You should read the following discussion and analysis of our financial condition
and results of operations together with our consolidated financial statements
and the related notes included elsewhere in this Annual Report on Form 10-K.
This discussion and analysis and other parts of this Annual Report on Form 10-K
contain forward-looking statements based upon current beliefs, plans and
expectations related to future events and our future financial performance that
involve risks, uncertainties and assumptions, such as statements regarding our
intentions, plans, objectives, expectations, forecasts and projections. Our
actual results and the timing of selected events could differ materially from
those anticipated in these forward-looking statements as a result of several
factors, including those set forth under the section titled "Risk Factors" and
elsewhere in this Annual Report on Form 10-K.

Overview

Kodiak Sciences (we or the Company) is a biopharmaceutical company committed to
researching, developing and commercializing transformative therapeutics to treat
high prevalence retinal diseases in the United States and additional
international markets. We are bringing new science to the design and development
of next generation retinal medicines. Our ABC PlatformTM uses molecular
engineering to merge the fields of antibody-based and chemistry-based therapies
and is at the core of Kodiak's discovery engine. Our lead product candidate,
KSI-301, is a novel anti-VEGF antibody biopolymer conjugate being investigated
in multiple pivotal studies in retinal vascular diseases including wAMD, DME,
RVO and non-proliferative diabetic retinopathy. Our hope with KSI-301 is to
meaningfully extend treatment intervals for all patients with retinal vascular
diseases. Our pipeline, including product candidates KSI-501 and KSI-601, aims
to bring a similar ethos of drug development to other unmet needs in retina such
as dry AMD and glaucoma.

Our goal is to prevent and treat the major causes of blindness by developing
next-generation therapeutics for chronic, high-prevalence retinal diseases. Our
overall objective is to develop our product candidates, seek FDA and worldwide
health authority marketing authorization approvals, and ultimately commercialize
our product candidates.


KSI-301 Phase 2b/3 Pivotal Study in Wet AMD Top-line Readout



We recently announced top-line results from our randomized, double-masked,
active comparator-controlled Phase 2b/3 clinical trial evaluating the efficacy,
durability and safety of KSI-301, a novel antibody biopolymer conjugate, in
treatment-naïve subjects with neovascular (wet) age-related macular degeneration
("wet AMD").

The trial randomized 559 participants, approximately 80% of whom were enrolled
in the United States. The study had two treatment arms: KSI-301 5mg on a
flexible long-interval regimen and aflibercept 2mg on a fixed short-interval
regimen. In the study, three monthly loading doses were administered to all
subjects at 0-, 4- and 8-weeks. Subjects on aflibercept were then treated at
fixed two month intervals. Subjects on KSI-301 were assessed starting three
months after the completion of the loading phase (i.e. beginning at 20 weeks)
and, based on predefined disease activity criteria, were treated every three-,
four-, or five-months. As a result, patients in the KSI-301 group did not
receive dosing more frequently than every three months at any point in the study
after the loading phase. The primary endpoint of the study was the average
change in best-corrected visual acuity (BCVA) score (a measure of the best
vision a person can achieve when reading letters on an eye chart, including with
correction such as glasses) from baseline at year one. For the assessment of the
primary efficacy endpoint, KSI-301 patients in all three groups (dosed every
three, four or five months) were pooled together and their BCVA was compared as
a group to the aflibercept group (dosed every two months).

The results show that KSI-301 did not meet the primary efficacy endpoint of showing non-inferior visual acuity gains for subjects dosed on extended regimens compared to aflibercept given every eight weeks.



A pre-specified secondary analysis at year 1 assessing durability showed 59% of
patients in the KSI-301 arm achieved five-month dosing with visual acuity gains
and anatomic improvements comparable to the overall aflibercept group.

KSI-301 was well-tolerated in the study, with no new safety signals identified.



