OMEGA THERAPEUTICS, INC. You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q, or Quarterly Report, and our Annual Report on Form 10-K for the year endedDecember 31, 2021 filed with theUnited States Securities and Exchange Commission , orSEC , onMarch 10, 2022 (the "2021 10-K"). Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly 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, 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. Please also see the "Special Note Regarding Forward-Looking Statements" section of this Quarterly Report. OverviewOmega Therapeutics is pioneering a systematic approach to use mRNA therapeutics as programmable epigenetic medicines by leveraging our OMEGA Epigenomic ProgrammingTM platform ("OMEGA platform"). mRNA refers to Messenger RNA, a single-stranded RNA (ribonucleic acid that carries instructions for the synthesis of proteins) corresponding to the sequence of a gene. Our OMEGA platform harnesses the power of epigenetics, the mechanism that controls gene expression and every aspect of an organism's life from cell genesis, growth and differentiation to cell death. We have deciphered the three-dimensional architecture of the human genome. Genes and their accompanying regulators are organized into distinct and evolutionarily conserved structures called Insulated Genomic Domains, or IGDs. IGDs are the fundamental structural and functional units of gene control and cell differentiation and act as the "control room" of biology. Most diseases are caused by aberrant gene expression rooted in alterations in IGDs. The OMEGA platform has enabled us to systematically identify and validate thousands of novel DNA-sequence-based epigenomic "zip codes" associated with individual regulatory elements within IGDs. We call these epigenomic targets EpiZip. We rationally design and engineer our mRNA therapeutics, which are programmable and modular epigenetic medicines, called Omega Epigenomic Controllers, or OECs, to target EpiZips for Precision Genomic Control. This enables us to precisely tune genes to a desired level of expression and to control the duration of expression. Through this approach, we believe that the OMEGA platform has broad potential applicability across a range of diseases and conditions. Our pipeline currently consists of early-stage, preclinical programs that span oncology, inflammation, immunology, and cellular regeneration. We have conducted in vivo preclinical studies of our OECs in multiple disease models for various indications, including hepatocellular carcinoma, or HCC, non-small cell lung cancer, or NSCLC, and acute respiratory distress syndrome, or ARDS, and we expect to conduct in vivo preclinical studies for multiple additional programs. We initiated investigational new drug application ("IND") enabling studies for multiple programs in 2021, and onJuly 14, 2022 , we received clearance of our IND application from theUnited States Food and Drug Administration ("FDA") to initiate a Phase 1/2, first-in-human, clinical study of OTX-2002 for the treatment of HCC, which will be launched under the MYCHELANGELOTM clinical program. We are aiming to declare two OEC development candidates in the second half of 2022. We are also planning to submit an IND for another OEC candidate in 2023. Since our inception, we have incurred significant operating losses. We have not commercialized any products and have never generated any revenue from product sales. We have devoted almost all of our financial resources to research and development, including our preclinical development activities and preparing for clinical trials of our product candidates. To date, we have funded our operations primarily with proceeds from sales of equity securities and borrowings under our loan and security agreement. As ofJune 30, 2022 , we had cash, cash equivalents and marketable securities of$173.7 million . InAugust 2021 , we completed our initial public offering ("IPO") pursuant to which we issued and sold 8,300,976 shares of our common stock, including 900,976 shares pursuant to the partial exercise of the underwriters' option to purchase additional shares, at a public offering price of$17.00 per share, for aggregate gross proceeds of$141.1 million . We received approximately$128.1 million in net proceeds after deducting underwriting discounts and commissions and other offering expenses payable by us. Our ability to generate product revenue will depend on the successful development, regulatory approval, and eventual commercialization of one or more of our product candidates. Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through equity offerings, debt financings, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements, or other sources. Additional sources of financing might not be available to us on favorable terms, if at all. If we are unable to raise additional 26 --------------------------------------------------------------------------------
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.
