company entered into a license agreement with Amgen (the “Amgen License Agreement”), pursuant to which the Company obtained an exclusive, sublicensable license for certain patents, data, and non-data know-how related to Amgen’s proprietary monoclonal antibody known as AMG 191, as renamed to JSP191 (“JSP191”). Concurrently with the execution of the license agreement, Amgen assigned to the Company its rights and obligations under the Investigator Sponsored Research Agreement (“ISRA”) previously entered into in June 2013 between Amgen and The Board of Trustees of the Leland Stanford Junior University (“Stanford”) related to the study of JSP191.

 

Under the ISRA, the Company was provided an option to negotiate a definitive license with Stanford for rights to certain Stanford intellectual property related to the study of JSP191 in exchange for an option exercise fee of $1.0 million, payable over a two-year period (the “Option”). There are no other fees due under the ISRA. The Company exercised the Option in June 2020, and the definitive license with Stanford (the “Stanford  License Agreement”) was executed in March 2021. Upon exercise of the option, the $1.0 million option exercise fee was recognized as research and development cost. In June 2020, the Company and Stanford agreed that the Investigational New Drug Application (“IND”) and control of the study related to this ISRA would be transferred to the Company. The Company paid $0.2 million related to the option exercise fee in each of June and November 2020. As of December 31, 2020, the Company had accrued $0.4 million and $0.2 million as current and noncurrent liabilities, respectively. In May 2021, the Company paid $0.2 million of the option exercise fee and included the unsettled liability of $0.4 million in accrued expenses and other current liabilities as of September 30, 2021.

 

As consideration for the rights granted to the Company under the license agreement with Amgen, the Company issued Amgen 100 shares of the Company’s Series A-2 redeemable convertible preferred stock in November 2019, the fair value of which was estimated at $0.9 million, which was recognized as research and development expense in the same period.

 

The Amgen License Agreement terminates on a county-by-country basis on the 10th anniversary of the date on which the exploitation of the licensed products is no longer covered by a valid claim under a licensed patent in such country. On a country-by-country basis, upon the expiration of the term in each country with respect to the licensed products, the licenses to the Company by Amgen become fully paid and non-exclusive. The Company and Amgen have the right to terminate the agreement for a material breach as specified in the agreement.

 

After the closing of the Business Combination, Amgen owns more than 5% of the Company’s outstanding common stock and is therefore considered to be a related party.

 

14

 

 

Stanford License Agreement

 

In March 2021, the Company entered into the Stanford License Agreement, following the exercise of its option in June 2020. The Company received a worldwide, exclusive license with a right to sublicense for JSP191 in the field of depleting endogenous blood stem cells in patients for whom hematopoietic cell transplantation is indicated. Stanford transferred certain know-how and patents related to JSP191 (together, the “Licensed Technology”). Under the terms of this agreement, the Company will use commercially reasonable efforts to develop, manufacture, and sell licensed product and to develop markets for a licensed product. In addition, the Company will use commercially reasonable efforts to meet the milestones as specified in the agreement over the next six years and must notify Stanford in writing as each milestone is met.

 

The Company will pay annual license maintenance fees, beginning on the first anniversary of the effective date of the agreement and ending upon the first commercial sale of a product, method, or service in the licensed field of use, as follows: $25,000 for each first and second year, $35,000 for each third and fourth year, and $50,000 at each anniversary thereafter ending upon the first commercial sale. The Company is also obligated to pay late-stage clinical development milestones and first commercial sales milestone payments of up to $9.0 million in total. The Company will also pay low single-digit royalties on net sales of licensed products, if approved. No payments have been made under the Stanford License Agreement during the nine months ended September 30, 2021.

 

The Stanford License Agreement expires on a country-by-country basis on the last-to-expire valid claim of a licensed patent in such country. The Company may terminate the agreement by giving Stanford a written notice at least 12 months in advance of the effective date of termination. The Company may also terminate the agreement solely with respect to any particular patent application or patent by giving Stanford written notice at least 60 days in advance of the effective date of termination. Stanford may terminate the agreement after 90 days from a written notice by Stanford, specifying a problem, including a delinquency on any report required pursuant to agreement or any payment, missing a milestone or for a material breach, unless the Company remediates the problem in that 90-day period.