Intraocular inflammation occurred in 3.2% of KSI-301 treated patients as
compared to 0.0% of patients treated with aflibercept. Recent wet AMD studies
have reported intraocular inflammation rates with aflibercept of 1-4.5%. In all
cases reported in the Phase 2b/3 study, the clinical finding of inflammation
resolved, and no cases of intraocular inflammation with vascular occlusions were
observed. We believe that these safety data coupled with the safety observations
across the ongoing Phase 3 studies continue to suggest a safety profile for
KSI-301 comparable to today's existing standard of care agents.

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We believe allowing treatment with KSI-301 no more often than every twelve weeks
after the loading phase for every patient was insufficient. Nonetheless, we
believe the results demonstrate a clear anti-VEGF effect, strong durability and
a reassuring safety profile. We believe these data continue to support the
potential of KSI-301 and our ABC Platform to significantly extend treatment
intervals in retinal disorders in a safe and convenient manner.

KSI-301 Regulatory Plan and Outlook



If successful, we intend to include data from the BEACON, GLEAM/GLIMMER, and
DAYLIGHT studies in a single initial BLA, and would seek labeling at launch that
is supportive of a range of dosing intervals. We continue to expect that data
from our GLEAM and GLIMMER studies will serve as the primary basis for our
anticipated BLA submission in DME. Data from our BEACON study is intended to
serve as the basis for our anticipated BLA submission in RVO. In wet AMD, we
believe that the DAYLIGHT study may clarify the ability of KSI-301 when dosed
more frequently to effectively treat a broader population of patients with wet
AMD. If successful, we believe that data from our DAYLIGHT study could form the
basis of our anticipated BLA submission in wet AMD, with monthly dosing. We
believe that, over time, we may be able to generate additional data to support
longer-interval dosing in wet AMD in certain patient populations. We are not
planning for results of the GLOW study to be included in our initial BLA filing,
given our expectations for a longer recruitment timeframe. We may include the
results of the GLOW study in NPDR without DME in a supplemental BLA following
our planned initial BLA submission.


Financial Operations Overview



Since inception in June 2009, we have devoted substantially all of our resources
to discovering and developing product candidates and manufacturing processes,
building our ABC Platform and assembling our core capabilities in drug
development for ophthalmic disease. We plan to continue to use third-party
contract research organizations, or CROs, to carry out our preclinical and
clinical development. We rely on third-party contract manufacturing
organizations, or CMOs, to manufacture and supply our preclinical and clinical
materials to be used during the development of our product candidates. We are
evaluating investments in commercial manufacturing capacity. We do not have any
products approved for sale and have not generated any product revenue since
inception.

We have funded our operations primarily through the sale and issuance of equity
securities. In October 2018, we completed our initial public offering, or IPO.
In December 2019, we completed a follow-on offering. In November 2020, we
completed a second follow-on offering.

We have incurred significant operating losses to date and expect that our
operating losses will increase significantly as we advance our product
candidates, particularly KSI-301, through preclinical and clinical development,
seek regulatory approval, prepare for and, if approved, proceed to
commercialization; broaden and improve our platform; acquire, discover, validate
and develop additional product candidates; obtain, maintain, protect and enforce
our intellectual property portfolio; and hire additional personnel. In addition,
we expect to incur additional costs associated with operating as a public
company. Our net loss was $267.0 million, $133.1 million and $47.4 million for
the years ended December 31, 2021, 2020 and 2019, respectively. As of December
31, 2021, we had an accumulated deficit of $558.2 million.

Our ability to generate product revenue will depend on the successful
development and eventual commercialization of one or more of our product
candidates. Until such time as we can generate significant revenue from sales of
our product candidates, 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. Adequate
funding may not be available to us on acceptable terms, or at all. If we fail to
raise capital or enter into such agreements as, and when, needed, we may have to
significantly delay, scale back, or discontinue the development and
commercialization of KSI-301 for wet AMD, RVO, DME or NPDR or delay our efforts
to advance and expand our product pipeline.