We expect to continue to incur significant additional operating losses for the foreseeable future as we seek to advance product candidates through clinical development, continue preclinical development, expand our research and development activities, develop new product candidates, complete preclinical studies and clinical trials, seek regulatory approval and, if we receive regulatory approval, commercialize our products. Our expenses will also increase substantially if or as we:
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continue our research and development efforts and submit INDs for our product candidates;
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initiate and conduct clinical trials of our product candidates;
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continue to engineer and develop additional product candidates;
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continue to develop the OMEGA platform;
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seek regulatory and marketing approvals for product candidates that successfully complete clinical trials, if any;
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establish manufacturing and supply chain capacity sufficient to provide clinical and, if applicable, commercial quantities of product candidates, including building our own manufacturing facility;
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establish a sales, marketing, internal systems and distribution infrastructure to commercialize any products for which we may obtain regulatory approval, if any, in geographies in which we plan to commercialize our products ourselves;
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maintain, expand, protect and enforce our intellectual property estate;
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hire additional staff, including clinical, scientific, technical, regulatory, operational, financial, commercial, and support personnel, to execute our business plan and support our product development and potential future commercialization efforts;
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enter into collaborations or licenses for new technologies;
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make royalty, milestone, or other payments under our current and any future in-license agreements;
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incur additional legal, accounting, and other expenses in operating our business; and
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continue to operate as a public company.
Impact of COVID-19 on our business
The worldwide COVID-19 pandemic, including the identification of new variants of
the virus, may affect our ability to initiate and complete preclinical studies,
delay the initiation and completion of our clinical trials, or have other
adverse effects on our business, results of operations, financial condition, and
prospects. In addition, the pandemic has caused substantial disruption in the
financial markets and may adversely impact economies worldwide, both of which
could adversely affect our business, operations and ability to raise funds to
support our operations.
To date, we have not experienced material business disruptions as a result of
the pandemic. We are following, and plan to continue to follow, recommendations
from federal, state and local governments regarding workplace policies,
practices and procedures. To provide a safe work environment for our employees,
we have implemented various measures to promote for social distancing, encourage
employees to work remotely when possible, increase sanitization of our
facilities and provide personal protective equipment for our employees. In
addition, the third-party contract research organizations, or CROs, and contract
development and manufacturing organizations, or CDMOs, that we engage have faced
in the past and may face in the future disruptions that could affect our ability
to initiate and complete preclinical studies, including disruptions in procuring
items that are essential for our research and development activities, such as,
for example, raw materials used in the manufacture of our product candidates and
laboratory supplies for our preclinical studies, for which there may be
shortages because of ongoing efforts to address the COVID-19 pandemic.
We cannot be certain what the overall impact of the COVID-19 pandemic, or the variants of the virus, will be on our business, and the pandemic has the potential to adversely affect our business, financial condition, results of operations, and prospects.
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Components of our results of operations
Revenue
To date, we have not generated any revenue from product sales, and do not expect
to generate any revenue from the sale of products for the foreseeable future.
Our revenue to date has been generated through our collaboration agreement with
PM (CF) Explorations, Inc. , or PMCo, an affiliate of Flagship Pioneering
("Flagship"), in which we are entitled to receive reimbursement for the costs
associated with our research activities performed.
Operating expenses
Research and development expenses
Research and development expenses consist primarily of costs incurred in performing research and development activities, which include:
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personnel-related expenses, including salaries, bonuses, benefits, and stock-based compensation for employees engaged in research and development functions;
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expenses incurred in connection with the discovery, preclinical development, and clinical development of our research programs, including under agreements with third parties, such as consultants, contractors, CROs and CDMOs that manufacture material for use in our discovery, preclinical development, and clinical development;
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laboratory supplies and research materials;
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costs of licensing technology; and
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facilities, depreciation, and other expenses which include direct and allocated expenses.
We expense research and development costs as incurred. Costs for research and development activities are recognized based on an evaluation of the progress to completion of specific tasks. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our unaudited financial statements as prepaid or accrued research and development expenses. Nonrefundable advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses and expensed as the related goods are delivered or the services are performed. We do not allocate costs associated with our discovery efforts, laboratory supplies and facilities, including depreciation or other indirect costs, to specific programs because these costs are deployed across multiple programs and the OMEGA platform. We use internal resources primarily to conduct our research and discovery activities as well as for managing our preclinical development, process development, manufacturing and clinical development activities. These employees work across multiple programs and our technology platform and, therefore, we do not track these costs by program. We expect that our research and development expenses will continue to increase as we continue our current discovery and research programs, initiate new research programs, continue preclinical development of our product candidates and conduct clinical trials for OTX-2002 and any of our other product candidates.
