UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2021

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

For the transition period from to

Commission File Number: 001-36694

Protara Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

Delaware

20-4580525

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

345 Park Avenue South

3^rd Floor

New York, NY

(Address of principal executive offices)

10010

(Zip Code)

(646) 844-0337

(Registrant’s telephone number, including area code)

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

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

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

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

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

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

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

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, $0.001 par value per share		TARA		The Nasdaq Capital Market

As of November 3, 2021 there were 11,235,731 shares of the registrant’s common stock, par value $0.001 per share, outstanding.

TABLE OF CONTENTS

		Page

PART I – FINANCIAL INFORMATION		1
Item 1.	Condensed Consolidated Financial Statements	1
	Condensed Consolidated Balance Sheets as of September 30, 2021 (unaudited) and December 31, 2020	1
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2021 and 2020 (unaudited)	2
	Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the three and nine months ended September 30, 2021 and 2020 (unaudited)	3
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020 (unaudited)	4
	Notes to Unaudited Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	24

PART II – OTHER INFORMATION		25
Item 1.	Legal Proceedings	25
Item 1A.	Risk Factors	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49
Item 3.	Defaults Upon Senior Securities	49
Item 4.	Mine Safety Disclosures	49
Item 5.	Other Information	49
Item 6.	Exhibits	49

EXHIBIT INDEX		50

SIGNATURES		51

CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements, which reflect our current views with respect to, among other things, our operations and financial performance. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements. You can identify these forward-looking statements by the use of words such as “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “seek,” “approximately,” “predict,” “intend,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words. These forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements.

These forward-looking statements include, but are not limited to, statements about:

●

the impact of the novel coronavirus disease, or COVID-19, pandemic on our business and operations as well as the business or operations of our manufacturers, research partners, other third parties with whom we conduct business and regulatory agencies;

●

estimates regarding our financial performance, including future revenue, expenses and capital requirements;

●

our expected cash position and ability to obtain financing in the future on satisfactory terms or at all;

●

expectations regarding our plans to research, develop and commercialize our current and future product candidates, including TARA-002, and Intravenous, or IV, Choline Chloride;

●

expectations regarding the safety and efficacy of our product candidates;

●

expectations regarding the timing, costs and outcomes of our planned clinical trials;

●

expectations regarding potential market size;

●

expectations regarding the timing of the availability of data from our clinical trials;

●

expectations regarding the clinical utility, potential benefits and market acceptance of our product candidates;

●

expectations regarding our commercialization, marketing and manufacturing capabilities and strategy;

●

the implementation of our business model, strategic plans for our business, product candidates and technology;

●

expectations regarding our ability to identify additional products or product candidates with significant commercial potential;

●

developments and projections relating to our competitors and industry;

●

our ability to remain listed on the Nasdaq Capital Market;

●

the impact of government laws and regulations;

●

the timing or likelihood of regulatory filings and approvals; and

●

our ability to protect our intellectual property position.

All forward-looking statements in this Quarterly Report on Form 10-Q involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, the risk factors set forth below in Part II, Item 1A, Risk Factors, and elsewhere in this Quarterly Report on Form 10-Q and the risk factors set forth in Part I, Item 1A Risk Factors, within our Form 10-K filed on March 11, 2021. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this Quarterly Report on Form 10-Q. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

This Quarterly Report on Form 10-Q also contains estimates, projections and other information concerning our industry, our business, and the markets for certain medical conditions, including data regarding the estimated size of those markets, and the incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources.

SUMMARY OF RISKS AFFECTING OUR BUSINESS

Below is a summary of the principal factors that make an investment in our securities speculative or risky. This summary does not address all of the risks that we face. Additional discussion of the risks and uncertainties summarized in this risk factor summary, and other risks and uncertainties that we face, are set forth in Part II, Item 1A, Risk Factors, and should be carefully considered, together with other information in this Quarterly Report on Form 10-Q and our other filings with the United States Securities and Exchange Commission, or SEC, before making investment decisions regarding our securities.

●

We have a very limited operating history and have never generated any revenues.