 

15

 

 

NOTE 8. DERIVATIVE FINANCIAL INSTRUMENTS

 

Derivative Tranche Liability

 

The Company determined that the obligation to issue additional shares of Series A-1 redeemable convertible preferred stock at the milestone closing at any time on or prior to December 30, 2020 was a freestanding financial instrument that was required to be accounted as a liability initially recorded and subsequently remeasured at fair value until such instrument is exercised or expires. In November 2019, the milestone closing liability was initially recorded at an estimated fair value of $4.3 million.

 

On September 3, 2020, the Company’s board of directors amended the Series A-1 purchase agreement to split the milestone closing to two tranches, revised acceptable timing of the existing milestone closing and added terms of the second milestone closing to occur on or prior to April 15, 2021.

 

The first milestone was re-measured at fair value of $6.8 million at the settlement date in November 2020 and was reclassified to redeemable convertible preferred stock upon the issuance of 4,042,568 shares of Series A-1 redeemable convertible preferred stock in November 2020. The second milestone closing was re-measured at fair value of $11.7 million at the settlement date in February 2021 and was reclassified to redeemable convertible preferred stock upon the issuance of 4,042,565 shares of Series A-1 redeemable convertible preferred stock. The Company recorded $4.7 million loss from the remeasurement of the derivative tranche liability in its condensed consolidated statements of operations and comprehensive loss during the three months ended September 30, 2020. The Company recorded a $6.9 million loss and a $3.5 million loss from the remeasurement of the derivative tranche liability in its condensed consolidated statements of operations and comprehensive loss during the nine months ended September 30, 2021 and 2020, respectively. As of September 30, 2021, the derivative tranche liability was fully settled.

 

Common Stock Warrants

 

The Common Stock Warrants are traded on the Nasdaq Capital Market and may only be exercised for a whole number of shares. The Common Stock Warrants became exercisable on October 24, 2021 and expire on September 24, 2026, unless early redeemed or if the Company extends the exercise period. The fair value of $7.9 million of Common Stock Warrants was recognized as a liability on September 24, 2021, the Closing Date, based on the closing market price. No Common Stock Warrants have been exercised as of September 30, 2021.

 

The Company recognized a gain of $0.5 million for the three and nine months ended September 30, 2021, classified within change in fair value of common stock warrant liability in the condensed consolidated statements of operations. The Common Stock Warrants’ fair value was $7.4 million as of September 30, 2021.

 

Contingent Earnout Liability

 

Upon the closing of the Business Combination and pursuant to the Sponsor Support Agreement, the Sponsor agreed to place the Earnout Shares into escrow, which will be released as follows: (a) 250,000 Earnout Shares will be released if, during the period from and after September 24, 2021 until the September 24, 2024 (the “Earnout Period”), over any twenty trading days within any thirty day consecutive trading day period, the volume-weighted average price of the Company’s common stock (the “Applicable VWAP”) is greater than or equal to $11.50, (b) 500,000 Earnout Shares will be released if, during the Earnout Period, the Applicable VWAP is greater than or equal to $15.00, and (c) 300,000 Earnout Shares will be released if, during the Earnout Period, the Applicable VWAP is greater than or equal to $18.00 (the “triggering events”).

 

The Earnout Shares placed in escrow are legally issued and outstanding shares that participate in voting and dividends. The Earnout Shares (along with related escrowed dividends, if any) will be forfeited and not released from escrow at the end of the Earnout Period unless the triggering events described above are achieved during the Earnout Period. Upon the closing of the Business Combination, the contingent obligation to release the Earnout Shares is accounted for as a liability classified financial instrument upon their initial recognition because the triggering events that determine the number of shares required to be released from escrow include events that are not solely indexed to the common stock of the Company. The earnout liability is remeasured each reporting period with changes in fair value recognized in earnings.

 

At the closing of the Business Combination, the estimated fair value of the earnout liability was $15.0 million based on a Monte Carlo valuation model. Assumptions used in the valuation are described below:

 

  

September 24,

2021

 
Common stock value  $15.12 
Expected term (in years)   3.00 
Expected volatility   75.0%
Risk-free interest rate   0.55%

 

16

 

 

No triggering event occurred as of September 30, 2021. The Company recognized a gain of $6.2 million for the three and nine months ended September 30, 2021, classified within change in fair value of common stock earnout liability in the condensed consolidated statements of operations and comprehensive loss.

