物件及び設備の減価償却費は、それぞれ2024年と2023年の6月30日までの3か月間で、それぞれ$百万でした。4.0$百万の売上高を認識しました12.12024年9月30日終了時点の3か月間および9か月間にわたる間に、それぞれ それぞれ、 $4.2百万および $11.7百万 3か月間および 2023年9月30日までの9ヶ月間、各々。会社はわずかな減損と減損を記録しました $1.2 In the same period of last year. 公募販売中の2024年と2023年の9月30日までの9ヶ月間、各々 、会社がそれらを使用する意向がなくなった賃貸改良の建設プロジェクトに関連して。減損は、業務と一般管理に記録されました、「簡約連結損益計算書」で。
The following table summarizes the fair value of assets acquired and liabilities assumed as of the acquisition date:
(in thousands)
Cash
$
2,429
Restricted cash
1,685
Other receivables
741
Investments
1,000
Other current assets
385
Intangible assets - technology
28,000
Accounts payable and accrued liabilities
(579)
Unearned revenue
(1,754)
Deferred income taxes
(2,075)
Other liabilities, current
(66)
Other liabilities, non-current
(139)
Total identifiable net assets
29,627
Goodwill
30,990
Total assets acquired and liabilities assumed
$
60,617
The intangible assets are related to Cyclica’s digital chemistry platforms. The estimated fair value of the intangible assets was determined using a cost approach. This valuation technique provides the fair value of an asset based on estimates of the total costs to develop the technology. Significant inputs used to determine the total cost includes the length of time required and service hours performed by Company employees. The technology intangible assets are being amortized on a straight-line basis over their three-year useful lives.
Goodwill was calculated as the excess of the consideration transferred over the net assets recognized. The goodwill recognized represents the assembled workforce and expected synergies, including the ability to: (i) leverage Cyclica’s digital chemistry platform across Recursion’s business; (ii) leverage Cyclica’s ML and AI capabilities; (iii) integrate Recursion’s data and operating system into Cyclica’s platform; and (iv) accelerate Recursion’s pipeline. Goodwill was also impacted by the establishment of a deferred tax liability for the acquired identifiable intangible assets. The goodwill is not deductible for tax purposes.
The following table presents the unaudited pro forma combined results of operations of Recursion, Valence and Cyclica as if the acquisitions had occurred on January 1, 2022:
assets acquired and the additional stock compensation expense associated with the issuance of equity compensation related to the acquisitions. The unaudited pro forma financial information is not necessarily indicative of what the consolidated results of operations would have been had the acquisitions been completed on January 1, 2022. In addition, the unaudited pro forma financial information is not a projection of the future results of operations of the combined company nor does it reflect the expected realization of any cost savings or synergies associated with the acquisitions.
Note 5. Leases
The Company has entered into various long-term real estate operating leases primarily related to office, research and development, operating activities and an equipment financing lease related to the supercomputer. The Company’s leases have remaining terms from under 1 year to 8 years and some of those leases include options that provide Recursion with the ability to extend the lease term, generally for five years. The options are included in the lease term when it is reasonably certain that the option will be exercised.
For the nine months ended September 30, 2024 and 2023, Recursion entered into lease modifications resulting in a decrease to the right-of-use asset and lease liability of $3.1 millionand an increase to the right-of-use asset and lease liability of $3.4 million, respectively. The modifications had no impact to the Condensed Consolidated Statements of Operations.
In September 2024, the Company entered into an operating lease agreement for office space in New York, New York with approximately 11,655 square feet (the “New York Lease”). The right of use began September 2024 when control of the asset was obtained. The New York Lease term is 4 years with a potential for a 3 or 6 year renewal option. Total fixed payments are expected to be approximately $6.9 million with additional variable expenses, including building expenses.
In May 2024, the Company entered into a financing lease agreement for the supercomputer equipment (the “Supercomputer Lease”). The right of use began May 2024 when control of the asset was obtained and the lease term is 3 years with two additional renewal options for a one or two year period. Total fixed payments are expected to be approximately $34.0 million.
多くの主張があり、私はすべてを調べていなかったので、判断を下しませんでした。ただし、確認した特定の項目は、事実に基づいているように見えました。なし 2024年9月30日に終了した3か月と9か月間の商標の簿価の変動は、商標の簿価に対して100万ドルが追加されました。51.3 2023年9月30日に終了した9か月間にCyclicaとValenceの買収に関連する商標の簿価に1000万ドルが追加されました。 No 商標の減損が2024年および2023年に終了した3か月と9か月間に記録されました。
The Company has agreed to indemnify its officers and directors for certain events or occurrences, while the officer or director is or was serving at the Company’s request in such capacity. The Company purchases directors and officers liability insurance coverage that provides for reimbursement to the Company for covered obligations and this is intended to limit the Company’s exposure and enable it to recover a portion of any amounts it pays under its indemnification obligations. The Company had no liabilities recorded for these agreements as of September 30, 2024 and December 31, 2023, as no amounts were probable.
Employee Agreements
The Company has signed employment agreements with certain key employees pursuant to which, if their employment is terminated following a change of control of the Company, the employees are entitled to receive certain benefits, including accelerated vesting of equity incentives.
Legal Matters
The Company may, from time to time, be involved in various legal proceedings arising in the normal course of business. An unfavorable resolution of any such matter could materially affect the Company’s future financial position, results of operations or cash flows.
In February 2021, the Company entered into a lease agreement for laboratory and office space (the Industry Lease) with Industry Office SLC, LLC (the landlord). In March 2023, the Company sent a letter to the landlord detailing numerous construction delays and irregularities, deficiencies and deviations from applicable structural drawings and/or non-conforming conditions with applicable building codes. On June 23, 2023, the landlord filed a lawsuit against the Company (Industry Office SLC, LLC v. Recursion Pharmaceuticals, Inc., Case No. 230904627) in the Third District Court for Salt Lake County, State of Utah (the Court), alleging anticipatory repudiation and breach of contract. The Plaintiff seeks monetary damages and attorney’s fees. As of September 30, 2024, the Company had no liability recorded for these events as an unfavorable outcome was not probable.
In connection with the Industry Lease, in September 2023, the Company filed counterclaims in the Court against the landlord alleging, among other things, breach of contract and fraudulent misrepresentation (the Counterclaims). Also in September 2023, the Court dismissed the landlord’s complaint without prejudice. In October 2023, the landlord filed an amended complaint and also an answer to Recursion’s Counterclaims, denying the Company’s allegations. The Company and the landlord are currently engaged in discovery. In September 2024, the Court granted Recursion’s motion to amend its Counterclaims to assert claims for alter ego and agency liability against several allegedly controlling parent companies associated with the landlord. The Company is presently unable to estimate the possible amount or range of damages associated with the Counterclaims, as expert discovery associated with these issues has not yet occurred.