●

We expect to incur significant losses for the foreseeable future and may never achieve or maintain profitability.

●

The COVID-19 pandemic could adversely impact our business, including our clinical development plans.

●

We will need to raise additional financing in the future to fund our operations, which may not be available to us on favorable terms or at all.

●

Our business depends on the successful clinical development, regulatory approval and commercialization of TARA-002 and IV Choline Chloride.

●

We have never made a biologics license application, or BLA, or new drug application, or NDA, submission or conducted a clinical trial and may be unable to successfully do so for TARA-002 or IV Choline Chloride.

●

TARA-002 is an immunopotentiator, and one indication for which we plan to pursue is the treatment of lymphatic malformations, or LMs. There are no therapies for the treatment of LMs approved by the United States Food and Drug Administration, or the FDA. It is difficult to predict the timing and costs of clinical development for TARA-002 with respect to LMs.

●

Even if a product candidate obtains regulatory approval, it may fail to achieve the broad degree of physician and patient adoption and use necessary for commercial success.

●

Our product candidates, if approved, will face significant competition, and may face competition sooner than anticipated, and their failure to compete effectively may prevent them from achieving significant market penetration.

●

We currently have limited marketing capabilities and no sales organization. If we are unable to grow our sales and marketing capabilities on our own or through third parties, we will be unable to successfully commercialize our product candidates, if approved, or generate product revenue.

●

We may not be able to obtain, maintain or enforce global patent rights or other intellectual property rights that cover our product candidates and technologies that are of sufficient breadth to prevent third parties from competing against us.

●

Certain stockholders have the ability to control or significantly influence certain matters submitted to our stockholders for approval.

iii

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

PROTARA THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

	As of
	September 30, 2021			December 31, 2020
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	40,742		$	168,598
Restricted cash		-			50
Marketable debt securities, current		53,016			-
Prepaid expenses and other current assets		1,937			787
Total current assets		95,695			169,435

Non-current assets:
Restricted cash, non-current		745			745
Marketable debt securities, non-current		44,652			-
Property and equipment, net		1,729			1,240
Operating lease right-of-use asset		7,413			1,060
Goodwill		29,517			29,517
Other assets, non-current		946			1,160
Total assets	$	180,697		$	203,157

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	928		$	914
Accrued expenses		1,920			1,913
Operating lease liability, current		840			88
Total current liabilities		3,688			2,915

Non-current liabilities:
Operating lease liability, non-current		6,603			999
Total liabilities		10,291			3,914

Commitments and Contingencies (Note 6)

Stockholders’ Equity

Preferred Stock, $0.001 par value, authorized 10,000,000 shares: Series 1 Convertible Preferred Stock, 8,028 shares authorized at September 30, 2021 and December 31, 2020, 8,027 shares issued and outstanding as of September 30, 2021 and December 31, 2020.		-			-
Common Stock, $0.001 par value, authorized 100,000,000 shares:
Common Stock, 11,235,731 and 11,211,840 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively.		11			11
Additional Paid in Capital		254,218			245,992
Accumulated Deficit		(83,784	)		(46,760	)
Accumulated Other Comprehensive Income (Loss)		(39	)		-
Total Stockholders’ Equity		170,406			199,243
Total Liabilities and Stockholders’ Equity	$	180,697		$	203,157

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

PROTARA THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(unaudited)

(in thousands, except share and per share data)

	For the three months ended September 30,						For the nine months ended September 30,
	2021			2020			2021			2020

Operating expense:
Research & development	$	4,093		$	2,796		$	17,020		$	8,330
General & administrative		6,737			5,266			20,182			17,157
Total operating expenses		10,830			8,062			37,202			25,487

Operating loss		(10,830	)		(8,062	)		(37,202	)		(25,487	)

Other income, net
Interest income, net		(53	)		(92	)		(178	)		(317	)
Total other income, net		(53	)		(92	)		(178	)		(317	)

Net loss		(10,777	)		(7,970	)		(37,024	)		(25,170	)