 

NOTE 9. COMMITMENTS AND CONTINGENCIES

 

Operating Leases

 

In August 2020, the Company entered into a 68-month operating lease for laboratory and office space in Redwood City, California, with a lease commencement date in September 2020. In conjunction with signing the lease, the Company secured a letter of credit in favor of the lessor in the amount of $0.3 million. The funds related to this letter of credit are presented as restricted cash on the Company’s condensed consolidated balance sheets. The lease agreement includes an escalation clause for increased base rent and a renewal provision allowing the Company to extend this lease for an additional 60 months at the prevailing rental rate, which the Company is not reasonably certain to exercise. In addition to base rent, the Company will pay its share of operating expenses and taxes.

 

To complete certain leasehold improvements, the lessor agreed to provide the Company a tenant improvement allowance of $1.2 million as well as an option to take an additional allowance of $0.4 million to be repaid over the lease term at an interest rate of 9% per annum, which the Company exercised. The Company recognized $1.6 million and $0.2 million in leasehold improvements covered by these allowances as of September 30, 2021 and December 31, 2020, respectively. In accordance with the lease agreement, the lessor will manage and supervise the construction of the improvements. In exchange for these services, the Company paid the lessor a fee equal to 5% of total construction costs. The leasehold improvements constructed are presented under property and equipment on the Company’s condensed consolidated balance sheets and will be depreciated on a straight-line basis over the remaining lease term.

 

In addition to the construction management and supervision fee noted above, the Company pays variable costs related to its share of operating expenses and taxes. These variable costs are recorded as lease expense as incurred and presented as operating expenses in the condensed consolidated statements of operations and comprehensive loss.

 

The components of lease costs, which were included in the Company’s statements of operations and comprehensive loss, are as follows (in thousands):

 

   Three Months Ended
September 30,
   Nine Months Ended
September 30,
 
   2021   2020   2021   2020 
Lease cost                
Operating lease cost  $60   $
       —
   $336   $
        —
 
Short-term lease cost   83    83    248    219 
Total lease cost  $143   $83   $584   $219 

 

Supplemental information related to the Company’s operating leases is as follows:

 

   Nine Months Ended 
   September 30,
2021
 
Cash paid for amounts included in the measurement of lease liabilities (in thousands)  $91.1 
Weighted average remaining lease term (years)   4.8 
Weighted average discount rate   8%

 

17

 

 

The following table summarizes a maturity analysis of the Company’s operating lease liabilities showing the aggregate lease payments as of September 30, 2021 (in thousands): 

 

   Amount 
Year ending December 31,    
2021 (remainder)  $177 
2022   713 
2023   735 
2024   757 
2025   779 
Thereafter   461 
Total undiscounted lease payments   3,622 
Less: imputed interest   (620)
Total discounted lease payments   3,002 
Less: Current portion of lease liability   (490)
Noncurrent portion of lease liability  $2,512 

 

Stanford Sponsored Research Agreement

 

In September 2020, the Company entered into a sponsored research agreement with Stanford for a research program related to the treatment of Fanconi Anemia patients in Bone Marrow Failure requiring allogeneic transplant with non-sibling donors at Stanford Lucile Packard Children’s Hospital (the “Research Project”) using JSP191. Stanford will perform the Research Project and is fully responsible for costs and operations related to the Research Project. In addition, Stanford owns the entire right, title, and interest, in and to all technology developed using Stanford facilities and by Stanford personnel through the performance of the Research Project under this agreement (the “Fanconi Anemia Research Project IP”). Under this agreement, Stanford granted the Company an exclusive option to license exclusively Stanford’s rights in the Fanconi Anemia Research Project IP (the “Fanconi Anemia Option”) in the field of commercialization of JSP191. There is no license granted or other IP transferred under this agreement until the Fanconi Anemia Option is exercised. As of September 30, 2021, the Company has not yet exercised the Fanconi Anemia Option.

 

As consideration for the services performed by Stanford under this sponsored research agreement, the Company will pay Stanford a total of $0.9 million over approximately 3 years upon the achievement of development and clinical milestones, including FDA filings and patients’ enrollment. As of December 31, 2020, the Company had accrued $0.3 million related to the achievement of the first milestone under this agreement, which was paid in February 2021. The second and the third milestones are based on the progress of the clinical trials and will be recognized when achieved.

