MILLENDO THERAPEUTICS You should read the following discussion of our financial condition and results of operations in conjunction with our unaudited Interim Consolidated Financial Statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our annual audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the year endedDecember 31, 2019 as filed with theSecurities and Exchange Commission ("SEC") onMarch 11, 2020 . In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, beliefs and expectations that involve risks and uncertainties. Our actual results and the timing of events could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K, particularly in Item 1A. "Risk Factors" and "Special Note Regarding Forward-Looking Statements." Overview We are a clinical stage biopharmaceutical company primarily focused on developing novel treatments for endocrine diseases where current therapies do not exist or are insufficient. We seek to leverage our understanding of recent biological discoveries in endocrinology to continue to advance and build our pipeline in order to improve the lives of patients. We are currently developing nevanimibe (ATR-101) as a potential treatment for patients with classic congenital adrenal hyperplasia ("CAH"), and we are also developing a neurokinin 3-receptor (NK3R) antagonist (MLE-301) as a potential treatment of vasomotor symptoms ("VMS") in menopausal women. We are actively pursuing additional pipeline assets in treatment areas where we have knowledge and experience in developing drug product candidates. We seek to identify assets that complement our current portfolio. CAH is a rare, monogenic adrenal disease that requires lifelong treatment with exogenous cortisol, often at high doses. These chronic high doses of cortisol can result in side effects that include diabetes, obesity, hypertension and psychological problems. When on suboptimal doses of cortisol, female patients with CAH can experience hirsutism, infertility and menstrual irregularity, and male patients with CAH can experience testicular atrophy, infertility and testicular tumors. It is often difficult for physicians to appropriately treat CAH without causing adverse consequences. We reported results from our Phase 2a clinical trial of nevanimibe in patients with CAH inMarch 2018 and initiated a Phase 2b trial in the third quarter of 2018. Due to the COVID-19 pandemic, new patients are not being actively enrolled in the open-label Phase 2b study. We expect to conduct an interim review of the dataset for enrolled patients by the third quarter of 2020. VMS is commonly known as hot flashes and night sweats, in menopausal women. The sensations of heat and/or perspiration associated with VMS can occur frequently, generally last several minutes, and are often preceded or followed by sensations of cold and/or shivering. VMS interfere with the lives of affected women in a number of ways, including disrupting patients' ability to sleep and concentrate and causing anxiety and depression. VMS are experienced by up to 70% of women as they advance through menopause. We believe that approximately 20 million women inthe United States experience VMS at any given time and that these patients are motivated to seek medical treatment for relief. MLE-301 is currently in preclinical studies designed to enable first-in-human clinical studies, which we expect to initiate in the second half of 2020. We had been developing livoletide (AZP-531) as a potential treatment for Prader-Willi syndrome ("PWS"), a rare and complex genetic endocrine disease characterized by hyperphagia, or insatiable hunger. We elected to discontinue the development of livoletide as a potential treatment for PWS inApril 2020 based upon results from the Phase 2b trial. Since inception, we have incurred significant operating losses and negative operating cash flows and there is no assurance that we will ever achieve or sustain profitability. Our net losses were$12.0 million and$10.4 million for the three months endedMarch 31, 2020 and 2019, respectively. As ofMarch 31, 2020 , we had an accumulated deficit of$220.7 million . We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. OnDecember 7, 2018 ,OvaScience, Inc. ("OvaScience"), now known asMillendo Therapeutics, Inc. , completed its reverse merger (the "Merger") with what was then known as privately-heldMillendo Therapeutics, Inc. , ("Private Millendo"), in accordance with the terms of the Agreement and Plan of Merger and Reorganization dated as ofAugust 8, 2018 , as amended onSeptember 25, 2018 andNovember 1, 2018 .OvaScience's shares of common stock listed on the Nasdaq Capital Market, previously trading through the close of business onFriday, December 7, 2018 under the ticker symbol "OVAS," commenced trading on the Nasdaq Capital Market, under the ticker symbol "MLND," onMonday, December 10, 2018 . 17 -------------------------------------------------------------------------------- Table of Contents Recent Developments Discontinuation of development of livoletide for the treatment of Prader-Willi syndrome (PWS) As we previously announced, we elected inApril 2020 to discontinue the development of livoletide as a potential treatment for PWS, including the 9-month extension study and the initiation of the Phase 3 ZEPHYR trial. The decision to discontinue the PWS program was based on results from the Phase 2b ZEPHYR study, which showed that treatment with livoletide did not result in a statistically significant improvement in hyperphagia and food-related behaviors as measured by the Hyperphagia Questionnaire for Clinical Trials compared to placebo. In connection with the discontinuation of the livoletide program in PWS, we are currently evaluating our business strategy to prioritize and allocate resources towards the advancement of current product candidates and potential future pipeline assets. In an effort to streamline costs, we are also in the process of eliminating employee positions representing approximately 30% of