Other comprehensive gain (loss):
Unrealized gains (losses) on available-for-sale marketable debt securities		62			-			(39	)		-
Total other comprehensive gain (loss)		62			-			(39	)		-

Comprehensive Loss	$	(10,715	)	$	(7,970	)	$	(37,063	)	$	(25,170	)

Weighted Average Shares Outstanding, basic and diluted		11,235,507			6,324,295			11,231,513			5,910,849

Net loss per share, basic and diluted	$	(0.96	)	$	(1.26	)	$	(3.30	)	$	(4.26	)

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

PROTARA THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(unaudited)

(in thousands, except share and per share data)

	Series 1 Convertible Preferred Stock				Common Stock				Additional Paid-in			Accumulated			Accumulated Other Comprehensive			Total Stockholders’ Equity
	Shares		Amount		Shares		Amount		Capital			Deficit			Income (Loss)			(Deficit)

Balance at January 1, 2020		-	$	-		2,627,533	$	3	$	10,651		$	(12,782	)	$	-		$	(2,128	)

Issuance of Common Stock in ArTara Private Placement, net of offering costs		-		-		284,875		-		1,867			-			-			1,867
Issuance of Common Stock in Proteon Private Placement, net of offering costs		-		-		1,896,888		2		12,411			-			-			12,413
Issuance of Series 1 Convertible Preferred Stock in Proteon Private Placement, net of offering costs		3,879		-		-		-		25,319			-			-			25,319
Reverse business combination		-		-		1,033,907		1		34,532			-			-			34,533
Stock-based compensation - restricted stock units		-		-		-		-		2,430			-			-			2,430
Stock-based compensation - stock options		-		-		-		-		368			-			-			368
Net loss		-		-		-		-		-			(10,060	)		-			(10,060	)

Balance at March 31, 2020		3,879	$	-		5,843,203	$	6	$	87,578		$	(22,842	)	$	-		$	64,742

Stock-based compensation - restricted stock units		-		-		-		-		1,315			-			-			1,315
Stock-based compensation - stock options		-		-		-		-		514			-			-			514
Net loss		-		-		-		-		-			(7,140	)		-			(7,140	)

Balance at June 30, 2020		3,879	$	-		5,843,203	$	6	$	89,407		$	(29,982	)	$	-		$	59,431

Settlement of RSUs		-		-		20,870		-		-			-			-			-
Exercise of stock options		-		-		57,767		-		530			-			-			530
Issuance of Common Stock in public offering, net of offering costs		-		-		4,600,000		5		73,566			-			-			73,571
Issuance of Series 1 Convertible Preferred in public offering, net of offering costs		4,148		-		-		-		66,283			-			-			66,283
Stock-based compensation - stock options		-		-		-		-		1,474			-			-			1,474
Stock-based compensation - restricted stock units		-		-		-		-		1,307			-			-			1,307
Net loss		-		-		-		-		-			(7,970	)		-			(7,970	)

Balance at September 30, 2020		8,027	$	-		10,521,840	$	11	$	232,567		$	(37,952	)	$	-		$	194,626

Balance at January 1, 2021		8,027	$	-		11,211,840	$	11	$	245,992		$	(46,760	)	$	-		$	199,243

Settlement of restricted stock units		-		-		16,766		-		(228	)		-			-			(228	)
Stock-based compensation - restricted stock units		-		-		-		-		1,303			-			-			1,303
Stock-based compensation - stock options		-		-		-		-		1,437			-			-			1,437
Unrealized losses on available-for-sale marketable debt securities		-		-		-		-		-			-			(164	)		(164	)
Net loss		-		-		-		-		-			(13,465	)		-			(13,465	)

Balance at March 31, 2021		8,027	$	-		11,228,606	$	11	$	248,504		$	(60,225	)	$	(164	)	$	188,126

Settlement of restricted stock units		-		-		5,250		-		-			-			-			-
Stock-based compensation - restricted stock units		-		-		-		-		1,360			-			-			1,360
Stock-based compensation - stock options		-		-		-		-		1,638			-			-			1,638
Unrealized gains on available-for-sale marketable debt securities		-		-		-		-		-			-			63			63
Net loss		-		-		-		-		-			(12,782	)		-			(12,782	)