In November 2020, we filed an automatic shelf registration statement (File No.
333-250109), which became effective upon filing. The shelf registration
statement allows us to issue certain securities, including shares of our common
stock, from time to time. In November 2020, we completed a follow-on offering
pursuant to the automatic shelf registration and issued and sold 5,972,222
shares of common stock, including the underwriters' full exercise of their
over-allotment option, at a price to the public of $108.00 per share under our
shelf registration statement. The gross proceeds from this offering were $645.0
million, resulting in aggregate net proceeds of $612.0 million after deducting
underwriting discounts and commissions and other offering costs.

As of December 31, 2021, we had cash and cash equivalents of $731.5 million.


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Components of Operating Results

Operating Expenses

Research and Development Expenses



Substantially all of our research and development expenses consist of expenses
incurred in connection with the development of our ABC Platform and product
candidates. These expenses include certain payroll and personnel expenses,
including stock-based compensation, for our research and product development
employees; laboratory supplies and facility costs; consulting costs; contract
manufacturing and fees paid to CROs to conduct certain research and development
activities on our behalf; and allocated overhead, including rent, equipment,
depreciation and utilities. We expense both internal and external research and
development expenses as they are incurred. Costs of certain activities, such as
manufacturing and preclinical and clinical studies, are generally recognized
based on an evaluation of the progress to completion of specific tasks.
Nonrefundable payments made prior to the receipt of goods or services that will
be used or rendered for future research and development activities are deferred
and capitalized. The capitalized amounts are recognized as expense as the goods
are delivered or the related services are performed.

We are focusing substantially all of our resources and development efforts on
the development of our product candidates, in particular KSI-301. We expect our
research and development expenses to increase substantially during the next few
years as we conduct our Phase 3 clinical studies, complete our clinical program,
pursue regulatory approval of our drug candidates and prepare for a possible
commercial launch. Predicting the timing or the final cost to complete our
clinical program or validation of our commercial manufacturing and supply
processes is difficult and delays may occur because of many factors, including
factors outside of our control. For example, if the FDA or other regulatory
authorities were to require us to conduct clinical trials beyond those that we
currently anticipate, or if we experience significant delays in enrollment in
any of our clinical trials, we could be required to expend significant
additional financial resources and time on the completion of clinical
development. Furthermore, we are unable to predict when or if our drug
candidates will receive regulatory approval with any certainty.

General and Administrative Expenses



General and administrative expenses consist principally of payroll and personnel
expenses, including stock-based compensation; professional fees for legal,
consulting, accounting and tax services; allocated overhead, including rent,
equipment, depreciation and utilities; and other general operating expenses not
otherwise classified as research and development expenses.

We anticipate that our general and administrative expenses will increase as a
result of increased personnel costs, including stock-based compensation,
expanded infrastructure and higher consulting, legal and accounting services
associated with maintaining compliance with requirements of the stock exchange
listing and Securities and Exchange Commission, or SEC, investor relations costs
and director and officer insurance premiums associated with being a public
company.

Interest Income

Interest income consists primarily of interest income earned on our cash, cash equivalents and marketable securities.

Other Income (Expense), Net



Other income (expense), net consists primarily of tax provisions and amortized
issuance costs from the liability related to the future sale of royalties to BBA
in 2019, net of accretion income and amortization expense on marketable debt
securities.

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Results of Operations

The following table summarizes our results of operations for the periods indicated (in thousands, except percentages) :



                                             Year Ended                          2021 vs 2020
                                            December 31,                            Change
                                 2021           2020           2019          Dollar        Percent
Operating expenses
Research and development      $  217,340     $  107,389     $   37,506     $  109,951           102 %
General and administrative        49,711         28,618         11,684         21,093            74 %
Loss from operations            (267,051 )     (136,007 )      (49,190 )     (131,044 )          96 %
Interest income                      298          2,902          1,568         (2,604 )           *
Interest expense                     (22 )          (25 )           (8 )            3             *
Other income (expense), net         (215 )           34            265           (249 )           *
Net loss                      $ (266,990 )   $ (133,096 )   $  (47,365 )   $ (133,894 )         101 %


* Percentage is not meaningful

Research and Development Expenses

Research and development expenses increased $110.0 million, or 102%, during the year ended December 31, 2020 as compared to the year ended December 31, 2021.

