XML 39 R21.htm IDEA: XBRL DOCUMENT

The Company and Summary of Significant Accounting Policies (Policies)

12 Months Ended

Jun. 30, 2020

Our approach to building our pipeline is to license promising cancer agents and build value in programs through development, commercialization and strategic partnerships, as appropriate. Our drug candidate pipeline includes:

•

Zandelisib (formerly known as

ME-401),

an oral phosphatidylinositol

3-kinase

(“PI3K”) delta inhibitor;

•

Voruciclib, an oral cyclin-dependent kinase (“CDK”) inhibitor;

•

ME-344,

a mitochondrial inhibitor targeting the oxidative phosphorylation (“OXPHOS”) complex; and

•

Pracinostat, an oral histone deacetylase (“HDAC”) inhibitor.

The results of

pre-clinical

studies and completed clinical trials are not necessarily predictive of future results, and our current drug candidates may not have favorable results in later studies or trials. The commercial opportunity will be reduced or eliminated if competitors develop and market products that are more effective, have fewer side effects or are less expensive than our drug candidates. We will need substantial additional funds to progress the clinical trial programs for the drug candidates zandelisib, voruciclib,

ME-344

and pracinostat, and to develop new compounds. The actual amount of funds that will be needed are determined by a number of factors, some of which are beyond our control. Negative U.S. and global economic conditions may pose challenges to our business strategy, which relies on funding from the financial markets or collaborators.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and disclosures made in the accompanying notes to the financial statements. We use estimates that affect the reported amounts (including assets, liabilities, revenues and expenses) and related disclosures. Actual results could materially differ from those estimates.

Liquidity

We have accumulated losses of $277.2 million since inception and expect to incur operating losses and generate negative cash flows from operations for the foreseeable future. As of June 30, 2020, we had $182.6 million in cash and cash equivalents, and short-term investments

. Additionally, we have

a receivable of $20.4 million representing

a tax withholding refund

due to us of the $100 million upfront payment associated with the KKC Commercialization Agreement

(Note 2). Of the $

100

million paid by KKC, $

20.4

million was remitted to the Japanese taxing authorities as a result of the U.S. Internal Revenue Service being closed due to the COVID pandemic, and therefore being unable to provide necessary documentation to support an exemption from the required foreign withholding. We

believe

that these resources

will be sufficient to meet

our

obligations and fund our liquidity and capital expenditure requirements for at least the next 12 months from the issuance of these financial statements. Our current business operations are focused on continuing the clinical development of our drug candidates. Changes to our research and development plans or other changes affecting our operating expenses may affect actual future use of existing cash resources. Our research and development expenses are expected to increase in the foreseeable future. We cannot determine with certainty costs associated with ongoing and future clinical trials or the regulatory approval process. The duration, costs and timing associated with the development of our product candidates will depend on a variety of factors, including uncertainties associated with the results of our clinical trials.

To date, we have obtained cash and funded our operations primarily through equity financings and license agreements. In order to continue the development of our drug candidates, at some point in the future we expect to pursue one or more capital transactions, whether through the sale of equity securities, license agreements or entry into strategic partnerships. There can be no assurance that we will be able to continue to raise additional capital in the future.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash and highly liquid investments with original maturities of three months or less when purchased. Cash is maintained at financial institutions and, at times, balances may exceed federally insured limits. We have

not

experienced any losses related to these balances.

Short-Term Investments

Investments that have maturities of greater than three months but less than one year are classified as short-term investments. As of June 30, 2020 and 2019, our short-term investments consisted of $170.3 million and $64.9 million, respectively, in U.S. government securities. The short-term investments held as of June 30, 2020 and 2019 had maturity dates of less than one year, are considered to be “held to maturity” and are carried at amortized cost. As of June 30, 2020 and 2019, the gross holding gains and losses were immaterial.

Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value is as follows:

•

Level 1 — Observable inputs such as quoted prices in active markets for identical assets or liabilities.

