10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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 June 30, 2022

or

 

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

 

For the transition period from to

Commission file number: 001-38997

 

RAPT Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

47-3313701

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

561 Eccles Avenue

South San Francisco, California 94080

(Address of principal executive offices and zip code)

(650) 489-9000

(Registrant’s telephone number, including area code)

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 $0.0001 par value per share

RAPT

Nasdaq Global Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes 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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

 

 

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If 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

 

As of August 4, 2022, there were 29,656,616 shares of the registrant’s common stock outstanding.

 

 

 


 

RAPT THERAPEUTICS, INC.

TABLE OF CONTENTS

 

 

 

 

Page No.

PART I. FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1.

Financial Statements (Unaudited)

 

3

 

Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021

 

3

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three- and Six-Months Ended June 30, 2022 and 2021

 

4

 

Condensed Consolidated Statements of Stockholders’ Equity for the Three- and Six-Months Ended June 30, 2022 and 2021

 

5

 

Condensed Consolidated Statements of Cash Flows for the Six-Months Ended June 30, 2022 and 2021

 

6

 

Notes to Condensed Consolidated Financial Statements

 

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

16

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

23

Item 4.

Controls and Procedures

 

23

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

24

Item 1A.

Risk Factors

 

24

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

62

Item 3.

Defaults Upon Senior Securities

 

62

Item 4.

Mine Safety Disclosures

 

62

Item 5.

Other Information

 

62

Item 6.

Exhibits

 

63

Signatures

 

64

 

 

 


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

 

RAPT THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

 

 

 

June 30,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

57,203

 

 

$

24,027

 

Marketable securities

 

 

150,138

 

 

 

165,627

 

Prepaid expenses and other current assets

 

 

2,588

 

 

 

3,319

 

Total current assets

 

 

209,929

 

 

 

192,973

 

Property and equipment, net

 

 

2,921

 

 

 

2,741

 

Operating lease right-of-use assets

 

 

6,055

 

 

 

 

Other assets

 

 

3,091

 

 

 

2,922

 

Total assets

 

$

221,996

 

 

$

198,636

 

Liabilities and stockholders' equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

4,097

 

 

$

1,999

 

Accrued expenses

 

 

7,507

 

 

 

6,326

 

Deferred revenue, current

 

 

 

 

 

1,016

 

Operating lease liabilities, current

 

 

1,503

 

 

 

 

Other current liabilities

 

 

39

 

 

 

254

 

Total current liabilities

 

 

13,146

 

 

 

9,595

 

Deferred rent, net of current portion

 

 

 

 

 

2,150

 

Deferred revenue, non-current

 

 

 

 

 

511

 

Operating lease liabilities, non-current

 

 

6,717

 

 

 

 

Total liabilities

 

 

19,863

 

 

 

12,256

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Preferred stock

 

 

 

 

 

 

Common stock

 

 

3

 

 

 

3

 

Additional paid-in capital

 

 

526,573

 

 

 

470,629

 

Accumulated other comprehensive loss

 

 

(745

)

 

 

(206

)

Accumulated deficit

 

 

(323,698

)

 

 

(284,046

)

Total stockholders' equity

 

 

202,133

 

 

 

186,380

 

Total liabilities and stockholders' equity

 

$

221,996

 

 

$

198,636

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

3


 

RAPT THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except share and per share data)

(Unaudited)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Revenue

 

$

886

 

 

$

869

 

 

$

1,527

 

 

$

2,091

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

14,359

 

 

 

13,190

 

 

 

31,029

 

 

 

26,961

 

General and administrative

 

 

5,436

 

 

 

3,760

 

 

 

10,184

 

 

 

7,772

 

Total operating expenses

 

 

19,795

 

 

 

16,950

 

 

 

41,213

 

 

 

34,733

 

Loss from operations

 

 

(18,909

)

 

 

(16,081

)

 

 

(39,686

)

 

 

