Bolt Biotherapeutics, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis of our financial condition as of September 30, 2021 and results of operations for the three and nine months ended September 30, 2021 and 2020 should be read in conjunction with our condensed financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and in our other SEC filings, including our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 31, 2021. Except as otherwise indicated herein or as the context otherwise requires, references in this Quarterly Report on Form 10-Q to “Bolt Bio” “the Company,” “we,” “us” and “our” refer to Bolt Biotherapeutics, Inc. Overview We are a clinical-stage biotechnology company pioneering a new class of immuno-oncology agents that combine the targeting precision of antibodies with the power of both the innate and adaptive immune systems. Our proprietary Boltbody™ ISAC approach uses immunostimulants to engage and activate myeloid cells, including macrophages and dendritic cells, that directly kill tumor cells via phagocytosis and expose tumor neoantigens to the adaptive immune system. This leads to recruitment of cytotoxic T cells and additional tumor-killing myeloid cells thereby converting immunologically “cold” tumors to “hot” tumors. We believe that this process leads to the development of systemic immunological memory with epitope spreading to neoantigens that is critical to achieving a long-term anti-tumor response. Our lead product candidate BDC-1001 is a HER2 Boltbody ISAC comprising a HER2-targeting biosimilar of trastuzumab conjugated to one of our proprietary TLR7/8 agonists for the treatment of patients with HER2-expressing solid tumors, including those with HER2-low tumors. We have demonstrated robust single-agent, anti-tumor activity in multiple preclinical models, including elimination of large tumors (~500 mm3), as well as tumors that are refractory to trastuzumab or ado-trastuzumab emtansine. In our preclinical safety studies, BDC-1001 was well tolerated and no adverse safety signals were observed. We believe these findings are encouraging for the therapeutic potential of BDC-1001. We initiated a Phase 1/2 trial of BDC-1001 in the first quarter of 2020 for the treatment of patients with HER2-expressing solid tumors. We are currently in the monotherapy dose-escalation portion of the trial and expect to initiate the nivolumab combination dose-escalation portion of the trial in the fourth quarter of 2021. We expect to present an update on the monotherapy dose escalation in the fourth quarter of 2021 and move into Phase 2 dose-expansion cohorts in 2022 in key solid tumor indications with unmet medical need. We believe that our preliminary Phase 1/2 data provide us with clinical proof of concept for our HER2 Boltbody ISAC approach. We are also advancing additional Boltbody ISAC product candidates targeting carcinoembryonic antigen (“CEA”) and PD-L1, both of which are currently in preclinical development. We anticipate advancing our CEA Boltbody ISAC BDC-2034 into the clinic in 2022. Since our inception in January 2015, we have focused primarily on organizing and staffing our company, business planning, licensing, developing intellectual property, raising capital, developing our product candidates and conducting preclinical studies and early clinical trials. We have not recorded any revenue from product sales. To date, our only revenue has been derived from our collaborations with Toray and Genmab. In March 2019, we entered into the Toray Development Agreement to jointly develop and commercialize a Boltbody ISAC utilizing a Toray proprietary antibody. Prior to the completion of our initial public offering in February 2021, we funded our operations primarily through private placements of our convertible preferred stock for gross proceeds of $173.7 million, including Toray’s purchase of 717,514 shares of Series T convertible preferred stock for gross proceeds of $10.0 million and the January 2021 issuance and sale of 5,611,059 shares of Series C-2 preferred stock for net proceeds of $51.9 million. In February 2021, we completed our initial public offering of 13,225,000 shares of our common stock at a price to the public of $20.00 per share, including the exercise in full by the underwriters of their option to purchase 1,725,000 additional shares of our common stock. Including the option exercise, the aggregate net proceeds to us from the offering was approximately $242.0 million, net of underwriting discounts, commissions and other offering expenses. In May 2021, we entered into an oncology research and development collaboration with Genmab to evaluate Genmab antibodies and bispecific antibody engineering technologies in combination with our proprietary Boltbody ISAC technology platform, with the goal of discovering and developing next-generation bispecific ISACs for the treatment of cancer. The research collaboration will evaluate multiple bispecific ISAC product candidate concepts with the potential to identify up to three clinical candidates for development. Genmab will fund the research, along with the preclinical and clinical development of these candidates through initial clinical proof of concept. Under the Genmab Agreement, we received an upfront payment of $10.0 million, and under the separate Genmab SPA, Genmab invested $15.0 