What changed in this filing

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Item 1. Financial Statements

2025-05-06 compared with 2024-11-06 · 137 added, 185 removed, 427 unchanged (43% of the section changed)

3 unchanged sentences

(In thousands, except share and par value)

September 30, December 31,

March 31, December 31,

Current assets:

15 unchanged sentences

Accrued liabilities 65,758 65,973

Current portion of long-term debt, net

Operating lease liability 842 820

7 unchanged sentences

Preferred stock, $ 0.0001 par value;

10,000,000 shares authorized;

no shares issued and outstanding

10,000,000 shares authorized at March 31, 2025 and December 31, 2024;

no shares issued and outstanding at March 31, 2025 and December 31, 2024

Common stock, $ 0.0001 par value;

300,000,000 shares authorized;

116,998,829 and 96,787,343 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively

300,000,000 shares authorized at March 31, 2025 and December 31, 2024;

119,137,785 and 117,848,033 shares issued and outstanding at March 31, 2025 and December 31, 2024, respectively

Additional paid-in capital 1,289,789 1,279,479

Accumulated other comprehensive income

Accumulated other comprehensive loss ( 140 ) ( 7 )

Accumulated deficit ( 1,147,003 ) ( 1,121,943 )

5 unchanged sentences

(In thousands, except share and per share data)

Three Months Ended September 30, Nine Months Ended September 30,

2024 2023 2024 2023

Three Months Ended March 31,

Product revenue, net $ 63,846 $ 21,569

13 unchanged sentences

Provision for income taxes

— 3,023 324 3,088

Net loss $ ( 25,060 ) $ ( 35,382 )

Other comprehensive income (loss):

Unrealized gain on marketable securities

Unrealized loss on marketable securities

( 137 ) ( 116 )

Foreign currency translation adjustment 4 ( 21 )

Total other comprehensive income

Total other comprehensive loss

( 133 ) ( 137 )

12 unchanged sentences

Balance—December 31, 2024 117,848,033 $ 12 $ 1,279,479 $ ( 7 ) $ ( 1,121,943 ) $ 157,541

Issuance of shares of common stock net of discount and issuance costs of $ 10,820

18,157,895 3 161,679 — — 161,682

Issuance of common stock upon the exercise of stock options 109,996 — 395 — — 395

5 unchanged sentences

Balance—March 31, 2025

Issuance of common stock upon the exercise of stock options 147,490 — 806 — — 806

Issuance of common stock upon the vesting of restricted stock units 443,365 — — — — —

Shares issued pursuant to the employee stock purchase plan 383,975 — 649 — — 649

Stock-based compensation expense — — 12,523 — — 12,523

Unrealized loss on marketable securities

119,137,785 $ 12 $ 1,289,789 $ ( 140 ) $ ( 1,147,003 ) $ 142,658

Foreign currency translation adjustment — — — ( 34 ) — ( 34 )

Net loss — — — — ( 52,332 ) ( 52,332 )

Balance—June 30, 2024 116,480,267 12 1,256,327 ( 294 ) ( 1,069,618 ) 186,427

Issuance of common stock upon the exercise of stock options 138,566 — 394 — — 394

Issuance of common stock upon the vesting of restricted stock units 379,996 — — — — —

Stock-based compensation expense — — 10,530 — — 10,530

Unrealized gain on marketable securities

— — — 771 — 771

Foreign currency translation adjustment — — — 56 — 56

Net loss — — — — ( 41,537 ) ( 41,537 )

Balance—September 30, 2024 116,998,829 $ 12 $ 1,267,251 $ 533 $ ( 1,111,155 ) $ 156,641

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

ARCUTIS BIOTHERAPEUTICS, INC.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(In thousands, except share data)

Common Stock Additional

3 unchanged sentences

Balance—December 31, 2023 96,787,349 $ 9 $ 1,070,558 $ 4 $ ( 981,904 ) $ 88,667

Issuance of shares of common stock net of discount and issuance costs of $ 10,820

18,157,895 3 161,679 — — 161,682

Issuance of common stock upon the exercise of stock options 21,863 — 82 — — 82

Issuance of common stock upon the vesting of restricted stock units 538,330 — — — — —

Lapse of repurchase rights related to common stock issued pursuant to early exercises 3,718 — — — — —

Stock-based compensation expense — — 10,030 — — 10,030

Unrealized loss on marketable securities

— — — ( 116 ) — ( 116 )

Foreign currency translation adjustment — — — ( 21 ) — ( 21 )

1 unchanged sentence

Balance—March 31, 2024 115,505,437 $ 12 $ 1,242,349 $ ( 133 ) $ ( 1,017,286 ) $ 224,942

Issuance of common stock upon the exercise of stock options 35,700 — 74 — — 74

Issuance of common stock upon the vesting of restricted stock units 77,221 — — — — —

Lapse of repurchase rights related to common stock issued pursuant to early exercises 3,719 — — — — —

Shares issued pursuant to the employee stock purchase plan 155,446 — 993 — — 993

Stock-based compensation expense — — 10,578 — — 10,578

Unrealized gain on marketable securities — — — 128 — 128

Foreign currency translation adjustment — — — ( 6 ) — ( 6 )

Net loss — — — — ( 70,991 ) ( 70,991 )

Balance—June 30, 2023 61,630,018 6 951,649 ( 292 ) ( 870,855 ) 80,508

Issuance of common stock upon the exercise of stock options 172,320 — 867 — — 867

Issuance of common stock upon the vesting of restricted stock units 51,988 — — — — —

Lapse of repurchase rights related to common stock issued pursuant to early exercises 3,718 — — — — —

Stock-based compensation expense — — 9,999 — — 9,999

Unrealized gain on marketable securities — — — 165 — 165

Foreign currency translation adjustment — — — ( 57 ) — ( 57 )

Net loss — — — — ( 44,765 ) ( 44,765 )

Balance—September 30, 2023 61,858,044 $ 6 $ 962,515 $ ( 184 ) $ ( 915,620 ) $ 46,717

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

2 unchanged sentences

(In thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

CASH FLOWS FROM OPERATING ACTIVITIES:

