ALLOVIR, INC. You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and related notes appearing in Part I, Item I of this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and notes thereto for the year endedDecember 31, 2022 , included in our Annual Report on Form 10-K that was filed onFebruary 15, 2023 with theU.S. Securities and Exchange Commission , or theSEC . Some of the information contained in this discussion and analysis or set forth elsewhere in this report, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the "Risk Factors" section of this Quarterly Report on Form 10-Q, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. You should carefully read the section titled "Risk Factors" set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. Please also see the section entitled "Special Note Regarding Forward-Looking Statements." You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report on Form 10-Q.
Overview
We are a leading late clinical-stage cell therapy company developing highly innovative allogeneic T cell therapies to treat and prevent devastating viral diseases. Our innovative and proprietary virus-specific T cell, or VST, therapy platform allows us to generate off-the-shelf VSTs designed to restore immunity in patients with T cell deficiencies who are at risk from the life-threatening consequences of viral diseases. There is an urgent medical need for therapies to treat a large number of patients suffering from viral diseases who currently have limited or no treatment options. We are developing three innovative, allogeneic, off-the-shelf VST therapy candidates targeting 11 different devastating viruses. Our lead product, posoleucel (previously referred to as Viralym-M or ALVR105), is a multi-VST therapy that targets six viruses: adenovirus, or AdV, BK virus, or BKV, cytomegalovirus, or CMV, Epstein-Barr virus, or EBV, human herpesvirus 6, or HHV-6, and JC virus, or JCV. We believe posoleucel has the potential to fundamentally transform the treatment landscape for transplant patients by substantially reducing or preventing disease morbidity and mortality, thereby dramatically improving patient outcomes. Posoleucel is being studied in three ongoing Phase 3 registrational trials for three distinct indications - the prevention of clinically significant infections from multiple viruses, the treatment of virus-associated hemorrhagic cystitis, or HC, and the treatment of AdV infections - all in allogeneic hematopoietic cell transplant, or HCT, patients who are at high risk for life-threatening viral infections from the six viruses targeted by posoleucel. We have accelerated the multi-prevention study in recognition of the fact that prevention best addresses patients' unmet medical needs. Data readouts from all three trials are expected in 2024. In addition to the ongoing Phase 3 registrational studies, posoleucel has been studied in a Phase 2 POC study for the treatment of BK viremia in kidney transplant patients. Positive topline results of this study were reported inFebruary 2023 . This is the first study of posoleucel in SOT patients, and the results of this trial will inform next steps for this potential indication as well as our broader SOT strategy. Our pipeline includes additional investigational VST therapies that may benefit high-risk individuals. ALVR106 is our second off-the-shelf, multi-VST product candidate targeting devastating respiratory diseases caused by human metapneumovirus, or hMPV, influenza, parainfluenza virus, or PIV and respiratory syncytial virus, or RSV. A Phase 1b/2 POC clinical study of ALVR106 is enrolling patients in theU.S. In the preclinical space, we are developing ALVR107 designed to target hepatitis B, or HBV, infected cells and with the aim of curing chronic HBV infection. Preclinical and IND-enabling studies of ALVR107 to treat and cure HBV were completed in 2022 to support advancement into a POC study after completion of the posoleucel Phase 3 studies. Since inception, we have devoted substantially all of our resources on raising capital, organizing and staffing our company, business planning, conducting discovery and research activities, acquiring or discovering product candidates, establishing and protecting our intellectual property portfolio, developing and progressing posoleucel, ALVR106, ALVR107, and other product candidates and preparing for clinical trials and establishing arrangements with third parties for the manufacture of our product candidates and component materials. We do not have any product candidates approved for sale and have not generated any revenue from product sales. OnAugust 3, 2020 , we completed an initial public offering, or IPO, of our common stock and issued and sold 18,687,500 shares of our common stock at a public offering price of$17.00 per share, resulting in net proceeds of$292.0 million after deducting underwriting discounts and commissions and offering costs. Prior to our IPO, we funded our operations through equity financings and received proceeds of$156.3 million , net of issuance costs of$0.6 million , from the sale of our preferred stock. OnJuly 26, 2022 , we entered into a Securities Purchase Agreement, or the Securities Purchase Agreement, with certain investors for the issuance and sale of 27,458,095 shares of our common stock for aggregate net proceeds of$126.4 million . OnAugust 6, 2021 , we filed an automatically effective registration statement on Form S-3, or Registration Statement, with theSEC which registered the offering, issuance and sale of an unspecified amount of common stock, preferred stock, debt securities, warrants and/or units of any combination thereof. We simultaneously entered into a sales agreement withSVB Leerink LLC , as sales agent, to provide for the issuance and sale by the Company of up to$100.0 million of common stock from time to time in "at-the-market" offerings under the Registration Statement and related prospectus filed with the Registration Statement, or the ATM Program. OnFebruary 10, 2022 we filed a Post-Effective Amendment No. 2 to the Registration Statement and onFebruary 18, 2022 we filed 16 --------------------------------------------------------------------------------