Balance at June 30, 2021		8,027	$	-		11,233,856	$	11	$	251,502		$	(73,007	)	$	(101	)	$	178,405

Settlement of restricted stock units		-		-		1,875		-		-			-			-			-
Stock-based compensation - restricted stock units		-		-		-		-		1,307			-			-			1,307
Stock-based compensation - stock options		-		-		-		-		1,409			-			-			1,409
Unrealized gains on available-for-sale marketable debt securities		-		-		-		-		-			-			62			62
Net loss		-		-		-		-		-			(10,777	)		-			(10,777	)

Balance at September 30, 2021		8,027	$	-		11,235,731	$	11	$	254,218		$	(83,784	)	$	(39	)	$	170,406

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

PROTARA THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

	For the nine months ended September 30,
	2021			2020
Cash flows used in operating activities:
Net loss	$	(37,024	)	$	(25,170	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock based compensation		8,454			7,407
Operating lease right-of-use asset		712			61
Depreciation		63			71
Amortization of premium on marketable debt securities		1,280			-
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		(605	)		1,107
Other Assets, non-current		213			(42	)
Accounts payable		14			1,197
Accrued expenses		5			(1,236	)
Operating lease liabilities		(707	)		(36	)
Net cash used in operating activities		(27,595	)		(16,641	)

Cash flows (used in)/provided by investing activities:
Cash and restricted cash acquired in connection with the reverse merger with ArTara Therapeutics, Inc.		-			3,719
Purchase of marketable debt securities, available-for-sale		(115,959	)		-
Proceeds from maturity of marketable debt securities, available-for-sale		2,600			-
Proceeds from redemption of marketable debt securities, available-for-sale		13,828			-
Purchase of property and equipment		(552	)		(373	)
Net cash (used in)/provided by investing activities		(100,083	)		3,346

Cash flows (used in)/provided by financing activities:
Proceeds from - ArTara Private Placement, net of offering costs		-			1,867
Proceeds from - Common Stock in Proteon Private Placement, net of offering costs		-			12,413
Proceeds from - Series 1 Convertible Preferred Stock in Proteon Private Placement, net of offering costs		-			25,319
Proceeds from September Series 1 Convertible Preferred, net of offering costs		-			66,284
Proceeds from September Common Stock, net of offering costs		-			73,571
Repayments under short-term debt		-			(1,298	)
Proceeds from the exercise of stock options		-			530
Repurchase of shares in connection with settlement of RSUs		(228	)		-
Net cash (used in)/provided by financing activities		(228	)		178,686

Net (decrease)/increase in cash and cash equivalents and restricted cash		(127,906	)		165,391
Cash and cash equivalents and restricted cash - beginning of year		169,393			564
Cash and cash equivalents and restricted cash - end of period	$	41,487		$	165,955

Supplemental cash flow information
Cash paid for:
Interest	$	-		$	26
Income Taxes	$	-		$	-

Non-cash investing and financing activities:

Deferred offering costs recognized that were previously recorded in accrued expenses	$	-		$	122
Purchase of insurance agreement with notes payable	$	-		$	1,669
Common stock issued in connection with the reverse merger with ArTara Therapeutics, Inc.	$	-		$	34,533

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

Protara Therapeutics, Inc. and Consolidated Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(amounts in thousands, except share and per share data)

NOTE 1 – BUSINESS, LIQUIDITY AND CAPITAL RESOURCES

Overview

Protara Therapeutics, Inc., and its consolidated subsidiaries (“Protara” or the “Company”), is a clinical-stage biopharmaceutical company committed to identifying and advancing transformative therapies for the treatment of cancer and rare diseases with significant unmet needs. Protara’s portfolio includes two development programs utilizing TARA-002, an investigational cell therapy in development for the treatment of lymphatic malformations (“LMs”) and non-muscle invasive bladder cancer (“NMIBC”). The third program in the portfolio is Intravenous (“IV”) Choline Chloride, an investigational phospholipid substrate replacement therapy initially in development for patients receiving parenteral nutrition (“PN”) who have intestinal failure associated liver disease (“IFALD”). The fourth program in the portfolio is Vonapanitase, a recombinant human elastase.