9 unchanged sentences

Changes in fair value of embedded derivative instrument

( 210 ) ( 543 )

Changes in operating assets and liabilities:

10 unchanged sentences

Purchases of property and equipment ( 608 ) —

Net cash (used in) provided by investing activities

Net cash provided by (used in) investing activities

11,750 ( 28,697 )

1 unchanged sentence

Proceeds from issuance of common stock upon exercise of stock options 395 82

Proceeds from issuance of common stock pursuant to employee stock purchase plan

Proceeds from issuance of common stock, net of issuance costs — 161,682

1 unchanged sentence

Effect of exchange rate changes on cash 4 ( 73 )

Net increase in cash, cash equivalents, and restricted cash

Net (decrease) increase in cash, cash equivalents, and restricted cash

( 18,231 ) 101,391

3 unchanged sentences

Milestone for intangible asset not yet paid in cash

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Interest expense paid in cash $ 2,568 $ 6,512

13 unchanged sentences

commercialization in late July 2024.

The Company received Health Canada approval of ZORYVE foam in October 2024.

The Company received Health Canada approval of ZORYVE foam for seborrheic dermatitis in October 2024 and ZORYVE cream 0.15% for atopic dermatitis in March 2025.

Initial Public Offering and Follow-On Financings

On February 4, 2020, the Company closed an initial public offering ("IPO") issuing and selling shares of its common stock receiving aggregate net proceeds of approximately $ 167.2 million.

The Company completed subsequent public sales of its common stock in October 2020, February 2021, August 2022 and October 2023, receiving aggregate net proceeds of $ 93.4 million, $ 207.5 million, $ 161.6 million and $ 95.8 million, respectively.

On February 4, 2020, the Company closed an initial public offering (IPO) issuing and selling shares of common stock receiving aggregate net proceeds of approximately $ 167.2 million.

The Company completed subsequent public sales of its common stock in October 2020, February 2021, and August 2022, receiving aggregate net proceeds of $ 93.4 million, $ 207.5 million, and $ 161.6 million, respectively.

In addition to the sale of common stock, the offering completed in October 2023 consisted of prefunded warrants to purchase 7,500,000 shares of the Company's common stock at $ 2.4999 per underlying share of common stock.

The exercise price of the warrants is $ 0.0001 per underlying share of common stock.

The prefunded warrants are exercisable at any time on or after their original issuance, and were not exercised as of September 30, 2024.

The prefunded warrants are exercisable at any time on or after their original issuance, and were not exercised as of March 31, 2025.

On February 28, 2024, the Company completed an offering relating to the sale of 15,789,474 shares of the Company's common stock at $ 9.50 per share.

2 unchanged sentences

At-the-Market (ATM) Offerings

On May 6, 2021, the Company entered into a sales agreement ("Sales Agreement") with Cowen and Company, LLC ("Cowen"), under which the Company could from time to time offer and sell shares of its common stock having an aggregate offering price of up to $ 100.0 million.

Cowen acts as the Company's sales agent for the ATM program and is entitled to compensation for its services equal to 3 % of the gross proceeds of any shares of common stock sold under the ATM program.

In March 2022, the Company sold 882,353 shares under the ATM program for $ 17.00 per share and received $ 14.5 million in net proceeds.

In December 2023, the Company sold 1,250,000 shares under the ATM program for $ 2.60 per share and received $ 3.1 million in net proceeds.

In January 2024, the Company amended and restated its Sales Agreement with Cowen to reset the ATM program to provide for the offer and sale of shares of common stock having an aggregate gross offering price of up to $ 100.0 million.

On May 6, 2021, the Company entered into a sales agreement (Sales Agreement) with Cowen and Company, LLC (Cowen), under which the Company may from time to time issue and sell shares of its common stock through ATM offerings for an aggregate offering price of up to $ 100.0 million.

Cowen will act as the Company's sales agent for the ATM program and is entitled to compensation for its services equal to 3 % of the gross proceeds of any shares of common stock sold under the Sales Agreement.

In March 2022, the Company sold 882,353 shares under the ATM for $ 17.00 per share and received $ 14.5 million in net proceeds.

In December 2023, the Company sold 1,250,000 shares under the ATM for $ 2.60 per share and received $ 3.1 million in net proceeds.

In January 2024, the Company amended and restated its Sales Agreement with Cowen to reset the ATM program and provide for the offer and sale of shares of common stock having an aggregate gross offering price of up to $ 100.0 million.

All other terms of the amended and restated Sales Agreement are substantially the same as the original Sales Agreement.

2 unchanged sentences

Notes to Condensed Consolidated Financial Statements

The Company has incurred significant losses and negative cash flows from operations since its inception and had an accumulated deficit of $ 1,111.2 million and $ 981.9 million as of September 30, 2024 and December 31, 2023, respectively.

The Company has incurred significant losses and negative cash flows from operations since its inception and had an accumulated deficit of $ 1,147.0 million and $ 1,121.9 million as of March 31, 2025 and December 31, 2024, respectively.

Management expects to continue to incur operating losses.

The Company had cash, cash equivalents, restricted cash, and marketable securities of $ 331.2 million and $ 272.8 million as of September 30, 2024 and December 31, 2023, respectively.

The Company had $ 200.0 million outstanding under the Loan Agreement as of September 30, 2024.

On October 8, 2024, the Company paid down $ 100 million of the principal under Loan Agreement with cash.

The Company had cash, cash equivalents, restricted cash, and marketable securities of $ 198.7 million and $ 228.6 million as of March 31, 2025 and December 31, 2024, respectively.

The Company has $ 100.0 million outstanding under the Loan Agreement as of March 31, 2025.

The Company believes that its existing capital resources will be sufficient to meet the projected operating requirements for at least 12 months from the date of issuance of its financial statements.

12 unchanged sentences

On an ongoing basis, management evaluates such estimates and assumptions for continued reasonableness.

In particular, management makes estimates with respect to revenue recognition, accruals for research and development activities, the fair value of derivative liabilities, stock-based compensation expense, and income taxes.

In particular, management makes estimates with respect to revenue recognition, accruals for research and development activities, stock-based compensation expense, and income taxes.