Post-Effective Amendment No. 3 to the Registration Statement. As of
We have incurred significant operating losses since inception, including net losses of$41.2 million for the three months endedMarch 31, 2023 . As ofMarch 31, 2023 , we had an accumulated deficit of$507.0 million .
These losses have resulted primarily from costs incurred in connection with research and development activities and general and administrative costs associated with our operations. We expect to continue to incur significant and increasing expenses and operating losses for the foreseeable future, particularly if and as we:
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initiate and conduct additional preclinical studies and clinical trials for our product candidates;
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continue to discover and develop additional product candidates;
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acquire or in-license other product candidates and technologies;
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maintain, expand, and protect our intellectual property portfolio;
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hire additional clinical and scientific personnel;
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expand our manufacturing capabilities with third parties and establish manufacturing capabilities in-house;
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seek regulatory approvals and pursue commercialization for any product candidates that successfully complete clinical trials; and
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add operational, financial, and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts.
We will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through the sale of equity, debt financings or other capital sources, including potential collaborations with other companies or other strategic transactions. Our inability to raise capital as and when needed could have a negative impact on our financial condition and ability to pursue our business strategies. There can be no assurances, however, that the current operating plan will be achieved or that additional funding will be available on terms acceptable to us, or at all. AtMarch 31, 2023 , we had cash, cash equivalents and short-term investments of$202.6 million . We believe that our existing cash, cash equivalents and short-term investments, will enable us to fund our operating expenses and capital expenditure requirements through at least twelve months following the issuance of these financial statements. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. See "-Liquidity and Capital Resources." The development of our product candidates could be disrupted and materially adversely affected in the future by a pandemic, epidemic or outbreak of an infectious disease , such as the ongoing COVID-19 pandemic. The spread of COVID-19 has impacted the global economy and has impacted our operations, including the interruption of our preclinical and clinical trial activities and potential interruption to our supply chain. For example, the COVID-19 pandemic has delayed clinical trials. If the disruption due to the COVID-19 pandemic continues, our planned pivotal clinical trials also could be delayed due to government orders and site policies on account of the pandemic, and some patients may be unwilling or unable to travel to study sites, enroll in our trials or be unable to comply with clinical trial protocols if quarantines impede patient movement or interrupt healthcare services, which would delay our ability to conduct preclinical studies and clinical trials or release clinical trial results and could delay our ability to obtain regulatory approval and commercialize our product candidates. Furthermore, COVID-19 could affect our employees or the employees of research sites and service providers on whom we rely, including CROs, as well as those of companies with which we do business, including our suppliers and CMOs, thereby disrupting our business operations. We are still assessing our business plans and the impact the COVID-19 pandemic may have on our ability to advance the testing, development and manufacturing of our drug candidates, including as a result of adverse impacts on the research sites, service providers, vendors, or suppliers on whom we rely, or to raise financing to support the development of our drug candidates. No assurances can be given that this analysis will enable us to avoid part or all of any impact from the spread of COVID-19 or its consequences, including downturns in business sentiment generally or in our sector in particular. We cannot presently predict the scope and severity of any potential business shutdowns or disruptions, but if we or any of the third parties on whom we rely or with whom we conduct business, were to experience shutdowns or other business disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially and adversely 17 --------------------------------------------------------------------------------
impacted.