Pledged Assets
As of September 30, 2024, assets pledged as collateral against finance leases totaled $25.6 million. Assets pledged as collateral are Lab Equipment reported in “Property and Equipment, net” on the Condensed Consolidated Balance Sheet. As of September 30, 2024, the liabilities associated with collateral pledged were solely comprised of a finance lease and had a carrying value of $27.6 million. The collateral pledged under the lease agreement may only be operated by the Company within the continental United States and must maintain a good title. The assets cannot be sold, disposed of or repledged by the Company.
Each share of Class A common stock entitles the holder to one vote per share and each share of Class B common stock entitles the holder to 10 votes per share on all matters submitted to a vote of the Company’s stockholders. Common stockholders are entitled to receive dividends, as may be declared by the Company’s Board of Directors. As of September 30, 2024 and December 31, 2023, no dividends had been declared.
Public Offering of Common Stock
On June 28, 2024, the Company closed its public offering of Class A common stock and issued 35.4 million shares at a price of $6.50 per share for net proceeds of approximately $216.4 million, after deducting transaction costs of $13.6 million. In connection with the public offering of Class A common stock, the Company entered into an underwriting agreement for the offering and sale of 30.8 million shares. The Company also granted the Underwriters a 30 day option from the date of the underwriting agreement to purchase up to an additional 4.6 million shares of Class A Common Stock, which was exercised in full. The public offering was made pursuant to the Company's effective registration statement on Form S-3 (File No. 333-264845) and a related prospectus supplement and accompanying prospectus dated June 26, 2024.
At-The-Market Offering
In August 2023, the Company entered into an Open Market Sales Agreement (the “Sales Agreement”) with Jefferies LLC (the “Sales Agent”), to provide for the offering, issuance and sale of up to an aggregate amount of $300.0 million of its Class A common stock from time to time in “at-the-market” (ATM) offerings. As of September 30, 2024, an amount of $144.3 million remained available for future sales under the Sales Agreement. For the nine months ended September 30, 2024, the Company has sold 8.4 million shares and received net proceeds of $72.9 million under the agreement. Recursion is not required to sell additional shares under the Sales Agreement. The Company will pay the Sales Agent a commission of up to 3% of the aggregate gross proceeds received from all sales of Class A common stock. The Sales Agreement continues until the earlier of selling all shares available under the Sales Agreement or terminated by written notice from either of the parties. The ATM Offering is being made under a prospectus supplement dated August 8, 2023, and related prospectus filed with the Securities and Exchange Commission pursuant to our automatically effective shelf registration statement on Form S-3ASR (Registration No. 333-264845).
NVIDIA Private Placement
In July 2023, Recursion entered into a Stock Purchase Agreement for a private placement with NVIDIA Corporation (2023 Private Placement), pursuant to which the Company sold an aggregate of 7.7 million shares of the Company’s Class A common stock at a price of $6.49 per share for net proceeds of approximately $49.9 million.
Valence Acquisition Exchangeable Shares
In May 2023, in connection with the acquisition of Valence, the Company entered into an agreement to issue up to 5.9 million shares of Class A common stock (the “Exchangeable Shares”), that may be issued upon exchange, retraction or redemption of exchangeable shares of a subsidiary of Recursion. Each exchangeable share of the subsidiary of Recursion entitles the holder to exchange those shares on a one-for-one basis for Recursion’s Class A common stock. The shares are entitled to receive dividends economically equivalent to dividends declared by Recursion, are non-voting and are subject to customary adjustments for stock splits or other reorganizations. In addition, the Company may require all outstanding exchangeable shares to be exchanged into an equal number of Class A common stock upon the occurrence of certain events and at any time following the seventh anniversary of the closing of the Valence acquisition. The exchangeable shares are substantially the economic equivalent of the Class A shares and classified as common stock within the Company’s stockholders’ equity. The Company’s calculation of weighted-average shares outstanding includes the exchangeable shares. As of September 30, 2024, 4.9 million Exchangeable shares have been redeemed for Class A shares.
In November 2023, in connection with the Tempus Agreement, the Company agreed to prepare and file a registration statement (or a prospectus supplement to an effective registration statement on Form S-3ASR that will become automatically effective upon filing with the SEC pursuant to Rule 462(e)) with the SEC, for resale of the shares of Class A common stock issued or issuable under the Tempus Agreement. A prospectus supplement to a registration statement (File No. 333-264845) was subsequently filed in December 2023 to register shares issued to Tempus for the initial license fee under the Tempus Agreement for resale.
After registration of any shares issued to Tempus under the Tempus Agreement, the Company has agreed to use commercially reasonable efforts to keep such registration statement effective until such date that all shares issued to Tempus covered by such registration statement have been sold or are able to be publicly sold by relying on Rule 144 of the Securities Act without registration.
NVIDIA Private Placement
In July 2023, in connection with the 2023 Private Placement with NVIDIA, the Company entered into a Registration Rights Agreement providing for the registration for resale of the shares of Class A common stock issued in such transaction. A prospectus supplement to a registration statement (File No. 333-264845) was subsequently filed in August 2023 to register the resale of the shares of Class A common stock issued to NVIDIA. The Company has agreed to use commercially reasonable efforts to keep the registration statement continuously effective until such date that all registrable securities under the agreement have been sold. In the event the holders cannot sell their shares due to certain circumstances causing the registration statement to be ineffective, the Company must pay each holder of shares outstanding on the date and each month thereafter 1% of the aggregate purchase price with the maximum payable amount of 5% of the aggregate purchase price. As of September 30, 2024, there was no accrued liability related to this agreement, as it was not probable that a payment would be required.
Acquisitions
In May 2023, in connection with the acquisition of Valence, the Company entered into a Registration Agreement providing for the registration for resale of the shares of Class A common stock and Exchange Shares issued or issuable in such transaction. A registration statement on Form S-3ASR (File No. 333-272281) was filed to register the shares for resale by the holders. The registration statement must remain effective for a period of not less than three years.
In May 2023, in connection with the acquisition of Cyclica, the Company entered into a Registration Agreement providing for the registration for resale of the shares of Class A common stock issued in such transaction. A prospectus supplement to a registration statement (File No. 333-264845) was subsequently filed in June 2023 to register the shares for resale by the holders. The registration agreement must be continuously effective until the earlier of the date that all shares have been sold thereunder or are able to be publicly sold by relying on Rule 144 of the Securities Act without registration.
