Full Press Release Details
In connection with the closing of the Merger (as defined below in Note 1) Dianthus Therapeutics, Inc. changed its name to Dianthus Therapeutics OpCo, Inc. on September 11, 2023. For the purposes of these Financial Statements, Dianthus Therapeutics, Inc. is referring to the company prior to the Merger.
DIANTHUS THERAPEUTICS, INC.
| Page(s) | ||||
| Years ended December 31, 2022 and 2021 | ||||
| Report of Independent Registered Public Accounting Firm (Deloitte & Touche LLP, PCAOB ID 34) | F-2 | |||
| Financial Statements | ||||
| Balance Sheets as of December 31, 2022 and 2021 | F-3 | |||
| Statements of Operations and Comprehensive Loss for the years ended December 31, 2022 and 2021 | F-4 | |||
| Statements of Changes in Convertible Preferred Stock and Stockholders' Equity/(Deficit) for the years ended December 31, 2022 and 2021 | F-5 | |||
| Statements of Cash Flows for the years ended December 31, 2022 and 2021 | F-6 | |||
| Notes to Financial Statements | F-7 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Dianthus Therapeutics, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Dianthus Therapeutics OpCo, Inc. (formerly Dianthus Therapeutics, Inc.) (the "Company") as of December 31, 2022 and 2021, the related statements of operations and comprehensive loss, changes in convertible preferred stock and stockholders' equity/(deficit) and cash flows, for each of the two years in the period ended December 31, 2022, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has incurred significant losses and negative cash flows from operations and has limited capital resources to fund ongoing operations, which raises substantial doubt about its ability to continue as a going concern. Management's plans regarding these matters are also described in Note 1. The financial statements do not includ
e any adjustments that might result from the outcome of these uncertainties.
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte & Touche LLP
Morristown, New Jersey
May 15, 2023 (December 21, 2023, as to the effects of the exchange ratio described in Note 1)
We have served as the Company's auditor since 2022.
DIANTHUS THERAPEUTICS, INC.
(in thousands, except share and per share data)
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 15,365 | $ | 7,638 | ||||
| Short-term investments | 60,125 | - | ||||||
| Receivable from related party | 4,700 | 469 | ||||||
| Unbilled receivable from related party | 938 | 1,007 | ||||||
| Prepaid expenses and other current assets | 905 | 274 | ||||||
| Total current assets | 82,033 | 9,388 | ||||||
| Property and equipment, net | 142 | 33 | ||||||
| Right-of-use operating lease assets | 814 | - | ||||||
| Other assets and restricted cash | 121 | 30 | ||||||
| Total assets | $ | 83,110 | $ | 9,451 | ||||
| Liabilities, Convertible Preferred Stock and Stockholders' Equity/(Deficit) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 1,167 | $ | 1,359 | ||||
| Accrued expenses | 6,608 | 3,993 | ||||||
| Current portion of deferred revenue-related party | 100 | - | ||||||
| Current portion of operating lease liabilities | 350 | - | ||||||
| Total current liabilities | 8,225 | 5,352 | ||||||
| Deferred revenue-related party | 791 | - | ||||||
| Long-term operating lease liabilities | 438 | - | ||||||
| Total liabilities | 9,454 | 5,352 | ||||||
| Commitments and contingencies (Note 15) | ||||||||
| Preferred stock, $ 0.0001 par value per share; 33,336,283 and 10,329,266 shares authorized at December 31, 2022 and 2021, respectively | ||||||||
| Convertible preferred stock: | ||||||||
| Series Seed 1 convertible preferred stock, 6,500,000 shares designated, issued, and outstanding, liquidation preference of $ 6,500 at December 31, 2022 and 2021 | 6,436 | 6,436 | ||||||
| Series Seed 2 convertible preferred stock, 3,829,265 shares designated, issued, and outstanding, liquidation preference of $ 15,000 at December 31, 2022 and 2021 | 14,912 | 14,912 | ||||||
| Series A convertible preferred stock, 23,007,017 shares designated, issued, and outstanding, liquidation preference of $ 100,000 at December 31, 2022 | 96,676 | - | ||||||
| Total convertible preferred stock | 118,024 | 21,348 | ||||||
| Stockholders' equity/(deficit): | ||||||||
| Common stock, $ 0.0001 par value per share; 8,722,279 and 3,706,968 shares authorized at December 31, 2022 and 2021, respectively, 875,279 shares issued and outstanding at December 31, 2022 and 2021 | - | - | ||||||
| Additional paid-in capital | 1,661 | 143 | ||||||
| Accumulated deficit | ( 45,868 | ) | ( 17,392 | ) | ||||
| Accumulated other comprehensive loss | ( 161 | ) | - | |||||
| Total stockholders' equity/(deficit) | ( 44,368 | ) | ( 17,249 | ) | ||||
| Total liabilities, convertible preferred stock and stockholders' equity/(deficit) | $ | 83,110 | $ | 9,451 |
The accompanying notes are an integral part of these financial statements.