Liquidity, Capital Resources and Management Plans

As of September 30, 2021 and December 31, 2020, the Company’s cash, cash equivalents, and marketable debt securities were $138,410 and $168,598, respectively. The Company has not generated revenues since its inception and has incurred net losses of $10,777 and $7,970 for the three months ended September 30, 2021 and 2020, respectively, and $37,024 and $25,170 for the nine months ended September 30, 2021 and 2020, respectively. During the nine months ended September 30, 2021, cash flows used in operating activities were $27,595, consisting primarily of a net loss of $37,024 which includes non-cash stock-based compensation charges of $8,454. Since inception, the Company has met its liquidity requirements principally through the sale of its common stock (“Common Stock”) and series 1 convertible preferred stock (“Series 1 Convertible Preferred Stock”). The Company manages its capital resources to ensure the Company will continue as a going concern.

The Company is in the business of developing biopharmaceuticals and has no current or near-term revenues. The Company has incurred substantial clinical and other costs in its drug development efforts. The Company will need to raise additional capital in order to fully realize management’s plans.

The Company believes that its current financial resources are sufficient to satisfy the Company’s estimated liquidity needs for at least twelve months from the date of issuance of these unaudited condensed consolidated financial statements.

Impact of the COVID-19 Pandemic

The impact of the COVID-19 pandemic has been and is expected to continue to be extensive in many aspects of society, which has resulted in and will likely continue to result in significant disruptions to the global economy, as well as businesses and capital markets around the world. Severe and/or long-term disruptions in the Company’s operations as a result of COVID-19, including in response to related public health directives and orders, will negatively impact its business, operating results and financial condition. Specifically, the Company anticipates that the stress of COVID-19 on healthcare systems around the globe may negatively impact its ability to conduct clinical trials in the near term due primarily to the lack of resources at clinical trial sites and the resulting inability to enroll patients in the trials. The Company also anticipates that the global impact of COVID-19 will negatively impact its ability to conduct nonclinical studies due primarily to laboratory closures and limited availability of personnel. In addition, while the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, it has significantly disrupted global financial markets, and may limit the Company’s ability to access capital, which could in the future negatively affect its liquidity. A recession or market correction resulting from the spread of COVID-19 could materially affect the Company’s business and the value of its Common Stock.

Protara Therapeutics, Inc. and Consolidated Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(amounts in thousands, except share and per share data)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company’s significant accounting policies are disclosed in the audited consolidated financial statements and the notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the United States Securities and Exchange Commission (“SEC”) on March 11, 2021 (the “2020 Annual Report”). Except as reflected below, there were no changes to the Company’s significant accounting policies as described in the 2020 Annual Report. Reflected in this note are updates to accounting policies, including the impact of the adoption of new policies.

Basis of Presentation

The accompanying condensed consolidated financial statements and the related disclosures as of September 30, 2021 and for the three and nine months ended September 30, 2021 and 2020 are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and the rules and regulations of the SEC for interim financial statements. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These interim condensed consolidated financial statements should be read in conjunction with the 2020 and 2019 audited consolidated financial statements and notes included in the 2020 Annual Report. The December 31, 2020 consolidated balance sheet included herein was derived from the audited financial statements as of that date but does not include all disclosures including notes required by U.S. GAAP for complete financial statements. In the opinion of management, the unaudited interim condensed consolidated financial statements reflect all adjustments, consisting of normal and recurring adjustments, necessary for the fair presentation of the Company’s financial position and results of operations for the three and nine months ended September 30, 2021 and 2020. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the year ending December 31, 2021 or any other interim period or future year or period.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of the Company’s condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of expenses during the reporting period. Actual results could differ from those which result from using such estimates. Management also utilizes various other estimates, including but not limited to the recoverability of the Company’s net deferred tax assets and related valuation allowance, operating lease right-of-use assets and liabilities, determining the fair value and evaluation for impairment of goodwill and stock-based compensation. The results of any changes in accounting estimates are reflected in the financial statements of the period in which the change becomes evident. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the period that they are determined to be necessary. Actual results may differ materially from those estimates or assumptions.