our prior headcount, with the majority of the reduction in personnel completed inApril 2020 . Nevanimibe for the treatment of classic congenital adrenal hyperplasia (CAH) The Phase 2b clinical study of nevanimibe for the treatment of CAH is an open-label, intra-subject dose-escalation trial designed to enroll a total of 10 or more patients with CAH for each of the two distinct cohorts of patients, across approximately 10 to 12 sites. Due to the COVID-19 pandemic, new patients are not being actively enrolled in the study, and we may experience a disruption or delay in our ability to assess already-enrolled patients. We expect to conduct an interim review of the dataset for enrolled patients by the third quarter of 2020. COVID-19 Business Update With the global spread of the ongoing COVID-19 pandemic in the first quarter of 2020, we established a cross-functional task force and implemented business continuity plans designed to address and mitigate the impact of the COVID-19 pandemic on our employees and our business. While we are experiencing limited financial impacts from the pandemic at this time, given the global economic slowdown, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the pandemic, our business, financial condition, results of operations and growth prospects could be materially adversely affected. We continue to closely monitor the COVID-19 situation as we evolve our business continuity plans and response strategy. InMarch 2020 , our global workforce transitioned to working remotely. We are currently preparing plans to allow employees to return to the office, which will be based on a phased approach that is principles-based, flexible and local in design, with a focus on patient continuity, employee safety and optimal work environment. Supply Chain We are working closely with our third-party manufacturers, distributors and other partners to manage our supply chain activities and mitigate potential disruptions to our product supplies as a result of the COVID-19 pandemic. We currently expect to have adequate global supply of nevanimibe to support our ongoing Phase 2b trial and of MLE-301 to support our ongoing preclinical studies. If the COVID-19 pandemic persists for an extended period of time and begins to impact essential distribution systems such as FedEx and postal delivery, we could experience disruptions to our supply chain and operations, and associated delays in the manufacturing and supply of our products, which would adversely impact our ability to conduct clinical and preclinical trials. Clinical Development With respect to clinical development, we have taken measures to implement remote and virtual approaches, including remote patient monitoring and home delivery of drug treatments where possible, to maintain patient safety and trial continuity and to preserve study integrity. For our ongoing Phase 2b clinical trial of nevanimibe, we are experiencing, and expect to continue to experience, a disruption or delay in our ability to enroll and assess patients. As the COVID-19 pandemic continues, we anticipate an impact on our ability to initiate trial sites and maintain patient enrollment. We could also see an impact on our ability to acquire supplies of study drug, report trial results or interact with regulators, ethics committees or other important agencies due to limitations in regulatory authority employee resources or otherwise. In addition, we rely on contract research organizations or other third parties to assist us with clinical trials, and we cannot guarantee that they will continue to perform their contractual duties in a timely and satisfactory manner as a result of the COVID-19 pandemic. If the COVID-19 pandemic continues and persists for an extended period of time, we could experience significant disruptions to our clinical development timelines, which would adversely affect our business, financial condition, results of operations and growth prospects. 18 -------------------------------------------------------------------------------- Table of Contents Regulatory Activities We have not experienced, to date, any delays with respect to regulatory reviews or interactions with regulatory authorities as a result of the COVID-19 pandemic. Neither theU.S. Food and Drug Administration (the "FDA"), or other regulatory authorities such as theEuropean Medicines Agency (the "EMA"), has notified us of any COVID-19-related delays in reviews impacting our clinical or preclinical programs. However, it is possible that we could experience delays in the timing of regulatory reviews or interactions with the FDA, EMA, or other regulatory authorities due to, for example, absenteeism by governmental employees or the diversion of regulators' efforts and attention to approval of other therapeutics or other activities related to COVID-19. Corporate Development With our strong cash balance, including net proceeds of approximately$5.7 million inMarch 2020 from the sale of 719,400 shares of our common stock under our "at-the-market" equity distribution agreement with Citigroup Global Markets Inc. andSVB Leerink LLC , we anticipate having sufficient liquidity to make strategic investments in our business this year in support of our long-term growth strategy. We believe that our cash, cash equivalents and restricted cash as ofMarch 31, 2020 will fund our planned operations into 2022. However, our operating plan may change as a result of many factors currently unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity or debt financings, third-party funding, marketing and distribution arrangements, as well as other collaborations, strategic alliances and licensing arrangements, or any combination of these approaches. In addition, the COVID-19 pandemic continues to rapidly evolve and has already resulted in a significant disruption of global financial markets. If the disruption persists and deepens, we could experience an inability to access additional capital, which could in the future