The following table summarizes our research and development expenses for the periods indicated (in thousands):



                                                     Year Ended
                                                    December 31,                    2021 vs 2020
                                         2021           2020           2019            Change
KSI-301 program expenses              $  137,849     $   58,563     $   19,285     $       79,286
KSI-501 program expenses                   4,529          1,573          1,188              2,956
ABC Platform and other program
expenses                                  11,354          7,365          2,218              3,989
Payroll and personnel expenses            51,171         30,434         11,978             20,737
Facilities and other research and
development
  expenses                                12,437          9,454          2,837              2,983
Total research and development
expenses                              $  217,340     $  107,389     $   37,506     $      109,951




KSI-301 program expenses increased $79.3 million during the year ended December
31, 2021 as compared to 2020. The increase was primarily due to clinical trial
costs to support ongoing trials, as well as manufacturing progress for KSI-301.
We initiated two pivotal Phase 3 clinical studies in DME (GLEAM and GLIMMER) and
one pivotal Phase 3 clinical study in RVO (BEACON) in the third quarter of 2020.
In June 2021, we randomized the first patients into an additional Phase 3 study
in wet AMD (DAYLIGHT) designed to broaden KSI-301's product labeling.

KSI-501 program expenses increased $3.0 million during the year ended December 31, 2021 as compared to 2020, primarily due to increased research and development activities for KSI-501.

ABC Platform external expenses increased $4.0 million during the year ended December 31, 2021 as compared to 2020. The increase was primarily driven by manufacturing runs to support our product candidate pipeline.



Payroll and personnel expenses increased $20.7 million during the year ended
December 31, 2021 as compared to 2020, due to increased headcount and
stock-based compensation expense. We recorded an incremental stock-based
compensation expense of $8.3 million relating to the long-term performance
incentive plan program in the fourth quarter of 2021. Furthermore, the research
and development headcount increased 38% during the year ended December 31, 2021.

Facilities and other research and development expenses increased $3.0 million
during the year ended December 31, 2021 as compared to 2020, primarily due to
lease costs for our Palo Alto and Switzerland facilities expansion.

General and Administrative Expenses



General and administrative expenses increased $21.1 million, or 74%, during the
year ended December 31, 2021 as compared to 2020, primarily driven by increased
headcount and stock-based compensation expense, professional services related to
consulting, legal and accounting, and lease costs for Palo Alto facilities
expansion. We recorded an incremental stock-based compensation expense of $5.9
million relating to the long-term performance incentive plan program in the
fourth quarter of 2021.

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Interest Income



Interest income decreased $2.6 million during the year ended December 31, 2021
as compared to 2020, which was mainly attributable to interest income earned on
increased cash equivalent balances from our follow-on offering in December 2019
and November 2020.

Other Income (Expense), Net

Other income (expense), net decreased $0.2 million during the year ended December 31, 2021 as compared to 2020, which was mainly attributable to issuance costs from the liability related to the future sale of royalties to BBA in December 2019.

Liquidity and Capital Resources; Plan of Operations

Sources of Liquidity



We have funded our operations primarily through the sale and issuance of common
stock, redeemable convertible preferred stock, convertible notes and warrants.
As of December 31, 2021, we had cash and cash equivalents of $731.5 million.

Follow-On Offering



In December 2019, we completed a follow-on offering pursuant to the shelf
registration on Form S-3 and issued and sold 6,900,000 shares of common stock at
a price to the public of $46.00 per share. The gross proceeds from this offering
were $317.4 million, resulting in aggregate net proceeds of $297.6 million after
deducting underwriting discounts and commissions and other offering costs
payable by us.

