grts-10q_20190930.htm

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.

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 ☒

As of November 9, 2019, there were 35,806,158 shares of the registrant’s common stock, par value $0.0001 per share, outstanding.

	September 30,			December 31,
	2019			2018
Assets
Current assets:
Cash and cash equivalents	$	116,942		$	52,183
Marketable securities		32,523			100,927
Prepaid expenses and other current assets		5,318			4,526
Total current assets		154,783			157,636
Property and equipment, net		24,376			29,494
Operating lease right-of-use assets		24,780			—
Deposits and other long-term assets		2,709			2,428
Long-term marketable securities		2,003			—
Total assets	$	208,651		$	189,558
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	6,737		$	4,825
Accrued compensation		3,725			3,951
Accrued liabilities		2,147			740
Accrued research and development expenses		3,241			252
Lease liabilities, current portion		1,642			—
Deferred revenue, current portion		5,401			5,340
Total current liabilities		22,893			15,108
Deferred rent, net of current portion		—			1,353
Other non-current liabilities		—			12
Lease financing obligation, net of current portion		—			10,490
Lease liabilities, net of current portion		19,432			—
Deferred revenue, net of current portion		9,931			13,473
Total liabilities		52,256			40,436
Commitments and contingencies (Note 6)
Stockholders’ equity:
Convertible preferred stock, $0.0001 par value; 10,000,000 shares authorized; no shares issued and outstanding		—			—
Common stock, $0.0001 par value; 300,000,000 shares authorized at September 30, 2019 and December 31, 2018; 35,734,081 and 28,823,130 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively		17			16
Additional paid-in capital		349,631			275,593
Accumulated other comprehensive income (loss)		31			(85	)
Accumulated deficit		(193,284	)		(126,402	)
Total stockholders’ equity		156,395			149,122
Total liabilities and stockholders’ equity	$	208,651		$	189,558

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Collaboration revenue	$	984		$	96		$	3,481		$	96
Operating expenses:
Research and development		24,886			15,622			59,314			39,712
General and administrative		4,582			3,088			13,794			7,940
Total operating expenses		29,468			18,710			73,108			47,652
Loss from operations		(28,484	)		(18,614	)		(69,627	)		(47,556	)
Interest income, net		936			26			2,898			120
Net loss		(27,548	)		(18,588	)		(66,729	)		(47,436	)
Other comprehensive loss:
Unrealized (loss)/gain on marketable securities, net of tax		(45	)		26			116			69
Net and comprehensive loss	$	(27,593	)	$	(18,562	)	$	(66,613	)	$	(47,367	)
Net loss per share, basic and diluted	$	(0.77	)	$	(7.60	)	$	(2.04	)	$	(20.27	)
Weighted-average number of shares used in computing net loss per share, basic and diluted		35,690,600			2,445,547			32,762,176			2,339,705

	Convertible Preferred Stock				Common Stock				Additional Paid-In		Accumulated Other Comprehensive			Accumulated			Total Stockholders'
	Shares		Amount		Shares		Amount		Capital		Income (Loss)			Deficit			Equity
Balance at June 30, 2019		—	$	—		35,654,631	$	17	$	348,021	$	76		$	(165,736	)	$	182,378
Unrealized loss on marketable securities, net of tax		—		—		—		—		—		(45	)		—			(45	)
Lapse of repurchase rights related to common stock issued pursuant to early exercises		—		—		48,174		—		17		—			—			17
Issuance of common stock upon exercise of stock options		—		—		31,276		—		61		—			—			61
Stock-based compensation		—		—		—		—		1,532		—			—			1,532
Net loss		—		—		—		—		—		—			(27,548	)		(27,548	)
Balance at September 30, 2019		—	$	—		35,734,081	$	17	$	349,631	$	31		$	(193,284	)	$	156,395