•

Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

•

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

We measure the following financial instruments at fair value on a recurring basis. The fair values of these financial instruments were as follows (in thousands):


	June 30, 2020							June 30, 2019
	Level 1		Level 2		Level 3			Level 1		Level 2		Level 3
Warrant liability	$	—	$	—	$	(40,483	)	$	—	$	—	$	(17,613	)

Total	$	—	$	—	$	(40,483	)	$	—	$	—	$	(17,613	)

The carrying amounts of financial instruments such as cash equivalents, short-term investments and accounts payable approximate the related fair values due to the short-term maturities of these instruments. We invest our excess cash in financial instruments which are readily convertible into cash, such as money market funds and U.S. government securities. Cash equivalents, where applicable, and short-term investments are classified as Level 1 as defined by the fair value hierarchy.

In May 2018, we issued warrants in connection with our private placement of shares of common stock. Pursuant to the terms of the warrants, we could be required to settle the warrants in cash in the event of an acquisition of the Company and, as a result, the warrants are required to be measured at fair value and reported as a liability in the Balance Sheet. We recorded the fair value of the warrants upon issuance using the Black-Scholes valuation model and are required to revalue the warrants at each reporting date with any changes in fair value recorded on our Statement of Operations. The valuation of the warrants is considered under Level 3 of the fair value hierarchy due to the need to use assumptions in the valuation that are both significant to the fair value measurement and unobservable. Inputs used to determine estimated fair value of the warrant liabilities include the estimated fair value of the underlying stock at the valuation date, the estimated term of the warrants, risk-free interest rates, expected dividends and the expected volatility of the underlying stock. The significant unobservable inputs used in the fair value measurement of the warrant liabilities were the volatility rate and the estimated term of the warrants. Generally, increases (decreases) in the fair value of the underlying stock and estimated term would result in a directionally similar impact to the fair value measurement. The change in the fair value of the Level 3 warrant liability is reflected in the Statement of Operations for the years ended June 30, 2020 and 2019.

To calculate the fair value of the warrant liability, the following assumptions were used:


	June 30, 2020			June 30, 2019
Risk-free interest rate		0.2	%		1.7	%
Expected life (years)		2.9			3.8
Expected volatility		77.4	%		56.8	%
Dividend yield		0.0	%		0.0	%
Black-Scholes Fair Value	$	2.52		$	1.10

The following table sets forth a summary of changes in the estimated f

ir value of our Level 3 warrant liability for the years ended June 30, 2020 and 2019 (in thousands):


	Fair Value of Warrants Using Significant Unobservable Inputs (Level 3)
	2020		2019
Balance at July 1,	$	17,613	$	46,313
Reclassification of derivative liability to equity upon exercise of warrants		—		(1,068	)
Change in estimated fair value of liability classified warrants		22,870		(27,632	)

Balance at June 30,	$	40,483	$	17,613

Intangible Assets

Intangible assets consist of patents acquired fr

m S*Bio in August 2012, relating to a family of heterocyclic compounds that inhibit HDACs, including pracinostat. Capitalized amounts are amortized on a straight-line basis over the expected life of the intellectual property of 14 years from the date of acquisition. The carrying values of intangible assets are periodically reviewed to determine if the facts and circumstances suggest that a potential impairment may have occurred. As a result of Helsinn discontinuing the Phase 3 study of pracinostat in AML, we assessed the estimated future cash flows associated with the patents acquired from S*Bio and recorded an impairment charge of $0.2 million to write off the remaining book value of the intangible assets.

Property and Equipment

Property and equipment are stated at cost and depreciated over the estimated useful lives of the assets (generally three to seven years) using the straight-line method. Leasehold improvements are stated at cost and are amortized over the shorter of the estimated useful lives of the assets or the lease term.

Leases

As of July 1, 2019, we adopted Topic 842,

Leases

, using a modified retrospective basis method under which prior comparative periods are not restated. The new standard establishes a ROU model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. We elected the following as practical expedients: 1) an entity need not reassess whether any expired or existing contracts are or contain leases, 2) an entity need not reassess the lease classification for any expired or existing leases, and 3) an entity need not reassess initial direct costs for any existing leases.