In November 2020, we completed a follow-on offering pursuant to the shelf registration on Form S-3 and issued and sold 5,972,222 shares of common stock at a price to the public of $108.00 per share. The gross proceeds from this offering were $645.0 million, resulting in aggregate net proceeds of $612.0 million after deducting underwriting discounts and commissions and other offering costs.

Future Funding Requirements



We have incurred net losses since our inception. For the years ended December
31, 2021, 2020 and 2019, we had net losses of $267.0 million, $133.1 million,
and $47.4 million, respectively, and we expect to continue to incur additional
losses in future periods. As of December 31, 2021, we had an accumulated deficit
of $558.2 million.

We have based these estimates on assumptions that may prove to be wrong, and we
could deplete our available capital resources sooner than we expect. Because of
the risks and uncertainties associated with research, development and
commercialization of product candidates, we are unable to estimate the exact
amount of our working capital requirements. Our future funding requirements will
depend on and could increase significantly as a result of many factors.

To date, we have not generated any product revenue. We do not expect to generate
any product revenue unless and until we obtain regulatory approval of and
commercialize any of our product candidates or enter into collaborative
agreements with third parties, and we do not know when, or if, either will
occur. We expect to continue to incur significant losses for the foreseeable
future, and we expect our losses to increase as we continue the development of,
and seek regulatory approvals for, our product candidates, and begin to
commercialize any approved products. We are subject to all of the risks
typically related to the development of new product candidates, and we may
encounter unforeseen expenses, difficulties, complications, delays and other
unknown factors that may adversely affect our business. Moreover, we expect to
continue incurring additional costs associated with operating as a public
company.

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We have based these estimates on assumptions that may prove to be wrong, and we
could deplete our capital resources sooner than we expect. The timing and amount
of our operating expenditures and capital requirements will depend on many
factors, including:


the scope, timing, rate of progress and costs of our drug discovery, preclinical
development activities, laboratory testing and clinical trials for our product
candidates;

the number and scope of clinical programs we decide to pursue;

the scope and costs of manufacturing development and commercial manufacturing activities;

the extent to which we acquire or in-license other product candidates and technologies;

the cost, timing and outcome of regulatory review of our product candidates;

the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;

our ability to establish and maintain collaborations on favorable terms, if at all;


our efforts to enhance operational systems and our ability to attract, hire and
retain qualified personnel, including personnel to support the development of
our product candidates;

the costs associated with being a public company; and

the cost and timing associated with commercializing our product candidates, if they receive marketing approval.



A change in the outcome of any of these or other variables with respect to the
development of any of our product candidates could significantly change the
costs and timing associated with the development of that product candidate.
Furthermore, our operating plans may change in the future, and we will continue
to require additional capital to meet operational needs and capital requirements
associated with such operating plans. If we raise additional funds by issuing
equity securities, our stockholders may experience dilution. Any future debt
financing into which we enter may impose upon us additional covenants that
restrict our operations, including limitations on our ability to incur liens or
additional debt, pay dividends, repurchase our common stock, make certain
investments and engage in certain merger, consolidation or asset sale
transactions. Any debt financing or additional equity that we raise may contain
terms that are not favorable to us or our stockholders. If we are unable to
raise additional funds when needed, we may be required to delay, reduce, or
terminate some or all of our development programs and clinical trials. We may
also be required to sell or license rights to our product candidates in certain
territories or indications to others that we would prefer to develop and
commercialize ourselves.

The significant uncertainties caused by the evolving effects of the COVID-19
pandemic may also negatively impact our operations and capital resources. We and
our key clinical and manufacturing partners have been able to continue to
advance our operations, and we continue to monitor the impact of COVID-19 on our
ability to continue the development of, and seek regulatory approvals for, our
product candidates, and begin to commercialize any approved products. This
pandemic may ultimately have a material adverse effect on our liquidity and
operating plans, although we are unable to make any prediction with certainty
given the spread and rapidly changing nature of the pandemic and the evolving
global actions taken to contain and treat the novel coronavirus.

