On June 16, 2020, the Company’s certificate of incorporation was amended and restated to authorize 400,000,000 shares of common stock and 40,000,000 shares of undesignated preferred stock, each with a par value of $0.0001 per share.

In connection with the completion of the IPO in June 2020, all of the outstanding shares of convertible preferred stock were converted into 17,921,069 shares of the Company’s common stock. As of December 31, 2019, the Company’s convertible preferred stock was classified as temporary equity on the accompanying balance sheet in accordance with authoritative guidance for the classification and measurement of potentially redeemable securities whose redemption is based upon certain change in control events outside of the Company’s control.

On April 1, 2019, Avidity LLC, a Delaware limited liability company, was converted into Avidity Biosciences, Inc., a Delaware corporation. The entire membership interests of Avidity LLC were converted into securities of Avidity Biosciences, Inc. as follows: (i) each outstanding common unit of Avidity LLC was converted into one share of Avidity Biosciences, Inc.’s common stock; (ii) each outstanding Series A preferred unit of Avidity LLC converted into one share of Avidity Biosciences, Inc.’s Series A convertible preferred stock; and (iii) each outstanding Series B preferred unit of Avidity LLC converted into one share of Avidity Biosciences, Inc.’s Series B convertible preferred stock. All the property, rights, privileges, powers and franchises of Avidity LLC vested in Avidity Biosciences, Inc., and all debts, liabilities and duties of Avidity LLC became debts, liabilities and duties of Avidity Biosciences, Inc. All references to the former members’ equity accounts in Avidity LLC have been adjusted to reflect the equivalent number of Avidity Biosciences, Inc. shares of common stock. Upon completion of the conversion, the Company reclassified an accumulated deficit of $44.1 million from predecessor deficit to additional paid in capital.

As of December 31, 2019, preferred stock consisted of the following (in thousands, except per share data):

Series	Shares Authorized		Shares Issued and Outstanding		Per Share Original Issue Price and Conversion Price		Liquidation Preference		Carrying Value
Series A		4,367		4,350	$	2.2615	$	9,838	$	9,773
Series B		8,108		8,108		2.8269		22,922		22,814
Series C		25,580		24,809		4.2812		106,210		102,133
Total		38,055		37,267			$	138,970	$	134,720

In January 2013, the Company adopted the 2013 Equity Incentive Plan (the 2013 Plan). The 2013 Plan provided for the issuance of incentive units to employees and nonemployees of the Company and non‑statutory unit options, restricted unit awards, unit appreciation rights, and unit bonuses to directors, employees and consultants of the Company. Under the 2013 Plan, 2,127,013 units were initially reserved for issuance. Upon the conversion of the Company to a C corporation, the 2013 Plan continued on the same terms and conditions. In 2019, the number of shares reserved under the 2013 Plan was increased to 4,771,615 shares. As of June 30, 2020, no shares remain available for issuance under the 2013 Plan.

In June 2020, the Board of Directors adopted, and the Company’s stockholders approved, the 2020 Incentive Award Plan (the 2020 Plan), which became effective in connection with the IPO. Under the 2020 Plan, the Company may grant stock options, restricted stock, dividend equivalents, restricted stock units, stock appreciation rights, and other stock or cash-based awards to individuals who are then employees, officers, non-employee directors or consultants of the Company. A total of 3,900,000 shares of common stock were initially reserved for issuance under the 2020 Plan. In addition, the number of shares of common stock available for issuance under the 2020 Plan will be increased annually on the first day of each fiscal year during the term of the 2020 Plan, beginning with the 2021 fiscal year, by an amount equal to the lesser of (a) 5% of the shares of common stock outstanding on the final day of the immediately preceding calendar year or (b) such smaller number of shares as determined by the Board of Directors. At June 30, 2020, 3,790,970 shares remain available for issuance under the 2020 Plan.

Options granted from the 2013 Plan and 2020 Plan are exercisable at various dates and will expire no more than ten years from their date of grant. Prior to the IPO, the exercise price of options was determined by the board of directors. Following the IPO, the Company grants options with an exercise price equal to the fair market value of the Company’s stock on the date of the option grant.

Stock option activity for employee and nonemployee awards and related information is as follows (options in thousands):

	Number			Weighted- Average Exercise Price
Outstanding at December 31, 2019		1,667		$	1.08
Granted		1,352			11.02
Exercised		(106	)		0.44
Forfeited		(51	)		1.24
Outstanding at June 30, 2020		2,862		$	2.73

In June 2020, the Company adopted the ESPP, which permits participants to contribute up to 15% of their eligible compensation during defined rolling six-month periods to purchase the Company’s common stock. The purchase price of the shares will be 85% of the lower of the fair market value of the Company’s common stock on the first day of trading of the offering period or on the applicable purchase date. A total of 325,000 shares of common stock was initially reserved for issuance under the ESPP. As of June 30, 2020, the Company has not issued any shares under the ESPP. The Company had an outstanding liability of $41,838 at June 30, 2020, which is included in accounts payable and accrued liabilities on the balance sheet, for employee contributions to the ESPP for shares pending issuance at the end of the offering period.

The assumptions used in the Black-Scholes option pricing model to determine the fair value of the stock option/unit grants were as follows:

	Six Months Ended June 30,
	2020	2019
Risk-free interest rate	0.4%	2.3% - 2.7%
Expected volatility	91% - 92%	84% - 85%
Expected term (in years)	5.4 - 6.1	2.0 - 5.5
Expected dividend yield	—%	—%

The allocation of stock-based compensation expense was as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Research and development expense	$	204	$	7	$	284	$	16
General and administrative expense		483		9		852		17
Total stock-based compensation expense	$	687	$	16	$	1,136	$	33

As of June 30, 2020, the unrecognized compensation cost related to outstanding time-based options was $10.5 million, which is expected to be recognized over a weighted-average period of 3.5 years.