million in our common stock. In August 2021, we entered into an oncology research and development collaboration with Innovent to leverage Innovent’s proprietary therapeutic antibody portfolio and antibody discovery capability against undisclosed oncology targets in combination with our advanced ISAC technology and myeloid biology expertise to create up to three new candidates for cancer treatments with the potential to provide significant benefit to patients. Innovent will fund the initial research, along with the preclinical and clinical development of these candidates through initial clinical proof of concept. Under the Innovent Agreement, we will receive an upfront payment of $5.0 million, and under the separate Innovent SPA, we may receive up to an additional $10.0 million from Innovent’s investment in our common stock. In September 2021, we entered into a clinical collaboration and supply agreement BMS to study BDC-1001 in combination with BMS’s nivolumab , a leading PD-1 checkpoint inhibitor, for the treatment of HER2-expressing solid tumors. Under the BMS Agreement, BMS will be providing nivolumab at no cost to us and we will sponsor, fund and conduct the clinical trial in accordance with an agreed-upon protocol . 18 We have incurred operating losses since our inception. Our net losses were $ 71. 4 million, $60.7 million and $30.5 million for the nine months ended September 30, 2021 and the years ended December 31, 2020 and 2019 , respectively . As of September 30, 2021 , we had an accumulated deficit of $ 1 79. 8 million. Substantially all of our net losses have resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations. We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future, and we further expect our expenses will increase substantially as we: • conduct our ongoing and planned clinical trials; • continue our research and development programs; • expand our clinical, regulatory, quality and manufacturing capabilities; • seek regulatory approvals for our product candidates; and • operate as a public company. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our planned clinical trials and preclinical studies, and our expenditures on other research and development activities. Components of Results of Operations Revenue To date our only revenue has been collaboration revenue derived from our collaborations with Toray and Genmab. We are collaborating with Toray to develop a Boltbody ISAC that incorporates a proprietary Toray antibody against a novel tumor antigen target. We are jointly responsible for early-stage development and for providing technical and regulatory support, and Toray will pay for the program expenses through the end of Phase 1 development. In conjunction with the collaboration, Toray purchased 717,514 shares of our Series T convertible preferred stock for $10.0 million. We evaluated the collaboration together with Toray’s purchase of Series T convertible preferred stock and allocated $1.5 million from the stock purchase proceeds to deferred revenue, which we recognize, together with payments received from Toray for compensation based on agreed-upon full-time equivalent rates and out of pocket costs, as collaboration revenue over time as we fulfill our performance obligation to Toray. In May 2021, we entered into an oncology research and development collaboration with Genmab to evaluate Genmab antibodies and bispecific antibody engineering technologies in combination with our proprietary Boltbody ISAC technology platform, with the goal of discovering and developing next-generation bispecific ISACs for the treatment of cancer. The research collaboration will evaluate multiple bispecific ISAC concepts to identify up to three clinical candidates for development. Genmab will fund the research, along with the preclinical and clinical development of these candidates through initial clinical proof of concept. In conjunction with the collaboration, Genmab purchased 821,045 shares of our common stock for $15.0 million. We evaluated the collaboration together with Genmab’s purchase of our common stock and allocated $1.4 million from the stock purchase proceeds to deferred revenue, which we recognize, together with payments received from Genmab for compensation based on agreed-upon full-time equivalent rates and out of pocket costs, as collaboration revenue over time as we fulfill our performance obligation to Genmab. In August 2021, we entered into an oncology research and development collaboration with Innovent to leverage Innovent’s proprietary therapeutic antibody portfolio and antibody discovery capability against undisclosed oncology targets in combination with our advanced ISAC technology and myeloid biology expertise to create up to three new candidates for cancer treatments with the potential to provide significant benefit to patients. Innovent will fund the initial research, along with the preclinical and clinical development of these candidates through initial clinical proof of concept. Under the Innovent Agreement, the Company will receive an upfront payment of $5.0 million and a potential equity investment in our common stock of up to $10.0 million. These contracts have been evaluated together and no consideration from the Innovent SPA has been included in the total consideration for collaboration revenue. We expect that any collaboration revenue we generate from our current collaborations, and from any future collaboration partners, will fluctuate in the future as a result of the timing and results of development activities and the timing and amount paid, including upfront and milestone payments, and other factors. We have not generated any revenue from product sales, and we do not expect to generate any revenue from product sales unless and until we obtain regulatory approval of and commercialize one of our product candidates. 