Appropriate adjustments, if any, to the estimates used are made prospectively based upon such periodic evaluation.

1 unchanged sentence

Unaudited Interim Condensed Consolidated Financial Statements

The interim condensed consolidated balance sheet as of September 30, 2024, the interim condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2024 and 2023, the condensed consolidated statements of changes in stockholders' equity as of September 30, 2024 and 2023, and the condensed consolidated statements of cash flows for the nine months ended September 30, 2024 and 2023 are unaudited.

The interim condensed consolidated balance sheets as of March 31, 2025, the interim condensed consolidated statements of operations and comprehensive loss, and the condensed consolidated changes in convertible preferred stock and stockholders’ equity and cash flows for the three months ended March 31, 2025 and 2024 are unaudited.

These unaudited interim condensed consolidated financial statements have been prepared on the same basis as the Company’s audited annual financial statements and, in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for a fair statement of the Company’s financial information.

The financial data and the other financial information disclosed in these notes to the condensed consolidated financial statements related to the three and nine month periods are also unaudited.

The condensed consolidated results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of the results to be expected for the year ending December 31, 2024 or for any other future annual or interim period.

The condensed consolidated balance sheet as of December 31, 2023 included herein was derived from the audited financial statements as of that date.

The financial data and the other financial information disclosed in these notes to the condensed consolidated financial statements related to the three month periods are also unaudited.

The condensed consolidated results of operations for the three months ended March 31, 2025 are not necessarily indicative of the results to be expected for the year ending December 31, 2025 or for any other future annual or interim period.

The condensed consolidated balance sheets as of December 31, 2024 included herein was derived from the audited financial statements as of that date.

Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S.

1 unchanged sentence

Therefore, these unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2024.

Significant Accounting Policies

ARCUTIS BIOTHERAPEUTICS, INC.

Notes to Condensed Consolidated Financial Statements

There have been no significant changes to the accounting policies during the three months ended March 31, 2025, as compared to the significant accounting policies described in Note 2 of the Company’s audited financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2024.

Restricted Cash

As of September 30, 2024 and December 31, 2023, the Company held $ 0.6 million and $ 0.9 million, respectively, of restricted cash as collateral for a letter of credit related to the Company's amended office space lease.

As of March 31, 2025 and December 31, 2024, the Company held $ 0.6 million of restricted cash as collateral for a letter of credit related to the Company's amended office space lease.

Concentration of Credit Risk and Other Risks and Uncertainties

2 unchanged sentences

The Company is exposed to credit risk in the event of a default by either the financial institutions holding its cash or by its customers owing trade receivables to the extent recorded on the condensed consolidated balance sheets.

To manage accounts receivable credit risk, the Company evaluates the creditworthiness of its customers and the need for an allowance for potential credit losses.

To manage accounts receivable credit risk, the Company continuously evaluates the creditworthiness of its customers and the need for an allowance for potential credit losses.

Fair Value Measurement

The Company’s financial instruments, in addition to those presented in Note 4, include cash equivalents, accounts receivable, accounts payable, accrued liabilities, and long-term debt.

The carrying amount of accounts receivable, accounts payable, and accrued liabilities approximate their fair values due to their short maturities.

The carrying amount of cash equivalents, accounts receivable, accounts payable, and accrued liabilities approximate their fair values due to their short maturities.

As the long-term debt is subject to variable interest rates that are based on market rates which regularly reset, the Company believes that the carrying value of the long-term debt approximates its fair value.

7 unchanged sentences

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Co-promotion Agreement

I n July 2024, the Company entered into a co-promotion agreement with Kowa Pharmaceuticals America, Inc.

("Kowa") to leverage Kowa's primary care sales force to exclusively market and promote ZORYVE to primary care practitioners and pediatricians for all FDA-approved indications until July 2029.

The Company recognizes all revenue and Kowa receives a commission for the net sales attributed to Kowa, which is reflected in selling, general and administrative expense.

For the three and nine months ended September 30, 2024, revenue from sales attributed to Kowa were immaterial.

Recently Issued Accounting Pronouncements

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures , which requires qualitative and quantitative updates to the rate reconciliation and income taxes paid disclosures, among others, in order to enhance the transparency of income tax disclosures, including consistent categories and greater disaggregation of information in the rate reconciliation and disaggregation by jurisdiction of income taxes paid.

The Company is currently evaluating the impact of adopting ASU 2023-09.

In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses , which requires disclosure about the types of costs and expenses included in certain expense captions presented on the income statement.

ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and for interim periods beginning after December 15, 2027, with early adoption permitted.

The Company is currently evaluating the impact of adopting ASU 2024-03.

ARCUTIS BIOTHERAPEUTICS, INC.

Notes to Condensed Consolidated Financial Statements

In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-07 , Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures , which requires public entities to disclose information about their reportable segments’ significant expenses and other segment items on an interim and annual basis.

Public entities with a single reportable segment are required to apply the disclosure requirements in ASU 2023-07, as well as all existing segment disclosures and reconciliation requirements in Accounting Standards Codification ("ASC") 280 on an interim and annual basis.

ASU 2023-07 will be adopted by the Company in the Form 10-K for the year ended December 31, 2024.

The Company is currently evaluating the impact of adopting ASU 2023-07.

Revenues are recognized under guidance within ASC 606, Revenue from Contracts with Customers .

The following table presents the Company's disaggregated revenue for the periods presented (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

2024 2023 2024 2023

Three Months Ended March 31,

ZORYVE cream 0.3%

$ 23,387 $ 15,026

20,262 — 40,405 —

ZORYVE cream 0.15%

2,452 — 2,452 —

Total product revenue, net

1 unchanged sentence

Other revenue

— 30,000 28,000 30,420

Total revenues

1 unchanged sentence

Other revenue relates primarily to the Sato and Huadong licensing agreements.

ARCUTIS BIOTHERAPEUTICS, INC.

Notes to Condensed Consolidated Financial Statements

Fair Value Measurements

The following table sets forth the Company’s financial instruments that were measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):

September 30, 2024

March 31, 2025

Level 1 Level 2 Level 3 Total

12 unchanged sentences

$ 71,335 $ — $ — $ 71,335

Commercial paper — 11,806 — 11,806

Certificates of deposit

— 5,042 — 5,042

Corporate debt securities — 83,955 — 83,955

4 unchanged sentences

Money market funds and U.S.