(32,642

)

Other income (expense), net

 

 

(275

)

 

 

(29

)

 

 

34

 

 

 

18

 

Net loss

 

$

(19,184

)

 

$

(16,110

)

 

$

(39,652

)

 

$

(32,624

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation gain

 

 

550

 

 

 

70

 

 

 

349

 

 

 

108

 

Unrealized loss on marketable securities

 

 

(178

)

 

 

(18

)

 

 

(888

)

 

 

(68

)

Total comprehensive loss

 

$

(18,812

)

 

$

(16,058

)

 

$

(40,191

)

 

$

(32,584

)

Net loss per share, basic and diluted

 

$

(0.62

)

 

$

(0.63

)

 

$

(1.31

)

 

$

(1.29

)

Weighted average number of shares used in computing net loss
   per share, basic and diluted

 

 

31,140,323

 

 

 

25,589,947

 

 

 

30,356,515

 

 

 

25,217,542

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

4


 

RAPT THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2021

 

 

29,555,119

 

 

$

3

 

 

$

470,629

 

 

$

(206

)

 

$

(284,046

)

 

$

186,380

 

Proceeds from issuances of common stock under employee stock plans

 

 

37,640

 

 

 

 

 

 

132

 

 

 

 

 

 

 

 

 

132

 

Stock-based compensation

 

 

 

 

 

 

 

 

2,702

 

 

 

 

 

 

 

 

 

2,702

 

Foreign currency translation loss

 

 

 

 

 

 

 

 

 

 

 

(201

)

 

 

 

 

 

(201

)

Unrealized loss on marketable securities

 

 

 

 

 

 

 

 

 

 

 

(710

)

 

 

 

 

 

(710

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(20,468

)

 

 

(20,468

)

Balance at March 31, 2022

 

 

29,592,759

 

 

$

3

 

 

$

473,463

 

 

$

(1,117

)

 

$

(304,514

)

 

$

167,835

 

Proceeds from sale of pre-funded warrants in private placement, net of issuance costs

 

 

 

 

 

 

 

 

49,784

 

 

 

 

 

 

 

 

 

49,784

 

Proceeds from issuances of common stock under employee stock plans

 

 

56,698

 

 

 

 

 

 

654

 

 

 

 

 

 

 

 

 

654

 

Stock-based compensation

 

 

 

 

 

 

 

 

2,672

 

 

 

 

 

 

 

 

 

2,672

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

550

 

 

 

 

 

 

550

 

Unrealized loss on marketable securities

 

 

 

 

 

 

 

 

 

 

 

(178

)

 

 

 

 

 

(178

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(19,184

)

 

 

(19,184

)

Balance at June 30, 2022

 

 

29,649,457

 

 

$

3

 

 

$

526,573

 

 

$

(745

)

 

$

(323,698

)

 

$

202,133

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2020

 

 

24,773,361

 

 

$

2

 

 

$

319,196

 

 

$

(177

)

 

$

(214,842

)

 

$

104,179

 

Proceeds from issuances of common stock in “at the
   market” offerings, net of issuance costs

 

 

57,100

 

 

 

 

 

 

1,180

 

 

 

 

 

 

 

 

 

1,180

 

Proceeds from issuances of common stock under employee stock plans

 

 

31,620

 

 

 

 

 

 

121

 

 

 

 

 

 

 

 

 

121

 

Stock-based compensation

 

 

 

 

 

 

 

 

2,687

 

 

 

 

 

 

 

 

 

2,687

 

Foreign currency translation gain

 

 

 

 

 

 

 

 

 

 

 

38

 

 

 

 

 

 

38

 

Unrealized loss on marketable securities

 

 

 

 

 

 

 

 

 

 

 

(50

)

 

 

 

 

 

(50

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(16,514

)

 

 

(16,514

)

Balance at March 31, 2021

 

 

24,862,081

 

 

$

2

 

 

$

323,184

 

