PARDES BIOSCIENCES, INC. You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the notes thereto included elsewhere in this Form 10-K. As discussed under the heading "Cautionary Note Regarding Forward-Looking Statements," this discussion contains forward-looking statements that reflect our plans, estimates and beliefs and involve numerous risks and uncertainties, including but not limited to those described in Part I, Item 1A, "Risk Factors" of this Form 10-K. Actual results may differ materially from those described in or implied by any forward-looking statements. You should carefully read "Cautionary Note Regarding Forward-Looking Statements" and Part I, Item 1A, "Risk Factors."
Overview
We are a clinical-stage biopharmaceutical company that is focused on discovering, developing and commercializing novel therapeutics to treat and prevent viral disease and on preventing the next pandemic, starting with our lead product candidate, pomotrelvir (formerly known as PBI-0451), which targets COVID-19. Pomotrelvir is in clinical development to treat COVID-19 in adult and pediatric patients. COVID-19 is caused by infection with the severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) and has emerged as the most significant pandemic threat to the world in many decades. By leveraging our understanding of structure-based drug design, reversible covalent chemistry and viral biology, we have discovered novel product candidates with low nanomolar potency against SARS-CoV-2 and broad activity against all known pathogenic human coronaviruses.
At this time, we are focusing on pomotrelvir and our next generation coronavirus Mpro inhibitor program. Given the highly conserved nature of the main coronaviral cysteine protease (Mpro or 3CLpro) target, which is shared among all known coronaviruses, including emerging variants of concern, we believe Mpro inhibitors, like pomotrelvir, will likely continue to retain their potency and activity against current and most emerging SARS-CoV-2 variants of concern. Our lead product candidate, pomotrelvir, inhibits the Mpro, a viral protein essential for replication of all known coronaviruses, including SARS-CoV-2. In preclinical studies, pomotrelvir has demonstrated activity against all coronaviral proteases tested to date, as well as inhibition of replication of multiple coronaviruses, including SARS-CoV-2 clinical isolates, including Omicron variants. Moreover, in preclinical studies, pomotrelvir demonstrated the potential for oral bioavailability across multiple preclinical species and more recently, oral bioavailability in healthy volunteers in our Phase 1 clinical trials. We believe the anti-viral potency seen against SARS-CoV-2 in preclinical in vitro studies and demonstrated oral bioavailability in humans supports its potential to be an oral direct acting antiviral (DAA) for use against COVID-19.
We initially plan to develop pomotrelvir for oral treatment of COVID-19 in adult and pediatric patients. We have completed enrollment of patients in our Phase 2 clinical trial (NCT 05543707) evaluating the antiviral activity, safety and clinical efficacy of pomotrelvir for the treatment of mild-to-moderate COVID-19. We expect to report top-line data from this Phase 2 clinical trial in the coming weeks.
Our ability to generate revenue from product sales sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization or partnership for one or more of our product candidates.
On
We accounted for the Business Combination as a reverse recapitalization which is the equivalent of Old Pardes issuing stock for the net assets of FSDC II, with FSDC II treated as the acquired company for accounting purposes. The net assets of FSDC II were stated at historical cost with no goodwill or other intangible assets recorded. Reported results from operations included in this Form 10-K for periods prior to the Business Combination are those of Old Pardes. The shares and corresponding capital amounts and loss per share related to Old Pardes' outstanding redeemable convertible preferred stock and common stock prior to the Business Combination have been retroactively restated to reflect the conversion ratio established in the Merger Agreement. For additional information, see Note 5, Business Combination, to the financial statements in this Form 10-K.
Since inception in 2020, we have devoted substantially all our efforts and financial resources to organizing and staffing our company, business planning, raising capital, discovering product candidates, preparing and filing related patent applications and conducting research and development activities for our product candidates. We have not yet successfully completed any Phase 2 clinical trials evaluating the efficacy of any of our product candidates, including pomotrelvir, nor have we obtained any regulatory approvals, manufactured a commercial-scale drug, or conducted sales and marketing activities. We do not have any products approved for sale and we have not generated any revenue from product sales. We may never be able to develop or commercialize a marketable product.