General and administrative expenses
General and administrative expenses consist primarily of salaries and other
related costs such as bonuses and benefits, including stock-based compensation,
for personnel in our executive, finance, legal, human resources, corporate
business development, and administrative functions. General and administrative
expenses also include professional fees for legal, patent, accounting,
information technology, auditing, tax, consulting services, insurance and
facility-related expenses, which include direct depreciation costs and allocated
expenses for rent and maintenance of facilities and other operating costs.
We expect that our general and administrative expenses will increase in the
future as we increase our headcount to support our continued research and
development and potential commercialization of our product candidates. We also
expect to continue to incur increased expenses associated with being a public
company, including costs of accounting, audit, legal, regulatory, and tax
compliance services, directors' and officers' liability insurance costs, and
investor and public relations costs.
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--------------------------------------------------------------------------------Related party expense, net
Related party expense, net consists primarily of fees paid to Flagship for reimbursement of certain expenses, including insurance and benefits, general consulting, and software licenses incurred on our behalf. Additionally, our principal office and laboratory space is leased with an affiliate of Flagship, and we also sublease our other office and laboratory space to two other parties which are affiliates of Flagship. The rent expense and costs related to our principal office and laboratory space, including real estate taxes, insurance, and normal maintenance costs, are considered as related party expenses. Such related party expenses are offset with sublease income received from our related parties, which is comprised of base rent and costs related to the subleased premises such as real estate taxes, cost of operations, maintenance, repair, replacement, and property management.
Other expense, net
Interest expense, net
Interest expense, net primarily consists of interest payments as well as the amortization of the debt discount related to our loan and security agreement.
Other expense, net
Other expense, net primarily consists of the remeasurement gains or losses
associated with changes in the fair value of the warrant liability and the
success fee obligation related to our loan and security agreement, as amended.
Until settlement, fluctuations in the fair value of our warrant liability and
success fee obligation are based on the remeasurement at each reporting period.
Results of operations
Comparison for the three months ended
The following table summarizes the results of our operations for the three
months ended
Three Months Ended June 30 , $ Increase /
2022 2021 (Decrease) % Change
Collaboration revenue from related party $ 476 $ - $ 476 100 %
Operating expenses:
Research and development 19,387 11,184 8,203 73 %
General and administrative 6,202 3,637 2,565 71 %
Related party expense, net 741 384 357 93 %
Total operating expenses 26,330 15,205 11,125 73 %
Loss from operations (25,854 ) (15,205 ) 10,649 70 %
Other expense, net:
Interest expense, net (55 ) (190 ) (135 ) (71 )%
Change in fair value of warrant liability - (11 ) (11 ) (100 )%
Other income (expense), net (3 ) (4 ) (1 ) NM
Total other expense, net (58 ) (205 ) (147 ) (72 )%
Net loss $ (25,912 ) $ (15,410 ) $ 10,502
NM - Not meaningful
Revenue
Revenue of $0.5 million for the three months ended June 30, 2022 consisted of
reimbursements received for the costs of our research activities performed in
connection with the collaboration agreement with PMCo. There was no revenue for
the three months ended June 30, 2021 .
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--------------------------------------------------------------------------------Research and development expenses
Research and development expenses increased by$8.2 million to$19.4 million for the three months endedJune 30, 2022 , from$11.2 million for the three months endedJune 30, 2021 . The$8.2 million increase was primarily driven by an increase of$3.5 million in personnel-related expenses, including stock-based compensation to support business growth, and an increase of$3.4 million in external manufacturing costs and study costs in support of the advancement of our programs, with the remaining$1.3 million increase primarily attributable to facilities and overhead expenses.
General and administrative expenses
General and administrative expenses increased by$2.6 million to$6.2 million for the three months endedJune 30, 2022 , from$3.6 million for the three months endedJune 30, 2021 . The$2.6 million increase was primarily driven by an increase of$1.5 million in personnel-related expenses, including recruiting fees and stock-based compensation to support business growth, and an increase of$0.6 million due to increased directors' and officers' liability insurance cost, with the remaining$0.5 million increase primarily attributable to higher professional fees and consulting services associated with ongoing business activities.