 

License agreements

 

In March 2021, the Company entered into the Stanford License Agreement (Note 7), pursuant to which the Company is required to pay annual license maintenance fees, beginning on the first anniversary of the effective date of the agreement and ending upon the first commercial sale of a product, method, or service in the licensed field of use, as follows: $25,000 for each first and second year, $35,000 for each third and fourth year, and $50,000 at each anniversary thereafter ending upon the first commercial sale. The Company is also obligated to pay late-stage clinical development milestones and first commercial sales milestone payments of up to $9.0 million in total. The Company will also pay low single-digit royalties on net sales of licensed products. All products are in development as of September 30, 2021, and no such royalties were due as of such date.

 

Legal proceedings

 

The Company, from time to time, may be party to litigation arising in the ordinary course of business. The Company was not subject to any material legal proceedings during the nine months ended September 30, 2021 and the year ended December 31, 2020, and, to the best of its knowledge, no material legal proceedings are currently pending.

 

18

 

 

Guarantees and Indemnifications

 

In the normal course of business, the Company enters into agreements that contain a variety of representations and provide for general indemnification. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations. As of September 30, 2021 and December 31, 2020, the Company does not have any material indemnification claims that were probable or reasonably possible and consequently has not recorded related liabilities.

 

NOTE 10: REDEEMABLE CONVERTIBLE PREFERRED STOCK

 

On September 24, 2021, upon the closing of the Business Combination, all shares of the outstanding redeemable convertible preferred stock were cancelled and exchanged for 21,722,660 shares of the Company’s common stock, including 2,200,000 shares issued to Amgen and 1,296,022 shares of non-voting common stock issued to an investor.

 

Redeemable convertible preferred stock as of December 31, 2020 consisted of the following (in thousands, except share data):

 

  

December 31, 2020 

 
   Shares
Authorized
   Shares
Issued and
Outstanding
   Aggregate
Liquidation
Preference
   Net
Carrying
Value
 
Series A-1 redeemable convertible preferred stock   19,522,671    15,480,095   $41,165   $42,978 
Series A-2 redeemable convertible preferred stock   100    100    
    862 
Total redeemable convertible preferred stock   19,522,771    15,480,195   $41,165   $43,840 

 

The significant rights and obligations of the Company’s redeemable convertible preferred stock were as follows:

 

Dividends

 

The holders of Series A-1 redeemable convertible preferred stock were entitled to receive, on a pari passu basis, when, as and if declared by the Board, out of any assets at the time that are legally available, cash dividends at the rate of 8% per annum of the applicable original issue price of $2.6592, as adjusted for stock splits, dividends, reclassifications or the like.

 

The holders of Series A-2 redeemable convertible preferred stock were entitled to receive dividends, on a pari passu basis, when, as and if declared by the Board, out of any assets at the time legally available therefor, in an amount of 8% of any distribution to Company stockholders. The dividend rate would have been reduced to 4% if the Company terminated the Amgen License Agreement, or Amgen was pursuing a clinical development of an anti c-kit antibody in any clinical indication for which the Company had filed or held an IND for an anti c-kit antibody.

 

The preferred dividends were not cumulative. No dividends had been declared or paid as of September 30, 2021 and December 31, 2020.

 

Voting

 

The holders of each share of Series A-1 redeemable convertible preferred stock were entitled to voting rights equal to the number of shares of Class A common stock into which the shares of Series A-1 redeemable convertible preferred stock were then convertible. The holders of Series A-1 redeemable convertible preferred stock voted together with the holders of common stock as a single class and on an as-converted to common stock basis. The holders of Series A-2 redeemable convertible preferred stock were not entitled to any voting rights.

 

Election of Directors

 

The holders of Series A-1 redeemable convertible preferred stock, voting together as a separate class, were entitled to elect three directors of the Company. The holders of Class A common stock, other than the common stock issued or issuable upon the conversion of preferred stock, voting together as a separate class, were entitled to elect two directors of the Company. The holders of Class A common stock and Series A-1 redeemable convertible preferred stock were collectively entitled to elect the balance of the total number of directors of the Company.