2022 Private Placement
In October 2022, in connection with the 2022 Private Placement, the Company entered into a Registration Rights Agreement providing for the registration for resale of the shares of Class A common stock issued in such transaction. A prospectus supplement to a registration statement (File No. 333-264845) was subsequently filed in October 2022 to register the resale of the shares of Class A common stock by the Purchasers. The agreement must remain effective until registrable securities covered by the agreement have been publicly sold by the holders or all shares cease to be registrable securities. In the event the holders cannot sell their shares due to certain circumstances causing the agreement to be ineffective, the Company must pay each holder of shares outstanding on the date and each month thereafter 1.0% of the aggregate purchase price paid by the holder without limit until the agreement is cured. As of September 30, 2024, there was no accrued liability related to this agreement, as it was not probable that a payment would be required.
Class A and B Common Stock Authorization
In April 2021, the Company’s Board of Directors authorized two classes of common stock, Class A and Class B. The rights of the holders of Class A and B common stock are identical, except with respect to voting and conversion.
Each share of Class A common stock is entitled to one vote per share. Each share of Class B common stock is entitled to 10 votes per share and is convertible at any time into one share of Class A common stock.
All Class B common stock is held by Christopher Gibson, Ph.D., the Company’s Chief Executive Officer (CEO), or his affiliates. As of September 30, 2024, Dr. Gibson and his affiliates held outstanding shares of Class B common stock representing approximately 20% of the voting power of the Company’s outstanding shares. This voting power may increase over time as Dr. Gibson vests in and exercises equity awards outstanding. If all the exchangeable equity awards held by Dr. Gibson had been fully vested, exercised and exchanged for shares of Class B common stock as of September 30, 2024, Dr. Gibson and his affiliates would hold approximately 20% of the voting power of the Company’s outstanding shares. As a result, Dr. Gibson will be able to significantly influence any action requiring the approval of Recursion stockholders, including the election of the Board of Directors; the adoption of amendments to the Company’s certificate of incorporation and bylaws; and the approval of any merger, consolidation, sale of all or substantially all of the Company’s assets, or other major corporate transaction.
Note 9. Collaborative Development Contracts
Roche and Genentech
Description
In December 2021, Recursion entered into a collaboration and license agreement with Roche and Genentech (collectively referred to as Roche). Recursion is constructing, using the Company’s imaging technology and proprietary machine-learning algorithms, unique maps of the inferred relationships amongst perturbation phenotypes in a given cellular context with the goal to discover and develop therapeutic small molecule programs in a gastrointestinal cancer indication and in key areas of neuroscience. Roche and Recursion will collaborate to select certain novel inferences with respect to small molecules or targets generated from the Phenomaps for further validation and optimization as collaboration programs. Roche and Recursion may also combine sequencing datasets from Roche with Recursion’s Phenomaps and collaborate to generate new algorithms to produce multi-modal maps from which additional collaboration programs may be initiated. For every collaboration program that successfully identifies potential therapeutic small molecules or validates a target, Roche will have an option to obtain an exclusive license to develop and commercialize such potential therapeutic small molecules or to exploit such target in the applicable exclusive field.
Pricing
In January 2022, Recursion received a $150.0 million non-refundable upfront payment from the Company’s collaboration with Roche. In September 2024, Recursion received a $30.0 million milestone payment (the “acceptance fee”) which was an acceptance fee related to the first accepted neuroscience Phenomap. Recursion is eligible for additional milestone payments based on performance progress of the collaboration. Each of the Phenomaps requested by Roche and created by Recursion may be subject to either an initiation fee, acceptance fee or both. Such fees could exceed $250.0 million for 16 accepted Phenomaps. In addition, for a period of time after Roche’s acceptance of certain Phenomaps, Roche will have the option to obtain, subject to payment of an exercise fee, rights to use outside the collaboration the raw images generated in the course of creating those Phenomaps. If Roche exercises its external use option for all 12 eligible Phenomaps, Roche’s associated exercise fee payments to Recursion could exceed $250.0 million. Under the collaboration, Roche may initiate up to 40 programs, each of which, if successfully developed and commercialized, could yield more than $300.0 million in development, commercialization and net revenue milestones for Recursion, as well as tiered royalties on net revenue.
Accounting
This agreement represents a transaction with a customer and therefore is accounted for in accordance with ASC 606. Recursion has determined that it has three performance obligations, one related to gastrointestinal cancer and two in neuroscience. These performance obligations are for performing research and development services for Roche to identify targets and medicines. The performance obligations also include potential licenses related to the intellectual property. The Company concluded that licenses within the contract are not distinct from the research and development services as they are interrelated due to the fact that the research and development services significantly impact the potential licenses. Any additional services are considered customer options and will be considered as separate contracts for accounting purposes.
The Company has determined the transaction price to be $180.0 million, comprised of the upfront payment and the acceptance fee. Prior to the three months ended September 30, 2024, Recursion had fully constrained the $30.0 million variable consideration acceptance fee. As a result of Roche’s acceptance of the neuroscience Phenomap, Recursion is now recognizing the acceptance fee as part of the transaction price over the completion period of one of the neuroscience performance obligations. Recursion has fully constrained the remaining amounts of variable consideration to be received from potential milestones considering the stage of development and the risks associated with the remaining development required to achieve each milestone. Recursion will re-evaluate the transaction price each reporting period.
The transaction price was generally allocated to the performance obligations based on the estimated relative stand-alone selling price of each performance obligation as determined using an expected cost plus margin approach. The acceptance fee was allocated to one of the neuroscience performance obligations as the terms of the variable consideration related specifically to Recursion’s efforts to satisfy this performance obligation. The Company recognizes revenue over time based on costs incurred relative to total expected costs to perform the research and development services. Recursion determined that this method provides a faithful depiction of the transfer of control to the customer. This method of recognizing revenue requires the Company to make estimates of total costs to provide the services required under the performance obligations. Significant inputs used to determine the total costs included the length of time required, service hours performed by Company employees and materials costs. A significant change in these estimates could have a material effect on the timing and amount of revenue recognized in future periods. Recursion has estimated the completion of the performance obligations by 2026.
Additional Revenue Disclosures
Of the revenue recognized during the three and nine months ended September 30, 2024, $4.1 million and $29.0 million was included in the unearned revenue balance as of December 31, 2023, respectively, and was related to the upfront payment received by the Company. Primarily all revenue recognized during the three and nine months ended September 30, 2023 was included in the unearned revenue balance as of December 31, 2022. Revenue recognized during the three and nine months ended September 30, 2024 was from the upfront payments and the acceptance fee received. The recognition of a portion of the upfront payment and acceptance fee decreased the unearned revenue recognized. As of September 30, 2024, the Company had $5.5 million of costs incurred to fulfill a contract on its Condensed Consolidated Balance Sheet within “Other Current Assets.”