Adequate additional funding may not be available to us on acceptable terms or at all. Our failure to raise capital as and when needed could have a negative impact on our financial condition and our ability to pursue our business strategies. See the section titled "Risk Factors" for additional risks associated with our substantial capital requirements.

Summary Statement of Cash Flows



The following table sets forth the primary sources and uses of cash for each of
the periods presented below:

                                                                 Year Ended
                                                                 December 31,
                                                            2021             2020
                                                               (in thousands)
Net cash (used in) provided by:
Operating activities                                    $   (182,270 )   $    (83,428 )
Investing activities                                         (38,798 )        104,834
Financing activities                                           8,182          717,377
Net increase (decrease) in cash, cash equivalents and
restricted cash                                         $   (212,886 )   $    738,783




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Cash Flows from Operating Activities



Net cash used in operating activities was $182.3 million for the year ended
December 31, 2021. Cash used in operating activities was primarily driven by the
increase in net loss during this period due to increased payroll and personnel
expenses and manufacturing and clinical trial costs to support overall growth.
Cash used in operating activities was also driven by changes in operating assets
and liabilities.

Cash Flows from Investing Activities

Net cash used in investing activities was $38.8 million for the year ended December 31, 2021 and primarily related to deposit on manufacturing equipment, as well as purchases of property and equipment.

Cash Flows from Financing Activities

Net cash provided by financing activities was $8.2 million for the year ended December 31, 2021, which consisted primarily due to the proceeds from stock option exercises and proceeds from issuances of common stock pursuant to employee stock purchase plans.

Contractual Obligations and Commitments

Operating Leases



Operating lease payments represent our commitment for future minimum rent made
under non-cancelable leases for our corporate offices in Palo Alto, California,
and office and laboratory space in Visp, Switzerland. The total future payments
for our operating lease obligations as of December 31, 2021 is $123.7 million,
of which $7.3 million is due in the next twelve months.

Embedded Lease



Embedded lease payment represent our commitment for future minimum payment made
under the manufacturing agreement with Lonza Ltd. for the clinical and
commercial supply of drug substance in a custom-built manufacturing facility.
The total future payments relating to our embedded lease, including capital
contribution payments, as of December 31, 2021 is approximately 189.5 million
Swiss Francs, of which 53.0 million Swiss Francs is expected to be due in the
next twelve months.

Manufacturing Agreements

The Company has entered into service and equipment purchase agreements in the
normal course of business with various providers, which can contain minimum
commitments or other noncancelable obligations. As of December 31, 2021, the
total amount of contractual obligations related to these manufacturing
agreements that are subject to cancellation fees, including accrued amounts, was
$69.5 million, of which $59.7 million is expected to be due in the next twelve
months.

For further information on our leases and manufacturing agreements, refer to
Note 7 of the Notes to Consolidated Financial Statements included in Part II,
Item 8 of this Annual Report on Form 10-K.

Clinical Agreements



The Company may incur potential contingent payments upon our achievement of
clinical, regulatory and commercial milestones, as applicable. Due to the
uncertainty of the achievement and timing of the events requiring payment under
these agreements, the amount to be paid by us are not fixed or determinable at
this time.

Critical Accounting Policies, Significant Judgments and Use of Estimates



Our consolidated financial statements have been prepared in accordance with U.S.
generally accepted accounting principles, or GAAP. The preparation of these
consolidated financial statements requires us to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements, as well as the reported expenses incurred during the reporting
periods. The impact of the ongoing COVID-19 pandemic continues to evolve. Our
estimates are based on our historical experience and on various other factors
that we believe are reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions. We
believe that the accounting policies discussed below are critical to
understanding our historical and future performance, as these policies relate to
the more significant areas involving management's judgments and estimates.