 

19

 

 

Conversion Rights

 

Each share of Series A-1 redeemable convertible preferred stock was convertible to Class A common stock, at the option of the holder, at the then applicable conversion price. Any holder that beneficially owned, directly or indirectly, more than 9.9% of any class of equity securities had the right to receive any shares of capital stock that would have been issued upon conversion of the shares in excess of 9.9% in the form of Class B common stock. The initial conversion price per share for Series A-1 redeemable convertible preferred stock was $2.6592. Shares of Series A-2 redeemable convertible preferred stock were not convertible at the option of the holder.

 

Each share of Series A-1 redeemable convertible preferred stock would have been automatically converted into common stock, at the then effective conversion price (i) immediately prior to closing of the initial public offering at a common stock per share price of at least five times the original issue price of the Series A-1 redeemable convertible preferred stock resulting in at least $70.0 million of gross proceeds, or (ii) at the date and time, or upon occurrence of an event, specified by vote or written consent of the holders of at least 55% of the outstanding shares of Series A-1 redeemable convertible preferred stock.

 

Upon the Company’s initial public offering, each share of Series A-2 redeemable convertible preferred would have been automatically converted into a number of shares of Class A common stock equal to 8% of the fully diluted equity immediately prior to such initial public offering. The percentage of Class A common stock subject to Series A-2 redeemable convertible preferred stock conversion would have been reduced to 4% if the Company terminated the Amgen License Agreement, or Amgen was pursuing a clinical development of an anti c-kit antibody in any clinical indication for which the Company had filed or held an IND for an anti c-kit antibody.

 

Liquidation Preference

 

In the event of liquidation, dissolution or winding up of the Company, including deemed liquidation, the holders of the redeemable convertible Series A-1 Preferred Stock were entitled to receive, in preference to any distribution to the holders of the Series A-2 redeemable convertible preferred stock or common stock, an amount per share equal to 0.75 times of the applicable original issue price of $2.6592, as adjusted for stock splits, dividends, reclassifications or the like.

 

After the payment to the holders of Series A-1 redeemable convertible preferred stock of the full preferential amounts above, the holders of Series A-2 redeemable convertible preferred stock would have been entitled to receive, out of the remaining assets of the Company available for distribution to its stockholders, in preference to any distribution to the holders of common stock, an amount equal to 8% of the assets available for distribution. The liquidation preference available to the holders of Series A-2 redeemable convertible preferred stock would have been reduced to 4% if the Company terminated the Amgen License Agreement, or Amgen was pursuing a clinical development of an anti c-kit antibody in any clinical indication for which the Company had filed or held an IND for an anti c-kit antibody.

 

After the payment to the holders of Series A-2 redeemable convertible preferred stock of the full preferential amounts above, the holders of Series A-1 redeemable convertible preferred stock would have been entitled to receive, out of the remaining assets of the Company available for distribution to its stockholders, in preference to any distribution to the holders of common stock, an amount per share equal to 0.25 times of the applicable original issue price of $2.6592, as adjusted for stock splits, dividends, reclassifications or the like.

 

If the assets of the Company legally available for distribution to the holders of a given Series of redeemable convertible preferred stock were insufficient to permit the payment to such holders of the full amounts of a given Series, then the assets of the Company would have been distributed on a pro rata basis among the holders of such Series of redeemable convertible preferred stock in proportion to the full amounts they would otherwise be entitled to receive pursuant to their liquidation preference.

 

Following the above payments, the remaining assets of the Company, if any, would have been distributed ratably among the holders of common stock and Series A-1 redeemable convertible preferred stock, pro rata based on the number of shares held by each such holder as if they had been converted to common stock. Provided, however, that if the aggregate amount which the holders of Series A-1 redeemable convertible preferred stock were entitled to receive under the above provisions exceeded 1.5 times the applicable original issue price of $2.6592, as adjusted for stock splits, dividends, reclassifications or the like, upon such liquidation, dissolution or winding up the holders of Series A-1 redeemable convertible preferred stock would have been entitled to receive the greater of (i) 1.5 times the applicable original issue price and (ii) the amount would have received if all shares of Series A-1 redeemable convertible preferred stock had been converted into common stock immediately prior to such liquidation, dissolution or winding up of the Corporation.

 

Redemption

 

The redeemable convertible preferred stock was recorded in mezzanine equity because while it was not mandatorily redeemable, it would have become redeemable at the option of the preferred stockholders upon the occurrence of certain deemed liquidation events that were considered not solely within the Company’s control.