Reclassification

Certain amounts in prior periods related to the classification of operating right-of-use assets have been reclassified to conform to current period presentation.

Protara Therapeutics, Inc. and Consolidated Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(amounts in thousands, except share and per share data)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Cash, Cash Equivalents, and Restricted Cash

The Company considers all highly liquid instruments with an original maturity of three months or less when acquired to be cash equivalents. Cash and cash equivalents are held in depository and money market accounts and are reported at fair value. The Company’s restricted cash balances consist of cash deposits to collateralize letter of credit obligations.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash in the condensed consolidated balance sheets to the total amount shown in the condensed consolidated statements of cash flows:

	As of September 30,
	2021		2020
Cash and cash equivalents	$	40,742	$	165,905
Restricted cash, current		-		50
Restricted cash, non-current		745		-
Total cash, cash equivalents, and restricted cash	$	41,487	$	165,955

Investments in marketable debt securities

At the time of purchase, the Company determines the appropriate classification of investments based upon its intent with regard to such investments. The Company classifies investments in marketable debt securities with remaining maturities when purchased of greater than three months as available-for-sale. Investments with a remaining maturity date greater than one year are classified as non-current. All of the Company’s non-current investments have a maturity date that is within two years of the balance sheet date.

The Company records investments at fair value with unrealized gains and losses recorded as a component of accumulated other comprehensive income (loss), net in the condensed consolidated statements of operations and comprehensive loss. Of the 36 securities in a loss position held by the Company, there were no securities with an other-than-temporary impairment at September 30, 2021. There were no securities in a continuous unrealized loss position for greater than twelve months at September 30, 2021. The Company has the ability to hold such securities with an unrealized loss until its forecasted recovery. The Company determined that there was no material change in the credit risk of the above investments.

Leases

Under ASC 842, lease expense is recognized as a single lease cost on a straight-line basis over the lease term. The lease term consists of non-cancelable periods and may include options to extend or terminate the lease term, when it is reasonably certain such options will be exercised.

The Company enters into contracts in the normal course of business and assesses whether any such contracts contain a lease. The Company determines if an arrangement is a lease at inception if it conveys the right to control the identified asset for a period of time in exchange for consideration. The Company classifies leases as operating or financing in nature and records the associated lease liability and right-of-use asset on its balance sheet. The lease liability represents the present value of future lease payments, net of lease incentives, discounted using an incremental borrowing rate, which is a management estimate based on the information available at the commencement date of a lease arrangement. With respect to operating lease arrangements, the Company accounts for lease components, and non-lease components that are fixed, as a single lease component. Non-lease components that are variable are expensed as incurred as in the statement of operations and comprehensive loss. The Company recognizes costs associated with lease arrangements having an initial term of 12 months or less (“short-term leases”) on a straight-line basis over the lease term; such short-term leases are not recorded on the balance sheet.

Protara Therapeutics, Inc. and Consolidated Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(amounts in thousands, except share and per share data)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Concentrations of Credit Risk

Financial instruments, which potentially subject the Company to concentrations of credit risk, consists principally of cash, cash equivalents and investments in marketable debt securities.

The Company currently invests its excess cash primarily in money market funds and high quality marketable debt securities of corporations. The Company has adopted an investment policy that includes guidelines relative to credit quality, diversification and maturities to preserve principal and liquidity.

Stock-Based Compensation

The Company measures all stock options and other stock-based awards granted to employees and directors based on the fair value on the date of the grant and recognizes compensation expense of those awards over the requisite service period, which is generally the vesting period of the respective award. The Company recognizes forfeitures at the time forfeitures occur.