negatively affect our operations. Other Financial and Corporate Impacts While we expect the COVID-19 pandemic to adversely affect our business operations and financial results, our clinical development and regulatory efforts, our corporate development objectives and the value of and market for our common stock, will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time, such as the ultimate duration of the pandemic, travel restrictions, quarantines, social distancing and business closure requirements in theU.S. ,Europe and other countries, and the effectiveness of actions taken globally to contain and treat the disease. For example, if remote work policies for certain portions of our business, or that of our business partners, are extended longer than we currently expect, we may need to reassess our priorities and our corporate objectives for the year. We have not experienced any material impact to our internal controls over financial reporting despite the fact that our employees are working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness. In addition, all information technology operations are inherently vulnerable to inadvertent or intentional security breaches, incidents, attacks and exposures, the accessibility and distributed nature of our information technology systems, and the sensitive information stored on those systems, make such systems potentially vulnerable to unintentional or malicious, internal and external attacks on our technology environment. Due to the COVID-19 pandemic, we have enabled substantially all of our employees to work remotely, which may make us more vulnerable to cyberattacks or other incidents. To date, we have not experienced any increase to cyberattacks or other incidents. Components of Our Results ofOperations Research and development expense Research and development expense consists primarily of costs incurred in connection with the development of our product candidates. We expense research and development costs as incurred. These expenses include: •personnel expenses, including salaries, benefits and stock-based compensation expense; •costs of funding research performed by third-parties, including pursuant to agreements with contract research organizations, ("CROs"), as well as investigative sites and consultants that conduct our preclinical studies and clinical trials; •expenses incurred under agreements with contract manufacturing organizations ("CMOs"), including manufacturing scale-up expenses and the cost of acquiring and manufacturing preclinical study and clinical trial materials; 19 -------------------------------------------------------------------------------- Table of Contents •payments made under our third-party licensing agreements; •consultant fees and expenses associated with outsourced professional scientific development services; •expenses for regulatory activities, including filing fees paid to regulatory agencies; and •allocated expenses for facility costs, including rent, utilities, depreciation and maintenance. Milestone payment obligations incurred prior to regulatory approval of a product candidate, which are accrued when the event requiring payment of the milestone occurs are included in research and development expense. We typically use our employee, consultant and infrastructure resources across our development programs. We track certain outsourced development costs by product candidate, but do not allocate all personnel costs or other internal costs to specific product candidates. The following table summarizes our research and development expenses by product candidate, personnel expense and other expenses for the three months endedMarch 31, 2020 and 2019, respectively: Three Months Ended March 31, 2020 2019 (dollars in thousands) Livoletide expenses$ 4,846 $ 3,003 Nevanimibe expenses 252 818 MLE-301 expenses 430 - Personnel expenses 1,774 1,879 Other expenses 238 504 Total$ 7,540 $ 6,204 We expect our research and development costs related to livoletide will decrease significantly due to our decision to discontinue the program based on results from the Phase 2b ZEPHYR study in PWS. The successful development of our product candidates is highly uncertain. At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the remainder of the development of nevanimibe or MLE-301. We are also unable to predict when, if ever, material net cash inflows may commence from sales of nevanimibe, MLE-301 or any future product candidates that we may develop due to the numerous risks and uncertainties associated with clinical development, including risks and uncertainties related to: •the ongoing COVID-19 pandemic, including the potential impact on various aspects and stages of the clinical development process; •the number of clinical sites included in the trials; •the length of time required to enroll suitable patients; •the number of patients that ultimately participate in the trials; •the number of doses patients receive; •the duration of patient follow-up and number of patient visits; •the results of our clinical trials; •the establishment of commercial manufacturing capabilities; •the receipt of marketing approvals; and •the commercialization of product candidates. 