	Convertible Preferred Stock				Common Stock				Additional Paid-In		Accumulated Other Comprehensive			Accumulated			Total Stockholders'
	Shares		Amount		Shares		Amount		Capital		Income (Loss)			Deficit			Equity
Balance at June 30, 2018		18,487,657	$	165,865		2,408,611	$	2	$	3,311	$	(31	)	$	(90,475	)	$	78,672
Issuance of Series C convertible preferred stock at $13.04 per share for cash, net of issuance costs of $71		921,475		12,007		—		—		—		—			—			12,007
Unrealized gain on marketable securities, net of tax		—		—		—		—		—		26			—			26
Lapse of repurchase rights related to common stock issued pursuant to early exercises		—		—		52,938		—		18		—			—			18
Issuance of common stock upon exercise of stock options		—		—		28,322		—		17		—			—			17
Stock-based compensation		—		—		—		—		539		—			—			539
Net loss		—		—		—		—		—		—			(18,588	)		(18,588	)
Balance at September 30, 2018		19,409,132	$	177,872		2,489,871	$	2	$	3,885	$	(5	)	$	(109,063	)	$	72,691

	Convertible Preferred Stock				Common Stock				Additional Paid-In		Accumulated Other Comprehensive			Accumulated			Total Stockholders'
	Shares		Amount		Shares		Amount		Capital		Income (Loss)			Deficit			Equity
Balance at December 31, 2018		—	$	—		28,823,130	$	16	$	275,593	$	(85	)	$	(126,402	)	$	149,122
Cumulative effect of adopting new accounting standard (Note 2)		—		—		—		—		—		—			(153	)		(153	)
Issuance of common stock upon public offering at $11.50 per share for cash, net of issuance costs of $556		—		—		6,500,000	$	1	$	69,708		—			—			69,709
Unrealized gain on marketable securities, net of tax		—		—		—		—		—		116			—			116
Lapse of repurchase rights related to common stock issued pursuant to early exercises		—		—		149,051		—		51		—			—			51
Issuance of common stock upon exercise of stock options		—		—		261,900		—		423		—			—			423
Stock-based compensation		—		—		—		—		3,856		—			—			3,856
Net loss		—		—		—		—		—		—			(66,729	)		(66,729	)
Balance at September 30, 2019		—	$	—		35,734,081	$	17		349,631		31			(193,284	)		156,395

	Convertible Preferred Stock				Common Stock				Additional Paid-In		Accumulated Other Comprehensive			Accumulated			Total Stockholders'
	Shares		Amount		Shares		Amount		Capital		Income (Loss)			Deficit			Equity
Balance at December 31, 2017		17,797,529	$	156,937		2,152,525	$	1	$	2,045	$	(74	)	$	(61,627	)	$	97,282
Issuance of Series C convertible preferred stock at $13.04 per share for cash, net of issuance costs of $71		1,611,603		20,935		—		—		—		—			—			20,935
Unrealized gain on marketable securities, net of tax		—		—		—		—		—		69			—			69
Lapse of repurchase rights related to common stock issued pursuant to early exercises		—		—		225,501		—		78		—			—			78
Issuance of common stock upon exercise of stock options		—		—		67,241		1		39		—			—			40
Exercise of common stock warrants						40,257		—		13								13
Issuance of common stock for consulting services		—		—		4,347		—		36		—			—			36
Stock-based compensation		—		—		—		—		1,674		—			—			1,674
Net loss		—		—		—		—		—		—			(47,436	)		(47,436	)
Balance at September 30, 2018		19,409,132	$	177,872		2,489,871	$	2	$	3,885	$	(5	)	$	(109,063	)	$	72,691

	Nine Months Ended September 30,
	2019			2018
Operating activities
Net loss	$	(66,729	)	$	(47,436	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		3,303			2,885
Net amortization of premiums and discounts on marketable securities		(1,248	)		(204	)
Stock-based compensation		3,856			1,674
Non-cash operating lease expense		4,491			—
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		(1,785	)		(2,475	)
Operating lease right-of-use assets		(3,328	)		—
Deposits and other long-term assets		(281	)		(429	)
Accounts payable		1,600			179
Accrued compensation		(226	)		173
Accrued and other non-current liabilities		104			(294	)
Accrued research and development expenses		2,989			1,039
Deferred rent		—			(182	)
Lease liability		(1,824	)		—
Deferred revenue		(3,481	)		19,904
Net cash used in operating activities		(62,559	)		(25,166	)
Investing activities
Purchase of marketable securities		(28,329	)		(1,487	)
Maturities of marketable securities		96,094			37,220
Purchase of property and equipment		(10,575	)		(3,375	)
Net cash provided by investing activities		57,190			32,358
Financing activities
Proceeds from issuance of common stock, net of issuance costs		70,684			79
Payments of deferred financing costs		(556	)		(1,277	)
Proceeds from issuance of convertible preferred stock, net of issuance costs		—			20,935
Net cash provided by financing activities		70,128			19,737
Net increase in cash, cash equivalents and restricted cash		64,759			26,929
Cash, cash equivalents and restricted cash at beginning of period		53,175			39,999
Cash, cash equivalents and restricted cash at end of period	$	117,934		$	66,928
Supplemental disclosures of non-cash investing and financing information
Property and equipment purchases accrued but not yet paid	$	3,615		$	211
Deferred financing costs included in accrued liabilities and accounts payable	$	—		$	1,727
Remeasurement of operating lease right-of-use asset for lease modification	$	99		$	—