 

20

 

 

NOTE 11: COMMON STOCK

 

On September 24, 2021, upon the closing of the Business Combination, the Company issued (1) 13,037,901 shares of voting common stock in exchange for AMHC’s outstanding shares of Class A common stock, (2) 23,482,387 shares of voting common stock and (3) 1,296,022 shares of non-voting common stock in exchange for outstanding shares of Old Jasper preferred stock and common stock.

 

The Company is authorized to issue 490,000,000 shares of voting common stock, 2,000,000 shares of non-voting common stock, and 10,000,000 shares of undesignated preferred stock. There were 36,520,288 shares of voting common stock, 1,296,022 shares of non-voting common stock and no shares of preferred stock issued and outstanding as of September 30, 2021.

 

Holders of the voting common stock and the non-voting common stock have similar rights, except that non-voting stockholders are not entitled to vote, including for the election of directors. Holders of voting common stock do not have conversion rights, while holders of non-voting common stock have the right to convert each share of non-voting common stock held by such holder into one share of voting common stock at such holder’s election by providing written notice to the Company, provided that as a result of such conversion, such holder, together with its affiliates, would not beneficially own in excess of 9.9% of the Company’s voting common stock following such conversion.

 

As of September 30, 2021 and December 31, 2020, the Company had common stock reserved for future issuance as follows:

 

   September 30,   December 31, 
   2021   2020 
Redeemable convertible preferred stock    
    15,480,195 
Outstanding and issued common stock options   2,721,557    2,983,594 
Common stock warrants   4,999,993    
 
Shares available for grant under 2019 Equity Incentive Plan   
    430,893 
Shares available for grant under 2021 Equity Incentive Plan   4,400,000    
 
Shares available for grant under 2021 Employee Stock Purchase Plan   550,000    
 
Total shares of common stock reserved    12,671,550    18,894,682 

 

21

 

 

Founders’ Common Stock

 

In March 2018, the Company issued 2,259,024 shares of common stock with the fair value of $0.04 per share to its founders for services and intellectual property. As consideration for the shares, the Company received $6,000 in cash and intellectual property with estimated fair value of $0.1 million, which was recognized as research and development expenses, as the technology did not have an alternative use. Issued shares vested 25% at the issuance date and over 36 months thereafter. The Company had a right to repurchase unvested shares at the price paid by founders. At the closing of the Business Combination, shares of common stock subject to repurchase were converted into shares of common stock subject to restricted stock awards.

 

The Company accounts for issued shares as stock-based compensation to founders as consultants and recognizes stock-based compensation expense over the vesting period. As of September 30, 2021, the Company recorded less than $0.1 million as restricted stock liability, related to 611,818 unvested shares of common stock. Stock-based compensation expense was $3,141 for each of the nine months ended September 30, 2020 and 2021. Unrecognized stock-based compensation expense of $8,968 as of September 30, 2021 is expected to be recognized over 2.1 years.

 

NOTE 12. STOCK-BASED COMPENSATION

 

On September 23, 2021, the 2021 Equity Incentive Plan (“2021 Plan”) and the 2021 Employee Stock Purchase Plan (“2021 ESPP”) became effective upon the prior approval of the Company’s Board and stockholders. As of September 30, 2021, 4,400,000 and 550,000 shares were reserved and available for grants under the 2021 Plan and 2021 ESPP, respectively. In addition, the 2021 Plan and 2021 ESPP provide for annual automatic increases in the number of shares reserved under each plan, beginning on January 1, 2022. The number of shares available for issuance under the 2021 Plan will increase annually in an amount equal to the least of (i) 2,750,000 shares, (ii) a number of shares equal to 4% of the total number of shares of all classes of common stock of the Company outstanding on the last day of the immediately preceding fiscal year, or (iii) such lesser number of shares determined by the Board no later than the last day of the immediately preceding fiscal year. The number of shares of common stock available for issuance under the 2021 ESPP will increase annually in an amount equal to the least of (i) 550,000 shares of common stock, (ii) a number of shares of common stock equal to 1% of the total number of shares of all classes of common stock of the Company on the last day of the immediately preceding fiscal year, or (iii) such number of shares determined by the Board.