20 -------------------------------------------------------------------------------- Table of Contents We may never succeed in obtaining regulatory approval for nevanimibe, MLE-301 or any future product candidates we may develop. Product candidates in later stages of clinical development, like nevanimibe, generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. General and administrative expense General and administrative expense consists primarily of personnel expenses, including salaries, benefits and stock-based compensation expense, for employees in executive, finance, accounting, business development, legal and human resource functions. General and administrative expense also includes corporate facility costs, including rent, utilities, depreciation and maintenance, not otherwise included in research and development expense, as well as legal fees related to intellectual property and corporate matters and fees for accounting, recruiting and consulting services. Interest expense (income), net Interest income represents amounts earned on our cash, cash equivalents and restricted cash balances. Results of operations Comparison of the three months endedMarch 31, 2020 and 2019 The following table summarizes our operating results for the periods indicated: Three Months Ended March 31, 2020 2019 Change (dollars in thousands) Operating expenses: Research and development$ 7,540 $ 6,204 $ 1,336 21.5 % General and administrative 4,595 4,453 142 3.2 Loss from operations 12,135 10,657 1,478 13.9 Other expenses: Interest expense (income), net (162) (315) 153 (48.6) Other loss 25 24 1 4.2 Net loss$ (11,998) $ (10,366) $ (1,632) 15.7 % Research and development expense Research and development expense increased by$1.3 million to$7.5 million for the three months endedMarch 31, 2020 from$6.2 million for the three months endedMarch 31, 2019 . The following table summarizes our research and development expenses for the three months endedMarch 31, 2020 and 2019: Three Months Ended March 31, 2020 2019 Change (dollars in thousands) Preclinical and clinical development expense$ 5,528 $ 4,093 $ 1,435 35.1 % Compensation expense, other than stock-based compensation 1,474 1,456 18 1.2 Stock-based compensation expense 300 423 (123) (29.1) Other expenses 238 232 6 2.6
Total research and development expense
$ 1,336 21.5 % The increase in total research and development expense is attributable to: •a$1.4 million increase in preclinical and clinical development expense mainly related to the development of livoletide; and •a$0.1 million decrease in stock-based compensation expenses primarily related to certain changes in headcount. 21 -------------------------------------------------------------------------------- Table of Contents General and administrative expense General and administrative expense increased by$0.1 million to$4.6 million for the three months endedMarch 31, 2020 from$4.5 million for the three months endedMarch 31, 2019 . The increase was primarily due to a$0.8 million increase in compensation and stock-based compensation expense as a result of an increase in our general and administrative headcount and changes to compensation arrangements. These increases were partially offset by a decrease of$0.7 million in professional fees primarily as a result of lower legal and accounting fees incurred as compared to the prior period. Legal and accounting fees were higher in the first quarter of 2019 due to administrative and other activities following our merger withOvaScience, Inc. inDecember 2018 (the "Merger"). Interest income, net Interest income, net decreased by$0.1 million to$0.2 million net interest income for the three months endedMarch 31, 2020 from net interest income of$0.3 million for the three months endedMarch 31, 2019 . The change was primarily due to lower interest income received as a result of lower cash and cash equivalent and marketable securities balances. Other loss Other loss increased by$1,000 to$25,000 for the three months endedMarch 31, 2020 from$24,000 for the three months endedMarch 31, 2019 due to higher foreign currency losses as a result of exchange rate fluctuations on transactions denominated in a currency other than our functional currency. Liquidity and Capital Resources Cash flows The following table sets forth the primary uses of cash and cash equivalents for the three months endedMarch 31, 2020 and 2019: Three Months Ended March 31, 2020 2019 (in thousands) Net cash used in operating activities$ (10,161) $ (10,601) Net cash (used in) provided by investing activities (26)
2,976
Net cash provided by (used in) financing activities 5,589
(60)
Effect of foreign currency exchange rate changes on cash (37)
(14)
Net decrease in cash, cash equivalents and restricted cash
Operating activities During the three months endedMarch 31, 2020 , we used$10.2 million of cash to fund operating activities. During the three months endedMarch 31, 2020 , cash used in operating activities reflected our net loss of$12.0 million and a net change in operating assets and liabilities of$0.5 million , offset by non-cash charges of$1.4 million , principally related to stock-based compensation and the amortization of our right-of-use ("ROU") assets. During the three months endedMarch 31, 2019 , we used$10.6 million of cash in operating activities. Cash used in operating activities reflected our net loss of$10.4 million and a net increase in operating assets and liabilities of$1.3 million , offset by non-cash charges of$1.0 million , principally related to stock-based compensation. Investing activities During the three months endedMarch 31, 2020 , we paid$26,000 in purchases of property and equipment. During the three months endedMarch 31, 2019 , we received$3.0 million in net proceeds from the sale of marketable securities and paid$10,000 in purchases of property and equipment. 22 -------------------------------------------------------------------------------- Table of Contents Financing activities During the three months endedMarch 31, 2020 , we received proceeds of$5.7 million received from the issuance of common stock, net of issuance costs paid. See Note 1 of our Unaudited Interim Consolidated Financial Statements for additional information related to the issuance of common stock. These proceeds were offset by$0.2 million in the payment of financing costs. During the three months endedMarch 31, 2019 , we used cash of$45,000 in principal loan repayments and$15,000 in the payment of financing costs. Funding requirements We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the research and development of, continue or initiate clinical trials of, and seek marketing approval for, our product candidates. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to program sales, marketing, manufacturing and distribution to the extent that such sales, marketing and distribution are not the responsibility of potential collaborators. Furthermore, we expect to incur additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we may would be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts. The COVID-19 pandemic continues to rapidly evolve and has already resulted in a significant disruption of global financial markets. If the disruption persists and deepens, we could experience an inability to access additional capital, which could in the future negatively affect our operations. InApril 2019 , we entered into an "at-the-market" ("ATM"), equity distribution agreement withCitigroup Global Markets Inc. acting as sole agent with an aggregate offering value of up to$50.0 million , which allows us to sell our common shares through the facilities of the Nasdaq Capital Market. Subject to the terms of the ATM equity distribution agreement, we are able to determine, at our sole discretion, the timing and number of shares to be sold under this ATM facility. InMarch 2020 , we amended and restated the equity distribution agreement to includeSVB Leerink LLC as an additional sales agent for the ATM. InMarch 2020 , we sold 719,400 shares of its common stock under our ATM equity distribution agreement for net proceeds of approximately$5.7 million . As ofMarch 31, 2020 , we had cash, cash equivalents and restricted cash of$58.9 million , which we believe are sufficient to fund our planned operations into 2022. This cash runway guidance is based on our current operational plans and excludes any additional funding that may be received and business development activities that may be undertaken. In addition, our operating plans may change as a result of many factors currently unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity or debt financings, third-party funding, and marketing and distribution arrangements, as well as other collaborations, strategic alliances and licensing arrangements, or a combination of these approaches. In any event, we will require additional capital to pursue regulatory approval and the commercialization of our current and future product candidates. Our future capital requirements will depend on many factors, including: •the scope, progress, results and costs of preclinical studies and clinical trials; •the scope, prioritization and number of our research and development programs; •the costs, timing and outcome of regulatory review of our product candidates; •our ability to establish and maintain collaborations on favorable terms, if at all; •the extent to which we are obligated to reimburse, or entitled to reimbursement of, clinical trial costs under collaboration agreements, if any; •the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims; •the extent to which we acquire or in-license other product candidates and technologies; •the costs of securing manufacturing arrangements for commercial production; and 23 -------------------------------------------------------------------------------- Table of Contents •the costs of establishing or contracting for sales and marketing capabilities if we obtain regulatory approvals to market our product candidates. Identifying potential product candidates and conducting preclinical studies and clinical trials is a time-consuming, expensive and uncertain process that takes many years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of product candidates that we do not expect to be commercially available for many years, if at all. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. Adequate additional financing may not be available to us on acceptable terms, or at all. Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through additional collaborations, strategic alliances or licensing arrangements with third-parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. Contractual Obligations and Commitments InJanuary 2020 , we terminated our office lease agreement inLyon, France . During the three months endedMarch 31, 2020 , there were no other material changes to our contractual obligations and commitments described under "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K. Off-Balance Sheet Arrangements We did not have any off-balance sheet arrangements as ofMarch 31, 2020 , as defined in Item 303(a)(4)(ii) of Regulation S-K. Critical Accounting Policies and Estimates Other than as described under Note 2 to our Unaudited Interim Consolidated Financial Statements, the Critical Accounting Policies included in our Annual Report on Form 10-K for the year endedDecember 31, 2019 , as filed with theSEC onMarch 11, 2020 , have not materially changed. Item 3. Quantitative and Qualitative Disclosures about Market Risk Not required for smaller reporting companies. Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures Our management, with the participation of our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), evaluated the effectiveness of our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) or 15d-15(e)) as required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15, as ofMarch 31, 2020 . Based on the evaluation of our disclosure controls and procedures as ofMarch 31, 2020 , our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at a reasonable assurance level. 24 -------------------------------------------------------------------------------- Table of Contents Changes in Internal Control over Financial Reporting There were no changes in internal control over financial reporting during the quarter endedMarch 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting despite the fact that our employees are working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness. Inherent Limitations on Effectiveness of Controls Our management, including our Chief Executive Officer and our Chief Financial Officer, believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. 25
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