Gritstone Oncology, Inc. (“Gritstone” or the “Company”) is an immuno-oncology company developing personalized cancer immunotherapies to fight multiple cancer types. The Company was incorporated in the state of Delaware on August 5, 2015, and is based in Emeryville, California and Cambridge, Massachusetts, with a manufacturing facility in Pleasanton, California. The Company operates in one segment.

In October 2018, the Company closed its initial public offering (“IPO”), of 6,854,202 shares of common stock, including 187,535 shares sold pursuant to the underwriters’ partial exercise of their option to purchase additional shares, at an offering price to the public of $15.00 per share. The Company received net proceeds of approximately $92.6 million, after deducting underwriting discounts and commissions and offering costs. In connection with the IPO, all of the Company’s outstanding shares of convertible preferred stock were automatically converted into 19,409,132 shares of common stock. The related carrying value of $177.9 million was reclassified to common stock and additional paid-in capital.

In connection with the completion of its IPO, on October 2, 2018, the Company’s certificate of incorporation was amended and restated to provide for 300,000,000 authorized shares of common stock with a par value of $0.0001 per share and 10,000,000 authorized shares of preferred stock with a par value of $0.0001 per share.

In April 2019, the Company completed an underwritten public offering and sold and issued an aggregate of 6,500,000 shares of common stock at a price to the public of $11.50 per share. The Company received aggregate net proceeds from the offering of approximately $69.7 million, after deducting underwriting discounts and commissions and offering costs.

The accompanying condensed financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) and the rules and regulations of Securities and Exchange Commission (“SEC”) for interim reporting.

The condensed financial statements are unaudited and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation for interim reporting. The results of operations for any interim period are not necessarily indicative of results of operations for any future period.

Certain information and footnote disclosures typically included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. Accordingly, these unaudited interim condensed financial statements should be read in conjunction with the Company’s financial statements as of and for the year ended December 31, 2018, which are included in the Company’s Annual Report on Form 10-K, as filed with the SEC on March 28, 2019.

On September 20, 2018, the Company amended and restated its amended and restated certificate of incorporation to effect a 1-for-6.9 reverse split (“Reverse Split”) of shares of the Company’s common and convertible preferred stock. The par value and the authorized shares of common stock and convertible preferred stock were not adjusted as a result of the Reverse Split. All of the share and per share information included in the accompanying financial statements has been adjusted to reflect the Reverse Split.

The Company has incurred operating losses and has an accumulated deficit as a result of ongoing efforts to develop drug product candidates, including conducting preclinical and clinical trials and providing general and administrative support for these operations. The Company had cash, cash equivalents, and marketable securities of $151.5 million and $153.1 million as of September 30, 2019 and December 31, 2018, respectively. The Company had an accumulated deficit of $193.3 million and $126.4 million as of September 30, 2019 and December 31, 2018, respectively. The Company had net losses of $27.5 million and $66.7 million for the three and nine months ended September 30, 2019, respectively, and $18.6 million and $47.4 million for the three and nine months ended September 30, 2018, respectively, and net cash used in operating activities of $62.6 million and $25.2 million for the nine months ended September 30,

2019 and 2018, respectively. To date, none of the Company’s product candidates have been approved for sale and therefore the Company has not generated any revenue from contracts with customers. The Company has evaluated and concluded there are no conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year following the date that these condensed financial statements are issued. Management expects operating losses to continue for the foreseeable future. As a result, the Company will need to raise additional capital. If sufficient funds on acceptable terms are not available when needed, the Company could be required to significantly reduce its operating expenses and delay, reduce the scope of, or eliminate one or more of its development programs. Failure to manage discretionary spending or raise additional financing, as needed, may adversely impact the Company’s ability to achieve its intended business objectives.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the condensed financial statements and the reported amounts of revenue and expenses in the condensed financial statements and accompanying notes during the reporting period. On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, clinical and preclinical study trial accruals, fair value of assets and liabilities the present value of lease liabilities and the corresponding right-of-use assets (“ROU assets”), and the fair value of common stock and stock-based compensation. Management bases its estimates on historical experience and on various other market-specific and relevant assumptions that management believes to be reasonable under the circumstances. Actual results could differ from those estimates.