Related party expense, net
Related party expense, net was$0.7 million for the three months endedJune 30, 2022 and$0.4 million for the three months endedJune 30, 2021 . During the three months endedJune 30, 2022 , related party expense, net primarily consisted of lease expense and related costs incurred for our principal office and laboratory space, other reimbursable expenses to Flagship, and certain fees payable to our non-employee directors after we became a public company, offset by the income earned from our sublessees. During the three months endedJune 30, 2021 , related party expense, net primarily consisted of lease expense and related costs incurred for our principal office and laboratory space and management services and other reimbursable expenses to Flagship, offset by income earned from our sublessees. Interest expense, net
Interest expense, net was
Change in fair value of warrant liability
During the three months endedJune 30, 2021 , there was an immaterial change recorded for the fair value of warrant liability. Upon the closing of the IPO, the warrants for the purchase of preferred stock automatically became warrants for the purchase of common stock, and we reclassified the carrying value of the warrants from liability to additional paid-in capital on our balance sheet. InAugust 2021 , the holders of such warrants completed a cashless exercise of the warrants, and we issued 82,193 shares of our common stock.
Other expense, net
Other expense, net was not significant for both of the three-month periods ended
Comparison for the six months ended
The following table summarizes the results of our operations for the six months
ended
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Six Months Ended June 30, $ Increase /
2022 2021 (Decrease) % Change
Collaboration revenue from related party $ 743 $ - $ 743 100 %
Operating expenses:
Research and development 33,659 20,933 12,726 61 %
General and administrative 11,336 6,452 4,884 76 %
Related party expense, net 1,562 763 799 105 %
Total operating expenses 46,557 28,148 18,409 65 %
Loss from operations (45,814 ) (28,148 ) 17,666 63 %
Other expense, net:
Interest expense, net (210 ) (402 ) (192 ) (48 )%
Change in fair value of warrant liability - (340 ) (340 ) (100 )%
Other income (expense), net (52 ) (8 ) 44 NM
Total other expense, net (262 ) (750 ) (488 ) (65 )%
Net loss $ (46,076 ) $ (28,898 ) $ 17,178
NM - Not meaningful
Revenue
Revenue was $0.7 million for the six months ended June 30, 2022 , which
represented the reimbursement received for the costs of our research activities
performed in connection with the collaboration agreement with PMCo. There was no
revenue for the six months ended June 30, 2021 .
Research and development expenses
Research and development expenses increased by$12.7 million to$33.7 million for the six months endedJune 30, 2022 , from$20.9 million for the six months endedJune 30, 2021 . The$12.7 million increase was primarily driven by an increase of$6.2 million in personnel-related expenses, including stock-based compensation to support business growth, and an increase of$4.6 million in external manufacturing costs and study costs in support of the advancement of our programs, with the remaining$2.0 million increase primarily attributable to facilities and overhead expenses.
General and administrative expenses
General and administrative expenses increased by$4.9 million to$11.3 million for the six months endedJune 30, 2022 , from$6.5 million for the six months endedJune 30, 2021 . The$4.9 million increase was primarily driven by an increase of$2.9 million in personnel-related expenses, including recruiting fees and stock-based compensation to support business growth and an increase of$1.2 million in directors' and officers' liability insurance cost, with the remaining$0.8 million increase primarily attributable to higher professional fees and consulting services associated with ongoing business activities.
Related party expense, net
Related party expense, net was$1.6 million for the six months endedJune 30, 2022 and$0.8 million for the six months endedJune 30, 2021 . During the six months endedJune 30, 2022 , related party expense, net primarily consisted of lease expense and related costs incurred for our principal office and laboratory space, other reimbursable expenses to Flagship, and certain fees payable to our non-employee directors after we became a public company, offset by the income earned from our sublessees. During the six months endedJune 30, 2021 , related party expense, net primarily consisted of lease expense and related costs incurred for our principal office and laboratory space and management services and other reimbursable expenses to Flagship, offset by income earned from our sublessees. Interest expense, net
Interest expense, net was
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--------------------------------------------------------------------------------Change in fair value of warrant liability
During the six months endedJune 30, 2021 , there was$0.3 million incurred related to the change in fair value of warrant liability. Upon the closing of the IPO, the warrants for the purchase of preferred stock automatically became warrants for the purchase of common stock, and we reclassified the carrying value of the warrants from liability to additional paid-in capital on our balance sheet. InAugust 2021 , the holders of such warrants completed a cashless exercise of the warrants, and we issued 82,193 shares of our common stock.