Revenue Recognition

ASC Topic 606, Revenue from Contracts with Customers (“Topic 606” or the “new revenue standard”)

Beginning July 1, 2018, we recognize revenue when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. For enforceable contracts with our customers, we first identify the distinct performance obligations – or accounting units – within the contract. Performance obligations are commitments in a contract to transfer a distinct good or service to the customer.

Payments received under commercial arrangements, such as licensing technology rights, may include

non-refundable

fees at the inception of the arrangements, milestone payments for specific achievements designated in the agreements, and royalties on the sale of products. At the inception of arrangements that include milestone payments, we use judgment to evaluate whether the milestones are probable of being achieved and we estimate the amount to include in the transaction price using the most likely method. If it is probable that a significant revenue reversal will not occur, the estimated amount is included in the transaction price. Milestone payments that are not within our or the licensee’s control, such as regulatory approvals, are not included in the transaction price until those approvals are received. At the end of each reporting period, we

re-evaluate

the probability of achievement of development milestones and any related constraint and, as necessary, we adjust our estimate of the overall transaction price. Any adjustments are recorded on a cumulative

catch-up

basis, which would affect revenues and earnings in the period of adjustment. For the year ended June 30, 2020, we recorded a cumulative

catch-up

adjustment of $3.1 million related to a partially satisfied performance obligation as a result of the termination of the KKC Japan License Agreement and execution of the KKC Commercialization Agreement (Note 2).

We develop estimates of the stand-alone selling price for each distinct performance obligation. Variable consideration that relates specifically to our efforts to satisfy specific performance obligations is allocated entirely to those performance obligations. Other components of the transaction price are allocated based on the relative stand-alone selling price, over which management has applied significant judgment. We develop assumptions that require judgment to determine the stand-alone selling price for license-related performance obligations, which may include forecasted revenues, development timelines, reimbursement rates for personnel costs, discount rates and probabilities of technical, regulatory and commercial success. We estimate stand-alone selling price for research and development performance obligations by forecasting the expected costs of satisfying a performance obligation plus an appropriate margin.

In the case of a license that is a distinct performance obligation, we recognize revenue allocated to the license from

non-refundable,

up-front

fees at the point in time when the license is transferred to the licensee and the licensee can use and benefit from the license. For licenses that are bundled with other distinct or combined obligations, we use judgment to assess the nature of the performance obligation to determine whether the performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. If the performance obligation is satisfied over time, we evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition.

The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. Revenue is recorded proportionally as costs are incurred. We generally use the

cost-to-cost

measure of progress because it best depicts the transfer of control to the customer which occurs as we incur costs. Under the

cost-to-cost

measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation (an “input method” under Topic 606). We use judgment to estimate the total cost expected to complete the research and development performance obligations, which include subcontractors’ costs, labor, materials, other direct costs and an allocation of indirect costs. We evaluate these cost estimates and the progress each reporting period and, as necessary, we adjust the measure of progress and related revenue recognition.

For arrangements that include sales-based or usage-based royalties, we 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. To date, we have not recognized any sales-based royalty revenue from license agreements.

We recognized revenue associated with the following license agreements (in thousands):


	Years Ended June 30,
	2020		2019		2018
KKC Agreements	$	27,543	$	2,557	$	—
Helsinn License Agreement		1,370		2,358		1,622

	$	28,913	$	4,915	$	1,622

Timing of Revenue Recognition:
License transferred at a point in time	$	20,988	$	879	$	—
Services performed over time		4,860		4,036		1,622
Cumulative catch-up adjustment		3,065		—		—

	$	28,913	$	4,915	$	1,622

Based on the characteristics of the KKC Agreements (Note 2), delivery of the

Ex-U

license and Japan License are distinct performance obligations, and we recognized related revenue of $21.0 million and $0.9 million during the years ended June 30, 2020 and June 30 2019, respectively, when the licenses were transferred to the licensee and the licensee could use and benefit from the licenses. We

account for any partially unsatisfied performance obligations carried forward into the new agreement as the continuation of the previous contract, and we

recorded a cumulative

catch-up

adjustment of $3.

million to revenue during the year ended June 30, 2020 as a result of the termination of the KKC Japan License Agreement and execution of the KKC Commercialization Agreement.