The Company is subject to a number of risks similar to those of other early-stage immuno-oncology companies, including dependence on key individuals; the need to develop commercially viable therapeutics; competition from other companies, many of which are larger and better capitalized; and the need to obtain adequate additional financing to fund the development of its product candidates. The Company currently depends on third-party suppliers for key materials and services used in its research and development manufacturing process, and is subject to certain risks related to the loss of these third-party suppliers or their inability to supply the Company with adequate materials and services.

Cash equivalents, which consist primarily of highly liquid investments with maturities of three months or less when purchased, are stated at cost which approximates fair value. These assets include investments in money market funds that invest in U.S. Treasury obligations and certificates of deposit which are stated at fair value.

The Company has issued a letter of credit under a lease agreement which has been collateralized by a cash deposit for an equal amount and is recorded within deposits and other long-term assets on the balance sheet based on the term of the underlying lease. The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the balance sheets that sum to the total of the same amounts shown in the statements of cash flows (in thousands).

Prior to January 1, 2019, the Company rented its office space and facilities under non-cancelable operating lease agreements and recognizes related rent expense on a straight-line basis over the term of the lease. The Company’s lease agreements contained rent holidays, scheduled rent increases, and renewal options. Rent holidays and scheduled rent increases were included in the determination of rent expense to be recorded ratably over the lease term. The Company did not assume renewals in its determination of the lease term unless they were deemed to be reasonably assured at the inception of the lease. The Company began recognizing rent expense on the date that it obtained the legal right to use and control the leased space. Deferred rent consisted of the difference between cash payments and the recognition of rent expense on a straight-line basis for the buildings the Company occupied.

Funding of leasehold improvements by the Company’s landlord was accounted for as a tenant improvement allowance and recorded as current and non-current deferred rent liabilities and amortized on a straight-line basis as a reduction of rent expense over the term of the lease.

In certain arrangements, the Company was involved in the construction of improvements to buildings it was leasing. To the extent the Company was involved with the structural improvements of the construction project or takes construction risk, the Company was considered to be the owner of the building and related improvements for accounting purposes during the construction period. The

Company recorded the fair value of the building and related improvements subject to the lease within property and equipment on the balance sheet. The Company also recorded a corresponding lease financing obligation on its balance sheet representing the amounts financed by the lessor for the building and lessor financed improvements. Lessor financed improvement incentives due but not yet received of $1.2 million at December 31, 2017 were recorded as prepaid expense and other current assets on the condensed balance sheet. Such amounts were fully collected in April 2018. Once a construction project was complete, the Company considered the requirements for sale-leaseback accounting treatment. If the Company concluded the arrangement did not qualify for sale-leaseback accounting treatment, the building and related improvements remained on the Company’s condensed balance sheet and were subject to depreciation and assessment of impairment.

For such arrangements, at both pre and post the construction period, the Company bifurcated its lease payments into a portion allocated to the building and a portion allocated to the parcel of land on which the building had been built. The portion of the lease payments allocated to the land was treated for accounting purposes as operating lease payments, and therefore was recorded as rent expense in the condensed statements of operations and comprehensive loss. The portion of the lease payments allocated to the building were further bifurcated into a portion allocated to interest expense and a portion allocated to reduce the lease financing obligation. The interest rate used for the lease financing obligation represented the Company’s estimated incremental borrowing rate at the inception of the lease, adjusted to reduce any built in loss.