 

$

(189

)

 

$

(231,356

)

 

$

91,641

 

Proceeds from issuance of common stock from public offering, net of issuance costs

 

 

4,356,060

 

 

 

1

 

 

 

134,581

 

 

 

 

 

 

 

 

 

134,582

 

Proceeds from issuances of common stock in “at the market” offerings, net of issuance costs

 

 

157,871

 

 

 

 

 

 

3,510

 

 

 

 

 

 

 

 

 

3,510

 

Proceeds from issuances of common stock under employee stock plans

 

 

99,909

 

 

 

 

 

 

1,016

 

 

 

 

 

 

 

 

 

1,016

 

Stock-based compensation

 

 

 

 

 

 

 

 

2,888

 

 

 

 

 

 

 

 

 

2,888

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

70

 

 

 

 

 

 

70

 

Unrealized gain on marketable securities

 

 

 

 

 

 

 

 

 

 

 

(18

)

 

 

 

 

 

(18

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(16,110

)

 

 

(16,110

)

Balance at June 30, 2021

 

 

29,475,921

 

 

$

3

 

 

$

465,179

 

 

$

(137

)

 

$

(247,466

)

 

$

217,579

 

 

 

See accompanying notes to condensed consolidated financial statements.

5


 

RAPT THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2022

 

 

2021

 

Operating activities

 

 

 

 

 

 

Net loss

 

$

(39,652

)

 

$

(32,624

)

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

 

 

 

 

 

 

Amortization of premium on marketable securities

 

 

507

 

 

 

430

 

Depreciation and amortization

 

 

535

 

 

 

536

 

Stock-based compensation expense

 

 

5,374

 

 

 

5,575

 

Gain on foreign currency translation

 

 

349

 

 

 

108

 

Non-cash operating lease expense

 

 

854

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

562

 

 

 

(563

)

Accounts payable, accrued expenses and other current liabilities

 

 

3,300

 

 

 

471

 

Deferred revenue

 

 

(1,527

)

 

 

(1,709

)

Deferred rent

 

 

 

 

 

(50

)

Operating lease liabilities

 

 

(1,075

)

 

 

 

Net cash used in operating activities

 

 

(30,773

)

 

 

(27,826

)

Investing activities

 

 

 

 

 

 

Purchase of marketable securities

 

 

(72,241

)

 

 

(118,705

)

Proceeds from maturities of marketable securities

 

 

86,335

 

 

 

67,715

 

Purchase of property and equipment

 

 

(715

)

 

 

(291

)

Net cash provided by (used in) investing activities

 

 

13,379

 

 

 

(51,281

)

Financing activities

 

 

 

 

 

 

Proceeds from equity offerings, net of issuance costs

 

 

49,784

 

 

 

134,582

 

Proceeds from issuances of common stock in “at the market” offerings, net of issuance costs

 

 

 

 

 

4,690

 

Proceeds from issuance of common stock under employee stock plans

 

 

786

 

 

 

1,137

 

Net cash provided by financing activities

 

 

50,570

 

 

 

140,409

 

Net increase in cash and cash equivalents

 

 

33,176

 

 

 

61,302

 

Cash and cash equivalents at beginning of period

 

 

24,027

 

 

 

24,918

 

Cash and cash equivalents at end of period

 

$

57,203

 

 

$

86,220

 

Supplemental disclosures of non-cash information

 

 

 

 

 

 

Right-of-use asset obtained in exchange for lease obligation

 

$

(6,585

)

 

$

 

Issuance costs related to public offering included in accrued expenses

 

$

 

 

$

403

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

6


 

RAPT THERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization

Description of the Business

RAPT Therapeutics, Inc. (“RAPT” or the “Company”) is a clinical-stage, immunology-based biopharmaceutical company focused on discovering, developing and commercializing oral small molecule therapies for patients with significant unmet needs in inflammatory diseases and oncology. Utilizing its proprietary drug discovery and development engine, the Company develops highly selective small molecules that are designed to modulate the critical immune responses underlying these diseases.