DIANTHUS THERAPEUTICS, INC.
Statements of Operations and Comprehensive Loss
(in thousands, except share and per share data)
| Years Ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Revenues: | ||||||||
| License revenue-related party | $ | 6,417 | $ | 1,476 | ||||
| Operating expenses: | ||||||||
| Research and development | 29,379 | 12,606 | ||||||
| General and administrative | 6,743 | 1,956 | ||||||
| Total operating expenses | 36,122 | 14,562 | ||||||
| Loss from operations | ( 29,705 | ) | ( 13,086 | ) | ||||
| Other income/(expense): | ||||||||
| Interest income | 1,145 | 3 | ||||||
| Gain/(loss) on currency exchange, net | 136 | ( 26 | ) | |||||
| Other expense | ( 52 | ) | - | |||||
| Total other income/(expense) | 1,229 | ( 23 | ) | |||||
| Net loss | $ | ( 28,476 | ) | $ | ( 13,109 | ) | ||
| Net loss per share attributable to common stockholders, basic and diluted | $ | ( 32.57 | ) | $ | ( 15.01 | ) | ||
| Weighted-average number of common shares outstanding, used in computing net loss per common share, basic and diluted | 874,234 | 873,471 | ||||||
| Other comprehensive loss: | ||||||||
| Net loss | $ | ( 28,476 | ) | $ | ( 13,109 | ) | ||
| Other comprehensive loss: | ||||||||
| Change in unrealized losses related to available-for-sale debt securities | ( 161 | ) | - | |||||
| Total other comprehensive loss | ( 161 | ) | - | |||||
| Total comprehensive loss | $ | ( 28,637 | ) | $ | ( 13,109 | ) |
The accompanying notes are an integral part of these financial statements.
DIANTHUS THERAPEUTICS, INC.
Statements of Changes in Convertible Preferred Stock and Stockholders' Equity/(Deficit)
(in thousands, except share data)
| Convertible Preferred Stock | Stockholders' Equity/(Deficit) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Series Seed 1 Convertible Preferred Stock | Series Seed 2 Convertible Preferred Stock | Series A Convertible Preferred Stock | Total Convertible Preferred Stock | Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total Stockholders' Equity/ (Deficit) | ||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||
| Balance, January 1, 2021 | 6,500,000 | $ | 6,436 | - | $ | - | - | $ | - | $ | 6,436 | 875,279 | $ | - | $ | 80 | $ | ( 4,283 | ) | $ | - | $ | ( 4,203 | ) | ||||||||||||||||||||||||||||
| Issuance of convertible preferred stock, net of issuance costs of $ 88 | - | - | 3,829,265 | 14,912 | - | - | 14,912 | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | - | - | - | - | - | - | - | - | - | 63 | - | - | 63 | |||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | - | ( 13,109 | ) | - | ( 13,109 | ) | |||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | 6,500,000 | $ | 6,436 | 3,829,265 | $ | 14,912 | - | $ | - | $ | 21,348 | 875,279 | $ | - | $ | 143 | $ | ( 17,392 | ) | $ | - | $ | ( 17,249 | ) | ||||||||||||||||||||||||||||
| Issuance of convertible preferred stock, net of issuance costs of $ 3,324 | - | - | - | - | 23,007,017 | 96,676 | 96,676 | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | - | - | - | - | - | - | - | - | - | 1,518 | - | - | 1,518 | |||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | - | ( 28,476 | ) | - | ( 28,476 | ) | |||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | - | - | - | - | - | - | - | - | - | - | - | ( 161 | ) | ( 161 | ) | |||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | 6,500,000 | $ | 6,436 | 3,829,265 | $ | 14,912 | 23,007,017 | $ | 96,676 | $ | 118,024 | 875,279 | $ | - | $ | 1,661 | $ | ( 45,868 | ) | $ | ( 161 | ) | $ | ( 44,368 | ) |
The accompanying notes are an integral part of these financial statements.
DIANTHUS THERAPEUTICS, INC.