Other expense, net
Other expense, net was not significant for both of the six-month periods ended
Liquidity and capital resources
Sources of liquidity
Since our inception, we have incurred significant operating losses. We expect to
incur significant expenses and operating losses for the foreseeable future as we
support our continued research activities and development of our programs and
platform. We have not yet commercialized any products, and we do not expect to
generate product revenue for several years, if at all. To date, we have funded
our operations primarily with proceeds from sales of equity securities,
including our IPO, and borrowings under our loan and security agreement.
In August 2021 , we completed our IPO pursuant to which we issued and sold
8,300,976 shares of our common stock, including 900,976 shares pursuant to the
partial exercise of the underwriters' option to purchase additional shares, at a
public offering price of $17.00 per share, for aggregate gross proceeds of
$141.1 million . We received approximately $128.1 million in net proceeds after
deducting underwriting discounts and commissions and other offering expenses
payable by us.
Cash flows
The following table summarizes our sources and uses of cash for each of the periods presented (in thousands):
Six Months
Ended
2022 2021
Net cash used in operating activities$ (49,443 ) $ (25,157 ) Net cash used in investing activities (46,300 ) (914 ) Net cash provided by financing activities 118
125,531
Net change in cash, cash equivalents, and restricted cash (95,625 )
99,460
Operating activities
Net cash used in operating activities totaled $49.4 million for the six months
ended June 30, 2022 compared to net cash used in operating activities of $25.2
million for the six months ended June 30, 2021 . The $24.4 million increase in
operating cash outflows was primarily attributable to $17.1 million higher net
loss recognized during the six months ended June 30, 2022 and higher cash
outflows due to changes in operating assets and liabilities, offset by higher
non-cash charges including stock-based compensation and amortization of
right-of-use assets.
Investing activities
Net cash used in investing activities totaled 46.3 million in the six months endedJune 30, 2022 compared to net cash used in investing activities of$0.9 million for the six months endedJune 30, 2021 . The increase was primarily attributable to purchases of marketable securities. 32 --------------------------------------------------------------------------------
Financing activities
Net cash provided by financing activities for the six months endedJune 30, 2022 consisted primarily of the proceeds from the exercise of stock options. Net cash provided by financing activities for the six months endedJune 30, 2021 consisted primarily of the net proceeds from the issuance of Series C Preferred Stock of$125.4 million . Loan and security agreement
In
InDecember 2021 , we entered into an amendment to the Loan Agreement, or Fourth Amendment, in which PWB made an additional term loan to us in an aggregate principal amount of$20.0 million . The proceeds of the Fourth Amendment were first applied to the repayment in full of all outstanding principal and accrued interest on the then outstanding term loan of$12.0 million , and the remaining cash proceeds of$8.0 million were used for general working capital and for capital expenditures purposes. The maturity date of the additional term loan isSeptember 30, 2025 , and it will be repaid beginning onSeptember 30, 2023 in twenty-four equal monthly installments, including interest at a floating annual rate equal to the greater of (i) 0.50% above the prime rate then in effect and (ii) 5.50%, due monthly starting the first month afterDecember 20, 2021 . As ofJune 30, 2022 , the interest rate applicable to the term loan was 5.50% and the interest payment on the outstanding term loan was less than$0.1 million per month.
Borrowings under the Loan Agreement, as amended, are collateralized by substantially all of our personal property, other than our intellectual property. There are no financial covenants associated with the Loan Agreement, as amended; however, we are subject to certain affirmative and negative covenants to which we will remain subject to until maturity.