 

Under the 2021 Plan, the Company can grant incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards and other awards to employees, directors and consultants. Under the 2021 ESPP, the Company can grant purchase rights to employees to purchase shares of common stock at a purchase price which equal to 85% of the fair market value of common stock on the offering date or on the exercise date, whichever is lower. No awards have been granted under the 2021 Plan and no shares have been issued under the ESPP as of September 30, 2021.

 

No further awards will be granted under the 2019 Equity Incentive Plan (“2019 Plan”) and options to purchase 2,721,557 shares of common stock that remain outstanding and unexercised will continue to be governed by the 2019 Plan. In addition, shares of the Company’s common stock subject to outstanding awards granted under the 2019 Plan that (a) are not issued because the award or any portion of the award expires or otherwise terminates without all of the shares covered by the award having been issued, (b) are withheld or reacquired to satisfy the exercise, strike or purchase price or (c) are withheld or reacquired to satisfy a tax withholding obligation will also be added to the number of shares of the Company’s common stock available for issuance pursuant to the 2021 Plan.

 

Stock Option Activity

 

The following table summarizes the activity under the 2021 and 2019 Plans for the nine months ended September 30, 2021:

 

       Options Outstanding   Weighted -     
   Shares
Available
for Grant
   Number of
Shares
   Weighted
Average
Exercise
Price
   Average
Remaining
Contractual
Life (Years)
   Aggregate
Intrinsic
Value (in
thousands)
 
Balance, January 1, 2021   430,893    2,983,574   $0.71    9.52   $5,500 
Options granted   (145,753)   145,753   $2.59           
Options exercised   
    (285,046)  $0.71           
Options cancelled/forfeited   122,724    (122,724)  $0.71           
Balance, September 30, 2021   407,864    2,721,557   $0.81    9.06   $25,723 
Vested and expected to vest, September 30, 2021        2,721,557   $0.81    9.06   $25,723 
Exercisable        1,428,600   $0.71    8.74   $13,642 

 

22

 

 

Aggregate intrinsic value represents the difference between the estimated fair value of the underlying common stock and the exercise price of outstanding, in-the-money options. The total intrinsic value of the options exercised during the nine months ended September 30, 2021 was $1.6 million.

 

The total fair value of options that vested during the nine months ended September 30, 2021 was $1.2 million. The weighted-average grant date fair value of options granted during the nine months ended September 30, 2021 was $2.66 per share.

 

Future stock-based compensation for unvested options as of September 30, 2021 was $1.8 million, which is expected to be recognized over a weighted-average period of 2.7 years.

 

Stock-Based Compensation Expense

 

The following table presents stock-based compensation expenses related to options granted to employee and non-employees, and restricted common stock shares issued to founders (in thousands):

 

   Three Months Ended
September 30,
   Nine Months Ended
September 30,
 
   2021   2020   2021   2020 
General and administrative  $80   $170   $337   $550 
Research and development   115    146    480    223 
Total   $195   $316   $817   $773 

 

Valuation of Stock Options

 

The grant date fair value of employee stock options was estimated using a Black-Scholes option-pricing model with the following weighted-average assumptions:

 

    Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
    2020    2021    2020 
Expected term (in years)   5.276.06     5.296.08     5.006.06 
Expected volatility   74.27% – 75.14%    75.27% – 75.79%    74.27% – 75.61% 
Risk-free interest rate   0.27% – 0.36%    0.65% – 0.80%    0.27% – 0.41% 
Expected dividend yield            

 

No stock options were granted during the three months ended September 30, 2021.

 

The determination of the fair value of stock options on the date of grant using a Black-Scholes option-pricing model is affected by the estimated fair value of the Company’s common stock, as well as assumptions regarding a number of variables that are complex, subjective and generally require significant judgment to determine. The valuation assumptions were determined as follows:

 

Fair Value of Common Stock

 

Prior to the Business Combination, the grant date fair value of the Company’s common stock was determined by the board of directors with the assistance of management and an independent third-party valuation specialist. The grant date fair value of the Company’s common stock was determined using valuation methodologies that utilize certain assumptions including probability weighting of events, volatility, time to liquidation, a risk-free interest rate and an assumption for a discount for lack of marketability (Level 3 inputs). In determining the fair value of the Company’s common stock, the methodologies used to estimate the enterprise value of the Company were performed using methodologies, approaches, and assumptions consistent with the American Institute of Certified Public Accountants Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation.