Treasury and agency securities are valued based on quoted market prices in active markets.

Treasury and agency securities are valued based on quoted market prices in active markets, with no valuation adjustment.

Commercial paper, certificates of deposit, and corporate debt securities are valued taking into consideration valuations obtained from third-party pricing services.

8 unchanged sentences

The following table summarizes the estimated value of the Company’s cash, cash equivalents and marketable securities, and the gross unrealized holding gains and losses (in thousands):

September 30, 2024

March 31, 2025

cost Unrealized

21 unchanged sentences

$ 71,335 $ — $ — $ 71,335

Corporate debt securities 14,851 3 — 14,854

Total cash and cash equivalents $ 71,335 $ — $ — $ 71,335

Marketable securities:

Commercial paper $ 11,817 $ 1 $ ( 12 ) $ 11,806

Certificates of deposit

$ 5,042 $ — $ — $ 5,042

Corporate debt securities 83,855 100 — 83,955

3 unchanged sentences

(1) This balance includes cash requirements settled on a nightly basis.

Realized gains or losses on investments for the three and nine months ended September 30, 2024 and 2023 were no t material.

As of September 30, 2024, it was determined that no credit losses exist, because the change in market value of those securities resulted from fluctuations in market interest rates since the time of purchase, rather than a deterioration of the credit worthiness of the issuers.

As of September 30, 2024 and December 31, 2023, all securities have a maturity of 18 months or less and all securities with gross unrealized losses have been in a continuous loss position for less than one year.

As of March 31, 2025 and December 31, 2024, all securities have a maturity of 18 months or less and there were no individual securities that were in a significant unrealized loss position.

The Company generally holds its marketable securities until maturity and does not intend to sell, and is not required to sell, the investments that are in an unrealized loss position before the recovery of their amortized cost basis.

ARCUTIS BIOTHERAPEUTICS, INC.

Notes to Condensed Consolidated Financial Statements

The following table summarizes the change in the fair value of the embedded derivative instrument for the nine months ended September 30, 2024 (in thousands).

There was no activity for the nine months ended September 30, 2023.

September 30,

The following table summarizes the change in the fair value of the embedded derivative instrument for the three months ended March 31, 2025 and 2024 (in thousands).

Beginning balance

Gain from changes in fair value

( 210 ) ( 543 )

Ending balance

1 unchanged sentence

Refer to Note 7 for further discussion on the embedded derivative instrument.

ARCUTIS BIOTHERAPEUTICS, INC.

Notes to Condensed Consolidated Financial Statements

Balance Sheet Components

The components of inventory are summarized as follows (in thousands):

September 30, 2024 December 31, 2023

March 31, 2025 December 31, 2024

Raw materials $ 7,559 $ 4,300

4 unchanged sentences

Prepaid expenses and other current assets consist of the following (in thousands):

September 30, 2024 December 31, 2023

March 31, 2025 December 31, 2024

Prepaid co-pay assistance program and rebates

$ 6,924 $ 7,369

Prepaid insurance 739 864

Prepaid clinical trial costs 3,382 3,244

Prepaid insurance

Other prepaid expenses and current assets 11,230 8,199

2 unchanged sentences

Accrued liabilities consist of the following (in thousands):

September 30, 2024 December 31, 2023

March 31, 2025 December 31, 2024

Accrued sales deductions $ 47,008 $ 38,430

3 unchanged sentences

Total accrued liabilities $ 65,758 $ 65,973

License, Collaboration and Co-Promotion Agreements

License Agreements & Acquisition

Sato License Agreement

On February 27, 2024, the Company entered into a License Agreement with Sato Pharmaceutical Co., Ltd.

Pursuant to the terms of the License Agreement, the Company grants to Sato an exclusive, sublicensable

ARCUTIS BIOTHERAPEUTICS, INC.

Notes to Condensed Consolidated Financial Statements

(under certain circumstances) license under certain patent rights and know-how controlled by the Company for Sato to develop, conduct medical affairs activities for, manufacture, commercialize, and otherwise exploit roflumilast formulations (the “Licensed Products”) for all therapeutic uses for certain dermatological indications in humans (the “Field”) in Japan (the "Territory").

Pursuant to the terms of the License Agreement, the Company grants to Sato an exclusive, sublicensable (under certain circumstances) license under certain patent rights and know-how controlled by the Company for Sato to develop, conduct medical affairs activities for, manufacture, commercialize, and otherwise exploit roflumilast formulations (the Licensed Products) for all therapeutic uses for certain dermatological indications in humans (the Field) in Japan (the Territory).

The License Agreement sets forth each party’s respective obligations with respect to the development, medical affairs activities, manufacture and supply, and commercialization of the Licensed Products.

1 unchanged sentence

Pursuant to the terms of the License Agreement, the Company received an upfront payment of $ 25.0 million and will potentially receive additional payments (i) up to an aggregate amount of $ 10.0 million upon the achievement of certain regulatory milestones and (ii) up to an aggregate amount of $ 30.0 million upon the achievement of certain sales milestones.

In addition, on a Licensed Product-by-Licensed Product basis, commencing from the first commercial sale of such Licensed Product in Japan until the latest of (i) the expiration of the last valid claim in the intellectual property rights licensed by the Company to Sato under the License Agreement covering such Licensed Product in Japan, (ii) the expiration of regulatory exclusivity for such Licensed Product in Japan, or (iii) ten years after the first commercial sale of such Licensed Product in Japan, the Company will receive low double-digit to mid-teen double-digit percentage royalties on Sato’s, its affiliates’ and sublicensees’ total annual net sales of all Licensed Products, subject to certain royalty reductions.

In addition, on a Licensed Product-by-Licensed Product basis, commencing from the first commercial sale of such Licensed Product in Japan until the latest of (i) the expiration of

ARCUTIS BIOTHERAPEUTICS, INC.