The KKC Commercialization Agreement and KKC Japan License Agreement include other distinct performance obligations that will be satisfied over time, and accordingly we recognized $6.6 million

, inclusive of cumulative catch-up amounts,

1.7 million related to our progress toward satisfying those obligations during the years ended June 30, 2020 and 2019, respectively.

Based on the characteristics of the Helsinn License Agreement, control of the remaining deliverables occurs over time and therefore we recognize revenue based on the extent of progress towards completion of the performance obligations. Accordingly we recognized $

1.4

million and $

2.3

million related to our progress toward satisfying those obligations during the years ended June 30, 2020 and 2019, respectively.

As of June 30, 2020, we had $82.5 million of deferred revenue associated with our remaining performance obligations under the KKC and Helsinn license agreements. We expect to recognize approximately $14.8 million of deferred revenue in the next 12 months, and an additional $67.7 million thereafter.

Contract Balances

Receivables and contract assets are included in our balance sheet in “Prepaid expenses and other current assets”, and contract liabilities are included in “Deferred revenue” and “Deferred revenue long-term”. The following table presents changes in contract assets and contract liabilities during the year ended June 30, 2020 and 2019 (in thousands):


	Years Ended June 30,
	2020			2019
Receivables
Receivables, beginning of year	$	—		$	82
Net change		2,605			(82	)

Receivables, end of year	$	2,605		$	—

Contract assets
Contract assets, beginning of year	$	686		$	312
Net change		(82	)		374

Contract assets, end of year	$	604		$	686

Contract liabilities
Contract liabilities, beginning of year	$	7,774		$	788
Net change		74,726			6,986

Contract liabilities, end of year	$	82,500		$	7,774

The timing of revenue recognition, invoicing and cash collections results in billed accounts receivable and unbilled receivables (contract assets), which are classified as “prepaid expenses and other current assets” on our Balance Sheet, and deferred revenue (contract liabilities). We invoice our customers in accordance with agreed-upon contractual terms, typically at periodic intervals or upon achievement of contractual milestones. Invoicing may occur subsequent to revenue recognition, resulting in contract assets. We may receive advance payments from our customers before revenue is recognized, resulting in contract liabilities. The contract assets and liabilities reported on the Balance Sheet relate to the KKC Agreements and Helsinn License Agreement. We recognized revenue of $

7.8

million, $

0.8

million, and $

1.0

million during the years ended June 30, 2020, 2019 and 2018, respectively, related to the contract liability balance at the beginning of each respective fiscal year.

Revenues from Collaborators

We earn revenue in connection with collaboration agreements, which are detailed in Note 2, KKC Agreements, and Note 3, BeiGene Collaboration.

At contract inception, we assess whether the collaboration arrangements are within the scope of ASC Topic 808,

Collaborative Arrangements

(“Topic 808”), to determine whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities. This assessment is performed based on the responsibilities of all parties in the arrangement. For collaboration arrangements within the scope of Topic 808 that contain multiple units of account, we first determine which units of account within the arrangement are within the scope of Topic 808 and which elements are within the scope of Topic 606. For units of account within collaboration arrangements that are accounted for pursuant to Topic 808, an appropriate recognition method is determined and applied consistently, by analogy to authoritative accounting literature. For elements of collaboration arrangements that are accounted for pursuant to Topic 606, we recognize revenue as discussed above. Consideration received that does not meet the requirements to satisfy Topic 606 revenue recognition criteria is recorded as deferred revenue in the accompanying consolidated balance sheets, classified as either short-term or long-term deferred revenue based on our best estimate of when such amounts will be recognized.