Subsequent to January 1, 2019, the Company determines whether the arrangement is or contains a lease at the inception of the arrangement and if such a lease is classified as a financing lease or operating lease. All of the Company’s leases are classified as operating leases. Leases with a term greater than one year are included in operating lease ROU assets, lease liabilities, current portion, and lease liabilities, net of current portion in our condensed balance sheet at September 30, 2019. The Company has elected not to recognize on the condensed balance sheet leases with terms of one year or less. Lease liabilities and their corresponding ROU assets are recorded based on the present value of lease payments over the expected lease term. In determining the net present value of lease payments, the interest rate implicit in lease contracts is typically not readily determinable. As such, the Company utilizes the appropriate incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Certain adjustments to the right-of-use asset may be required for items such as initial direct costs paid or incentives received and impairment charges if we determine the ROU asset is impaired.

The Company considers a lease term to be the noncancelable period that it has the right to use the underlying asset, including any periods where it is reasonably assured the Company will exercise the option to extend the contract. Periods covered by an option to extend are included in the lease term if the lessor controls the exercise of that option.

The Company recognizes lease expense on a straight-line basis over the expected lease term.

The Company has elected to not separate lease and non-lease components for its leased assets and accounts for all lease and non-lease components of its agreements as a single lease component. The lease components resulting in a ROU asset have been recorded on the condensed balance sheet and amortized as lease expense on a straight-line basis over the lease term.

The Company analyzes its collaboration agreements to assess 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 throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement. For collaboration arrangements that are considered to be in the scope of the collaboration guidance and that contain multiple elements, the Company first determines which elements of the collaboration are deemed to be within the scope of the collaboration guidance and those that are more reflective of a vendor-customer relationship and, therefore, within the scope of the revenue with contracts with customer guidance. For elements of collaboration arrangements that are accounted for pursuant to the revenue from contracts with customer guidance, an appropriate recognition method is determined and applied consistently, generally by analogy to the revenue from contracts with customers guidance.

The terms of the licensing and collaboration agreements entered into typically include payment of one or more of the following: non-refundable, up-front fees; development, regulatory, and commercial milestone payments; payments for manufacturing supply services; and royalties on net sales of licensed products. Each of these payments results in license, collaboration, and other revenues, except for revenues from royalties on net sales of licensed products, which are classified as royalty revenues. The core principle of the accounting for revenue from contracts with customers guidance is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received in exchange for those goods or services.

In determining the appropriate amount of revenue to be recognized as the Company fulfills its obligations under each of its agreements, the Company performs the following steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations based on estimated selling prices; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.

Amounts received prior to satisfying the revenue recognition criteria are recorded as deferred revenue in the Company’s balance sheets. If the related performance obligation is expected to be satisfied within the next twelve months this will be classified in current liabilities. Amounts recognized as revenue prior to receipt are recorded as contract assets in the Company’s balance sheets. If the Company expects to have an unconditional right to receive consideration in the next twelve months, this will be classified in current assets. A net contract asset or liability is presented for each contract with a customer.

At contract inception, the Company assesses the goods or services promised in a contract with a customer and identifies those distinct goods and services that represent a performance obligation. A promised good or service may not be identified as a performance obligation if it is immaterial in the context of the contract with the customer, if it is not separately identifiable from other promises in the contract (either because it is not capable of being separated or because it is not separable in the context of the contract), or if the performance obligation does not provide the customer with a material right.

The Company considers the terms of the contract and its customary business practices to determine the transaction price. The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring promised goods or services to a customer. The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both. Variable consideration will only be included in the transaction price when it is not considered constrained, which is when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur.

If it is determined that multiple performance obligations exist, the transaction price is allocated at the inception of the agreement to all identified performance obligations based on the relative standalone selling prices. The relative selling price for each deliverable is estimated using objective evidence if it is available. If objective evidence is not available, the Company uses its best estimate of the selling price for the deliverable.

Revenue is recognized when, or as, the Company satisfies a performance obligation by transferring a promised good or service to a customer. An asset is transferred when, or as, the customer obtains control of that asset, which for a service, is considered to be as the services are received and used. The Company recognizes revenue over time by measuring the progress toward complete satisfaction of the relevant performance obligation using an appropriate input or output method based on the nature of the good or service promised to the customer.

After contract inception, the transaction price is reassessed at every period end and updated for changes such as resolution of uncertain events. Any change in the transaction price is allocated to the performance obligations on the same basis as at contract inception.

Management may be required to exercise considerable judgment in estimating revenue to be recognized. Judgment is required in identifying performance obligations, estimating the transaction price, estimating the stand-alone selling prices of identified performance obligations, which may include forecasted revenue, development timelines, reimbursement rates for personnel costs, discount rates and probabilities of technical and regulatory success, and estimating the progress towards satisfaction of performance obligations.