Notes to Condensed Consolidated Financial Statements

the last valid claim in the intellectual property rights licensed by the Company to Sato under the License Agreement covering such Licensed Product in Japan, (ii) the expiration of regulatory exclusivity for such Licensed Product in Japan, or (iii) ten years after the first commercial sale of such Licensed Product in Japan, the Company will receive low double-digit to mid-teen double-digit percentage royalties on Sato’s, its affiliates’ and sublicensees’ total annual net sales of all Licensed Products, subject to certain royalty reductions.

The term of the License Agreement continues until, on a Licensed Product-by-Licensed Product basis, the expiration of the Royalty Term.

3 unchanged sentences

The Company may also terminate the License Agreement if Sato or any director, officers, employee, agent, affiliate, sublicensee, or subcontractor is charged by a governmental authority for a violation of any anti-corruption, anti-money laundering, sanctions or export or import control laws or regulations, or, subject to the terms of the License Agreement, if Sato, its affiliates and sublicensees do not conduct any material development or commercialization activities of a Licensed Product in Japan for a certain period of time.

Other revenue under the Sato agreement was zero and $ 25.0 million for the three and nine months ended September 30, 2024, respectively.

No milestones were achieved for the three months ended March 31, 2025.

Other revenue under the Sato agreement was $ 25.0 million for the three months ended March 31, 2024.

Huadong License and Collaboration Agreement

5 unchanged sentences

The Company received a net payment of $ 27.0 million, which consisted of a $ 30.0 million upfront payment less the applicable tax withholding obligation in China of $ 3.0 million.

In addition, the Company received a payment of $ 3.0 million in March 2024 related to the achievement of a development and regulatory milestone.

The Company may also potentially

ARCUTIS BIOTHERAPEUTICS, INC.

Notes to Condensed Consolidated Financial Statements

receive additional payments:

In addition, the Company received a net payment of $ 2.7 million in March 2024, which consisted of $ 3.0 million related to the achievement of a development and regulatory milestone less the applicable tax withholding of $ 0.3 million.

The Company received a net payment of $ 1.8 million in each of December 2024 and March 2025, which consisted of $ 2.0 million related to the achievement of development and regulatory milestones less the applicable tax withholding of $ 0.2 million.

The Company may also potentially receive additional payments:

(i) up to an aggregate amount of $ 17.0 million upon the achievement of certain development and regulatory milestones, (ii) up to an aggregate amount of $ 40.3 million upon the achievement of certain sales milestones, and (iii) low double-digit to high-teen double-digit tiered percentage royalties on net sales of the Huadong Licensed Products.

2 unchanged sentences

The License Agreement may be terminated by both parties under certain circumstances.

For the three and nine months ended September 30, 2024, the Company recognized zero and $ 3.0 million, respectively, of Other revenue and zero and $ 0.3 million, respectively, of income tax expense related to the achievement of a development and regulatory milestone.

For the three and nine months ended September 30, 2023, the Company recognized $ 30.0 million of Other revenue and $ 3.0 million of income tax expense related to the upfront fee pursuant to the agreement.

For the three months ended March 31, 2025, the Company recognized $ 2.0 million of Other revenue and $ 0.2 million of income tax expense related to the achievement of a development and regulatory milestone.

ARCUTIS BIOTHERAPEUTICS, INC.

Notes to Condensed Consolidated Financial Statements

three months ended March 31, 2024, the Company recognized $ 3.0 million of Other revenue and $ 0.3 million of income tax expense related to the achievement of a development and regulatory milestone.

AstraZeneca License Agreement

4 unchanged sentences

In the third quarter of 2022, the Company paid $ 7.5 million to AstraZeneca as a result of the approval of ZORYVE cream 0.3%, which was recorded as an intangible asset.

In the third quarter of 2024, $ 5.0 million became payable by the Company to AstraZeneca upon achievement of $ 100.0 million in worldwide net sales, and was recorded as a cumulative catch-up adjustment to the carrying value of the intangible asset.

In the second half of 2024, the Company paid $ 5.0 million to AstraZeneca upon achievement of $ 100.0 million in worldwide net sales, which was recorded as a cumulative catch-up adjustment to the carrying value of the intangible asset.

In the first quarter of 2025, $ 10.0 million became payable to AstraZeneca upon achievement of $ 250.0 million in worldwide net sales and was recorded as a cumulative catch-up adjustment to the carrying value of the intangible asset.

The Company is amortizing the intangible asset to cost of sales over its useful life of 10 years from the date of first commercial sale as this is the minimum amount of time that the related License Agreement will be in effect.

Amortization expense was $ 1.2 million and $ 1.6 million during the three and nine months ended September 30, 2024, respectively, which includes a cumulative catch-up of the amortization expense related to the milestone achieved during the third quarter over its useful life from the date of first commercial sale.

Amortization expense was $ 0.2 million and $ 0.6 million during the three and nine months ended September 30, 2023, respectively.

The Company has agreed to make an additional cash payment to AstraZeneca of $ 5.0 million upon the achievement of a specified regulatory approval milestone with respect to the AZ-Licensed Products, and a payment of $ 10.0 million when the company achieves $ 250.0 million in worldwide net sales.

With respect to any AZ-Licensed Products the Company commercializes under the AstraZeneca License Agreement, it will pay AstraZeneca a low to high single-digit percentage royalty rate on the Company’s, its affiliates’ and its sublicensees’ net sales of such AZ-Licensed Products, subject to specified reductions, until, as determined on an AZ-Licensed Product-by-AZ-Licensed Product and country-by-country basis, the later of the date of the expiration of the last-to-expire AstraZeneca-licensed patent right containing a valid claim in such country and from the first commercial sale of such AZ-Licensed Product in such country.

Amortization expense was $ 3.0 million and $ 0.2 million for the three months ended March 31, 2025 and 2024, respectively.

The Company has agreed to make additional cash payments to AstraZeneca of up to an aggregate of $ 5.0 million upon the achievement of specified regulatory approval milestones with respect to the AZ-Licensed Products.

