sava-20210930x10q
false--12-31Q320210001069530YesYes0001069530srt:MaximumMembersava:TwoThousandEighteenEquityIncentivePlanMember2018-01-312018-01-310001069530us-gaap:EmployeeStockOptionMembersava:StockOptionAndPerformanceAwardActivity2020PlanMember2021-09-300001069530us-gaap:EmployeeStockOptionMember2021-09-300001069530us-gaap:EmployeeStockOptionMember2020-12-310001069530sava:TwoThousandEighteenEquityIncentivePlanMember2018-01-312018-01-310001069530us-gaap:PerformanceSharesMember2021-09-300001069530us-gaap:PerformanceSharesMember2020-12-310001069530us-gaap:PerformanceSharesMember2021-01-012021-09-300001069530sava:RegisteredDirectOffering2021Member2021-02-120001069530sava:AtMarketEquityProgramMember2021-07-012021-09-300001069530sava:AtMarketEquityProgramMember2021-01-012021-09-300001069530sava:AtMarketEquityProgramMember2020-07-012020-09-300001069530sava:AtMarketEquityProgramMember2020-01-012020-09-300001069530sava:WarrantsMembersava:CommonStockWarrantsMember2018-08-012018-08-310001069530srt:MaximumMembersava:AtMarketEquityProgramMember2020-03-012020-03-310001069530us-gaap:LeaseholdImprovementsMember2021-01-012021-09-300001069530us-gaap:BuildingAndBuildingImprovementsMember2021-01-012021-09-300001069530us-gaap:LeaseholdImprovementsMember2021-09-300001069530us-gaap:LandMember2021-09-300001069530us-gaap:FurnitureAndFixturesMember2021-09-300001069530us-gaap:BuildingMember2021-09-300001069530us-gaap:BuildingAndBuildingImprovementsMember2021-09-300001069530us-gaap:FurnitureAndFixturesMember2020-12-310001069530sava:WarrantsMembersava:CommonStockWarrantsMember2021-07-012021-09-300001069530us-gaap:EmployeeStockOptionMember2020-01-012020-09-300001069530sava:RegisteredDirectOffering2021Member2021-02-122021-02-120001069530us-gaap:BuildingMember2021-07-012021-09-300001069530us-gaap:BuildingMember2021-01-012021-09-300001069530us-gaap:BuildingMember2020-07-012020-09-300001069530us-gaap:BuildingMember2020-01-012020-09-300001069530sava:AustinMembersava:ShortTermLeaseMember2021-09-300001069530sava:AustinMembersava:OperatingLeasesMember2021-09-300001069530sava:ShortTermLeaseMember2021-09-300001069530sava:OperatingLeasesMember2021-09-300001069530sava:AustinMembersava:ShortTermLeaseMember2021-01-012021-09-300001069530sava:AustinMembersava:OperatingLeasesMember2021-01-012021-09-300001069530us-gaap:LeasesAcquiredInPlaceMember2021-01-012021-09-300001069530us-gaap:LeasesAcquiredInPlaceMember2021-09-300001069530sava:LeasingCommissionsAndOtherMember2021-09-300001069530us-gaap:LeasesAcquiredInPlaceMember2020-12-310001069530sava:LeasingCommissionsAndOtherMember2020-12-3100010695302021-06-3000010695302021-03-3100010695302020-06-3000010695302020-03-310001069530sava:TwoThousandEighteenEquityIncentivePlanMember2018-01-310001069530sava:WarrantsMembersava:CommonStockWarrantsMember2021-09-3000010695302019-12-310001069530sava:AustinMemberus-gaap:LeaseholdImprovementsMember2021-08-040001069530sava:AustinMemberus-gaap:LandMember2021-08-040001069530sava:AustinMemberus-gaap:BuildingMember2021-08-040001069530sava:AustinMemberus-gaap:BuildingAndBuildingImprovementsMember2021-08-040001069530sava:AustinMemberus-gaap:LeasesAcquiredInPlaceMember2021-08-040001069530sava:AustinMembersava:LeasingCommissionsAndOtherMember2021-08-040001069530sava:AustinMember2021-08-040001069530us-gaap:EmployeeStockOptionMember2021-07-012021-09-300001069530us-gaap:EmployeeStockOptionMember2021-01-012021-09-300001069530us-gaap:WarrantMember2020-07-012020-09-300001069530us-gaap:EmployeeStockOptionMember2020-07-012020-09-300001069530us-gaap:WarrantMember2020-01-012020-09-300001069530us-gaap:EmployeeStockOptionMember2020-01-012020-09-300001069530sava:EighthValuationMilestonesMembersava:CashIncentiveBonusPlanMember2021-01-012021-09-300001069530us-gaap:ResearchAndDevelopmentExpenseMember2021-07-012021-09-300001069530us-gaap:GeneralAndAdministrativeExpenseMember2021-07-012021-09-300001069530us-gaap:PerformanceSharesMembersava:StockOptionAndPerformanceAwardActivity2020PlanMember2021-01-012021-09-300001069530us-gaap:EmployeeStockOptionMembersava:StockOptionAndPerformanceAwardActivity2020PlanMember2021-01-012021-09-300001069530us-gaap:ResearchAndDevelopmentExpenseMember2021-01-012021-09-300001069530us-gaap:GeneralAndAdministrativeExpenseMember2021-01-012021-09-300001069530us-gaap:ResearchAndDevelopmentExpenseMember2020-07-012020-09-300001069530us-gaap:GeneralAndAdministrativeExpenseMember2020-07-012020-09-300001069530us-gaap:ResearchAndDevelopmentExpenseMember2020-01-012020-09-300001069530us-gaap:GeneralAndAdministrativeExpenseMember2020-01-012020-09-3000010695302020-09-3000010695302021-09-3000010695302020-12-3100010695302020-01-012020-09-300001069530us-gaap:EmployeeStockOptionMember2021-01-012021-09-300001069530srt:MinimumMembersava:CashIncentiveBonusPlanMember2021-01-012021-09-300001069530srt:MaximumMembersava:CashIncentiveBonusPlanMember2021-01-012021-09-300001069530sava:AustinMemberus-gaap:BuildingMember2021-08-042021-08-040001069530sava:AtMarketEquityProgramMember2020-05-050001069530sava:CashIncentiveBonusPlanMember2021-01-012021-09-300001069530sava:AustinMemberus-gaap:BuildingMember2021-07-012021-09-300001069530sava:AustinMemberus-gaap:BuildingMember2021-01-012021-09-300001069530sava:AustinMemberus-gaap:BuildingMember2020-07-012020-09-300001069530sava:AustinMemberus-gaap:BuildingMember2020-01-012020-09-300001069530sava:WarrantsMembersava:CommonStockWarrantsMember2021-01-012021-09-300001069530sava:WarrantsMembersava:CommonStockWarrantsMember2020-07-012020-09-300001069530sava:WarrantsMembersava:CommonStockWarrantsMember2020-01-012020-09-300001069530us-gaap:EmployeeStockOptionMember2021-07-012021-09-300001069530sava:NonEmployeeStockOptionsMember2021-07-012021-09-300001069530us-gaap:EmployeeStockOptionMember2021-04-012021-06-300001069530sava:NonEmployeeStockOptionsMember2021-04-012021-06-300001069530us-gaap:EmployeeStockOptionMember2021-01-012021-03-310001069530sava:NonEmployeeStockOptionsMember2021-01-012021-03-310001069530us-gaap:EmployeeStockOptionMember2020-07-012020-09-300001069530sava:NonEmployeeStockOptionsMember2020-07-012020-09-300001069530us-gaap:EmployeeStockOptionMember2020-04-012020-06-300001069530sava:NonEmployeeStockOptionsMember2020-04-012020-06-300001069530us-gaap:EmployeeStockOptionMember2020-01-012020-03-310001069530sava:NonEmployeeStockOptionsMember2020-01-012020-03-3100010695302021-07-012021-09-3000010695302021-04-012021-06-3000010695302021-01-012021-03-3100010695302020-07-012020-09-3000010695302020-04-012020-06-3000010695302020-01-012020-03-310001069530srt:MinimumMembersava:Exceeds5BillionMarketCapitalizationMembersava:CashIncentiveBonusPlanMember2021-09-300001069530srt:MinimumMembersava:EighthValuationMilestonesMembersava:CashIncentiveBonusPlanMember2021-09-300001069530srt:MaximumMembersava:Exceeds5BillionMarketCapitalizationMembersava:CashIncentiveBonusPlanMember2021-09-300001069530srt:MaximumMembersava:EighthValuationMilestonesMembersava:CashIncentiveBonusPlanMember2021-09-300001069530sava:CashIncentiveBonusPlanMember2020-10-1300010695302021-11-1000010695302021-01-012021-09-30utr:sqftiso4217:USDxbrli:sharesxbrli:pureiso4217:USDxbrli:shares

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________

Form 10-Q

_____________________

(Mark One)

þ   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: 000-29959

_______________

Cassava Sciences, Inc.

(Exact name of registrant as specified in its charter)

Delaware

91-1911336

(State or other jurisdiction of

(I.R.S.  Employer

incorporation or organization)

Identification Number)

7801 N. Capital of Texas Highway, Suite 260, Austin, TX 78731

(512) 501-2444

(Address, including zip code, of registrant’s principal executive offices and

telephone number, including area code)

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

0

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.001 par value

 

SAVA

 

Nasdaq Capital Market

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 þ   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 þ   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 þ

Smaller Reporting Company þ

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 þ

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

Common Stock, $0.001 par value

40,016,792

Shares Outstanding as of November 10, 2021

 

1


CASSAVA SCIENCES, INC.

TABLE OF CONTENTS

Page No.

PART I.

FINANCIAL INFORMATION

Item 1.

Financial Statements

Condensed Consolidated Balance Sheets – September 30, 2021 and December 31, 2020

3

Condensed Consolidated Statements of Operations – Three and Nine Months Ended September 30, 2021 and 2020

4

Condensed Consolidated Statements of Cash Flows – 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

17

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

34

Item 4.

Controls and Procedures

34

PART II.

OTHER INFORMATION

Item 1.

Legal Proceedings

34

Item 1A

Risk Factors

35

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

37

Item 3.

Defaults Upon Senior Securities

37

Item 4.

Mine Safety Disclosures

37

Item 5.

Other Information

37

Item 6.

Exhibits

38

Signatures

39

 

2


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CASSAVA SCIENCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands, except share and par value data)

September 30, 2021

December 31, 2020

ASSETS

Current assets:

Cash and cash equivalents

$

241,524

$

93,506

Prepaid expenses and other current assets

10,391

488

Total current assets

251,915

93,994

Operating lease right-of-use assets

231

295

Property and equipment, net

20,695

11

Intangible assets, net

1,209

Other assets

199

Total assets

$

274,249

$

94,300

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

2,345

$

911

Accrued development expense

3,251

719

Accrued compensation and benefits

126

83

Operating lease liabilities, current

95

58

Other current liabilities

509

94

Total current liabilities

6,326

1,865

Operating lease liabilities, non-current

164

235

Other non-current liabilities

194

Total liabilities

6,684

2,100

Commitments and contingencies (Notes 9, 11 and 13)

 

 

Stockholders' equity:

Preferred stock, $0.001 par value; 10,000,000 shares authorized, none issued and outstanding

Common stock, $0.001 par value; 120,000,000 shares authorized; 40,016,792 and 35,237,987 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively

40

35

Additional paid-in capital

460,659

267,086

Accumulated deficit

(193,134)

(174,921)

Total stockholders' equity

267,565

92,200

Total liabilities and stockholders' equity

$

274,249

$

94,300

See accompanying notes to condensed consolidated financial statements.


3


 

CASSAVA SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands, except per share data)

Three months ended

Nine months ended

September 30,

September 30,

2021

2020

2021

2020

Operating expenses:

Research and development, net of grant reimbursement

$

8,041

$

399

$

14,471

$

1,534

General and administrative

1,712

1,038

3,953

2,634

Gain on sale of property and equipment

(346)

Total operating expenses

9,753

1,437

18,424

3,822

Operating loss

(9,753)

(1,437)

(18,424)

(3,822)

Interest income

15

7

35

106

Other income, net

176

176

Net loss

$

(9,562)

$

(1,430)

$

(18,213)

$

(3,716)

Net loss per share, basic and diluted

$

(0.24)

$

(0.06)

$

(0.46)

$

(0.15)

Shares used in computing net loss per share, basic and diluted

39,957

24,972

39,218

24,745

See accompanying notes to condensed consolidated financial statements.


4


 

CASSAVA SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

Nine months ended September 30,

2021

2020

Cash flows from operating activities:

Net loss

$

(18,213)

$

(3,716)

Adjustments to reconcile net loss to net cash used in operating activities:

Stock-based compensation

1,237

750

Depreciation

131

21

Amortization of intangible assets

90

Gain on sale of property and equipment

(346)

Changes in operating assets and liabilities:

Prepaid and other assets

(10,102)

(729)

Operating lease right-of-use assets and liabilities

30

Accounts payable

1,434

12

Accrued development expense

2,532

(219)

Accrued compensation and benefits

43

22

Other current liabilities

609

(2)

Net cash used in operating activities

(22,209)

(4,207)

Cash flows from investing activities:

Purchase of property and equipment

(22,114)

Proceeds from sale of property and equipment

360

Net cash (used in) provided by investing activities

(22,114)

360

Cash flows from financing activities:

Proceeds from issuance of common stock upon exercise of stock options

1,824

256

Proceeds from issuance of common stock upon exercise of common stock warrants

692

4,584

Proceeds from registered direct offering, net of issuance costs

189,825

Net cash provided by financing activities

192,341

4,840

Net increase in cash and cash equivalents

148,018

993

Cash and cash equivalents at beginning of period

93,506

23,081

Cash and cash equivalents at end of period

$

241,524

$

24,074

See accompanying notes to condensed consolidated financial statements.


5


Cassava Sciences, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1. General and Liquidity

Cassava Sciences, Inc. and its wholly-owned subsidiaries (collectively referred to as the “Company”) discovers and develops proprietary pharmaceutical product candidates that may offer significant improvements to patients and healthcare professionals. The Company generally focuses its discovery and product development efforts on disorders of the nervous system.

The accompanying unaudited condensed financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and pursuant to the instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. All intercompany transactions and balances have been eliminated in consolidation. Accordingly, the condensed financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management of the Company, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for any other interim period or for the year 2021. For further information, refer to the financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Coronavirus Disease 2019 (COVID-19)

The widespread outbreak of a novel infectious disease called Coronavirus Disease 2019, or COVID-19, has not significantly impacted the Company’s operations or financial condition as of November 15, 2021. However, this pandemic has created a dynamic and uncertain situation in the national economy. The Company continues to closely monitor the latest information to make timely, informed business decisions and public disclosures regarding the potential impact of pandemic on its operations and financial condition. The scope of pandemic is unprecedented and its long-term impact on the Company’s operations and financial condition cannot be reasonably estimated at this time.

Liquidity

The Company has incurred significant net losses and negative cash flows since inception, and as a result has an accumulated deficit of $193.1 million at September 30, 2021. The Company expects its cash requirements to be significant in the future. The amount and timing of the Company’s future cash requirements will depend on regulatory and market acceptance of its product candidates and the resources it devotes to researching and developing, formulating, manufacturing, commercializing and supporting its products. The Company may seek additional funding through public or private financing in the future, if such funding is available and on terms acceptable to the Company. There are no assurances that additional financing will be available on favorable terms, or at all. However, management believes that the current working capital position will be sufficient to meet the Company’s working capital needs for at least the next 12 months.

Note 2.  Significant Accounting Policies

Use of Estimates

The Company makes estimates and assumptions in preparing its condensed financial statements in conformity with GAAP. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed financial statements and the reported amount of revenue earned and expenses incurred during the reporting period. The Company evaluates its estimates on an ongoing basis, including those estimates related to manufacturing agreements and research collaborations. Actual results could differ from these estimates and assumptions.

6


Cash and Cash Equivalents and Concentration of Credit Risk

The Company invests in cash and cash equivalents. The Company considers highly liquid financial instruments with original maturities of three months or less to be cash equivalents. Highly liquid investments that are considered cash equivalents include money market accounts and funds, certificates of deposits, and U.S. Treasury securities. The Company maintains its cash and cash equivalents at one financial institution.

Fair Value Measurements

The Company recognizes financial instruments in accordance with the authoritative guidance on fair value measurements and disclosures for financial assets and liabilities. This guidance defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements. The guidance also establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:

Level 1 includes quoted prices in active markets.

Level 2 includes significant observable inputs, such as quoted prices for identical or similar securities, or other inputs that are observable and can be corroborated by observable market data for similar securities. The Company uses market pricing and other observable market inputs obtained from third-party providers. It uses the bid price to establish fair value where a bid price is available. The Company does not have any financial instruments where the fair value is based on Level 2 inputs.

Level 3 includes unobservable inputs that are supported by little or no market activity. The Company does not have any financial instruments where the fair value is based on Level 3 inputs.

If a financial instrument uses inputs that fall in different levels of the hierarchy, the instrument will be categorized based upon the lowest level of input that is significant to the fair value calculation. The fair value of cash and cash equivalents was based on Level 1 inputs at September 30, 2021 and December 31, 2020.



Proceeds from Grants



During the three months ended September 30, 2021 and 2020, the Company received reimbursements totaling $2.0 million and $1.0 million pursuant to National Institutes of Health (“NIH”) research grants, respectively. During the nine months ended September 30, 2021 and 2020, the Company received reimbursements totaling $3.5 million and $3.4 million pursuant to NIH research grants, respectively. The Company records the proceeds from these grants as reductions to its research and development expenses.

 

Stock-based Compensation 



The Company recognizes non-cash expense for the fair value of all stock options and other share-based awards. The Company uses the Black-Scholes option valuation model (“Black-Scholes”) to calculate the fair value of stock options, using the single-option award approach and straight-line attribution method. For all options granted, it recognizes the resulting fair value as expense on a straight-line basis over the vesting period of each respective stock option, generally four years.



The Company has granted share-based awards that vest upon achievement of certain performance criteria (“Performance Awards”). The Company multiplies the number of Performance Awards by the fair value of its common stock on the date of grant to calculate the fair value of each award. It estimates an implicit service period for achieving performance criteria for each award. The Company recognizes the resulting fair value as expense over the implicit service period when it concludes that achieving the performance criteria is probable. It periodically reviews and updates as appropriate its estimates of implicit service periods and conclusions on achieving the performance criteria. Performance Awards vest and common stock is issued upon achievement of the performance criteria.



Net Loss per Share



The Company computes basic net loss per share on the basis of the weighted-average number of common shares outstanding for the reporting period. Diluted net loss per share is computed on the basis of the weighted-average number of common shares outstanding plus potential dilutive common shares outstanding using the treasury-stock

7


method. Potential dilutive common shares consist of outstanding common stock options and warrants.  There is no difference between the Company’s net loss and comprehensive loss.

The Company included the following in the calculation of basic and diluted net loss per share (in thousands, except per share data):

Three months ended

Nine months ended

September 30,

September 30,

2021

2020

2021

2020

Numerator:

Net loss

$

(9,562)

$

(1,430)

$

(18,213)

$

(3,716)

Denominator:

Shares used in computing net loss per share, basic and diluted

39,957 

24,972 

39,218 

24,745 

Net loss per share, basic and diluted

$

(0.24)

$

(0.06)

$

(0.46)

$

(0.15)

Dilutive common stock options excluded from net loss per share, diluted

2,350 

2,184 

2,219 

2,314 

Common stock warrants excluded from net loss per share, diluted

838 

838 

The Company excluded common stock options and warrants outstanding from the calculation of net loss per share, diluted, because the effect of including options and warrants outstanding would have been anti-dilutive.

Fair Value of Financial Instruments   

Financial instruments include accounts payable and accrued liabilities. The estimated fair value of certain financial instruments may be determined using available market information or other appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop estimates of fair value; therefore, the estimates are not necessarily indicative of the amounts that could be realized or would be paid in a current market exchange. The effect of using different market assumptions and/or estimation methodologies may be material to the estimated fair value amounts. The carrying amounts of accounts payable and accrued liabilities are at cost, which approximates fair value due to the short maturity of those instruments.

Research Contract Costs and Accruals

The Company has entered into various research and development contracts with research institutions and other third-party vendors. These agreements are generally cancelable. Except for refundable deposits, related payments are recorded as research and development expenses as incurred. The Company records accruals for estimated ongoing research costs. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the studies including the phase or completion of events, invoices received and contracted costs. Significant judgments and estimates are made in determining the accrued balances at the end of any reporting period. Actual results could differ from the Company’s estimates. The Company’s historical accrual estimates have not been materially different from actual costs.

Incentive Bonus Plan

In 2020, the Company established the 2020 Cash Incentive Bonus Plan (the “Plan”) to incentivize Plan participants. Awards under the Plan are accounted for as liability awards under Accounting Standards Codification (ASC) 718 “Stock-based Compensation”. The fair value of each potential Plan award will be determined once a grant date occurs and will be remeasured each reporting period. Compensation expense associated with the Plan will be recognized over the expected achievement period for each Plan award, when a Performance Condition (as defined below) is considered probable of being met. See Note 11 for further discussion of the Plan.

Leases

The Company recognizes assets and liabilities that arise from leases. For operating leases, the Company is required to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments during the lease term, in the condensed balance sheets. The Company elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, the Company does not

8


recognize right-of-use assets or lease liabilities. As the Company`s leases do not provide an implicit rate, it uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Property and equipment

Property and equipment is recorded at cost, net of accumulated depreciation. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets. Buildings, and site improvements have estimated useful lives of 39 years and 9 years, respectively. Tenant improvements are amortized using the straight-line method over the useful lives of the improvements or the remaining term of the corresponding leases, whichever is shorter. The remaining term of the corresponding leases is approximately 2.8 years.

Property and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. If property and equipment are considered to be impaired, an impairment loss is recognized.

Intangible assets

Acquired intangible assets are recorded at fair value at the date of acquisition and primarily consist of lease-in-place agreements and leasing commissions. Intangible assets are amortized over the estimated life of the lease-in-place agreements, which approximates 2.7 years.

Intangible assets are reviewed for impairment on an annual basis, and when there is reason to believe that their values have been diminished or impaired. If intangible assets are considered to be impaired, an impairment loss is recognized.

Income Taxes 

The Company accounts for income taxes under the asset and liability method.  Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax balances are adjusted to reflect tax rates based on currently enacted tax laws, which will be in effect in the years in which the temporary differences are expected to reverse. The Company has accumulated significant deferred tax assets that reflect the tax effects of net operating loss and tax credit carryovers and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Realization of certain deferred tax assets is dependent upon future earnings. The Company is uncertain about the timing and amount of any future earnings. Accordingly, the Company offsets these deferred tax assets with a valuation allowance.

The Company accounts for uncertain tax positions in accordance with ASC 740, “Income Taxes”, which clarifies the accounting for uncertainty in tax positions. These provisions require recognition of the impact of a tax position in the Company’s condensed financial statements only if that position is more likely than not of being sustained upon examination by taxing authorities, based on the technical merits of the position. Any interest and penalties related to uncertain tax positions will be reflected as a component of income tax expense.

 

Note 3. Prepaid and Other Assets

Prepaid and other assets at September 30, 2021 and December 31, 2020 consisted of the following (in thousands):

September 30, 2021

December 31, 2020

Prepaid insurance

$

966 

$

457 

Contract research organization deposit

9,204 

Other

221 

31 

Total prepaid expenses and other current assets

$

10,391 

$

488 

9


Note 4. Real Property Acquisition

On August 4, 2021, the Company completed the all-cash purchase of a two-building office complex in Austin, Texas, which will serve as its future corporate headquarters. This property is intended to accommodate the Company’s anticipated growth and expansion of its operations in the coming years. Maintenance, physical facilities, leasing, property management and other key responsibilities related to property ownership are being outsourced to professional real-estate managers under long-term contract with the Company. The purchase price of the property was $22.0 million, including transaction costs, funded with cash on hand. The office complex measures approximately 90,000 rentable square feet. At acquisition and September 30, 2021, the property was 59% leased, before the Company’s occupancy of approximately an additional 25% of the property in 2022. The seller was an independent third party not affiliated with the Company.

The purchase was accounted for as an asset acquisition under Accounting Standards Codification (ASC) 805, Business Combinations. As all assets purchased by the Company are considered a single identifiable asset for purposes of the screen test under ASC 805 as the buildings and property improvements are attached to the land and cannot be removed without incurring significant costs and the in-place lease intangibles should be combined with the related real estate and considered a single asset. As substantially all of the fair value of the gross assets acquired are concentrated into a single identifiable asset, the Company concluded that the screen was met, and the transaction is not considered an acquisition of a business. Pursuant to the cost accumulation method as prescribed in ASC 805, the cost of the acquisition, including certain transaction costs, is allocated to the assets acquired on the basis of relative fair values. The value of acquired in-place leases is measured as the sum of lost revenues that would be incurred during a prospective lease-up period that would be necessary to achieve occupancy similar to that at the time of acquisition.

The acquisition is summarized as follows (in thousands):

Real Property Acquisition

Land

$

3,734 

Buildings

15,980 

Site improvements

453 

Tenant improvements

567 

Total tangible assets acquired

$

20,734 

Lease-in-place agreements

$

1,053 

Leasing commissions and other

246 

Total intangible assets

$

1,299 

Consideration paid

$

22,033 

The Company records the net income from building operations and leases as other income, net, as leasing is not core to the Company’s operations. Building depreciation and amortization is included in general and administrative expense. Components of other income, net, for the three and nine months ended September 30, 2021 and 2020 were as follows (in thousands):

Three months ended

Nine months ended

September 30,

September 30,

2021

2020

2021

2020

Lease revenue

$

347 

$

$

347 

$

Property operating expenses

(171)

(171)

Other income, net

$

176 

$

$

176 

$

10


Note 5. Property and equipment

The components of property and equipment, net, as of September 30, 2021 and December 31, 2020 were as follows (in thousands):

September 30,
2021

December 31,
2020

Land

$

3,734 

$

Buildings

15,980 

Site improvements

453 

Tenant improvements

567 

Furniture and equipment

178 

97 

Gross property and equipment

$

20,912 

$

97 

Accumulated depreciation

(217)

(86)

Property and equipment, net

$

20,695 

$

11 

Note 6. Intangible assets

The components of intangible assets, net, as of September 30, 2021 and December 31, 2020 were as follows (in thousands):