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (“ASU No. 2016-13”), which 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. ASU No. 2016-13 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. The new standard will be effective on January 1, 2020. Early adoption is permitted. The Company is currently evaluating the effect that the updated standard will have on its financial statements and related disclosures.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. ASU No. 2018-13 eliminates, adds and modifies certain disclosure requirements for fair value measurements and requires companies to disclose certain information. The new standard will be effective for fiscal years, and interim periods within those year, beginning after December 15, 2019. The Company is currently evaluating the impact of adopting this accounting update on its financial statements and related disclosures.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles (Topic 350): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This new standard also requires customers to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement. This standard is effective for annual reporting periods beginning after December 15, 2019, and interim periods within that year. This new standard can be applied either retrospectively

or prospectively to all implementation costs incurred after the date of adoption. The Company is currently evaluating the impact of adoption on its financial statements.

In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606, which clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606 when the collaborative arrangement participant is a customer in the context of a unit of account. In those situations, all the guidance in Topic 606 should be applied, including recognition, measurement, presentation, and disclosure requirements. The standard adds unit-of-account guidance in Topic 808 to align with the guidance in Topic 606 (that is, a distinct good or service) when an entity is assessing whether the collaborative arrangement or a part of the arrangement is within the scope of Topic 606, and requires that in a transaction with a collaborative arrangement participant that is not directly related to sales to third parties, presenting the transaction together with revenue recognized under Topic 606 is precluded if the collaborative arrangement participant is not a customer. The standard is effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted, including adoption in any interim period for public business entities for periods in which financial statements have not been issued. Amendments in the standard should be applied retrospectively to the date of initial application of Topic 606, but entities may elect to apply the amendments in this Update retrospectively either to all contracts or only to contracts that are not completed at the date of initial application of Topic 606, and should disclose the election. An entity may also elect to apply the practical expedient for contract modifications that is permitted for entities using the modified retrospective transition method in Topic 606. The Company is currently assessing the impact of this standard on its condensed financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new standard requires the recognition of lease liabilities and ROU assets on the balance sheet arising from lease transactions at the lease commencement date and the disclosure of key information about leasing arrangements. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842) Targeted Improvements, which provides an additional transition method in which the new lease standard is applied at the adoption date and recognized as a cumulative-effect adjustment to retained earnings without adjustment to comparative periods (collectively “Topic 842”). The amendment has the same effective date and transition requirements as the new lease standard.

The Company adopted this standard on January 1, 2019 using the modified retrospective approach and elected the package of practical expedients permitted under transition guidance, which allowed the Company to carry forward its historical assessments of: 1) whether contracts are or contain leases, 2) lease classification and 3) initial direct costs, where applicable. The Company did not elect the practical expedient allowing the use-of-hindsight which would require the Company to reassess the lease term of its leases based on all facts and circumstances through the effective date and did not elect the practical expedient pertaining to land easements as this is not applicable to the current contract portfolio. The Company elected the post-transition practical expedient to not separate lease components from non-lease components for all existing lease classes. The Company also elected a policy of not recording leases on its condensed balance sheets when the leases have a term of 12 months or less and the Company is not reasonably certain to elect an option to purchase the leased asset.

The impact of the adoption of Topic 842 on the accompanying condensed balance sheet as of January 1, 2019 was as follows (in thousands):

Delaware		47-4859534
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

5858 Horton Street, Suite 210 Emeryville, California		94608
(Address of Principal Executive Offices)		(Zip Code)


		Page
PART I. FINANCIAL INFORMATION		1
Item 1.	Financial Statements (unaudited)	1
	Condensed Balance Sheets as of September 30, 2019 and December 31, 2018	1
	Condensed Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2019 and 2018	2
	Condensed Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2019 and 2018	3
	Condensed Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018	5
	Notes to Condensed Financial Statements (unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risks	33
Item 4.	Controls and Procedures	33

PART II. OTHER INFORMATION		34
Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Uses of Proceeds	75
Item 3.	Defaults Upon Senior Securities	75
Item 4.	Mine Safety Disclosures	75
Item 5.	Other Information	76
Item 6.	Exhibits	77

SIGNATURES		78

Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒	Smaller reporting company	☐

		Emerging growth company	☒