Funding requirements
As ofJune 30, 2022 , we had cash, cash equivalents and marketable securities of$173.7 million . We expect that our expenses will increase substantially in connection with our ongoing activities, particularly as we advance preclinical activities and initiate clinical trials for OTX-2002 and any other product candidates in development. In addition, we will continue to incur additional costs associated with operating as a public company. The timing and amount of our operating and capital expenditures will depend largely on:
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the scope, progress, results, and costs of our preclinical studies, and clinical studies of OTX-2002 and any future clinical trials;
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the timing of, and the costs involved in, obtaining marketing approvals for our current and future product candidates in regions where we choose to commercialize any products;
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the number of future product candidates and potential additional indications that we may pursue and their development requirements;
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the stability, scale, yield, and cost of our manufacturing process as we scale-up production and formulation of our product candidates for clinical trials, in preparation for regulatory approval and in preparation for commercialization, including our ability to build our own manufacturing facility;
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the costs of pre- and post-commercialization activities for any approved product, including the costs and timing of establishing product sales, marketing, distribution, and manufacturing capabilities;
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revenue, if any, received from commercial sales of our products, should any of our product candidates receive marketing approval;
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the costs and timing of changes in pharmaceutical pricing and reimbursement infrastructure;
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the costs and timing of changes in the regulatory environment and enforcement rules;
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our ability to compete with other therapeutics in the indications we target;
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the effect of competing technological and market developments;
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the extent to which we enter into collaborations or licenses for products, product candidates, or technologies;
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our headcount growth and associated costs as we expand our research and development capabilities and establish a commercial infrastructure;
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the costs of preparing, filing, and prosecuting patent applications and maintaining and protecting our intellectual property rights, including enforcing and defending intellectual property-related claims;
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the costs of operating as a public company; and
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the severity, duration, and impact of the COVID-19 pandemic, which may adversely impact our business.
We believe that the net proceeds from our IPO, together with our existing cash,
cash equivalents and marketable securities, will enable us to fund our operating
expenses and capital expenditure requirements for at least the next 12 months
from the filing date of the Quarterly Report. We have based this estimate on
assumptions that may prove to be incorrect, and we could utilize our available
capital resources sooner than we expect. Until such time, if ever, as we can
generate substantial product revenue, we expect to finance our operations
through equity offerings, debt financings, marketing and distribution
arrangements and other collaborations, strategic alliances and licensing
arrangements, or other sources.
Contractual obligations
There have been no material changes to our contractual obligations as of
Critical accounting policies and estimates
Our management's discussion and analysis of our financial condition and results
of operations are based on our unaudited financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
U.S. , or GAAP. The preparation of these unaudited financial statements requires
us to make estimates and judgments that affect the reported amounts of assets,
liabilities, costs and expenses. On an ongoing basis, we evaluate these
estimates and judgments, including those described below. We base our estimates
on historical experience and on various other assumptions that we believe to be
reasonable under the circumstances. These estimates and assumptions form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results and experiences
may differ materially from these estimates.
Our critical accounting policies are described under the heading "Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Critical Accounting Policies and Estimates" in our 2021 10-K and the
notes to the unaudited financial statements appearing elsewhere in this
Quarterly Report on Form 10-Q. During the six months ended June 30, 2022 , there
were no material changes to our critical accounting policies from those
discussed in our 2021 10-K.
Recently Issued Accounting Pronouncements
We have reviewed all recently issued accounting pronouncements and have
determined that, other than as disclosed in Note 2 - Summary of Significant
Accounting Policies in the notes to the audited financial statements included in
our 2021 10-K and the notes to the unaudited financial statements appearing
elsewhere in this Quarterly Report on Form 10-Q, such standards will not have a
material impact on our financial statements or do not otherwise apply to our
current operations.
Emerging growth company and smaller reporting company status
We qualify as an "emerging growth company" as defined in the Jumpstart Our
Business Startups Act of 2012, or the JOBS Act. As a result, we may take
advantage of specified reduced disclosure and other reporting requirements that
are otherwise applicable generally to public companies. In particular, the JOBS
Act provides that an emerging growth company can take advantage of an extended
transition period for complying with new or revised accounting standards. We
have elected not to "opt out" of such extended transition period, which means
that when a standard is issued or revised and it has different application dates
for public or private companies, we may adopt the new or revised standard at the
time private companies adopt the new or revised standard and may do so until
such time that we either (i) irrevocably elect to "opt out" of such extended
transition period or (ii) no longer qualify as an emerging growth company.
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We are also a "smaller reporting company" as defined under the Securities Act and Exchange Act. We may continue to be a smaller reporting company so long as either (i) the market value of shares of our common 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 shares of our common 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 have reduced disclosure obligations regarding executive compensation, and, similar to emerging growth companies, if we are a smaller reporting company under the requirements of (ii) above, we would not be required to obtain an attestation report on internal control over financial reporting issued by our independent registered public accounting firm.
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