19 Operating Expenses Research and Development Research and development expenses have related primarily to early research and discovery activities and to preclinical and clinical development of our product candidates. Research and development expenses are recognized as incurred and payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received. Research and development expenses include: • costs related to manufacturing our product candidates for clinical trials and preclinical studies, including fees paid to third-party manufacturers; • salaries, payroll taxes, employee benefits and stock-based compensation charges for those individuals involved in research and development efforts; • external research and development expenses, including lab materials and supplies and payments to contract research organizations (“CROs”), investigative sites and consultants to conduct our clinical trials and preclinical and non-clinical studies; and • facilities and other allocated expenses which include direct and allocated expenses for rent, insurance and other supplies. Our direct research and development expenses consist principally of external costs, such as fees paid to CROs and consultants in connection with our preclinical and toxicology studies and costs related to manufacturing materials for our preclinical studies. Since our inception and through September 30, 2021, the vast majority of our third-party expenses related to the research and development of BDC-1001. With the exception of cost incurred to satisfy our performance obligations under our collaboration agreements, we do not allocate employee costs and costs associated with our discovery efforts, laboratory supplies and facilities, including other indirect costs, to specific product candidates because these costs are associated with multiple programs and, as such, are not separately classified. We use internal resources primarily to conduct our research as well as for managing our preclinical development, process development, manufacturing and clinical development activities. We deploy our personnel across all of our research and development activities and, as our employees work across multiple programs, we do not currently track our costs by product candidate. We plan to substantially increase our research and development expenses for the foreseeable future as we continue the development of our product candidates, particularly as product candidates in later stages of development generally have higher development costs than those in earlier stages of development. We cannot determine with certainty the timing of initiation, the duration or the completion costs of future clinical trials and preclinical studies of our product candidates due to the inherently unpredictable nature of clinical and preclinical development. Clinical and preclinical development timelines, the probability of success and development costs can differ materially from expectations. We anticipate that we will make determinations as to which product candidates and development programs to pursue and how much funding to direct to each product candidate or program on an ongoing basis in response to the results of ongoing and future preclinical studies and clinical trials, regulatory developments and our ongoing assessments as to each product candidate’s commercial potential. We will need to raise substantial additional capital in the future. In addition, we cannot forecast which product candidates may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements. Our future clinical development costs may vary significantly based on factors such as: • the number and scope of preclinical and IND-enabling studies; • per-patient trial costs; • the number of trials required for approval; • the number of sites included in the trials; • the countries in which the trials are conducted; • the length of time required to enroll eligible patients; • the number of patients who participate in the trials; • the number of doses that patients receive; • the drop-out or discontinuation rates of patients; • potential additional safety monitoring requested by regulatory agencies; 20 • the duration of patient participation in the trials and through all follow-up; • the cost and timing of manufacturing our product candidates; • the phase of development of our product candidates; and • the safety and efficacy profile of our product candidates. General and Administrative General and administrative expenses consist primarily of salaries and employee-related costs, including stock-based compensation, for personnel in executive, finance and other administrative functions. Other significant costs include legal fees relating to intellectual property and corporate matters, professional fees for accounting and consulting services and facility-related costs. We expect our general and administrative expenses will increase for the foreseeable future to support our increased research and development activities and increased costs of operating as a public company. These increased costs will likely include higher expenses related to audit, legal, regulatory and tax-related services associated with maintaining compliance with Nasdaq and SEC requirements, director and officer insurance premiums and investor relations costs associated with operating as a public company. Change in Fair Value of Preferred Stock Purchase Right Liability In connection with the issuance of our Series C-1 convertible preferred stock in June 2020, the investors agreed to buy, and we agreed to sell, additional shares of such preferred convertible stock at the original issue price upon the achievement of pre-defined milestones. These contractual obligations were required to be accounted for as liabilities and remeasured to fair value at each reporting date, with any change in the fair value reported as a component of other income (expense). In January 2021, with the completion of the Series C-2 convertible preferred stock, this contractual obligation was settled, and the preferred stock purchase right liability was remeasured to fair value on the purchase date and reclassified to permanent equity. Results of Operations Comparison of the Three and Nine Months Ended September 30, 2021 and 2020 Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 Change 2021 2020 Change (Unaudited, in thousands) (Unaudited, in thousands) Collaboration revenue $ 752 $ — $ 752 $ 752 $ 231 $ 521 Operating expenses: Research and development 19,337 9,540 9,797 53,171 25,493 27,678 General and administrative 4,941 2,865 2,076 13,294 6,998 6,296 Total operating expenses 24,278 12,405 11,873 66,465 32,491 33,974 Loss from operations (23,526 ) (12,405 ) (11,121 ) (65,713 ) (32,260 ) (33,453 ) Other income (expense), net: Interest income, net 131 24 107 363 187 176 Change in fair value of preferred stock purchase right liability — 2,380 (2,380 ) (6,084 ) 2,380 (8,464 ) Other income (expense), net 131 2,404 (2,273 ) (5,721 ) 2,567 (8,288 ) Net loss and comprehensive loss $ (23,395 ) $ (10,001 ) $ (13,394 ) $ (71,434 ) $ (29,693 ) $ (41,741 ) Collaboration Revenue Revenue was $0.8 million for the three and nine months ended September 30, 2021, and nil and $0.2 million for the three and nine months ended September 30, 2020, respectively. Revenue in 2020 was generated from the execution of the Toray Development Agreement in March 2019 and the recognition of revenue over time as we fulfill our performance obligations to Toray. Revenue in 2021 was generated from the services performed under the Genmab Agreement as we fulfill our performance obligations to Genmab. We expect to continue to provide services to further our collaborations with our partners. 21 Research and Development Expenses Research and development expenses were $19.3 million and $53.2 million for the three and nine months ended September 30, 2021, respectively, and $9.5 million and $25.5 million for three and nine months ended September 30, 2020, respectively. The increase of $9.8 million between the comparable three months periods was primarily due to a $3.1 million increase in manufacturing expenses related to BDC-1001 and BDC-2034, a $2.9 million increase in personnel-related expenses due to an increase in headcount, a $1.9 million increase in facility-related expenses, and a $1.7 million increase in clinical trial expenses. The increase of $27.7 million between the comparable nine-month periods was primarily due to a $12.4 million increase in manufacturing expenses related to BDC-1001 and BDC-2034, a $7.7 million increase in personnel-related expenses due to increase in headcount, a $4.4 million increase in facility-related expenses, and a $2.5 million increase in clinical trial expenses. General and Administrative Expenses General and administrative expenses were $4.9 million and $13.3 million for the three and nine months ended September 30, 2021, respectively, and $2.9 million and $7.0 million for three and nine months ended September 30, 2020, respectively. The increase of $2.0 million between the comparable three months periods was primarily due to a $1.5 million increase in personnel-related expenses relating to an increase in headcount and increase in professional services expenses related to consulting and other professional services. The increase of $6.3 million between the comparable nine-month periods was primarily due to a $4.8 million increase in personnel-related expenses due to an increase in headcount and increase in professional services expenses related to accounting services, legal fees and other professional services. Other Income, Net Interest Income, Net Interest income was $0.1 million and $0.4 million for the three and nine months ended September 30, 2021, and $24,000 and $0.2 million for the three and nine months ended September 30, 2020, respectively. The interest income, net was primarily comprised of interest income from marketable securities. Change in Fair Value of Convertible Preferred Stock Purchase Right Liability The change in fair value of convertible preferred stock purchase right liability was nil and $6.1 million for the three and nine months ended September 30, 2021, and $2.4 for each