Unearned revenue was classified as short-term and long-term on the Condensed Consolidated Balance Sheets based on the Company’s estimate of revenue that will be recognized during the next twelve months.
Note 10. Stock-Based Compensation
In April 2021, the Board of Directors and the stockholders of the Company adopted the 2021 Equity Incentive Plan (the 2021 Plan). The Company may grant stock options, restricted stock units (RSUs), stock appreciation rights, restricted stock awards and other forms of stock-based compensation. As of September 30, 2024, 12.5 million shares of Class A common stock were available for grant.
The following table presents the classification of stock-based compensation expense for employees and non-employees within the Condensed Consolidated Statements of Operations:
Stock options are primarily granted to executive leaders at the Company, generally vest over four years and expire no later than 10 years from the date of grant.
Stock option activity during the nine months ended September 30, 2024 was as follows:
(in thousands except share data and per share amounts)
Shares
Weighted-Average Exercise
Price
Weighted-Average Remaining Contractual Life (in years)
Aggregate Intrinsic Value
Outstanding as of December 31, 2023
14,957,617
$
6.13
7.0
$
72,416
Granted
3,683,011
7.31
Cancelled
538,803
11.91
Exercised
2,542,832
2.53
18,537
Outstanding as of September 30, 2024
15,558,993
$
7.33
7.1
$
27,862
Exercisable as of September 30, 2024
9,409,685
$
6.28
6.1
$
26,068
The fair value of options granted to employees is calculated on the grant date using the Black-Scholes option valuation model. The weighted-average grant-date fair values of stock options granted during the nine months ended September 30, 2024 and 2023 were $5.88 and $5.64, respectively.
The following weighted-average assumptions were used to calculate the grant-date fair value of stock options:
Nine months ended September 30,
2024
2023
Expected term (in years)
6.2
5.8
Expected volatility
65
%
66
%
Expected dividend yield
—
—
Risk-free interest rate
4.2
%
3.6
%
As of September 30, 2024, $38.2 million of unrecognized compensation cost related to stock options is expected to be recognized as expense over approximately the next two years.
RSUs
Equity awards granted to employees primarily consist of RSUs and generally vest over four years. The weighted-average grant-date fair value of RSUs generally is determined based on the number of units granted and the quoted price of Recursion’s common stock on the date of grant.
The following table summarizes Recursion’s RSU activity during the nine months ended September 30, 2024:
Stock units
Weighted-average grant date fair value
Outstanding as of December 31, 2023
15,223,764
$
8.39
Granted
8,782,890
8.61
Vested
4,252,052
8.52
Forfeited
1,659,896
8.48
Outstanding as of September 30, 2024
18,094,706
$
8.46
The fair market value of RSUs vested was $39.3 million during the nine months ended September 30, 2024. As of September 30, 2024, $146.4 million of unrecognized compensation cost related to RSUs is expected to be recognized as expense over approximately the next three years.
The Company did not record any U.S. income tax expense during the three and nine months ended September 30, 2024 and 2023. The Company has historically incurred operating losses and maintains a full valuation allowance against its U.S. net deferred tax assets. Foreign taxes were insignificant during the three and nine months ended September 30, 2024 and 2023.
Net operating losses (NOLs) and tax credit carry-forwards are subject to review and possible adjustment by the Internal Revenue Service (“IRS”) and may become subject to annual limitation due to ownership changes that occur under Section 382 of the Internal Revenue Code, as amended and similar state provisions. These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain shareholders or public groups in the stock of a corporation by more than 50% over a three-year period. As of September 30, 2024, the Company was not limited on its NOLs and tax credit carry-forwards. The Company will continue to monitor future ownership changes for potential Section 382 limitations.
Note 12. Net Loss Per Share
For the three and nine months ended September 30, 2024 and 2023, Recursion calculated net loss per share of Class A, Class B and the Exchangeable common stock using the two-class method. Basic net loss per share is computed using the weighted-average number of shares outstanding during the period. Diluted net loss per share is computed using the weighted-average number of shares and the effect of potentially dilutive securities outstanding during the period. Potentially dilutive securities consist of stock options and other contingently issuable shares. For periods presented in which the Company reports a net loss, all potentially dilutive shares are anti-dilutive and as such are excluded from the calculation. For the three and nine months ended September 30, 2024 and 2023, the Company reported a net loss and therefore basic and diluted loss per share were the same.
The rights, including the liquidation and dividend rights, of the holders of the Company’s Class A, Class B and the Exchangeable common stock are identical, except with respect to voting. As a result, the undistributed earnings for each period are allocated based on the contractual participation rights of the Class A, Class B and the Exchangeable common stock as if the earnings for the period had been distributed. As the liquidation and dividend rights are identical, the undistributed earnings are allocated on a proportionate basis and the resulting amount per share for Class A, Class B and the Exchangeable common stock was the same during the three and nine months ended September 30, 2024 and 2023.
The following tables set forth the computation of basic and diluted net loss per share of Class A, Class B and Exchangeable common stock:
Three months ended September 30,
Nine months ended September 30,
(in thousands, except share amounts)
2024
2023
2024
2023
Numerator:
Net loss
$
(95,842)
$
(93,017)
$
(284,755)
$
(235,070)
Denominator:
Weighted average common shares outstanding
282,583,048
214,327,186
253,447,099
203,090,637
Net loss per share, basic and diluted
$
(0.34)
$
(0.43)
$
(1.12)
$
(1.16)
The Company excluded the following potential common shares from the computation of diluted net loss per share for the periods indicated because including them would have had an anti-dilutive effect:
Three months ended September 30,
Nine months ended September 30,
2024
2023
2024
2023
Stock based compensation
5,869,795
12,162,449
8,098,979
9,022,502
Tempus agreement
6,694,934
—
6,694,934
—
Total
12,564,729
12,162,449
14,793,913
9,022,502
Note 13. Fair Value Measurements
The fair value hierarchy consists of the following three levels:
•Level 1 — Valuations based on unadjusted quoted prices in active markets for identical assets that the company has the ability to access;
•Level 2 — Valuations based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuations in which all significant inputs are observable in the market; and
•Level 3 — Valuations using significant inputs that are unobservable in the market and include the use of judgment by the company's management about the assumptions market participants would use in pricing the asset or liability.
The Company is required to maintain a cash balance in a collateralized account to secure the Company’s credit cards. Additionally, the Company holds restricted cash related to an outstanding letter of credit issued by J.P. Morgan, which was obtained to secure certain Company obligations relating to tenant improvements.
The following tables summarize the Company’s assets and liabilities that are measured at fair value on a recurring basis:
In addition to the financial instruments that are recognized at fair value on the Condensed Consolidated Balance Sheet, the Company has certain financial instruments that are recognized at amortized cost or some basis other than fair value. The carrying amount of these instruments are considered to be representative of their approximate fair values.