Statements of Cash Flows
| Years Ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( 28,476 | ) | $ | ( 13,109 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation expense | 30 | - | ||||||
| Stock-based compensation expense | 1,518 | 63 | ||||||
| Accretion on short-term investments | ( 606 | ) | - | |||||
| Amortization of right-of-use operating lease assets | 117 | - | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Receivable from related party | ( 4,231 | ) | ( 469 | ) | ||||
| Unbilled receivable from related party | 69 | ( 1,007 | ) | |||||
| Prepaid expenses and other current assets | ( 631 | ) | ( 271 | ) | ||||
| Other assets | ( 31 | ) | ( 30 | ) | ||||
| Accounts payable, accrued expenses and operating lease liabilities | 2,280 | 4,919 | ||||||
| Deferred revenue-related party | 891 | - | ||||||
| Net cash used in operating activities | ( 29,070 | ) | ( 9,904 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Capital expenditures | ( 139 | ) | ( 33 | ) | ||||
| Purchases of short-term investments | ( 61,680 | ) | - | |||||
| Proceeds from maturities of short-term investments | 2,000 | - | ||||||
| Net cash used in investing activities | ( 59,819 | ) | ( 33 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of Series A convertible preferred stock | 100,000 | - | ||||||
| Payment of issuance costs for Series A convertible preferred stock | ( 3,324 | ) | - | |||||
| Proceeds from issuance of Series Seed 2 convertible preferred stock | - | 15,000 | ||||||
| Payment of issuance costs for Series Seed 2 convertible preferred stock | - | ( 88 | ) | |||||
| Net cash provided by financing activities | 96,676 | 14,912 | ||||||
| Increase in cash, cash equivalents and restricted cash | 7,787 | 4,975 | ||||||
| Cash, cash equivalents and restricted cash, beginning of period | 7,638 | 2,663 | ||||||
| Cash, cash equivalents and restricted cash, end of period | $ | 15,425 | $ | 7,638 | ||||
| Supplemental Disclosure | ||||||||
| Cash and cash equivalents | $ | 15,365 | $ | 7,638 | ||||
| Restricted cash | 60 | - | ||||||
| Total cash, cash equivalents and restricted cash | $ | 15,425 | $ | 7,638 | ||||
| Cash paid for interest | $ | - | $ | - | ||||
| Cash paid for taxes | $ | - | $ | - | ||||
| Additions to right-of-use lease assets from new operating lease liabilities | $ | 931 | $ | - |
The accompanying notes are an integral part of these financial statements.
DIANTHUS THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS
1. Nature of Organization and Operations
Dianthus Therapeutics, Inc. ("Dianthus" or the "Company") is a clinical-stage biotechnology company focused on developing next-generation complement therapeutics for patients with severe autoimmune and inflammatory diseases. Dianthus was incorporated in the State of Delaware on May 1, 2019 and its corporate headquarters is located in New York, New York.
Currently, the Company is devoting substantially all efforts and resources toward product research and development. The Company has incurred losses from operations and negative operating cash flows since its inception. There can be no assurance that its research and development programs will be successful, that products developed will obtain necessary regulatory approval, or that any approved product will be commercially viable. In addition, the Company operates in an environment of rapid technological change and is largely dependent on the services of its key employees, consultants, and advisors.
The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry including, but not limited to, uncertainty of product development and commercialization, lack of marketing and sales history, development by its competitors of new technological innovations, dependence on its key personnel, market acceptance of products, product liability, protection of proprietary technology, ability to raise additional financing, and compliance with government regulations. If the Company does not successfully commercialize any of its product candidates, it will be unable to generate recurring product revenue or achieve profitability.
The Company's potential product candidates that are in development require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure, and extensive compliance-reporting capabilities. Even if its product development efforts are successful, it is uncertain when, if ever, the Company will generate revenue from product sales.
Liquidity and Going Concern
In accordance with Accounting Standards Update No. 2014-15,
Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern
the Company evaluated the following adverse conditions and events that raise substantial doubt about the Company's ability to continue as a going concern within one year after the date that the accompanying financial statements were issued (the "issuance date"):
While the Company is seeking to secure additional outside capital as of the issuance date, management can provide no assurance such capital will be secured or on terms that are acceptable to the Company.
Similarly, as disclosed in Note 17, while the Company plans to consummate a reverse merger and concurrent private financing during the second half of fiscal year 2023, management can provide no assurance the reverse merger and concurrent private financing will be consummated on terms that are acceptable to the Company, if at all.