The Company is located in South San Francisco, California.

Equity Financing

In May 2022, the Company completed the sale of pre-funded warrants to purchase 4,000,000 shares of its common stock at a price of $12.4999 per pre-funded warrant, which sale was done as a private investment in public equity ("PIPE") financing. Net proceeds received from the PIPE financing were approximately $49.8 million, after deducting $0.2 million of offering expenses. As of June 30, 2022, all of the pre-funded warrants issued in the PIPE financing were outstanding (see Note 8).

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and pursuant to Article 10 of Regulation S‑X of the Securities Act of 1933, as amended (the “Securities Act”). Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. These unaudited condensed consolidated financial statements include only normal and recurring adjustments that the Company believes are necessary to fairly state the Company’s financial position and the results of its operations and cash flows. Interim-period results are not necessarily indicative of results of operations or cash flows for a full year or any subsequent interim period. The condensed consolidated balance sheet at December 31, 2021 has been derived from the audited financial statements at that date but does not include all disclosures required by U.S. GAAP for complete financial statements. Because all of the disclosures required by U.S. GAAP for complete financial statements are not included herein, these unaudited condensed consolidated financial statements and the notes accompanying them should be read in conjunction with the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2021 filed on March 10, 2022 with the SEC.

The accompanying consolidated financial statements have been prepared in accordance with U.S. GAAP and include the consolidated accounts of the Company and its wholly-owned subsidiary, RAPT Therapeutics Australia Pty Ltd. All intercompany balances and transactions have been eliminated in consolidation.

Revenue

License and collaborative agreement revenue consists of license, milestone and royalty payments generated through agreements with strategic partners for the development and commercialization of certain product candidates. The terms of an agreement may include a non-refundable upfront fee, payments based upon achievement of milestones and royalties on net product sales. If a portion of the nonrefundable upfront fee or other payments received is allocated to continuing performance obligations under the terms of an agreement, such portion is recorded as deferred revenue and recognized as revenue when or as the underlying performance obligation is satisfied.

The Company recognizes revenue when it transfers promised goods or services to customers or counterparties in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. In determining the appropriate amount of revenue to be recognized, the Company performs the following steps: (i) identification of the promised goods or services in the agreement; (ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the agreement; (iii) measurement of the transaction price, including any constraint on variable consideration; (iv) allocation of the transaction price to performance obligations based on estimated selling prices; and (v) recognition of revenue when or as the Company satisfies each performance obligation.

7


 

Licenses: If a license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in an agreement, the Company will recognize revenue from the nonrefundable, upfront fee allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. If a license is bundled with other performance obligations, the Company utilizes judgment to assess the nature of the combined performance obligations to determine whether the combined performance obligations are satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

Milestone payments: If an agreement includes event-based or milestone payments, the Company evaluates whether the events or milestones are considered likely to be achieved and estimates the amount to be included in the transaction price using the most likely amount method. If it is unlikely that a significant revenue reversal would occur, the value of the associated event-based or milestone payments is included in the transaction price. Event-based or milestone payments that are not within the control of the Company are not included in the transaction price until they become likely to be achieved.

Royalties: If an agreement includes sales-based royalties and the license is deemed to be the predominant item to which the royalties relate, the Company will recognize revenue at the later of (i) when the related sales occur or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied or partially satisfied.

Stock-Based Compensation

The Company measures stock-based compensation expense for all employee and non-employee stock-based awards based on their grant date fair value using the Black-Scholes option-pricing model. Subsequent to the adoption of ASU 2018-07, Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, stock-based compensation expense for non-employee stock-based awards is also measured based on the grant date fair value with the estimated fair value expensed over the period for which the non-employee is required to provide service in exchange for the award. For stock-based awards with service conditions only, stock-based compensation expense is recognized over the requisite service period using the straight-line method. For awards with performance conditions, the Company evaluates the probability of achieving performance conditions at each reporting date. The Company recognizes stock-based compensation expense using an accelerated attribution method when it is deemed probable that the performance condition will be met. Forfeitures are recognized as they occur.