 

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After the Business Combination, the Company uses its closing market price as of the grant date to estimate an option’s grant date fair value.

 

Expected Term

 

The expected term represents the period that the options granted are expected to be outstanding and is determined using the simplified method (based on the mid-point between the vesting date and the end of the contractual term) as the Company has concluded that its stock option exercise history does not provide a reasonable basis upon which to estimate expected term.

 

Expected Volatility

 

The Company derived the expected volatility from the average historical volatilities over a period approximately equal to the expected term of comparable publicly traded companies within its peer group that were deemed to be representative of future stock price trends as the Company does not have any trading history for its common stock. The Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of its own stock price becomes available.

 

Risk-Free Interest Rate

 

The risk-free interest rate is based on the U.S. Treasury rate, with maturities similar to the expected term of the stock options.

 

Expected Dividend Yield

 

The Company does not anticipate paying any dividends in the foreseeable future and, therefore, uses an expected dividend yield of zero.

 

NOTE 13. NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS

 

The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders (in thousands, except share and per share data):

 

   Three Months Ended
September 30,
   Nine Months Ended
September 30,
 
   2021   2020   2021   2020 
Numerator:                
Net loss attributable to common stockholders  $(3,412)  $(10,825)  $(21,580)  $(21,682)
Denominator:                    
Weighted average common shares outstanding   5,696,303    2,695,264    3,775,454    2,695,264 
Less: Weighted-average unvested restricted shares   (650,186)   (932,564)   (720,254)   (1,002,837)
Less: Weighted-average shares subject to earnout   (79,891)   
    (26,923)   
 
Weighted average shares used to compute basic and diluted net loss per share   4,966,226    1,762,700    3,028,277    1,692,427 
                     
Net loss per share attributable to common stockholders – basic and diluted  $(0.69)  $(6.14)  $(7.13)  $(12.81)

 

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As a result of the Business Combination, the Company has retroactively adjusted the weighted-average number of shares of common stock outstanding prior to the Closing Date by multiplying them by the exchange ratio of 0.2823780 used to determine the number of shares of the Company’s common stock into which they were exchanged. The common stock issued as a result of the redeemable convertible preferred stock conversion on the Closing Date was included in the basic net loss per share calculation on a prospective basis. Earnout Shares were not included in the net loss per share as the triggering events are contingent upon the Company’s common stock price exceeding specific thresholds, which were not met as of September 30, 2021.

 

The potential shares of common stock that were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented because including them would have had an antidilutive effect were as follows:

 

   September 30, 
   2021   2020 
Outstanding and issued common stock options   2,721,557    2,998,303 
Unvested restricted common stock   611,818    894,197 
Redeemable convertible preferred stock   
    11,437,627 
Total   3,333,375    15,330,127 

 

NOTE 14. 401(K) SAVINGS PLAN

 

The Company has a retirement and savings plan under Section 401(k) of the Internal Revenue Code of 1986, as amended (the “401(k) Plan”), covering all U.S. employees. The 401(k) Plan allows employees to make pre-tax contributions up to the maximum allowable amount set by the Internal Revenue Service. The Company may make contributions to the 401(k) Plan at its discretion. No contributions were made to the 401(k) Plan by the Company for the three and nine months ended September 30, 2021 and 2020.

 

NOTE 15. RELATED PARTIES

 

The Company entered into consulting agreements with two founders, who also received founders’ common stock shares for services and assigned patents. Also, the Company’s licensed technology from Stanford (see Note 7) was created in the laboratory of Professor Judith Shizuru, one of the founders. The Company recorded $0.1 million of expense for advisory and consulting services performed for each of the three months ended September 30, 2021 and 2020, and $0.2 million for each of the nine months ended September 30, 2021 and 2020.

 

In December 2020, the Company entered into a material transfer agreement with Zai Lab Limited where both companies will collaborate on a research project and share total expenses of up to $0.3 million equally. The Company recorded $36,000 as a reduction to research and development expenses for expenses reimbursed by Zai Lab Limited for the nine months ended September 30, 2021. No expenses were reimbursed by Zai Lab during the three months ended September 30, 2021. The Company’s chief executive officer is a board member of Zai Lab Limited.

 

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