Accounting Standard Codification (“ASC”) Topic 605, Revenue Recognition (“Topic 605”)

Revenue Recognition

Payments received under commercial arrangements, such as licensing technology rights, may include

non-refundable

fees at the inception of the arrangements, milestone payments for specific achievements designated in the agreements, and royalties on the sale of products. We consider a variety of factors in determining the appropriate method of accounting under our license agreements, including whether the various elements can be separated and accounted for individually as separate units of accounting.

Multiple Element Arrangements

Deliverables under an arrangement will be separate units of accounting, provided (i) a delivered item has value to the customer on a standalone basis; and (ii) the arrangement includes a general right of return relative to the delivered item, and delivery or performance of the undelivered item is considered probable and substantially in our control.

We account for revenue arrangements with multiple elements by separating and allocating consideration according to the relative selling price of each deliverable. If an element can be separated, an amount is allocated based upon the relative selling price of each element. We determine the relative selling price of a separate deliverable using the price we charge other customers when we sell that element separately. If the element is not sold separately and third-party pricing evidence is not available, we will use our best estimate of selling price.

License Fee Revenue

Non-refundable,

up-front

fees that are not contingent on any future performance by us and require no consequential continuing involvement on our part are recognized as revenue when the license term commences and the licensed data, technology or product is delivered. We defer recognition of

non-refundable

upfront license fees if we have continuing performance obligations, without which the licensed data, technology, or product has no utility to the licensee separate and independent of our performance under the other elements of the applicable arrangement. The specific methodology for the recognition of the revenue is determined on a

case-by-case

basis according to the facts and circumstances of the applicable agreement.

Research and Development Revenue

Research and development revenue represents ratable recognition of fees allocated to research and development activities. We defer recognition of research and development revenue until the performance of the related research and development activities has occurred. Research and development revenue for the year ended June 30, 2018 related to services provided by third-party vendors related to research and development for activities performed under the KKC and Helsinn License Agreements (Note 2).

Cost of Revenue

Cost of revenue primarily includes external costs paid to third-party contractors to perform research, conduct clinical trials and develop and manufacture drug materials, and internal compensation and related personnel expenses to support our research and development performance obligations associated with the Helsinn License Agreement.

Research and Development Costs

Research and development costs are expensed as incurred and include costs paid to third-party contractors to perform research, conduct clinical trials and develop and manufacture drug materials. Clinical trial costs, including costs associated with third-party contractors, are a significant component of research and development expenses. We expense research and development costs based on work performed. In determining the amount to expense, management relies on estimates of total costs based on contract components completed, the enrollment of subjects, the completion of trials, and other events. Costs incurred related to the purchase or licensing of

in-process

research and development for early-stage products or products that are not commercially viable and ready for use, or have no alternative future use, are charged to expense in the period incurred.

Share-based Compensation

Share-based compensation expense for employees and directors is recognized in the Statement of Operations based on estimated amounts, including the grant date fair value and the expected service period. For stock options, we estimate the grant date fair value using a Black-Scholes valuation model, which requires the use of multiple subjective inputs including estimated future volatility, expected forfeitures and the expected term of the awards. We estimate the expected future volatility based on the stock’s historical price volatility. The stock’s future volatility may differ from the estimated volatility at the grant date. For restricted stock unit (“RSU”) equity awards, we estimate the grant date fair value using our closing stock price on the date of grant. We recognize the effect of forfeitures in compensation expense when the forfeitures occur. The estimated forfeiture rates may differ from actual forfeiture rates which would affect the amount of expense recognized during the period. We recognize the value of the awards over the awards’ requisite service or performance periods. The requisite service period is generally the time over which our share-based awards vest.

Interest and Dividend Income

Interest on cash balances is recognized when earned. Dividend income is recognized when the right to receive the payment is established.