The fair value of restricted stock awards granted after the Company’s initial public offering (“IPO”) is determined based on the stock price on the date of grant. The estimated fair value is amortized as compensation expense over the service period of the award.

Stock-based compensation expense related to the Company’s employee stock purchase plan is recognized based on the fair value of each award estimated on the first day of the offering period using the Black‑Scholes option-pricing model and recorded as expense over the service period using the straight‑line method.

Net Loss Per Share

Basic net loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period, without consideration of potential dilutive securities. Diluted net loss per share is computed by dividing the net loss by the sum of the weighted average number of common shares outstanding during the period plus the number of potential dilutive securities outstanding during the period calculated in accordance with the treasury stock method. Diluted net loss per share is the same as basic net loss per share for all periods presented since the effect of including potential dilutive securities is anti-dilutive.

Marketable Securities

Marketable securities primarily consist of commercial paper, corporate bonds and U.S. government agency securities. The Company has classified its marketable securities as available-for-sale and may sell these securities prior to their stated maturities. The Company views these marketable securities as available to support current operations and classifies marketable securities with maturities beyond 12 months as current assets. The Company’s marketable securities are carried at estimated fair value, which is derived from independent pricing sources based on quoted prices in active markets for similar securities. Unrealized gains and losses are reported as a component of accumulated other comprehensive income (loss), net of tax. The amortized cost of marketable securities is adjusted for amortization of premiums and accretion of discounts to maturity, which is included in other income, net on the condensed consolidated statements of operations.

8


 

Leases

At inception of a contract, the Company determines whether an arrangement is or contains a lease. For all leases, the Company determines the classification as either operating leases or financing leases. Operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities in the Company’s Condensed Consolidated Balance Sheets.

Lease recognition occurs at the commencement date and lease liability amounts are based on the present value of lease payments over the lease term. The lease term may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. The Company uses an implicit rate when readily available, or its incremental borrowing rate based on the information available at lease commencement date, in determining the present value of lease payments. ROU assets represent our right to use underlying assets for the lease term and operating lease liabilities represent our obligation to make lease payments under the lease. ROU assets also include any lease payments made prior to the commencement date and exclude lease incentives received. Operating lease expense is recognized on a straight-line basis over the lease term. Lease agreements with both lease and nonlease components are generally accounted for together as a single lease component.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the “FASB”) or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s condensed consolidated financial statements upon adoption. Under the Jumpstart Our Business Startups Act of 2012, as amended (the “JOBS Act”), the Company meets the definition of an emerging growth company and has elected the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act.

In June 2016, the FASB issued Accounting Standard Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 amended the guidance on reporting credit losses for assets held at amortized cost basis and available-for-sale debt securities. For available-for-sale debt securities, credit losses will be presented as an allowance rather than as a write-down. In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, to increase awareness of the amendments and to expedite improvements to Topic 326.

In May 2019, the FASB issued ASU No. 2019-05, Financial Instruments—Credit Losses, Topic 326, which provided companies an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. These ASUs do not change the core principle of the guidance in ASU 2016-13; instead, these amendments are intended to clarify and improve operability of certain topics. In November 2019, the FASB issued ASU No. 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates and ASU No. 2019-11, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, which defer the effective date of the new credit loss standard. ASU 2016-13 and its related amendments are effective for the Company’s fiscal year beginning after December 15, 2022 and early adoption is permitted. The Company is currently assessing when it will adopt ASU 2016-13 and the impact that adoption will have on its condensed consolidated financial statements and related disclosures.

 

In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and other Options (Subtopic 470-20) and Derivatives and Hedging: Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”). ASU 2020-06