Recent Developments
In
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We have completed our first-in-human Phase 1 clinical trial (NCT 05011812) with pomotrelvir that assessed single and multiple dosing, food effect, formulation, and CYP3A4/P-glycoprotein drug drug-drug interactions. In that clinical trial, there were no drug discontinuations and no drug-related grade 2, 3, 4 or serious adverse events (collectively, AEs) and no evidence of relationship between dose/exposure and severity, relatedness or incidence of AEs. No clinically significant treatment emergent adverse findings in laboratory values, vital signs or electrocardiogram assessments were reported. We believe pomotrelvir at 700 mg (two 350 mg tablets) administered twice daily with food has the potential to achieve and maintain exposures expected to demonstrate potent antiviral activity.
We have also completed a food effect study for our clinical and intended commercial tablet formulation of pomotrelvir. In in vitro toxicology studies, we observed a lack of mutagenic or genotoxic potential, phototoxicity or teratogenicity. We have also conducted fertility and embryo fetal development toxicology studies with pomotrelvir that have not identified drug-related adverse findings. No direct drug-related adverse findings were observed at the highest doses tested in 14-day or 28-day good laboratory practice (GLP) toxicology studies conducted across multiple preclinical species. Pomotrelvir does not require ritonavir boosting and we believe pomotrelvir has the potential to be used broadly by patients due to an observed favorable drug-drug interaction profile.
In
We are conducting pre-study start-up activities, including site feasibility in
parallel with continued discussions with the FDA and input from the
Liquidity Overview
As of
Through
We have incurred operating losses since our inception. As of
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continue preclinical and nonclinical studies and initiate new clinical trials for pomotrelvir, our lead product candidate being tested for the treatment of COVID-19;
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advance the research and development of our next generation coronavirus Mpro inhibitor program or other product candidates, including through business development efforts to invest in or in-license other technologies or product candidates;
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maintain, expand and protect our intellectual property portfolio;
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hire additional clinical, quality control, medical, scientific and other technical personnel to support our clinical operations;
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seek regulatory approvals for any product candidates that successfully complete clinical trials;
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undertake any pre-commercialization activities to establish sales, marketing and distribution capabilities for any product candidates for which we may receive regulatory authorization or approval;
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expand our infrastructure to accommodate our growing employee base and operating as a public company;
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increase manufacturing requirements for our clinical development activities and commercial preparedness; and
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add operational, financial and management information systems and personnel, including personnel to support our research and development programs, and any future commercialization efforts.
Furthermore, we expect to continue to incur significant costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses that we did not incur as a private company.
As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time, if ever, as we can generate significant revenue from product sales, we expect to finance our operations through a combination of private and public equity offerings, debt financings or other capital sources, which may include collaborations with other companies, government funding, or other strategic transactions. To the extent that we raise additional capital through the sale of private or public equity or convertible debt securities, existing ownership interests will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our stockholders. Debt financing and preferred 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 acquisitions or capital expenditures or declaring dividends. If we raise additional funds through collaborations or other strategic transactions 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 us. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable 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 one or more of our product candidates or delay our pursuit of potential in-licenses or acquisitions.
Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.
On
Impact of COVID-19 Pandemic and Other Macroeconomic Conditions
In
Additionally, while to date our operations have not been significantly impacted by the COVID-19 pandemic, we cannot at this time predict the specific extent, duration, or full impact that the COVID-19 pandemic or other public health crises will have on our operations, including ongoing and planned clinical trials and other operations required to support those clinical trials and research and development activities to advance our pipeline.
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Moreover, uncertainty in the global economy presents significant risks to our
business. We are subject to continuing risks and uncertainties in connection
with the current macroeconomic environment, including as a result of increases
in inflation, rising interest rates, geopolitical factors, including the ongoing
conflict between
Components of Our Results of Operations
Revenue
Since inception, we have not generated, and do not expect to generate, any revenue from the sale of products in the near future, if ever. If our development efforts are successful and we commercialize our products, or if we enter into collaboration or license agreements with third parties, we may generate revenue in the future from product sales, as well as upfront, milestone and royalty payments from such collaboration or license agreements, or a combination thereof.
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for research activities, including drug discovery efforts and the development of our potential product candidates. We expense research and development costs as incurred, which include:
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expenses incurred to conduct the necessary preclinical studies, nonclinical studies and clinical trials required to obtain regulatory approval;
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expenses incurred under agreements with contract research organizations (CROs) that are primarily engaged in the oversight and conduct of our drug discovery efforts, preclinical studies and clinical trials and contract manufacturing organizations (CMOs) that are primarily engaged to provide preclinical and clinical drug substance and product for our research and development programs;
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other costs related to acquiring and manufacturing materials in connection with our drug discovery efforts and preclinical studies and clinical trial materials, including manufacturing validation batches, as well as investigative site and consultants that conduct our clinical trials, preclinical studies and other scientific development services;
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employee-related expenses, including salaries and benefits, travel and stock-based compensation expense for employees engaged in research and development functions; and
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costs related to compliance with regulatory requirements.