The Company classifies stock-based compensation expense in its statement of operations and comprehensive loss in the same way the payroll costs or service payments are classified for the related stock-based award recipient. The fair value of the Company’s stock options are estimated using the Black Scholes option-pricing model. The Company lacks company specific historical and implied volatility information. Therefore, it estimates its expected stock volatility based on the historical volatility of a publicly-traded set of peer companies and expects to continue to do so until it has adequate historical data regarding the volatility of its own traded stock price.

Research and Development Costs

Research and development costs are expensed as incurred. These expenses include the costs of the Company’s proprietary research and development efforts, as well as costs incurred in connection with certain licensing arrangements. Before a compound receives regulatory approval, the Company records upfront and milestone payments made to third parties under licensing arrangements as expense. Upfront payments are recorded when incurred, and milestone payments are recorded when the specific milestone or progress has been achieved. Once a compound receives regulatory approval, the Company records any milestone payments in identifiable intangible assets, less accumulated amortization and, unless the asset is determined to have an indefinite life, the Company amortizes the payments on a straight-line basis over the remaining agreement term or the expected product life cycle, whichever is shorter.

Recently Adopted Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2019-12 - Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in ASU 2019-12 remove certain exceptions to the general principles in Accounting Standards Codification Topic 740. The amendments also clarify and amend existing guidance to improve consistent application. The amendments became effective for annual reporting periods beginning after December 15, 2020. On January 1, 2021, the Company adopted ASU 2019-12. The adoption of this standard did not have a material effect on the Company’s financial position, results of operations, or cash flows.

Protara Therapeutics, Inc. and Consolidated Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(amounts in thousands, except share and per share data)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Recent Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13 - Measurement of Credit Losses on Financial Statements. The new standard requires that expected credit losses relating to financial assets measured on an amortized cost basis and available-for-sale debt securities be recorded through an allowance for credit losses. It also limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and also requires the reversal of previously recognized credit losses if fair value increases. In November 2019, the FASB issued ASU 2019-10 – Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, which amended the effective date for certain companies. The standard is effective for public companies eligible to be smaller reporting companies for annual and interim periods beginning after December 15, 2022. Early adoption is available. The Company is currently evaluating the potential impact ASU 2016-13, and related updates, will have on its consolidated financial statements and disclosures.

The Company has evaluated other recently issued accounting pronouncements and has concluded that the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s financial position or results of operations upon adoption.

Subsequent Events

The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the financial statements were available to be issued. The Company did not identify any subsequent events that would have required adjustment or disclosure in the financial statements.

Protara Therapeutics, Inc. and Consolidated Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(amounts in thousands, except share and per share data)

NOTE 3 – FAIR VALUE MEASUREMENTS

Marketable debt securities, all of which were classified as available-for-sale, consist of the following:

	September 30, 2021
	Amortized Cost		Unrealized Gains		Unrealized Losses			Estimated Fair Value
Corporate Bonds - presented in marketable debt securities, current	$	53,018	$	-	$	(2	)	$	53,016
Corporate Bonds - presented in marketable debt securities, non-current		44,689		-		(37	)		44,652
Total	$	97,707	$	-	$	(39	)	$	97,668

As of December 31, 2020, the Company did not have any marketable debt securities.

The Company has recorded the securities at fair value in its condensed consolidated balance sheet and unrealized gains and losses are reported as a component of accumulated other comprehensive income (loss). The amount of realized gains and losses reclassified into earnings are based on the specific identification of the securities sold or securities that reached maturity date. Cash proceeds realized from maturities and redemptions of securities available-for-sale as of September 30, 2021 were $2,600 and $13,828, respectively. There were no sales or maturities of securities in the periods presented.

Gross realized gains and losses on the redemptions of investments have not been material to the Company’s consolidated statement of operations.

The Company measures certain financial assets and liabilities at fair value. Fair value is determined based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, as determined by either the principal market or the most advantageous market.

Inputs used in the valuation techniques to derive fair values are classified based on a three-level hierarchy, as follows:

	●	Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.
	●	Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.
	●	Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.

SEC Form 10-Q filed by Protara Therapeutics, Inc.