of the three and nine months ended September 30, 2020. The balance in both 2020 and 2021 derived from the outstanding Series C-2 preferred stock purchase right liability from the Series C Agreement completed in June 2020. Upon the exercise of the preferred stock purchase right with the completion of the Series C-2 Closing in January 2021, we remeasured the Series C-2 preferred stock purchase right liability to fair value and reclassified to permanent equity on the balance sheets. Liquidity and Capital Resources Sources of Liquidity We have incurred net losses and negative cash flows from operations since our inception and anticipate we will continue to incur net losses for the foreseeable future. As of September 30, 2021, we had cash and cash equivalents, and marketable securities of $290.5 million and an accumulated deficit of $179.8 million. Our net losses were $71.4 million, $60.7 million, and $30.5 million for the nine months ended September 30, 2021, and years ended December 31, 2020 and 2019, respectively, and we expect to incur additional losses in the future. The following table sets forth a summary of our cash flows for each of the periods indicated: Nine Months Ended September 30, 2021 2020 (Unaudited, in thousands) Net cash provided by (used in) Operating activities $ (39,272 ) $ (34,418 ) Investing activities (253,234 ) (22,296 ) Financing activities 310,613 40,662 Net increase (decrease) in cash, cash equivalents and restricted cash $ 18,107 $ (16,052 ) 22 Operating Activities Net cash used in operating activities was $39.3 million and $34.4 million for the nine months ended September 30, 2021 and 2020, respectively. Net cash used in operating activities for the nine months ended September 30, 2021 was primarily due to our net loss of $71.4 million, adjusted for $17.0 million of non-cash charges and a $15.1 million change in operating assets and liabilities. The non-cash charges were primarily comprised of $6.4 million for stock-based compensation, $6.1 million related to the change in fair value of Series C convertible preferred stock purchase right liabilities, $1.9 million of non-cash lease-related expense, $1.9 million for accretion of discount on marketable securities, and $0.8 million for depreciation and amortization expense. The change in net operating assets was primarily due to a $15.9 million increase in deferred revenue related to Genmab Agreement and Innovent Agreement, offset by increases in our prepaid expense and other current assets and accounts payable and accrued expenses, and a decrease in operating lease liabilities. Net cash used in operating activities for the nine months ended September 30, 2020 was primarily due to our net loss of $29.7 million, adjusted for $0.2 million of non-cash charges and a $4.9 million change in operating assets and liabilities. The non-cash items were primarily comprised of $2.4 million for the change in fair value of the C-2 convertible preferred stock purchase right liability, partially offset by charges of $1.4 million of non-cash lease related expense, $0.9 million for stock-based compensation and $0.4 million for depreciation and amortization expense. The change in net operating assets was primarily due to decreases in our operating lease liabilities related to payments made for leasehold improvements, increases in our prepaid expenses and other assets and increases in accounts payable and accrued expenses related to the timing of vendor payments. Investing Activities Net cash used in investing activities was $253.2 million and $22.3 million for nine months ended September 30, 2021 and 2020, respectively. The net cash used in investing activities for the nine months ended September 30, 2021 was primarily due to $283.7 million purchases of marketable securities and $1.8 million in purchases of property and equipment, offset by $32.2 million in maturity of marketable securities. The net cash used in investment activities for the same period in 2020 was due to $33.2 million in net purchases of marketable securities and $2.4 million in purchases of property and equipment, offset by $13.3 million in maturities of marketable securities. Financing Activities Net cash provided by financing activities was $310.6 million and $40.7 million for the nine months ended September 30, 2021 and 2020, respectively. The net cash provided by financing activities for the nine months ended September 30, 2021 was primarily due to net proceeds of $244.3 million in connection with our IPO that was completed in February 2021, $51.9 million of net proceeds from the issuance of 5,611,059 shares of Series C-2 preferred stock in January 2021 , $13.6 million of net proceeds from issuance of common stock related to Genmab SPA, and $0.8 million of net proceeds primarily from the issuance of common stock from the 2021 ESPP and exercise of stock options. Net cash provided by financing activities for the same period in 2020 was primarily due to a $41.3 million net proceeds from the issuance of 5,162,173 shares of Series C-1 preferred stock in June 2020, partially offset by payments of deferred offering costs . Funding Requirements Based upon our current operating plans, we believe that our existing cash, cash equivalents and marketable securities will be sufficient to fund our operations for at least the next 12 months. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. We have based this estimate on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we expect. Additionally, the process of testing product candidates in clinical trials is costly, and the timing of progress and expenses in these trials is uncertain. Our future capital requirements will depend on many factors, including: • the type, number, scope, progress, expansions, results, costs and timing of our clinical trials; • preclinical studies for our product candidates or other potential product candidates or indications which we are pursuing or may choose to pursue in the future; • the outcome, timing and costs of regulatory review of our product candidates; • the costs and timing of manufacturing for our product candidates, including commercial manufacturing; • our efforts to enhance operational systems and hire additional personnel to satisfy our obligations as a public company, including enhanced internal controls over financial reporting; • the costs associated with hiring additional personnel and consultants as our preclinical and clinical activities increase; 23 • the costs and timing of establishing or securing sales and marketing capabilities if any product candidate is approved; • our ability to achieve sufficient market acceptance, coverage and adequate reimbursement from third-party payors and adequate market share and revenue for any approved products; • patients’ willingness to pay out-of-pocket for any approved products in the absence of coverage and/or adequate reimbursement from third-party payors; • the terms and timing of establishing and maintaining collaborations, licenses and other similar arrangements; • the costs of obtaining, maintaining, defending, and enforcing our patent and other intellectual property rights; and • costs associated with any product candidates, products, or technologies that we may in-license or acquire. Until such time as we can generate significant revenue from sales of our product candidates, if ever, we expect to finance our cash needs through public or private equity or debt financings or other capital sources, including potential collaborations, licenses, and other similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends. If we raise funds through collaborations, or other similar arrangements with third parties, we may have to relinquish valuable rights to our product candidates, future revenue streams or research programs or may have to grant licenses on terms that may not be favorable to us and/or may reduce the value of our common stock. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our product candidates even if we would otherwise prefer to develop and market such product candidates ourselves. Contractual Obligations and Commitments Contract Supply Agreement In March 2019, we entered into a supply agreement with EirGenix, Inc. (“EirGenix”), pursuant to which EirGenix agreed to supply us, on a non-exclusive basis, bulk drug substance of EG12014, its monoclonal antibody being developed as a biosimilar of trastuzumab, which we use in the manufacture of our BDC-1001 HER2 Boltbody ISAC. Under this agreement, we are required to make milestone payments to EirGenix up to an aggregate of $2.0 million based on achievement of certain regulatory milestones by our HER2 Boltbody ISAC. License and Collaboration Agreements In May 2015 and June 2018, we entered into license agreements with Stanford, pursuant to which Stanford granted us worldwide exclusive licenses under certain patents related to our proprietary Boltbody ISAC technology and myeloid modulation for cancer immunotherapy, respectively. Under these agreements, we are obligated to pay annual license maintenance fees, which are nominal and will be creditable against any royalties payable to Stanford under such agreement in the applicable year. We are required in each agreement to make milestone payments up to an aggregate of $0.4 million for the first licensed product under such agreement that meets certain patent issuance, clinical and regulatory milestones, and an additional milestone payment of $0.2 million for each additional regulatory approval. We also agreed in each agreement to pay Stanford tiered royalties on our and our sublicensees’ net sales of licensed products, at low single-digit percentage rates, subject to certain customary reductions. Our royalty obligations continue for the term of each agreement, and we are required to pay royalties on any licensed products made, used, imported or offered for sale during the term of such agreement but sold after the term of the agreement. In addition, we are obligated in each agreement to pay Stanford a sub-teen double digit to low teen double-digit percentage, based on the date of sublicensing, of certain consideration we receive as a result of granting sublicenses to the licensed patents. Pursuant to each agreement, we will reimburse Stanford’s patent expenses, including reasonable costs incurred in assisting us with prosecuting and maintaining licensed patents. Off-Balance Sheet Arrangements During the periods presented, we did not have any off-balance sheet arrangements as defined under the rules and regulations of the SEC. 24 Item 3. Quantitative and Qualitative Disclosures About Market Risk We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.