We recognize research and development expenses as incurred. Any 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. Such amounts are expensed as the related goods are delivered or the related services are performed, or until it is no longer expected that the goods will be delivered or the services rendered. We estimate and accrue for the value of goods and services received from CROs, CMOs and other third parties each reporting period based on an evaluation of the progress to completion of specific tasks. This process involves reviewing open contracts and purchase orders, communicating with our personnel and service providers to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs.
At any one time, we may be working on multiple programs. We do not allocate employee costs and overhead costs associated to specific programs because these costs are deployed across multiple programs and, as such, are not separately classified. We use internal resources to manage our research and discovery as well as our preclinical, nonclinical, manufacturing and clinical development activities. To date, substantially all of the research and development costs incurred have been in connection with the development of our lead product candidate, pomotrelvir.
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Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. In addition, we may incur additional expenses related to milestone and royalty payments payable to third parties with whom we may enter into license, acquisition and option agreements to acquire the rights to future product candidates.
At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our product candidates or when, if ever, material net cash inflows may commence from any of our product candidates. The successful development and commercialization of our product candidates is highly uncertain. This is due to the numerous risks and uncertainties associated with product development and commercialization, including the uncertainty of the following:
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the scope, progress, outcome and costs of our preclinical and nonclinical development activities, clinical trials and other research and development activities;
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establishing an appropriate safety and efficacy profile with clinically enabling trials;
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successful patient enrollment in and the initiation and completion of clinical trials;
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the timing, receipt and terms of any marketing approvals from applicable
regulatory authorities including the FDA and non-
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the extent of any required post-marketing approval commitments to applicable regulatory authorities;
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establishing clinical and commercial manufacturing capabilities or making arrangements with third-party manufacturers in order to ensure that we or our third-party manufacturers are able to make product successfully;
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development and timely delivery of clinical-grade and commercial-grade drug formulations that can be used in our clinical trials and for commercial launch;
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obtaining, maintaining, defending and enforcing patent claims and other intellectual property rights;
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significant and changing government regulations;
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launching commercial sales of our product candidates, if and when approved, whether alone or in collaboration with others; and
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maintaining a continued acceptable safety profile of our product candidates following approval, if any, of our product candidates.
Any changes in the outcome of any of these variables with respect to the development of our product candidates in preclinical, nonclinical and clinical development could mean a significant change in the costs and timing associated with the development of these product candidates. For example, if the FDA 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 expenses, including salaries and related benefits, travel and stock-based compensation for personnel in executive, business development, finance, human resources, legal, information technology and administrative functions. General and administrative expenses also include insurance costs and professional fees for legal, patent, consulting, investor and public relations, pre-commercial planning, accounting and audit services. Our general and administrative costs are expensed as incurred.
Income Taxes
We have incurred net losses in every period since our inception and have not
recorded any
Interest and Other Income (Expense), Net
Interest and other income (expense), net consists primarily of interest income.
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Results of Operations
Comparison of the years ended
The following table sets forth our results of operations for the periods
presented (in thousands):
Year Ended December 31,
2022 2021 Change
Operating expenses:
Research and development $ 70,350 $ 28,152 $ 42,198
General and administrative 29,467 10,336 19,131
Total operating expenses 99,817 38,488 61,329
Interest and other income (expense), net 3,183 (30 ) 3,213
Net loss $ (96,634 ) $ (38,518 ) $ (58,116 ) Research and Development Expenses
The following table summarizes the components of research and development expenses for the periods presented (in thousands):
Year Ended December 31,
2022 2021 Change
External costs:
Pomotrelvir $ 45,000 $ 13,063 $ 31,937
Next generation and discovery programs 9,246 9,528 (282 )
Total external costs 54,246 22,591 31,655
Internal costs:
Salaries and benefits 10,031 3,671 6,360
Stock-based compensation 5,007 461 4,546
Other unallocated costs 1,066 1,429 (363 )
Total internal costs 16,104 5,561 10,543
Total research and development expenses
Research and development expenses were
We expect that our research and development expenses will increase substantially over the next couple of years as we commence Phase 3 clinical trials for pomotrelvir, as well as conduct preclinical and clinical development activities, including submitting regulatory filings, for our other product candidates. We also expect our related personnel costs will increase and, as a result, we expect our research and development expenses, including costs associated with stock-based compensation, will increase above historical levels.
General and Administrative Expenses
General and administrative expenses were
We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support the continued development of our product candidates. Additionally, if and when we believe a regulatory approval of a product candidate appears likely, we anticipate an increase in payroll and other employee-related expenses as a result of our preparation for commercial operations, especially as it relates to the sales and marketing of that product candidate.
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Interest and Other Income (Expense), Net
Interest and other income (expense), net was
Liquidity and Capital Resources
Sources of Liquidity and Capital
Since inception, we have not generated any revenue from product sales and have
incurred operating losses and negative cash flows from our operations. We have
not yet commercialized any of our product candidates, and we do not expect to
generate revenue from sales of any product candidates for several years, if
ever. Through
As of
Cash Flows
The following table summarizes our cash flows for the periods presented (in thousands):
Year Ended December 31,
2022 2021
Net cash used in operating activities $ (71,976 ) $ (36,918 )
Net cash used in investing activities (137,021 ) -
Net cash (used in) provided by financing activities (397 ) 302,186
Net (decrease) increase in cash and cash equivalents
Operating Activities
During the year ended
During the year ended
Investing Activities
Net cash used in investing activities of
Financing Activities
During the year ended
During the year ended
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Funding Requirements
Our primary use of cash is to fund operating expenses, predominantly related to our research and development activities. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable, accrued expenses and prepaid expenses.
We expect our expenses to increase substantially in connection with our ongoing activities, particularly if and as we advance our clinical development program for pomotrelvir. We also incur and will continue to incur additional costs associated with operating as a public company, including significant insurance, legal, accounting, investor relations and other expenses that we did not incur as a private company. The timing and amount of our operating expenditures will depend largely on our ability to:
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initiate Phase 3 clinical trials of pomotrelvir;
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manufacture, or have manufactured on our behalf, our preclinical, nonclinical and clinical drug material and develop processes for late stage and commercial manufacturing;
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seek regulatory authorizations and/or approvals for any product candidates that successfully complete clinical trials;
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establish a sales, marketing, medical affairs, managed care and distribution infrastructure to commercialize any product candidates for which we may obtain marketing approval and intend to commercialize on our own;
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hire additional clinical, quality control and scientific personnel;
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expand our operational, financial and management systems and increase personnel, including personnel to support our clinical development, manufacturing and commercialization efforts;
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manage 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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manage the costs of operating as a public company.
Working Capital
Because of the numerous 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, including:
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the scope, progress, results and costs of researching and developing our product candidates and conducting preclinical and nonclinical studies and clinical trials;
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the costs, timing and outcome of regulatory review of our product candidates;
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the costs, timing and ability to manufacture our product candidates to supply our clinical and preclinical development efforts and our clinical trials;
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the costs of future activities, including product sales, medical affairs, marketing, manufacturing and distribution, for any of our product candidates for which we receive marketing approval;
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the costs of manufacturing commercial-grade product and necessary inventory to support a potential future commercial launch;
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the ability to receive additional non-dilutive funding, including grants from organizations and foundations;
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the revenue, if any, received from the commercial sale of our products, should any of our product candidates receive marketing approval;
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the costs of preparing, filing and prosecuting patent applications, obtaining, maintaining, expanding and enforcing our intellectual property rights and defending intellectual property-related claims;
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our ability to establish and maintain collaborations on favorable terms, if at all; and
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the extent to which we acquire or in-license other product candidates and technologies.
Contractual Obligations and Commitments
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We enter into short-term and cancellable agreements in the normal course of operations through purchase orders, statements of work under master services agreement or other documentation, or that are undocumented except for an invoice. Such short-term agreements are generally outstanding for periods less than one year and are settled by cash payments upon delivery of goods and services. The nature of the work being conducted under these agreements is such that, in most cases, the services may be cancelled upon prior notice of 90 days or less. Payments due upon cancellation generally consist only of payments for services provided and expenses incurred, including non-cancellable obligations of our service providers, up to the date of cancellation. Agreements for manufacturing services with contract manufacturing organizations and development services with contract research organizations may include certain provisions for purchase obligations and termination obligations that could require payments for the cancellation of committed purchase obligations or for early termination of the agreements. The amount of the cancellation or termination payments vary and are based on the timing of the cancellation or termination and the specific terms of the agreements.
Critical Accounting Policies and Significant Judgments and Estimates
Our management's discussion and analysis of financial condition and results of
operations is based on our financial statements, which have been prepared in
accordance with
While our significant accounting policies are described in greater detail in Note 2, Summary of Significant Accounting Policies, to the financial statements in this Form 10-K, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements.
As part of the process of preparing our financial statements, we make estimates our accrued research and development expenses as of each balance sheet date in the financial statements based on facts and circumstances known to us at that time. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs. The majority of our service providers invoice us in arrears for services performed, based on a pre-determined schedule or when contractual milestones are met, but some require advance payments. If timelines or contracts are modified based upon changes in the protocol or scope of work to be performed, we modify our estimates and accruals accordingly on a prospective basis.
There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust the accrual or the amount of prepaid expenses accordingly.
Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period. To date, there have not been any material adjustments to our prior estimates of accrued research and development expenses.
Stock-Based Compensation
Stock-based compensation expense represents the cost of the grant date fair value of employee, officer, director and non-employee stock option grants, estimated in accordance with the applicable accounting guidance, recognized on a straight-line basis over the vesting period. The vesting period generally approximates the expected service period of the awards. We recognize forfeitures as they occur.
The fair value of stock options is estimated using a Black-Scholes valuation model on the date of grant. The Black-Scholes option-pricing model requires inputs based on certain subjective assumptions. Changes to these assumptions can materially affect the fair value of stock options and ultimately the amount of stock-based compensation expense recognized in our financial statements. These assumptions include:
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Fair Value of Common Stock - Prior to our Business Combination, the estimated fair value of our common stock was determined by our board of directors as of the date of each option grant, with input from management, considering our most recently available third-party valuation of our common stock as well as our board of directors' assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent third-party valuation to the date of the grant. Since the completion of our Business Combination, the fair value of each share
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of common stock underlying stock option grants is based on the closing price of our common stock on The Nasdaq Global Market as reported on the date of grant.
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Expected Term - We have opted to use the "simplified method" for estimating the expected term of options, whereby the expected term equals the arithmetic average of the vesting term and the original contractual term of the option, which is generally ten years.
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Expected Volatility - Due to our limited operating history and a lack of company-specific historical and implied volatility data, we have based our estimate of expected volatility on the historical volatility of a group of similar companies that are publicly traded. The historical volatility data was computed using the daily closing prices for the selected companies' shares during the equivalent period of the calculated expected term of the stock-based awards. We will continue to apply this process until a sufficient amount of historical information regarding the volatility of our own stock price becomes available.
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Risk-Free Interest Rate - The risk-free interest rates used are based on the
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Expected Dividend - To date, we have not issued any dividends and do not expect to issue dividends over the life of the options and therefore have estimated the dividend yield to be zero.
Recent Accounting Pronouncements
We evaluated the recently issued accounting pronouncements and, based on our assessment, do not believe any will have a material impact on our financial statements or related disclosures. See Note 2, Summary of Significant Accounting Policies, to the financial statements in this Form 10-K for additional discussion of our adopted accounting policies.
Emerging Growth Company and Smaller Reporting Company Status
The Jumpstart Our Business Startups Act of 2012 (JOBS Act) contains provisions that, among other things, relax certain reporting requirements for qualifying public companies. We qualify as an "emerging growth company" and under the JOBS Act are allowed to comply with new or revised accounting pronouncements based on the effective date for private (not publicly traded) companies. We are electing to delay the adoption of new or revised accounting standards, and as a result, we may not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
Subject to certain conditions set forth in 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 of the Sarbanes-Oxley Act, (ii) provide all of the
compensation disclosure that may be required of non-emerging growth public
companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act,
(iii) comply with any requirement that may be adopted by the PCAOB 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) and (iv) disclose certain executive compensation
related items such as the correlation between executive compensation and
performance and comparisons of the Chief Executive Officer's compensation to
median employee compensation. We will remain an emerging growth company until
the earlier of (i) the last day of the fiscal year in which we have total annual
gross revenue of
Additionally, we are a "smaller reporting company" as defined in Item 10(f)(1)
of Regulation S-K. Smaller reporting companies may take advantage of certain
reduced disclosure obligations, including, among other things, providing only
two years of audited financial statements. We will remain a smaller reporting
company until the last day of the fiscal year in which (i) the market value of
our common stock held by non-affiliates exceeds
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