The following tables summarize the Company’s financial instruments that are not measured at fair value:
Book values
Fair values
(in thousands)
September 30, 2024
December 31, 2023
September 30, 2024
December 31, 2023
Liabilities
Notes payable and financing lease liabilities, current
$
8,219
$
41
$
8,219
$
41
Notes payable and financing lease liabilities, non-current
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following is a discussion and analysis of the financial condition of Recursion Pharmaceuticals, Inc. (Recursion, the Company, we, us or our) and the results of operations. This commentary should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and accompanying notes appearing in Item 1, “Financial Statements” and the Company’s audited consolidated financial statements and accompanying notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the Annual Report on Form 10-K for the year ended December 31, 2023 (the 2023 Annual Report). This discussion, particularly information with respect to our future results of operations or financial condition, business strategy and plans and objectives of management for future operations, includes forward-looking statements that involve risks and uncertainties as described under the heading "Note About Forward-Looking Statements" in this Quarterly Report on Form 10-Q. You should review the disclosure under the heading "Risk Factors" in the 2023 Annual Report and our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2024 and June 30, 2024, and the risk factors disclosed under Item 8.01 in our Current Report on Form 8-K filed with the SEC on September 3, 2024 for a discussion of important factors that could cause our actual results to differ materially from those anticipated in these forward-looking statements. We assume no obligation to revise or publicly release any revision to any forward-looking statements contained in this Quarterly Report on Form 10-Q, unless required by law.
Investors and others should note that we announce material financial and other information to our investors using our investor relations website (https://ir.recursion.com/), SEC filings, press releases, public conference calls and webcasts. We use these channels as well as social media and blogs to communicate with our stakeholders and the public about our company, our services and other issues. It is possible that the information we post on social media and blogs could be deemed to be material information. Therefore, we encourage investors, the media and others interested in our company to review the information we post on the social media channels and blogs listed on our investor relations website. Information contained in, or that can be accessed through, our website is not a part of, and is not incorporated into, this report.
Overview
Recursion is a leading clinical stage TechBio company decoding biology to industrialize drug discovery. Central to our mission is the Recursion Operating System (OS), a platform built across diverse technologies that enables us to map and navigate trillions of biological, chemical and patient-centric relationships across over 50 petabytes of proprietary data. We frame this integration of the physical and digital components as iterative loops, where scaled ‘wet-lab’ biology, chemistry and patient-centric experimental data are organized by ‘dry-lab’ computational tools in order to identify, validate and translate therapeutic insights. We believe Recursion’s unbiased, data-driven approach to understanding biology will bring more, new and better medicines at higher scale and lower cost to patients.
There are three key value-drivers at Recursion:
•An expansive pipeline of internally developed clinical and preclinical programs focused on precision oncology and genetically driven rare diseases with significant unmet need and market opportunities that could potentially exceed $1 billion in annual sales in some cases
•Transformational partnerships with leading biopharma and technology companies to map and navigate intractable areas of biology, identify novel targets, and develop potential new medicines by using advanced computational and data resources
•An industry-leading dataset intentionally designed to capitalize on computational tools and accelerate value created through our pipeline, partnerships and technology products
We drive value by scaling and leveraging the Recursion OS to generate, aggregate and integrate over 50 petabytes of data spanning large language model derived disease relevance and target-compound relationships, predicted protein-ligand binding interactions for ~36 billion compounds, over 300 million total staining and multi-timepoint live-cell (brightfield) phenomics experiments, over 1 million whole transcriptomics experiments, tens of thousands of ADME experiments using our automated DMPK module, InVivomics and multimodal precision oncology patient data. This dataset has been curated using over 50 human cell types, our cell manufacturing facility which has produced over 1 trillion hiPSC-derived neuronal cells since 2022, our in-house chemical library of over 1.7 million compounds, a vast in silico library of small molecules and other capabilities. We have built proprietary software applications and AI/ML models within the Recursion OS which predict and navigate over 7 trillion biological and chemical relationships. With our approach and our team of over 500 Recursionauts that is balanced between life scientists and computational and technical experts, we endeavor to turn drug discovery into a search problem, where we map and navigate biology in an unbiased manner in order to translate insights into more, new, and better medicines at higher scale and lower cost to patients.
On August 8, 2024, Recursion signed an agreement with Exscientia plc (Exscientia) to acquire all of the issued and to be issued share capital of Exscientia in exchange for shares of Class A common stock of Recursion (the Transaction Agreement). The Transaction Agreement has a fixed exchange ratio whereby each ordinary share of Exscientia will be exchanged for 0.7729 shares of Class A common stock of Recursion on the closing date. The closing of the transaction is subject to the satisfaction or waiver of a number of conditions, including the requisite approval of each of Recursion’s stockholders and Exscientia’s shareholders, sanction by the High Court of Justice of England and Wales, and other closing conditions that are customary for transactions of this nature. The following graphic depicts our combined pipeline with Exscientia, assuming the completion of the transactions contemplated by the Transaction Agreement, with Exscientia’s programs in shaded rows.
•Cerebral Cavernous Malformation (CCM) (REC-994): In September, we announced that our Phase 2 SYCAMORE clinical trial, which is a randomized, double-blind, placebo-controlled, study of two doses of REC-994 in participants with CCM, met its primary endpoint of safety and demonstrated encouraging trends in objective MRI-based exploratory efficacy measures at the highest dose, seeing reductions in lesion volume and hemosiderin ring size. We plan to meet with the FDA and advance the development of REC-994 for the potential treatment of symptomatic CCM in subsequent studies. We also plan to present the Phase 2 data at a medical conference and publish results in a peer reviewed scientific journal.
•Neurofibromatosis Type 2 (NF2) (REC-2282): Our adaptive Phase 2/3 POPLAR clinical trial is an open label, two part study of REC-2282 in participants with progressive NF2-mutated meningiomas. Part 1 of the study explores two doses of REC-2282 in adult and pediatric participants. Enrollment of adult patients in Part 1 of the study is complete (n=24). We expect to share an update in Q4 2024.
•Familial Adenomatous Polyposis (FAP) (REC-4881):Our Phase 1b/2 TUPELO clinical trial is an open label, multicenter, two part study of REC-4881 in participants with FAP. Part 1 is complete and enrollment in Part 2 has commenced. We expect to share Phase 2 safety and preliminary efficacy data in H1 2025.
•APC or AXIN1Mutant Cancers (REC-4881): Our Phase 2 LILAC clinical trial is an open label, multicenter study of REC-4881 in participants with unresectable, locally advanced or metastatic cancer with AXIN1 or APC mutations. We expect to share Phase 2 safety and preliminary efficacy data in H1 2025.