With respect to any AZ-Licensed Products the Company commercializes under the AstraZeneca License Agreement, it will pay AstraZeneca a low to high single-digit percentage royalty rate on the Company’s, its affiliates’ and its sublicensees’ net sales of such AZ-Licensed Products, subject to specified reductions, until, as determined on an AZ-Licensed Product-by-AZ-Licensed Product and country-by-country basis, the later of the date of the expiration of the last-to-expire AstraZeneca-licensed patent right containing a valid claim in such country and ten years from the first commercial sale of such AZ-Licensed Product in such country.

As a result of the commercialization of ZORYVE cream in August 2022, the Company began accruing royalties payable to AstraZeneca, which are recorded in cost of sales and accrued liabilities.

Royalty expense during the three months ended March 31, 2025 was $ 1.9 million.

Royalty expense during the three months ended March 31, 2024 was not material.

ARCUTIS BIOTHERAPEUTICS, INC.

Notes to Condensed Consolidated Financial Statements

expense was $ 1.4 million and $ 3.0 million during the three and nine months ended September 30, 2024, respectively.

Royalty expense during the three and nine months ended September 30, 2023 were not material.

For the three and nine months ended September 30, 2024, a $ 5.0 million milestone payment became payable by the Company to AstraZeneca upon achievement of $ 100.0 million in worldwide net sales, which was paid in October 2024.

There were no milestone payments made or payable in connection with AZ-Licensed Products for the three and nine months ended September 30, 2023.

Long-term debt

4 unchanged sentences

On November 1, 2023, the Company entered into an amendment to the AR Loan Agreement to, among others, (i) modify the financial covenant relating to minimum net product revenue, and (ii) include an additional minimum financing covenant.

On August 9, 2024, the Company entered into a second amendment to the AR Loan Agreement (the AR Loan Agreement, as amended by the first and second amendments, the "Loan Agreement"), which it determined be a modification, to, among others, (i) permit, during the period commencing on October 7, 2024 and ending on December 15, 2024, an optional partial prepayment of term loans outstanding, subject to a 1.0 % prepayment penalty (the “2024 Partial Prepayment”), (ii) add the tranche C-1 and tranche C-2 term loans, and (iii) facilitate certain other changes, including with respect to the applicable interest rate and maturity date in the event of a 2024 Partial Prepayment.

On August 9, 2024, the Company entered into a second amendment to the AR Loan Agreement (the AR Loan Agreement, as amended by the first and second amendments, the Loan Agreement), which it determined to be a modification, to, among others, (i) permit, during the period commencing on October 7, 2024 and ending on December 15, 2024, an optional partial prepayment of term loans outstanding, subject to a 1.0 % prepayment penalty (the 2024 Partial Prepayment), (ii) add the tranche C-1 and tranche C-2 term loans, and (iii) facilitate certain other changes, including with respect to the applicable interest rate and maturity date in the event of a 2024 Partial Prepayment.

As security for the obligations under the Loan Agreement, the Company granted SLR, for the benefit of the lenders, a continuing security interest in substantially all of the Company's assets, including its intellectual property, subject to certain exceptions.

2 unchanged sentences

With the approval of ZORYVE cream 0.3% on July 29, 2022, the tranche B term loans were funded on August 2, 2022.

As of each of December 31, 2023 and September 30, 2024, the aggregate principal amount outstanding under the Loan Agreement was $ 200.0 million.

As of March 31, 2025 and December 31, 2024 , the aggregate principal amount outstanding under the Loan Agreement was $ 100.0 million.

On October 8, 2024, the Company made a 2024 Partial Prepayment of $ 100.0 million, which reduced the aggregate principal amount outstanding under the Loan Agreement to $ 100.0 million.

Since this payment was reasonably expected to be made as of September 30, 2024 and it would require the use of current assets, the Company reclassified $ 99.5 million, the payment net of the short-term portion of debt issuance costs, from long term liabilities to current liabilities as of September 30, 2024.

In connection with the 2024 Partial Prepayment, the Company is obligated to pay a prepayment penalty of $ 1.0 million by June 30, 2026 and a final fee of $ 6.95 million, representing the final fee applicable to the amount of the 2024 Partial Prepayment, on January 1, 2027.

2 unchanged sentences

In addition, as a result of the 2024 Partial Prepayment, (i) the maturity date of the Loan Agreement is August 1, 2029, (ii) the applicable per annum interest rate is equal to 5.95 % plus the greater of (a) 2.50 % per annum and (b) the one-month Secured Overnight Financing Rate (SOFR), (iii) the Company is no longer subject to certain cost and purchase price restrictions regarding acquisitions, and (iv) the Company may prepay principal amounts outstanding under the Term Loans in minimum increments of $ 25.0 million, subject to a prepayment premium of (a) 3.0 % for any prepayment made prior to the first anniversary of the second amendment, (b) 2.0 % for any prepayment made prior after the first anniversary of the second amendment and prior to the second anniversary of the second amendment, or (c) 1.0 % for any prepayment made prior after the second anniversary of the second amendment and prior to the maturity date.

ARCUTIS BIOTHERAPEUTICS, INC.

Notes to Condensed Consolidated Financial Statements

Principal amounts outstanding under the Term Loans will accrue interest at a floating rate equal to the applicable rate in effect from time to time, as determined by SLR on the third business day prior to the funding date of the applicable Term Loan and on the first business day of the month prior to each payment date of each Term Loan.

Prior to the 2024 Partial Prepayment, the applicable rate was a per annum interest rate equal to 7.45 % plus the greater of (a) 0.10 % and (b) the one-month SOFR.

On September 30, 2024, the rate was 11.12 %.

As a result of such 2024 Partial Prepayment, the applicable interest rate will be a per annum interest rate equal to 5.95 % plus the greater of (a) 2.50 % and (b) the one-month SOFR.

On March 31, 2025, the rate was 10.27 %.

The benchmark SOFR is subject to change in the event of certain events with respect to the benchmark rate.

Interest payments are payable monthly following the funding of any Term Loan.

ARCUTIS BIOTHERAPEUTICS, INC.