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Accrued Research and Development



Our accrued research and development costs are estimated based on the level of
services performed, including the phase or completion of events, and contracted
costs. Accrued clinical trial and related costs are estimated using data such as
patient enrollment, clinical site activations or information provided by outside
service providers regarding their actual costs incurred. Management determined
accrual estimates through reports from and discussions with clinical personnel
and outside service providers as to the progress of trials, or the services
completed. The estimated costs of research and development provided, but not yet
invoiced, are included in accrued liabilities and other current liabilities on
the consolidated balance sheets. If the actual timing of the performance of
services or the level of effort varies from the original estimates, we will
adjust the accrual accordingly. Payments made to third parties under these
arrangements in advance of the performance of the related services are recorded
as prepaid expenses and other assets until the services are rendered.

Stock-Based Compensation Expense



We measure and recognize compensation expense for all stock­based awards made to
employees, directors and non­employees, based on estimated fair values of the
awards on the grant date and recognized using the straight­line method over the
requisite service period.

The fair value of options is estimated on the grant date using the Black­Scholes
option valuation model or Monte Carlo simulation model. The calculation of
stock­based compensation expense requires that we make certain assumptions and
judgments about a number of complex and subjective variables used in the
valuation model, including the expected term, expected volatility of the
underlying common stock and risk­free interest rate. Our stock-based awards are
subject to either service, performance-based or market-based vesting conditions.
We evaluate whether achievement of the performance conditions is probable and
record expense over the appropriate service period based on this assessment.

Changes in these assumptions can materially affect the fair value and ultimately how much stock-based compensation expense is recognized. These inputs are subjective and generally require significant analysis and judgment to develop.

Income Taxes



We provide for income taxes under the asset and liability method. Current income
tax expense or benefit represents the amount of income taxes expected to be
payable or refundable for the current year. Deferred income tax assets and
liabilities are determined based on differences between the financial statement
reporting and tax bases of assets and liabilities and net operating loss, or
NOLs, and credit carryforwards, and are measured using the enacted tax rates and
laws that will be in effect when such items are expected to reverse. Deferred
income tax assets are reduced, as necessary, by a valuation allowance when
management determines it is more likely than not that some or all of the tax
benefits will not be realized.

We assess all material positions taken in any income tax return, including all
significant uncertain positions, in all tax years that are still subject to
assessment or challenge by relevant taxing authorities. Assessing an uncertain
tax position begins with the initial determination of the position's
sustainability and is measured at the largest amount of benefit that is greater
than fifty percent likely of being realized upon ultimate settlement.

As of each balance sheet date, unresolved uncertain tax positions must be
reassessed, and we will determine whether (1) the factors underlying the
sustainability assertion have changed and (2) the amount of the recognized tax
benefit is still appropriate. The recognition and measurement of tax benefits
requires significant judgment. Judgments concerning the recognition and
measurement of a tax benefit might change as new information becomes available.
Our policy is to recognize interest and penalties related to the underpayment of
income taxes as a component of income tax expense or benefit. To date, there
have been no interest or penalties charged in relation to the unrecognized tax
benefits. As of December 31, 2021 and 2020, none of the unrecognized tax
benefits would affect income tax expense with consideration of our valuation
allowance. We do not expect that our uncertain tax positions will materially
change in the next twelve months.

NOLs and tax credit carryforwards are subject to review and possible adjustment
by the Internal Revenue Service ("IRS") and may become subject to an annual
limitation in the event of certain cumulative changes in the ownership interest
of significant shareholders over a three-year period in excess of 50% as defined
under Sections 382 and 383 in the Internal Revenue Code, which could limit the
amount of tax attributes that can be utilized annually to offset future taxable
income or tax liabilities. The amount of the annual limitation is determined
based on our value immediately prior to the ownership change. We have completed
a Section 382 study through December 31, 2020 which concluded no such ownership
change had occurred through December 31. 2020. Subsequent ownership changes
since the most recent study may further affect the limitation in future years.

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Recent Accounting Pronouncements



A description of recently issued accounting pronouncements that may potentially
impact our financial position and results of operations is discussed under Note
2 to our consolidated financial statements included in Part II, Item 8 of this
Annual Report on Form 10-K.

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