Relationship with ElevateBio -
OnSeptember 17, 2018 , we entered into a Series A2 Preferred Stock Purchase Agreement, or the Series A2 Agreement, with ElevateBio, and ElevateBio was a purchaser in our registered direct offering inJuly 2022 . ElevateBio, through its diverse platform of technologies to support cell and gene therapy products and expertise, provides drug development and manufacturing services. As a result of ElevateBio's purchase of our Series A2 Preferred Stock, which converted to common stock upon completion of our IPO, and as a result of ElevateBio's participation in theJuly 2022 registered direct offering, ElevateBio acquired an ownership interest to our consolidated financial statements appearing elsewhere in this Form 10-K. The Chief Financial Officer of ElevateBio currently serves in a similar management role with us. InMay 2021 ,Diana M. Brainard M.D ., succeededDavid Hallal , ElevateBio's Chief Executive Officer, as the Company's Chief Executive Officer.Mr. Hallal currently serves as Executive Chairman of the Company's board of directors. In addition toMr. Hallal andMr. Sinha , two other members of the Company's board of directors,Morana Jovan-Embiricos andAnsbert Gadicke , also serve as directors of the board of directors of ElevateBio.Dr. Gadicke retired from the Company's board of directors onFebruary 28, 2023 .
Components of Results of Operations
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred in connection with our research and development activities, including our drug discovery efforts and the development of our product candidates. We expense research and development costs as incurred, which include:
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external research and development expenses incurred under agreements with CROs, as well as investigative sites and consultants that conduct our clinical trials and other scientific development services;
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costs related to manufacturing material for our clinical trials, including fees paid to CMOs;
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manufacturing scale-up expenses and the cost of acquiring and manufacturing clinical trial materials;
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employee-related expenses, including salaries, bonuses, benefits, stock-based compensation and other related costs for those employees involved in research and development efforts;
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costs of outside consultants, including their fees, stock-based compensation and related travel expenses;
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the costs of acquiring and developing clinical trial materials;
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expenses to acquire technologies, such as intellectual property, to be used in research and development;
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upfront and maintenance fees incurred under license, acquisition and other third-party agreements;
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costs related to compliance with regulatory requirements; and
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facilities, depreciation, and other expenses, which include direct and allocated expenses for rent, maintenance of facilities and equipment and software.
Costs for certain activities are recognized based on an evaluation of the progress to completion of specific tasks using data such as information provided to us by our vendors and analyzing the progress of our discovery studies or other services performed. Significant judgment and estimates are made in determining the accrued expense balances at the end of any reporting period.
We characterize research and development costs incurred prior to the identification of a product candidate as discovery costs. Once a product candidate has been identified, research and development costs incurred are allocated as product candidate costs.
Our direct, external research and development expenses consist primarily of fees
paid to outside consultants, CROs, CMOs and research laboratories in connection
with our process development, manufacturing and clinical development activities.
Our direct external research and development expenses also include fees incurred
under license and intellectual property purchase agreements. We track these
external research and development costs on a program-by-program basis once we
have identified a mature product candidate.
We do not allocate employee costs, costs associated with our discovery efforts,
and facilities, including depreciation or other indirect costs, to specific
programs because these costs are deployed across multiple programs and, as such,
are not separately classified.
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--------------------------------------------------------------------------------We use internal resources and third-party consultants primarily to conduct our research and discovery activities as well as for managing our process development, manufacturing and clinical development activities.
The successful development of our product candidates is highly uncertain. We plan to substantially increase our research and development expenses for the foreseeable future as we continue the development of our product candidates and manufacturing processes and conduct discovery and research activities for our clinical programs. We cannot determine with certainty the timing of initiation, the duration or the completion costs of current or future clinical trials of our product candidates due to the inherently unpredictable nature of preclinical and clinical development. Clinical development timelines, the probability of success and development costs can differ materially from expectations. We anticipate that we will make determinations as to which product candidates to pursue and how much funding to direct to each product candidate on an ongoing basis in response to the results of ongoing and future clinical trials, regulatory developments and our ongoing assessments as to each product candidate's commercial potential. We will need to raise substantial additional capital in the future. Our clinical development costs are expected to increase significantly with our ongoing clinical trials. We anticipate that our expenses will increase substantially, particularly due to the numerous risks and uncertainties associated with developing product candidates, including the uncertainty of:
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the scope, rate of progress and expenses of our ongoing research activities and clinical trials and other research and development activities;
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establishing an appropriate safety profile;
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successful enrollment in and completion of clinical trials;
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whether our product candidates show safety and efficacy in our clinical trials;
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receipt of marketing approvals from applicable regulatory authorities;
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establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;
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obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates;
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commercializing product candidates, if and when approved, whether alone or in collaboration with others; and
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continued acceptable safety profile of the products following any regulatory approval.
Any changes in the outcome of any of these variables with respect to the development of our product candidates in clinical development could mean a significant change in the costs and timing associated with the development of these product candidates. We may never succeed in achieving regulatory approval for any of our product candidates. We may obtain unexpected results from our clinical trials. We may elect to discontinue, delay or modify clinical trials of some product candidates or focus on others. For example, if theU.S. Food and Drug Administration , or the FDA, theEuropean Medicines Agency , or the EMA, or another regulatory authority were to delay our planned start of clinical trials or require us to conduct clinical trials or other testing beyond those that we currently expect or if we experience significant delays in enrollment in any of our planned clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development of that product candidate.
General and Administrative Expenses
General and administrative expenses consist primarily of employee-related costs, including salaries, bonuses, benefits, stock-based compensation and other related costs, as well as expenses for outside professional services, including legal, accounting and audit services and other consulting fees, rent expense and other general administrative expenses.
Total Other Income (Loss), Net
Interest income
Interest income consists of interest income on cash, cash equivalents and short-term investments held in financial institutions.
Other income (loss), net
Other income (loss), net consists primarily of investment amortization and accretion of discounts and premiums on short-term investments and foreign exchange gains and losses.
Income tax expense
Income tax expense consists of current income tax expense which is expected to be payable for the current year.
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--------------------------------------------------------------------------------Results of Operations
Comparison of the three months ended
The following table summarizes our results of operations (in thousands):
Three Months Ended March 31,
2023 2022 Change
Operating expenses:
Research and development $ 30,718 $ 29,067 $ 1,651
General and administrative 12,513 14,126 (1,613 )
Total operating expenses 43,231 43,193 38
Loss from operations (43,231 ) (43,193 ) (38 )
Total other income (loss), net:
Interest income 1,325 148 1,177
Other income (loss), net 723 (818 ) 1,541
Net loss $ (41,183 ) $ (43,863 ) $ 2,680 Research and Development Expenses
The following table summarizes our research and development costs for each of the periods presented (in thousands):
Three Months Ended March 31,
2023 2022 ChangeDirect research and development expenses by program: posoleucel
$ 16,657 $ 13,500 $ 3,157 ALVR106 417 1,226 (809 ) Unallocated research and development expenses: Personnel expenses (including stock-based compensation) 11,677 12,015 (338 ) Other expenses 1,967 2,326 (359 ) Total research and development expenses$ 30,718
Research and development expenses were$30.7 million for the three months endedMarch 31, 2023 , compared to$29.1 million for the three months endedMarch 31, 2022 . The increase of$1.7 million was primarily due to:
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a$3.2 million increase in costs related to the development of posoleucel, our most advanced product candidate, primarily due to an increase in costs related to the development of clinical trials of$2.1 million and the outsourcing of manufacturing of$1.0 million ; and
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a
General and Administrative Expenses
General and administrative expenses were$12.5 million for the three months endedMarch 31, 2023 , compared to$14.1 million for the three months endedMarch 31, 2022 . The decrease of$1.6 million primarily consisted of a decrease of$1.5 million in consulting and personnel related costs, including stock-based compensation expense.
Total Other Income (Loss), Net
Total other income (loss), net was$2.0 million for the three months endedMarch 31, 2023 , compared to$(0.7) million for the three months endedMarch 31, 2022 . The increase of$2.7 million is primarily attributable to an increase of$1.2 million in interest income, an increase of$0.8 million resulting from a change in amortization and accretion of discounts and premiums on short-term investments, and a decrease of$0.7 million in foreign exchange losses. 20 --------------------------------------------------------------------------------
Liquidity and Capital Resources
Sources of Liquidity
AtMarch 31, 2023 , we have funded our operations primarily through equity financings and have received net cash proceeds of approximately$156.3 million from the sale of our preferred stock,$292.0 million of net proceeds from the sale of common stock in our IPO and$126.4 million of net proceeds from the Securities Purchase Agreement entered into onJuly 26, 2022 .
On
We currently have no ongoing material financing commitments, such as lines of credit or guarantees, that are expected to affect our liquidity over the next five years, other than our manufacturing, licensing and lease obligations described further below.
Funding Requirements
AtMarch 31, 2023 , our cash, cash equivalents and short-term investments were$202.6 million . We believe that our existing cash, cash equivalents and short-term investments will enable us to fund our operating expenses and capital expenditure requirements through at least twelve months following the issuance of these financial statements. We have based this estimate on assumptions that may prove to be wrong, and we could expend our capital resources sooner than we expect. We expect to incur significant expenses and operating losses for the foreseeable future as we advance our product candidates through clinical development, seek regulatory approval and pursue commercialization of any approved product candidates. We expect that our research and development and general and administrative costs will increase in connection with our planned research and development activities. If we receive regulatory approval for our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, sales, marketing and distribution, depending on where we choose to commercialize. We may also require additional capital to pursue in-licenses or acquisitions of other product candidates. Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical product candidates, we are unable to estimate the amount of our working capital requirements. Our future capital requirements will depend on many factors, including:
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the scope, progress, results and costs of researching and developing posoleucel for our initial and potential additional indications, as well as ALVR106 and other product candidates we may develop, including any COVID-19-related delays or other effects on our development programs;
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the timing of, and the costs involved in, obtaining marketing approvals for posoleucel for our initial and potential additional indications, and ALVR106 and other product candidates we may develop;
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if approved, the costs of commercialization activities for posoleucel for any approved indications, or ALVR106 or any other product candidate that receives regulatory approval to the extent such costs are not the responsibility of a collaborator that we may contract with in the future, including the costs and timing of establishing product sales, marketing, distribution and manufacturing capabilities;
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subject to receipt of regulatory approval, revenue, if any, received from commercial sales of posoleucel for any approved indications or ALVR106 or any other product candidates;
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the extent to which we in-license or acquire rights to other products, product candidates or technologies;
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our headcount growth and associated costs as we expand our research and development, increase our office space, and establish a commercial infrastructure;
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the costs of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights, including enforcing and defending intellectual property related claims; and
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the ongoing costs of operating as a public company.
Until such time, if ever, as we can generate substantial product revenues to
support our cost structure, we expect to finance our cash needs through a
combination of equity offerings, debt financings, collaborations and other
similar arrangements. To the extent that we raise additional capital through the
sale of equity or convertible debt securities, the ownership interest of our
shareholders will be or could be diluted, and the terms of these securities may
include liquidation or other preferences that adversely affect the rights of our
common shareholders. Debt financing and equity 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 collaborations,
or other similar arrangements with third parties, we may have to relinquish
valuable rights to our technologies, future revenue streams, research programs
or product candidates or grant licenses on terms that may not be favorable to
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us and/or may reduce the value of our common stock. 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 our product
candidates even if we would otherwise prefer to develop and market such product
candidates ourselves.
Cash Flows
The following table summarizes our cash flows for each of the periods presented
(in thousands):
Three Months Ended March 31,
2023 2022
(in thousands)
Net cash used in operating activities $ (32,118 ) $ (46,476 )
Net cash provided by (used in) investing activities 41,724 (54,979 )
Net increase (decrease) in cash, cash equivalents, and
restricted cash $ 9,606 $ (101,455 )
Operating Activities
Net cash used in operating activities was $32.1 million for the three months
ended March 31, 2023 , reflecting a net loss of $41.2 million , partially offset
by non-cash charges of $9.8 million . Non-cash charges primarily consist of stock
compensation expense of $10.0 million . The change in our net operating assets
and liabilities of $(0.6) million was primarily due to a decrease of $0.5
million in accounts payable, accrued expenses and amount due to related party.
Net cash used in operating activities was $46.5 million for the three months
ended March 31, 2022 , reflecting a net loss of $43.9 million , partially offset
by non-cash charges of $11.4 million . The non-cash charges primarily consist of
stock compensation expense, depreciation expense and non-cash lease expense. The
change in our net operating assets and liabilities of $(14.0) million was
primarily due to a decrease of $13.8 million in accounts payable, accrued
expenses and amount due to related party.
The $14.4 million decrease in cash used in operating activities for the three
months ended March 31, 2023 compared to the three months ended March 31, 2022
was primarily due to the change in net operating assets and liabilities due to
timing.
Investing Activities
Net cash provided by investing activities was $41.7 million for the three months
ended March 31, 2023 , which was primarily due to investment maturities of $53.5
million , partially offset by the purchase of investments of $11.8 million .
Net cash used in investing activities was $55.0 million for the three months
ended March 31, 2022 , which was primarily due to the purchase of investments of
$61.0 million , partially offset by investment maturities of $6.0 million .
Financing Activities
We had no financing activities for the three months ended
Contractual Obligations During the three months endedMarch 31, 2023 , there were no material changes to our contractual obligations and commitments from those described under "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year endedDecember 31, 2022 .
Critical Accounting Policies and Significant Judgments and Estimates
Our unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted inthe United States , orU.S. GAAP. The preparation of our unaudited interim condensed consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses, and the disclosure of contingent assets and liabilities in our condensed financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions. There have been no significant changes to our critical accounting policies from those described in "Management's Discussion and Analysis of Financial Condition and Results of Operations," included in our Annual Report on Form 10-K for the year endedDecember 31, 2022 . 22 --------------------------------------------------------------------------------
Emerging Growth Company Status
OnApril 5, 2012 , the Jumpstart Our Business Startups Act, or the JOBS Act, was enacted. The JOBS Act provides that, among other things, an "emerging growth company" can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. As an emerging growth company, we have irrevocably elected to take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards and, as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth public companies on a case-by-case basis. As a result, our condensed consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates. We intend to rely on certain of the other exemptions and reduced reporting requirements provided by the JOBS Act. As an emerging growth company, we are not required to, among other things, (i) provide an auditor's attestation report on our system of internal controls over financial reporting pursuant to Section 404(b), and (ii) comply with any requirement that may be adopted by thePublic Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements (auditor discussion and analysis). We will remain an emerging growth company until the earlier to occur of (1) the last day of our fiscal year (a) following the fifth anniversary of the closing of our IPO, (b) in which we have total annual gross revenues of at least$1.235 billion or (c) in which we are deemed to be a "large accelerated filer" under the rules of theSEC , which means the market value of our common shares that is held by non-affiliates exceeds$700 million as of the last day of our second quarter, and (2) the date on which we have issued more than$1.0 billion in non-convertible debt during the prior three-year period. We are also a "smaller reporting company" meaning that the market value of our stock held by non-affiliates is less than$700 million and our annual revenue was less than$100 million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our stock held by non-affiliates is less than$250 million or (ii) our annual revenue was less than$100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than$700 million . If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.
Recently Issued Accounting Pronouncements
A description of recent issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.
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