Income Taxes

Our income tax expense consists of current and deferred income tax expense or benefit. Current income tax expense or benefit is the amount of income taxes expected to be payable or refundable for the current year. A deferred income tax asset or liability is recognized for the future tax consequences attributable to tax credits and loss carryforwards and to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. As of June 30, 2020 and 2019, we have established a valuation allowance to fully reserve our net deferred tax assets. Tax rate changes are reflected in income during the period such changes are enacted. Changes in our ownership may limit the amount of net operating loss carryforwards that can be utilized in the future to offset taxable income.

The Tax Act reduced the corporate tax rate from 34% to 21%, effective for tax years beginning January 1, 2018. We are subject to the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification

740-10,

Income Taxes, which requires that the effect on deferred tax assets and liabilities of a change in tax rates be recognized in the period the tax rate change was enacted.

As a result of the Tax Act, beginning with our fiscal year ending June 30, 2021, the deduction of net operating losses is limited to 80% of current year taxable income.

As a result of the Tax Act, we

recorded a

non-cash

tax expense of $15.9 million during the year ended June 30, 2018, due to the

re-measurement

of our deferred tax assets and liabilities at the new U.S. federal tax rate, offset by a corresponding change to

our valuation allowance.

The FASB Topic on Income Taxes prescribes a recognition threshold and measurement attribute criteria for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be

more-likely-than-not

to be sustained upon examination by taxing authorities. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. There were no unrecognized tax benefits as of June 30, 2020 and 2019.

Net Loss Per Share

Basic and diluted net loss per share are computed using the weighted-average number of shares of common stock outstanding during the period, less any shares subject to repurchase or forfeiture. There were no shares of common stock subject to repurchase or forfeiture for the years ended June 30, 2020, 2019 and 2018. Our potentially dilutive shares, which include outstanding stock options, restricted stock units, and warrants, are considered to be common stock equivalents and are only included in the calculation of diluted net loss per share when their effect is dilutive. The assessment of dilution is made on a quarterly basis and therefore the annual determination of diluted net loss per share only includes those quarters in which the potential common stock equivalents were determined to be dilutive. For the years ended June 30, 2020, 2019 and 2018, we did not have any items that would be classified as other comprehensive income or losses.

The following table presents the calculation of net loss used to calculate basic and diluted loss per share (in thousands):


	Years Ended June 30,
	2020			2019			2018
Net loss—basic	$	(46,016	)	$	(16,819	)	$	(40,068	)
Change in fair value of warrant liability		—			(37,794	)		—

Net loss—diluted	$	(46,016	)	$	(54,613	)	$	(40,068	)

Shares used in calculating net loss per share was determined as follows (in thousands):


	Years Ended June 30,
	2020		2019		2018
Weighted average shares outstanding		91,080		71,139		41,064
Effect of vested restricted stock units		—		—		367

Weighted average shares used in calculating net loss per share		91,080		71,139		41,431
Effect of potentially dilutive common shares from equity awards and liability-classified warrants		—		1,246		—

Weighted average shares used in calculating diluted loss per share		91,080		72,385		41,431

The following potentially dilutive shares (in thousands) that have been excluded from the calculation of net loss per share because of their anti-dilutive effect:


	Years Ended June 30,
	2020		2019		2018
Stock options		11,030		8,057		5,606
Restricted stock units		—		32		336
Warrants		16,062		8,062		3,532

Total anti-dilutive shares		27,092		16,151		9,474

Recent Accounting Pronouncements

Adopted Accounting Standards

In February 2016, the FASB issued ASU

No. 2016-02,

Leases

. The new standard establishes a

right-of-use

(“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. We adopted the new standard on July 1, 2019 using the required modified retrospective approach and elected to apply the adoption as of the effective date of initial application. As such, prior periods do not reflect the adoption of the new standard. The new standard is effective for fiscal years beginning after July 1, 2019, including interim periods within those fiscal years. See Note 11 for further discussion. As of June 30, 2020, our new office lease had not yet commenced, and therefore we have not recognized the associated right of use asset or liability in our balance sheet. We did not have any outstanding leases as of June 30, 2020.