Notes to Condensed Consolidated Financial Statements

If the Term Loans are accelerated due to, among others, the occurrence of a bankruptcy or insolvency event, the Company is required to make mandatory prepayments of (i) all principal amounts outstanding under the Term Loans, plus accrued and unpaid interest thereon through the prepayment date, (ii) any fees applicable by reason of such prepayment, (iii) the prepayment premiums set forth in the paragraph above, plus (iv) all other obligations that are due and payable, including expenses and interest at the Default Rate (as defined below) with respect to any past due amounts.

3 unchanged sentences

Any failure by the Company to deliver such annual plan on or before December 15 of the prior year shall be an immediate event of default.

The Company was in compliance with all covenants under the Loan Agreement as of September 30, 2024.

The Company was in compliance with all covenants under the Loan Agreement as of March 31, 2025.

In addition, the Loan Agreement contains customary events of default that entitle the lenders to cause any indebtedness under the Loan Agreement to become immediately due and payable, and to exercise remedies against the Company and the collateral securing the Term Loans.

4 unchanged sentences

The embedded derivative instrument is remeasured at fair value each reporting period with any future changes in fair value reported in Other income, net in the condensed consolidated statement of operations and comprehensive loss.

During the three and nine months ended September 30, 2024, the Company recognized a $ 0.2 million loss and $ 0.4 million gain in Other income, net, respectively, related to the change in fair value of the embedded derivative instrument.

The fair value of the embedded derivative instrument as of September 30, 2024 and December 31, 2023 was a liability of $ 0.4 million and $ 0.8 million, respectively, and is included in Other long-term liabilities in the accompanying condensed consolidated balance sheets.

During the three months ended March 31, 2025 and 2024, the Company recognized a $ 0.2 million and $ 0.5 million gain, respectively, in Other income, net related to the change in fair value of the embedded derivative instrument.

The fair value of the embedded derivative instrument as of March 31, 2025 and December 31, 2024 was a liability of $ 0.4 million and $ 0.6 million, respectively, and is included in Other long-term liabilities in the accompanying condensed consolidated balance sheets.

I n connection with the Loan Agreement, the Company is obligated to pay (i) a final fee equal to 6.95 % of the aggregate original principal amount of the Term Loans outstanding as of the date of the second amendment (x) with respect to any 2024 Partial Prepayment, upon the earliest to occur of (a) January 1, 2027, (b) the acceleration of all outstanding Term Loans and (c) the prepayment, or refinancing, substitution or replacement of all outstanding Term Loans, and (y) with respect to the Term Loans outstanding as of the date of the second amendment (other than the 2024 Partial Prepayment), upon the earliest to occur of (a) the maturity date, (b) the acceleration of all outstanding Term Loans and (c) the prepayment, or refinancing, substitution or replacement of all outstanding Term Loans, (ii) a 2.00 % fee with respect to tranche C term loans, due and payable on the earliest to occur of (a) the maturity date, (b) the acceleration of all outstanding Term Loans and (c) the prepayment, or refinancing, substitution or replacement of all outstanding Term Loans, (iii) a 2.00 % extension fee with respect to tranche C term loans which remain unfunded after December 31, 2025, which shall accrue during the period commencing January 1, 2026, and ending on the earliest to occur of (a) the expiration of the tranche C term loan availability, and (b) the date on which tranche C term loan is fully drawn, and (iv) a certain amount of lenders’ expenses incurred in connection with the execution of the Loan Agreement.

ARCUTIS BIOTHERAPEUTICS, INC.

Notes to Condensed Consolidated Financial Statements

2.00 % fee with respect to tranche C term loans, due and payable on the earliest to occur of (a) the maturity date, (b) the acceleration of all outstanding Term Loans and (c) the prepayment, or refinancing, substitution or replacement of all outstanding Term Loans, (iii) a 2.00 % extension fee with respect to tranche C term loans which remain unfunded after December 31, 2025, which shall accrue during the period commencing January 1, 2026, and ending on the earliest to occur of (a) the expiration of the tranche C term loan availability, and (b) the date on which tranche C term loan is fully drawn, and (iv) a certain amount of lenders’ expenses incurred in connection with the execution of the Loan Agreement.

Additionally, in connection with the original Prior Loan Agreement, the Company previously had entered into an Exit Fee Agreement, whereby the Company agreed to pay an exit fee in the amount of 3.0 % of each Term Loan funded upon (i) any change of control transaction or (ii) a revenue milestone, calculated on a trailing six-month basis.

each Term Loan funded upon (i) any change of control transaction or (ii) a revenue milestone, calculated on a trailing six-month basis.

Notwithstanding the prepayment or termination of the Term Loan, the exit fee will expire 10 years from the date of the Loan Agreement.

2 unchanged sentences

The final maturity payment of $ 13.9 million is recognized over the life of the term loan through interest expense.

At September 30, 2024 and December 31, 2023, the effective interest rate was 12.40 % and 14.81 %, respectively.

Interest expense relating to the term loan for the three and nine months ended September 30, 2024 was $ 6.6 million and $ 21.6 million, respectively, and $ 7.6 million and $ 22.0 million for three and nine months ended September 30, 2023.

At March 31, 2025 and December 31, 2024, the effective interest rate was 11.38 % and 11.57 %, respectively.

Interest expense relating to the term loan for the three months ended March 31, 2025 and 2024 was $ 3.0 million and $ 7.5 million, respectively.

The following summarizes additional information related to the Company's long-term debt (in thousands):

September 30, 2024 December 31, 2023

March 31, 2025 December 31, 2024

Long-term debt, gross

1 unchanged sentence

Accrued final fee 7,678 7,324

Accrued prepayment penalty

Unamortized debt issuance costs ( 1,060 ) ( 1,121 )

Total carrying value of debt

204,608 201,799

Less current portion

Total long-term debt, net

$ 105,095 $ 201,799

Based on the Company's long-term debt outstanding at September 30, 2024, a payment of principal and final fees of $ 213.9 million would be due on January 1, 2027, the contractual maturity of the long-term debt as of September 30, 2024.

This amount decreased and the contractual maturity date was extended following the 2024 Partial Prepayment in October 2024.

Long-term debt, net $ 107,618 $ 107,203

Upon the contractual maturity of the Company's long-term debt, a payment of principal and final fees of $ 107.0 million is due on August 1, 2029.