In the event the Company is unable to secure additional outside capital and/or consummate the reverse merger and concurrent private financing, management will be required to seek other alternatives which may include, among others, a delay or termination of clinical trials or the development of its product candidates, temporary or permanent curtailment of the Company's operations, a sale of assets, or other alternatives with strategic or financial partners. These uncertainties raise substantial doubt about the Company's ability to continue as a going concern.
The accompanying financial statements do not include any adjustments that might result from the outcome of these uncertainties. Accordingly, the financial statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.
Merger and Exchange Ratio
On May 2, 2023, the Company entered into a Merger Agreement with Magenta Therapeutics, Inc. ("Magenta") and Dio Merger Sub, Inc. ("Merger Sub"). Pursuant to the Merger Agreement, among other matters, Merger Sub merged with and into the Company with the Company continuing as a wholly owned subsidiary of Magenta and the surviving corporation of the merger ("Merger"). Concurrently with the execution of the Merger Agreement, and in order to provide the Company with additional capital for its development programs prior to the closing of this Merger, certain new and existing investors have agreed to purchase an aggregate of approximat
ely $72.0 million of common stock and pre-funded warrants of the Company in a pre-closing financing.
On September 11, 2023, the Company completed its Merger with Magenta and Merger Sub. In connection with the completion of the Merger, the Company changed its name from "Dianthus Therapeutics, Inc." to "Dianthus Therapeutics OpCo, Inc.," Magenta changed its name to "Dianthus Therapeutics, Inc." and the business conducted by Magenta became primarily the business conducted by the Company.
At the effective time of the Merger, Magenta issued an aggregate of 11,021,248
shares of its common stock to the Company's stockholders (after giving effect to the 1-for-16 reverse stock split of Magenta common stock in connection with the Merger), based on the exchange ratio of approximately
0.2181 shares of Magenta common stock for each share of the Company's common stock, including those shares of the Company's common stock issued upon the conversion of the Company's preferred stock and those shares of the Company's common stock issued in the pre-closing financing (as defined a
), resulting in 14,817,762
shares of the Company's common stock being issued and outstanding following the effective time of the Merger.
The Merger has been accounted for as a reverse recapitalization in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP"). Under this method of accounting, the Company is deemed to be the accounting acquirer for financial reporting purposes. This determination is primarily based on the fact that, immediately following the Merger: (i) the Company's stockholders own a substantial majority of the voting rights in the combined company; (ii) the Company's largest stockholders retained the largest interest in the combined company; (iii) the Company designated a majority (six of eight) of the initial members of the board of directors of the combined company; and (iv) the Company's executive management team became the management team of the combined company. Historical common share figures of the Company have been retroactively restated based on the exchange ratio of approxima
2. Summary of Significant Accounting Policies
Basis of Presentation
The financial statements have been prepared in conformity with U.S. generally accepted accounting principles ("U.S. GAAP"). Any reference in these notes to applicable guidance is meant to refer to authoritative U.S. GAAP as found in the Accounting Standards Codification ("ASC") and Accounting Standards Updates ("ASU") of the Financial Accounting Standards Board ("FASB").
Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the Chief Operating Decision Maker ("CODM") in deciding how to allocate resources and in assessing performance. The Company's CODM is its Chief Executive Officer ("CEO"). The Company operates as a single operating segment and has one reportable segment.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results may differ materially from those estimates.
Management considers many factors in selecting appropriate financial accounting policies and controls, and in developing the estimates and assumptions that are used in the preparation of these financial statements. Management must apply significant judgment in this process. In addition, other factors may affect estimates including the following: expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes, and management must select an amount that falls within that range of reasonable estimates. Significant estimates are used in the following areas, among others: the recognition of research and development expense, stock-based compensation expense and revenue recognition.
Cash and Cash Equivalents
highly liquid investments with original maturities of 90 days or less are considered to be cash and cash equivalents. The carrying amounts reported in the balance sheets for cash and cash equivalents are valued at cost, which approximates fair value.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents and short-term investments. The Company regularly maintains deposits in accredited financial institutions in excess of federally insured limits. The Company invests its excess cash primarily in money market funds, U.S. treasury securities and U.S. government agency securities in accordance with the Company's investment policy. The Company's investment policy defines allowable investments and establishes guidelines relating to credit quality, diversification, and maturities of its investments to preserve principal and maintain liquidity. The Company has not experienced any realized losses related to its cash, cash equivalents and short-term investments and management believes the Company is not exposed to significant risks of losses.
As of December 31, 2022, the Company held cash deposits at Silicon Valley Bank ("SVB") in excess of government insured limits. On March 10, 2023, SVB was closed by the California Department of Financial Protection and Innovation, and the Federal Deposit Insurance Corporation was appointed as receiver. No losses were incurred by the Company on deposits that were held at SVB. Management believes that the Company is not currently exposed to significant credit risk as the vast majority of the Company's deposits were either owned directly by the Company and held in custody at a third-party financial institution or, subsequent to March 10, 2023, have been transferred to a third-party financial institution. The Company does not currently have any other significant relationships with SVB.
Short-term Investments
Short-term investments consist of investments in U.S. treasury and U.S. government agency securities. Management of the Company determines the appropriate classification of the securities at the time they are acquired and evaluates the appropriateness of such classifications at each balance sheet date. The Company classifies its short-term investments as available-for-sale
pursuant to ASC 320, Investments-Debt and Equity Securities
and reports them at fair value in short-term investments with unrealized gains and losses reported as a component of accumulated other comprehensive income loss on the balance sheet. Realized gains and losses and declines in value judged to be other than temporary are included as a component of interest income based on the specific identification method.
Receivable from Related Party and Unbilled Receivable from Related Party
The receivable from related party and unbilled receivable from related party results from option and license agreements with Zenas BioPharma Limited ("Zenas"), a related party. See Notes 12 and 16 for more information. The receivable represents amounts earned and billed to Zenas but not yet collected while unbilled receivable represents amounts estimated to be earned but not yet billed to Zenas. The receivable and unbilled receivable are reported at net realizable value. Management of the Company regularly evaluates the creditworthiness of Zenas and their financial condition and does not require collateral from Zenas. As of December 31, 2022 and 2021, no allowance for doubtful accounts was recorded as all accounts were considered collectible.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is provided using the straight-line method over estimated useful lives of three years for computer equipment and five years for furniture and fixtures. Expenditures for major renewals and betterments that extend the useful lives are capitalized. Expenditures for normal maintenance and repairs are expensed as incurred. The cost of assets sold or abandoned, and the related accumulated depreciation are eliminated from the accounts and any gains or losses are recognized in the accompanying statements of operations and comprehensive loss of the respective period.
Operating leases are accounted for in accordance with ASU 2016-02,
, as amended ("ASC 842"). Right-of-use
lease assets represent the right to use an underlying asset for the lease term and lease liabilities represent an obligation to make lease payments arising from the lease. The measurement of lease liabilities is based on the present value of future lease payments over the lease term. As the Company's leases do not provide an implicit rate, management used the Company's incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future lease payments. The right-of-use
asset is based on the measurement of the lease liability and includes any lease payments made prior to or on lease commencement and excludes lease incentives and initial direct costs incurred, as applicable. Rent expense for operating leases is recognized on a straight-line basis over the lease term. The Company does not have any leases classified as finance leases. Management have elected the practical expedient to exclude short-term leases from right-of-use
assets and lease liabilities.
The Company's leases do not have significant rent escalation, holidays, concessions, material residual value guarantees, material restrictive covenants or contingent rent provisions. The Company's leases include both lease (e.g., fixed payments including rent, taxes, and insurance costs) and non-lease
components (e.g., common-area or other maintenance costs), which are accounted for as a single lease component as management have elected the practical expedient to group lease and non-lease
components for all leases.
Additional information and disclosures required under ASC 842 are included in Note 8.
In accordance with ASU 2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash
, restricted cash is included as a component of cash, cash equivalents and restricted cash in the accompanying statements of cash flows. Restricted cash serves as collateral for a letter of credit securing office space. Restricted cash is recorded within other assets and restricted cash line item in the accompanying balance sheet.
Classification of Convertible Preferred Stock
Convertible preferred stock is recorded at its original issuance price, less direct and incremental offering costs, as stipulated by its terms. The Company has adopted the guidance in ASC 480-10-S99,
Distinguishing Liabilities from Equity-Overall-SEC
, and has therefore classified the convertible preferred stock outside of stockholders' equity/(deficit) in the accompanying balance sheets.
Effective January 1, 2021, the Company early adopted ASU 2020-06,
Debt-Debt with Conversion and Other Options (Subtopic 470-20)
which reduces complexity in applying U.S. GAAP to certain financial instruments with characteristics of liability and equity. The ASU removes the guidance that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock. The adoption did not have any impact on the Company's financial statement presentation or disclosures.
License Revenue-Related Party
To date, the Company's only revenue has been attributable to an upfront payment and cost reimbursements under the Company's license agreement with Zenas. The Company has not generated any revenue from product sales and does not expect to generate any revenue from product sales for the foreseeable future.
The Company recognizes revenue pursuant to ASC 606, Revenue from Contracts with Customers