•Clostridioides difficile Infection (REC-3964): In October, we announced the first patient dosed in our Phase 2 clinical study of REC-3964, a potential first-in-class, oral, non-antibiotic small molecule for recurrent Clostridioides difficile infection. Our Phase 2 ALDER clinical trial is an open-label, multicenter randomized study designed to evaluate rates of recurrence with REC-3964 at two doses compared with an observational cohort after patients have achieved initial cure with vancomycin. We expect a preliminary readout by the end of 2025.
•Biomarker-Enriched Solid Tumors and Lymphoma, Target RBM39 (REC-1245): In October, we announced FDA clearance of an IND for REC-1245, a potential first-in-class RBM39 degrader for biomarker-enriched solid tumors and lymphoma. RBM39 is a novel CDK12-adjacent target identified by the Recursion OS. We plan to initiate dosing of Phase 1/2 in Q4 2024 to evaluate REC-1245. Phase 1 data from the dose-escalation portion of the study is expected by the end of 2025.
•Undisclosed Indication in Fibrosis, Target Epsilon: We are advancing our lead candidate and expect an IND submission in early 2025.
•Transformational Collaborations: We continue to advance efforts to discover potential new therapeutics with our strategic partners in the areas of undruggable oncology (Bayer) as well as neuroscience and a single indication in gastrointestinal oncology (Roche-Genentech). In August, our first neuroscience phenomap was optioned by Roche-Genentech for $30 million as part of a fee structure that could exceed a total of $500 million across multiple maps. In the near-term, there is the potential for option exercises associated with partnership programs and map building initiatives or data sharing.
Platform
•Google Cloud Collaboration: We entered into an expanded collaboration with Google Cloud in order to leverage Google Cloud's technologies to support our drug discovery platform. This strategic partnership includes exploring generative AI capabilities, including Gemini models, to support the RecursionOS, drive improved search and access with BigQuery, and help scale compute resources. In addition, we will also explore making some of our AI models available on Google Cloud.
Financing and Operations
We were incorporated in November 2013. In April 2021, we closed our Initial Public Offering (IPO) and issued 27.9 million shares of Class A common stock at a price of $18.00 per share, raising net proceeds of $462.4 million. Prior to our IPO, we had raised $448.9 million in equity financing from investors in addition to $30.0 million in an upfront payment from our collaboration with Bayer AG (Bayer). In January 2022, we received an upfront payment of $150.0 million from our collaboration with Roche. See Note 9, “Collaborative Development Contracts” to the Condensed Consolidated Financial Statements for additional information on the collaboration with Roche. In October 2022, we issued 15.3 million shares of our Class A common stock at a purchase price of $9.80 per share in the 2022 private placement to qualified institutional buyers and institutional accredited investors for net proceeds of $143.7 million, after deducting fees and offering costs of $6.6 million. In July 2023, we issued an aggregate of 7.7 million shares of our Class A common stock at a purchase price of $6.49 per share in the 2023 Private Placement with NVIDIA Corporation for net proceeds of approximately $49.9 million. In August 2023, we entered into an Open Market Sales Agreement with Jefferies LLC to provide for the offering, issuance and sale of up to an aggregate amount of $300.0 million of its Class A common stock of which $144.3 million remain available for future sales. The Company has sold $20.4 million shares and received net proceeds of $151.1 million under the agreement. In June 2024, we issued an aggregate of 35.4 million shares of our Class A common stock at a purchase price of $6.50 per share and received net proceeds of $216.4 million, after deducting transaction costs of $13.6 million. See Note 8, “Common Stock” to the Condensed Consolidated Financial Statements for additional information on the public offering. In September 2024, we received a Phenomap acceptance fee of $30.0 million from our collaboration with Roche.
We use the capital we have raised to fund operating and investing activities across platform research operations, drug discovery, clinical development, digital and other infrastructure, creation of our portfolio of intellectual property and administrative support. We do not have any products approved for commercial sale and have not generated any revenues from product sales. We had cash and cash equivalents of $427.6 million as of September 30, 2024. Based on our current operating plan, we believe that our cash and cash equivalents will be sufficient to fund our operations for at least the next twelve months.
Since inception, we have incurred significant operating losses. Our net losses were $95.8 million and $284.8 million during the three and nine months ended September 30, 2024, respectively. Our net losses were $93.0 million and $235.1 million during the three and nine months ended September 30, 2023, respectively. As of September 30, 2024, our accumulated deficit was $1.3 billion.
We anticipate that we will need to raise additional financing in the future to fund our operations, including the potential commercialization of any approved product candidates. Until such time, if ever, as we can generate significant product revenue, we expect to finance our operations with our existing cash and cash equivalents, any future equity or debt financings and upfront, milestone and royalty payments, if any, received under current or future license or collaboration agreements. We may not be able to raise additional capital on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, results of operations and financial condition may be adversely affected.
The following table summarizes our results of operations:
(in thousands, except percentages)
Three months ended September 30,
Change
Nine months ended September 30,
Change
2024
2023
$
%
2024
2023
$
%
Revenue
Operating revenue
$
26,082
$
10,102
$
15,980
>100%
$
53,977
$
33,252
$
20,725
62
%
Grant revenue
—
431
(431)
(100)
%
316
432
(116)
(27)
%
Total revenue
26,082
10,533
15,549
>100%
54,293
33,684
20,609
61
%
Operating costs and expenses
Cost of revenue
12,079
10,877
1,202
11
%
32,444
32,706
(262)
(1)
%
Research and development
74,600
70,007
4,593
7
%
216,087
171,744
44,344
26
%
General and administrative
37,757
29,199
8,558
29
%
100,998
80,364
20,634
26
%
Total operating costs and expenses
124,436
110,083
14,353
13
%
349,529
284,814
64,716
23
%
Loss from operations
(98,354)
(99,550)
1,196
1
%
(295,236)
(251,130)
(44,107)
18
%
Other income, net
2,679
6,533
(3,854)
(59)
%
9,347
16,060
(6,713)
(42)
%
Loss before income tax benefit
(95,675)
(93,017)
(2,658)
3
%
(285,889)
(235,070)
(50,820)
22
%
Income tax benefit
(167)
—
(167)
n/m
1,134
—
1,134
n/m
Net loss
$
(95,842)
$
(93,017)
$
(2,825)
3
%
$
(284,755)
$
(235,070)
$
(49,686)
21
%
n/m = Not meaningful
Revenue
The following table summarizes our components of revenue:
Three months ended September 30,
Change
Nine months ended September 30,
Change
(in thousands, except percentages)
2024
2023
$
%
2024
2023
$
%
Revenue
Operating revenue
$
26,082
$
10,102
$
15,980
>100%
$
53,977
$
33,252
$
20,725
62
%
Grant revenue
—
431
(431)
(100)
%
316
432
(116)
(27)
%
Total revenue
$
26,082
$
10,533
$
15,549
>100%
$
54,293
$
33,684
$
20,609
61
%
Operating revenue is generated through research and development agreements derived from strategic alliances. We are entitled to receive variable consideration as certain milestones are achieved. The timing of revenue recognition is not directly correlated to the timing of cash receipts.
For the three and nine months ended September 30, 2024, the increase in revenue compared to prior period was due to revenue recognized from our strategic partnership with Roche. During the three months ended September 30, 2024, we recognized revenue related to the acceptance fee for the completion of a Phenomap for one of our neuroscience performance obligations. Prior to the three months ended September 30, 2024, we had fully constrained the $30.0 million acceptance fee.
The following table summarizes our cost of revenue:
(in thousands, except percentages)
Three months ended September 30,
Change
Nine months ended September 30,
Change
2024
2023
$
%
2024
2023
$
%
Total cost of revenue
$
12,079
$
10,877
$
1,202
11
%
$
32,444
$
32,706
$
(262)
(1)
%
Cost of revenue consists of the Company’s costs to provide services for drug discovery required under performance obligations with partnership customers. These primarily include materials costs, service hours performed by our employees and depreciation of property and equipment.
For the three and nine months ended September 30, 2024, the change in cost of revenue compared to prior period was insignificant.
Research and Development
The following table summarizes our components of research and development expense:
(in thousands, except percentages)
Three months ended September 30,
Change
Nine months ended September 30,
Change
2024
2023
$
%
2024
2023
$
%
Research and development expense
Platform
$
37,227
$
28,908
$
8,319
29
%
$
95,961
$
68,914
$
27,047
39
%
Discovery
16,584
15,513
1,071
7
%
48,767
45,467
3,300
7
%
Clinical
13,004
18,590
(5,586)
(30)
%
44,310
42,591
1,719
4
%
Stock based compensation
9,457
6,748
2,709
40
%
26,031
14,063
11,968
85
%
Other
(1,672)
248
(1,920)
n/m
1,018
709
309
44
%
Total research and development expense
$
74,600
$
70,007
$
4,593
7
%
$
216,087
$
171,744
$
44,343
26
%
n/m = Not meaningful
Research and development expenses account for a significant portion of our operating expenses. We recognize research and development expenses as they are incurred. Research and development expenses consist of costs incurred in performing activities including:
•costs to develop and operate our platform;
•costs of discovery efforts which may lead to development candidates, including research materials and external research;
•costs for clinical development of our investigational products;
•costs for materials and supplies associated with the manufacture of active pharmaceutical ingredients, investigational products for preclinical testing and clinical trials;
•personnel-related expenses, including salaries, benefits, bonuses and stock-based compensation for employees engaged in research and development functions;
•costs associated with operating our digital infrastructure; and
•other direct and allocated expenses incurred as a result of research and development activities, including those for facilities, depreciation, amortization and insurance.
We recognize expenses associated with third-party contracted services as they are incurred. Upon termination of contracts with third parties, our financial obligations are generally limited to costs incurred or committed to date. Any advance payments for goods or services to be used or rendered in future research and product development activities pursuant to a contractual arrangement are classified as prepaid expenses until such goods or services are rendered.
Significant components of research and development expense include the following allocated by development phase: Platform, which refers primarily to expenses related to screening of product candidates through hit identification; Discovery, which refers primarily to expenses related to hit identification through development of candidates; and Clinical, which refers primarily to expenses related to development of candidates and beyond.
For the three and nine months ended September 30, 2024, the increase in research and development expenses compared to the prior period was driven by our platform and personnel costs as we continue to expand and upgrade our platform, including our chemical technology, machine learning and transcriptomics platform.
General and Administrative Expense
The following table summarizes our general and administrative expense:
(in thousands, except percentages)
Three months ended September 30,
Change
Nine months ended September 30,
Change
2024
2023
$
%
2024
2023
$
%
Total general and administrative expense
$
37,757
$
29,199
$
8,558
29
%
$
100,998
$
80,364
$
20,634
26
%
We expense general and administrative costs as incurred. General and administrative expenses consist primarily of salaries; including employee benefits and stock-based compensation. General and administrative expenses also include facilities, depreciation, information technology, professional fees for auditing and tax, legal fees for corporate and patent matters and insurance costs.
For the nine months ended September 30, 2024, the increase in general and administrative expense compared to prior period was primarily driven by an increase in salaries and wages of $6.0 million and increases in software and lease expense. For the three months ended September 30, 2024, the increase in general and administrative expense compared to prior period was primarily driven by an increase in software and lease expense.
Other Income, Net
The following table summarizes our components of other income, net:
(in thousands, except percentages)
Three months ended September 30,
Change
Nine months ended September 30,
Change
2024
2023
$
%
2024
2023
$
%
Interest income
3,826
4,977
(1,151)
(23.1)
%
11,138
14,594
(3,456)
(23.7)
%
Interest expense
(553)
(25)
(528)
>100%
(967)
(71)
(896)
>100%
Other
(594)
1,581
(2,175)
n/m
(824)
1,537
(2,361)
n/m
Other income, net
$
2,679
$
6,533
$
(3,854)
(59.0)
%
$
9,347
$
16,060
$
(6,713)
(41.8)
%
n/m = Not meaningful
For the three and nine months ended September 30, 2024, the decrease in interest income compared to prior period related to a decrease in earnings on cash and cash equivalents in money market funds.
Liquidity and Capital Resources
Sources of Liquidity
We have not yet commercialized any products and do not expect to generate revenue from the sales of any product candidates for at least several years. Cash and cash equivalents totaled $427.6 million and $391.6 million as of September 30, 2024 and December 31, 2023, respectively.
We have incurred operating losses and experienced negative operating cash flows and we anticipate that the Company will continue to incur losses for at least the foreseeable future. Our net loss was $95.8 million and $284.8 million during the three and nine months ended September 30, 2024, respectively. Our net loss was $93.0 million
and $235.1 million during the three and nine months ended September 30, 2023, respectively. As of September 30, 2024 and December 31, 2023, we had an accumulated deficit of $1.3 billion and $967.6 million, respectively.
We have financed our operations through the private placements of preferred stock and Class A common stock issuances. As of September 30, 2024, we have received net proceeds of $448.9 million from the sale of preferred stock and $1.0 billion from Class A common stock issuances. See Note 8, “Common Stock” to the Condensed Consolidated Financial Statements for additional details on Class A common stock issuances. Additionally, as of September 30, 2024, we have received proceeds of $213.0 million from our strategic partnerships. See Note 9, “Collaborative Development Contracts” to the Condensed Consolidated Financial Statements for additional details on the Roche partnership.
Cash Flows
The following table is a summary of the Condensed Consolidated Statements of Cash Flows for each of the periods presented below:
Nine months ended September 30,
(in thousands)
2024
2023
Cash used in operating activities
$
(243,744)
$
(213,703)
Cash used in investing activities
(15,397)
(7,740)
Cash provided by financing activities
293,481
59,474
Operating Activities
Cash used by operating activities increased during the nine months ended September 30, 2024 as a result of higher costs incurred for research and development and general and administrative due to the Company’s expansion and upgraded capabilities.
Cash used by operating activities increased during the nine months ended September 30, 2023 as a result of an upfront payment of $150.0 million from our strategic partnership with Roche received in 2022.
Investing Activities
Cash used by investing activities during the nine months ended September 30, 2024 consisted of property and equipment purchases of $12.4 million, which included $2.9 million to upgrade the BioHive-2 supercomputer and lab equipment purchases. Additionally, investing activities included the purchase of an intangible asset of $3.0 million from Helix.
Cash used by investing activities during the nine months ended September 30, 2023 consisted primarily of purchases of property and equipment of $9.9 million, which included $1.7 million for a project to upgrade the BioHive -1 supercomputer and lab equipment purchases. The cash used was partially offset by $1.9 million of net cash acquired in the acquisition of a business.
Financing Activities
Cash provided by financing activities during the nine months ended September 30, 2024 primarily included proceeds of $289.4 million from Class A common stock issuances related to our June 2024 public offering of Class A common stock and our at-the-market offering (ATM). Financing inflows also included proceeds from equity incentive plans of $6.4 million.
Cash provided by financing activities during the nine months ended September 30, 2023 primarily included proceeds of $50.0 million from the NVIDIA private placement. Financing cash inflows also included proceeds from equity incentive plans of $9.5 million.
Critical Accounting Estimates and Policies
A summary of the Company’s significant accounting estimates and policies is included in Note 2, “Summary of Significant Accounting Policies” in our 2023 Annual Report. There were no significant changes in the Company’s application of its critical accounting policies during the nine months ended September 30, 2024.
Recently Issued and Adopted Accounting Pronouncements
See Note 2, “Basis of Presentation” in Item 1 of this Quarterly Report on Form 10-Q for information regarding recently issued and adopted accounting pronouncements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk
We are exposed to market risk related to changes in interest rates of our cash and cash equivalents. As of September 30, 2024, our cash and cash equivalents primarily consisted of money market funds. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in U.S. interest rates. A hypothetical 100 basis point decrease in interest rates as of as of September 30, 2024, would have an insignificant effect on net loss in the ensuing year.
Foreign Currency Exchange Risk
Our employees and our operations are primarily located in the United States and Canada and our expenses are generally denominated in U.S. and Canadian dollars. We also have entered into a limited number of contracts with vendors for research and development services that have underlying payment obligations denominated in foreign currencies. We are subject to foreign currency transaction gains or losses on our contracts denominated in foreign currencies. To date, foreign currency transaction gains and losses have not been material to our financial statements, and we do not have a formal hedging program with respect to foreign currency. A 10% increase or decrease in current exchange rates would have an insignificant effect on our financial results during the three and nine months ended September 30, 2024 and 2023.
Item 4. Controls and Procedures.
The Company has established disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act) designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to management, including the principal executive officer (our Chief Executive Officer) and principal financial officer (our Chief Financial Officer), to allow timely decisions regarding required disclosure. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Evaluation of Disclosure Controls and Procedures
Our management has evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives as management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures have been designed to provide reasonable assurance of achieving their objectives. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2024, our disclosure controls and procedures were ineffective due to the material weakness in internal control over financial reporting disclosed in Part II, Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2023.
Remediation of Material Weakness
The following remediation actions have been taken as of September 30, 2024:
•Improvement of documentation procedures regarding specific inquiries related to the cost model used for revenue recognition and the resulting responses
•Improvement of documentation for the review of changes in cost model due to responses from inquiries
•Provided additional documentation for internal reports to validate and support completeness and accuracy of reports
•Improvement of documentation of these processes was done with the input of our third-party consultants who continue to be involved in the design and enhancement of the revenue recognition policies and procedures
While significant progress has been made to enhance our internal control over financial reporting, we are still testing these remediated processes, procedures and controls. We believe the above actions will be effective in remediating the material weakness described above. However, the material weakness cannot be considered remediated until controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. As such, we were unable to conclude that the material weakness has been remediated as of September 30, 2024.
Changes in Internal Control Over Financial Reporting
With the exception of the steps taken to remediate the material weakness as described above, there were no other changes in internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
The Company may, from time to time, be involved in various legal proceedings arising in the normal course of business. An unfavorable resolution of any such matter could materially affect the Company’s future financial position, results of operations or cash flows. For more information pertaining to legal proceedings, see Part I, Item 1, Note 7, “Commitments and Contingencies,” which is incorporated herein by reference.
Item 1A. Risk Factors.
Investing in our common stock involves a high degree of risk. For a detailed discussion of the risks that affect our business. Please refer to the sections titled Part I, Item 1A. “Risk Factors” of our 2023 Annual Report; Part II, Item 1A. “Risk Factors” of our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2024 and June 30, 2024, and the risk factors disclosed under Item 8.01 in our Current Report on Form 8-K filed with the SEC on September 3, 2024.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
(a) Sales of Unregistered Securities
Stock Option Exercises
For the nine months ended September 30, 2024, we issued 112 thousand shares of our Class A common stock to our employees, directors, advisors and consultants upon the exercise of stock options under our Key Personnel Incentive Stock Plan for aggregate consideration of approximately $38 thousand. The shares of Class A common stock issued upon the exercise of stock options were issued pursuant to written compensatory plans or arrangements with our employees, directors, advisors and consultants, in reliance on the exemption provided by Rule 701 promulgated under the Securities Act of 1933, as amended, or pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, relative to transactions by an issuer not involving any public offering, to the extent an exemption from such registration was required. All recipients either received adequate information about our company or had access, through employment or other relationships, to such information.
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
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Exhibits and/or schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The registrant hereby undertakes to furnish supplementally copies of any of the omitted exhibits and schedules upon request by the SEC; provided, however, that the registrant may request confidential treatment pursuant to Rule 24b-2 under the Exchange Act for any exhibits or schedules so furnished.
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The certifications furnished in Exhibit 32.1 hereto are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. Such certifications will not be deemed to be incorporated by reference into any filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Registrant specifically incorporates it by reference.
Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on November 6, 2024.