Stock-Based Compensation

16 unchanged sentences

Exercised ( 109,996 ) 3.59

Forfeited (1)

( 156,896 ) 3.97

Expired ( 2,865 ) 26.87

Balance—September 30, 2024 5,634,494 $ 6.51 8.04 $ 23,561

Exercisable—September 30, 2024

2,120,880 $ 8.16 6.14 $ 8,715

Balance—March 31, 2025 6,962,327 $ 8.68 8.33 $ 52,018

Exercisable—March 31, 2025

2,188,154 $ 8.07 6.39 $ 20,021

(1) The number of stock options forfeited includes those exchanged in the Option Exchange as described above.

The aggregate intrinsic value is calculated as the difference between the exercise price of the options and the fair value of the Company’s common stock as of September 30, 2024.

The intrinsic value of options exercised for the nine months ended September 30, 2024 and 2023 was $ 1.7 million and $ 1.2 million, respectively.

The total grant-date fair value of the options vested during the nine months ended September 30, 2024 and 2023 was $ 3.1 million and $ 22.1 million, respectively.

The weighted-average grant-date fair value of employee options granted during the nine months ended September 30, 2024 and 2023 was $ 3.64 and $ 8.76 , respectively.

The aggregate intrinsic value is calculated as the difference between the exercise price of the options and the fair value of the Company’s common stock as of March 31, 2025.

The intrinsic value of options exercised for the three months ended March 31, 2025 and 2024 was $ 1.2 million and $ 0.1 million, respectively.

The total grant-date fair value of the options vested during the three months ended March 31, 2025 and 2024 was $ 0.7 million and $ 0.5 million, respectively.

The weighted-average grant-date fair value of employee options granted during the three months ended March 31, 2025 and 2024 was $ 9.70 and $ 2.71 , respectively.

Restricted Stock Unit Activity

6 unchanged sentences

Forfeited ( 209,884 ) 8.53

Unvested Balance—September 30, 2024 6,487,840 $ 7.83

______________

(1) The number of RSU's granted includes those in association with the Option Exchange as described above.

Unvested Balance—March 31, 2025 7,192,947 $ 9.89

The grant date fair value of an RSU equals the closing price of the Company's common stock on the grant date.

RSUs generally vest equally over four years , except those issued in connection with the Option Exchange as described above.

RSUs generally vest equally over four years , except for those issued in connection with the Option Exchange as previously described.

ARCUTIS BIOTHERAPEUTICS, INC.

2 unchanged sentences

Stock-based compensation expense included in the condensed consolidated statements of operations and comprehensive loss was as follows (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2024 2023 2024 2023

Three Months Ended March 31,

Research and development

3 unchanged sentences

$ 9,778 $ 10,030

As of September 30, 2024, there was $ 28.7 million of total unrecognized compensation cost related to unvested options that are expected to vest, which is expected to be recognized over a weighted-average period of 2.2 years.

As of September 30, 2024, there was $ 40.4 million of total unrecognized compensation cost related to RSUs that is expected to vest, which is expected to be recognized over a weighted-average period of 2.5 years.

In April 2024, in connection with the retirement of the former Chief Financial Officer, the Company modified the terms of this individual's historical stock awards.

As a result of the modifications, the Company recognized $ 1.7 million of incremental stock compensation expense during the nine months ended September 30, 2024, which is included in selling, general and administrative expenses.

As of March 31, 2025, there was $ 37.0 million of total unrecognized compensation cost related to unvested options that are expected to vest, which is expected to be recognized over a weighted-average period of 3.0 years.

As of March 31, 2025, there was $ 63.0 million of total unrecognized compensation cost related to RSUs that are expected to vest, which is expected to be recognized over a weighted-average period of 3.1 years.

The fair value of stock option awards granted was estimated at the date of grant using a Black-Scholes option-pricing model with the following assumptions:

Nine Months Ended September 30, 2024 Year Ended

Three Months Ended March 31, 2025 Year Ended

December 31, 2024

7 unchanged sentences

Basic net loss per share is calculated by dividing the net loss by the weighted-average common shares outstanding.

Pre-funded warrants to purchase 7,500,000 shares of the Company's stock were included in the weighted-average common shares outstanding used in calculating net loss per share for the three and nine months ended September 30, 2024.

The following outstanding potentially dilutive shares have been excluded from the calculation of diluted net loss per share for the periods presented due to their anti-dilutive effect:

As of September 30,

As of March 31,

Stock options to purchase common stock 6,962,327 5,473,764

Early exercised options subject to future vesting — 3,698

RSUs subject to future vesting 7,192,947 6,813,506

3 unchanged sentences

Notes to Condensed Consolidated Financial Statements

Subsequent Events

On October 8, 2024, the Company made a 2024 Partial Prepayment of $ 100.0 million under the Loan Agreement.

After the 2024 Partial Prepayment, based on the Company's long-term debt outstanding immediately following the 2024 Partial Prepayment, a payment of principal and final fees of $ 106.95 million would be due on August 1, 2029, the contractual maturity of the long-term debt following the 2024 Partial Prepayment.

Segment Reporting

The Company has one reportable segment relating to the development and commercialization of treatments for dermatological diseases.

The Company’s Chief Operating Decision Maker (the CODM) is its Chief Executive Officer.

The CODM evaluates financial information on a consolidated basis for the purposes of allocating resources and assessing performance.

The table below is a summary of the segment profit or loss, including significant segment expenses (in thousands):

Three Months Ended March 31,

Total revenues $ 65,846 $ 49,569

Cost of sales 5,851 3,068

Topical roflumilast program costs

Topical JAK inhibitor program costs

Other early-stage programs costs

Research and development compensation and personnel-related expenses 9,638 10,378

Selling, general and administrative expenses 63,884 54,671

Other segment expenses (1)

Total operating expenses 90,375 81,191

Operating loss ( 24,529 ) ( 31,622 )

Other income, net 2,730 4,044

Interest expense ( 2,982 ) ( 7,480 )

Provision for income taxes 279 324

Segment and consolidated net loss $ ( 25,060 ) $ ( 35,382 )

(1) Other segment expenses include professional services related to research and development, medical affairs, depreciation and amortization expenses.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements