Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing elsewhere in this Annual Report on Form 10 -K. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors. We discuss factors that we believe could cause or contribute to these differences below and elsewhere in this report, including those set forth under Item 1A. “Risk Factors” and under “Cautionary Note Regarding Forward-Looking Statements” in this Annual Report.
Overview
We are a biopharmaceutical company developing biomarker-targeted antibody therapies designed to treat patients with cancer by inhibiting fundamental tumor-promoting pathways, targeting cancer-specific cell surface molecules, and harnessing the immune system to attack cancer cells. Our strategy is to identify, acquire, and develop molecules that will rapidly translate into high impact therapeutics that generate durable clinical benefit and enhanced patient outcomes.
Our lead clinical stage program is sirexatamab (DKN-01), a monoclonal antibody that inhibits Dickkopf-related protein 1, or DKK1. We are currently studying sirexatamab in multiple ongoing clinical trials in patients with esophagogastric cancer, gynecologic cancers, or colorectal cancer. We also have a preclinical antibody program FL-501.
We intend to apply our extensive experience identifying and developing transformational products to build a pipeline of programs that have the potential to change the practice of cancer medicine.
We have devoted substantially all of our resources to development efforts relating to our product candidates, including manufacturing and conducting clinical trials of our product candidates, providing general and administrative support for these operations and protecting our intellectual property. We do not have any products approved for sale and have not generated any revenue from product sales. We have funded our operations primarily through proceeds from our sales of common stock and preferred stock and proceeds from the issuance of notes payable.
We have incurred net losses in each year since our inception in 2011. Our net loss was $67.6 million for the year ended December 31, 2024 and $81.4 million for the year ended December 31, 2023. As of December 31, 2024, we had an accumulated deficit of approximately $467.4 million. Our net losses have resulted primarily 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 have operating losses for at least the next several years as we:
● continue the development of our product candidates,sirexatamab and FL-501;
● seek to obtain regulatory approvals for our product candidates;
● outsource the manufacturing of our product candidates for clinical trials and any indications for which we receive regulatory approval;
● contract with third parties for the sales, marketing and distribution of sirexatamab for any indications for which we receive regulatory approval;
● maintain, expand and protect our intellectual property portfolio;
● continue our research and development efforts;
● add operational, financial and management information systems and personnel, including personnel to support our product development efforts; and
● operate as a public company.
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We do not expect to generate revenue from product sales unless and until we successfully complete development and obtain marketing approval for one or more of our product candidates, which we expect will take a number of years and is subject to significant uncertainty. Accordingly, we will need to raise additional capital prior to the commercialization of sirexatamab or any other product candidate. Until such time, if ever, as we can generate substantial revenue from product sales, we expect to finance our operating activities through a combination of equity offerings, debt financings, government or other third-party funding, commercialization, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop our product candidates, and could force us to significantly limit or reduce the scope of our business, operations and activities, or to sell ourselves or engage in some other strategic transaction at an unfavorable price and on other unfavorable terms, or to discontinue our business and operations entirely, wind-up and liquidate.
As of December 31, 2024, we had cash and cash equivalents of $47.2 million. We believe that our cash and cash equivalents as of December 31, 2024 will enable us to fund our operating expenses and capital expenditure requirements for at least 12 months from the filing of this Annual Report on Form 10-K. See “—Liquidity and Capital Resources.”
Financial Overview
Research and Development Expenses
Our research and development activities have included conducting nonclinical studies and clinical trials, manufacturing development efforts and activities related to regulatory filings for our product candidates, primarily sirexatamab. We recognize research and development expenses as they are incurred. Our research and development expenses consist primarily of:
● salaries and related overhead expenses for personnel in research and development functions, including costs related to stock-based compensation;
● fees paid to consultants and CROs for our nonclinical and clinical trials, and other related clinical trial fees, including, but not limited to, laboratory work, clinical trial database management, clinical trial material management and statistical compilation and analysis;
● costs related to acquiring and manufacturing clinical trial material; and
● costs related to compliance with regulatory requirements.
We plan to increase our research and development expenses for the foreseeable future as we continue the development of sirexatamab and any other product candidates, subject to the availability of additional funding.
Our direct research and development expenses are tracked on a program-by-program basis and consist primarily of internal and external costs, such as employee costs, including salaries and stock-based compensation, other internal costs, fees paid to consultants, central laboratories, contractors and CROs in connection with our clinical and preclinical trial development activities. We use internal resources to manage our clinical and preclinical trial development activities and perform data analysis for such activities.
We participate, through our subsidiary in Australia, in the Australian government’s R&D Incentive program, such that a percentage of our eligible research and development expenses are reimbursed by the Australian government as a refundable tax offset and such incentives are reflected as other income. This percentage was 43.5% for both the years ended December 31, 2024 and 2023.
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The table below summarizes our research and development expenses incurred by development program and the R&D incentive income for the years ended December 31, 2024 and 2023:
Year Ended December 31,
2024
2023
(in thousands)
Direct research and development by program:
DKN-01 program
$
56,748
$
42,743
TRX518 program
9
31
FL-301 program
31
140
FL-302 program
76
—
FL-501 program
347
120
FL-101 program
—
618
In-process research and development acquired from Flame
—
29,582
Total research and development expenses
$
57,211
$
73,234
Australian research and development incentives
$
—
$
1,101
The successful development of our clinical product candidates is highly uncertain. At this time, we cannot reasonably estimate the nature, timing or costs of the efforts that will be necessary to complete the remainder of the development of any of our product candidates or the period, if any, in which material net cash inflows from these product candidates may commence. This is due to the numerous risks and uncertainties associated with developing drugs, including the uncertainty of:
● the scope, rate of progress and expense of our ongoing, as well as any additional, clinical trials and other research and development activities;
● future clinical trial results; and
● the timing and receipt of any regulatory approvals.
A change in the outcome of any of these variables with respect to the development of a product candidate could result in a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development of a product candidate, or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related costs, including stock-based compensation, for personnel in executive, finance and administrative functions. General and administrative expenses also include direct and allocated facility-related costs as well as professional fees for legal, patent, consulting, accounting and audit services.
We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research activities and development of our product candidates. We also anticipate that we will incur increased accounting, audit, legal, regulatory, compliance, director and officer insurance costs as well as investor and public relations expenses associated with being a public company.
Interest income
Interest income consists primarily of interest income earned on cash and cash equivalents.
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Research and development incentive income
Research and development incentive income includes payments under the R&D Incentive program from the government of Australia. The R&D Incentive is one of the key elements of the Australian government’s support for Australia’s innovation system. It was developed to assist businesses in recovering some of the costs of undertaking research and development. The research and development tax incentive provides a tax offset to eligible companies that engage in research and development activities.
Companies engaged in research and development may be eligible for either:
● a refundable tax offset at a rate of 18.5% above the company ’ s tax rate for entities with income of less than A$20 million per annum, or
● a non-refundable tax offset for all other entities which is a progressive marginal tiered R&D intensity threshold. Increasing rates of benefit apply for incremental research and development expenditure by intensity:
- 0 to 2% intensity: an 8.5% premium to the company ’ s tax rate
- Greater than 2% intensity: a 16.5% premium to the company ’ s tax rate;
We recognize as other income the amount we expect to be reimbursed for qualified expenses.
Foreign currency translation adjustment
Foreign currency translation adjustment consists of gains (losses) due to the revaluation of foreign currency transactions attributable to changes in foreign currency exchange rates associated with our Australian subsidiary.
Income taxes
Since our inception, we have not recorded any U.S. federal or state income tax benefits for the net losses we have incurred in each year, due to our uncertainty of realizing a benefit from those items. As of December 31, 2024, we had federal and state net operating loss (“NOL”) carryforwards of $42.2 million and $47.2 million, respectively. The federal NOL’s are indefinitely lived and state NOL’s begin to expire in 2032.
Under Internal Revenue Code Section 382, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change NOL carryforwards and other pre-change tax attributes to offset its post-change income may be limited. We have completed a study to assess whether an ownership change occurred or whether there were multiple ownership changes since we became a “loss corporation” as defined in Section 382. We experienced multiple ownership changes occurring in 2019, 2020, and 2023. The ownership changes have and will continue to subject our pre-ownership change NOL carryforwards to an annual limitation, which will significantly restrict our ability to use them to offset taxable income in periods following the ownership changes. In general, the annual use limitation equals the aggregate value of our stock at the time of the ownership change multiplied by a specified tax-exempt interest rate. As a result of the ownership changes, we are limited to a $0.0 million annual limitation on our ability to utilize our NOL’s and R&D credits recognized prior to the Flame merger. Due to this limitation, approximately $210.7 million of the federal NOL’s and $7.8 million of federal R&D credits will expire unutilized. Additionally, approximately $192.2 million and $1.8 million, respectively, of state NOL’s and R&D tax credits will expire unutilized. As a result, we have reduced our deferred tax assets related to the federal and state NOL’s and R&D credits which are offset by the corresponding decrease in the valuation allowance.
As of December 31, 2024, we also had federal and state R&D tax credits of $3.0 million and $0.6 million, respectively, which begin to expire in 2043 and 2038, respectively, for federal and state tax purposes.
There is no provision for income taxes in the United States because we have historically incurred operating losses and maintain a full valuation allowance against our deferred tax assets in these jurisdictions. A provision for income taxes was recorded in Australia based on the results of our foreign subsidiary.
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Critical Accounting Policies and Significant Judgments and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which we have prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported expenses during the reporting periods. We evaluate these estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are more fully described in Note 2 to our consolidated financial statements appearing elsewhere in this report, we believe that the following accounting policies are the most critical for fully understanding and evaluating our financial condition and results of operations.
Accrued Research and Development Expenses
As part of the process of preparing consolidated financial statements, we are required to account for research and development expenses. This process involves communicating with our applicable personnel and service providers to identify services that have been performed on our behalf and 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 cost. The majority of our service providers invoice us monthly for services performed. We accrue for our research and development expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to us. We periodically confirm the accuracy of the data that we use to accrue for research and development expenses with selected service providers and make adjustments, if necessary. To date, we have not adjusted our accruals at any particular balance sheet date by any material amount. Examples of accrued research and development expenses include:
● fees paid to CROs for management of our clinical trial activities;
● fees paid to investigative sites in connection with clinical trials;
● fees paid to contract manufacturers in connection with the production of clinical trial supplies; and
● professional services and fees.
We base our expenses related to clinical trials on the services received and efforts expended pursuant to contracts with multiple research institutions and CROs that conduct and manage clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. If we do not accurately identify costs that we have incurred, our actual expenses could differ from our accruals.
Stock-Based Compensation
We have issued options to purchase our common stock. We account for stock based compensation in accordance with ASC 718, Compensation—Stock Compensation. ASC 718 establishes accounting for stock-based awards exchanged for employee and non-employee services. Under the fair value recognition provisions of ASC 718, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service or vesting period. Determining the appropriate fair value model and calculating the fair value of stock-based payment awards require the use of highly subjective assumptions, including the expected life of the stock-based payment awards and stock price volatility.
We estimate the grant date fair value of stock options and the related compensation expense, using the Black-Scholes option valuation model. This option valuation model requires the input of subjective assumptions including: (1) expected life (estimated period of time outstanding) of the options granted, (2) volatility, (3) risk-free rate and (4) dividends. In general, the assumptions used in calculating the fair value of stock-based payment awards represent management’s best estimates, but the estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future.
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Results of Operations
Comparison of the Years Ended December 31, 2024 and 2023
The following tables summarize our results of operations for the years ended December 31, 2024 and 2023:
Year Ended December 31,
2024
2023
Change
(in thousands)
Operating expenses:
Research and development
$
57,211
$
73,234
$
(16,023)
General and administrative
12,846
13,807
(961)
Total operating expenses
70,057
87,041
(16,984)
Loss from operations
(70,057)
(87,041)
16,984
Interest income
3,129
4,027
(898)
Australian research and development incentives
—
1,101
(1,101)
Other income
—
500
(500)
Foreign currency losses
(42)
(13)
(29)
Change in fair value of Series X preferred stock warrant liability
—
12
(12)
Loss before income taxes
(66,970)
(81,414)
14,444
Provision for income taxes
(585)
—
(585)
Net loss
(67,555)
(81,414)
13,859
Dividend attributable to down round feature of warrants
(234)
—
(234)
Net loss attributable to common stockholders
$
(67,789)
$
(81,414)
$
13,625
Research and Development Expenses
Year Ended December 31,
Increase
2024
2023
(Decrease)
(in thousands)
Direct research and development by program:
DKN-01 program
$
56,748
$
42,743
$
14,005
TRX518 program
9
31
(22)
FL-301 program
31
140
(109)
FL-302 program
76
—
76
FL-501 program
347
120
227
FL-101 program
—
618
(618)
In-process research and development acquired from Flame
—
29,582
(29,582)
Total research and development expenses
$
57,211
$
73,234
$
(16,023)
Research and development expenses were $57.2 million for the year ended December 31, 2024, compared to $73.2 million for the year ended December 31, 2023. The decrease of $16.0 million in research and development expenses was primarily due to $29.6 million of in-process research and development (“IPR&D”) acquired in the Flame merger which we expensed during the year ended December 31, 2023, as we concluded that the IPR&D acquired did not have an alternative future use. This decrease was partially offset by an increase of $8.8 million in clinical trial costs due to due to patient enrollment, the duration of patients on study, the enhancement of correlative studies, the increase in site activity associated with Part C of the DisTinGuish study, and the expansion of the size of Part B of the DeFianCe study. There was also an increase of $2.8 million in manufacturing costs related to clinical trial material due to timing of manufacturing campaigns, an increase of $1.6 million in payroll and other related expenses due to an increase in headcount of our research and development full-time employees, an increase of $0.2 million in stock based compensation expense due to new stock options granted to employees during the year ended December 31, 2024 and an increase of $0.2 million in consulting fees associated with research and development activities.
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General and Administrative Expenses
General and administrative expenses were $12.8 million for the year ended December 31, 2024, compared to $13.8 million for the year ended December 31, 2023. The decrease of $1.0 million was primarily attributable to a $1.3 million decrease in professional fees due to lower finance and legal costs associated with our business development activities during the year ended December 31, 2024 as compared to the year ended December 31, 2023. This decrease was partially offset by an increase of $0.2 million in stock-based compensation expense due to new stock options granted to employees during the year ended December 31, 2024 and an increase of $0.1 million in payroll and other related expenses.
Interest Income
We recorded interest income of $3.1 million and $4.0 million, respectively, during the years ended December 31, 2024 and 2023. The decrease during the year ended December 31, 2024 as compared to the same period in 2023 was due to a lower average cash and cash equivalents balance.
Australian Research and Development Incentives
We recorded R&D incentive income of $1.1 million for the year ended December 31, 2023, based upon the applicable percentage of eligible research and development activities under the Australian Incentive Program, net of our Australian tax liability, which expenses included the cost of manufacturing of clinical trial material. We did not recognize any R&D incentive income during the year ended December 31, 2024.
We perform certain supporting research and development activity outside of Australia when there are no Australian facilities that support the activity (“Overseas research and development activities”). In October 2017, the Commonwealth of Australia issued us a favorable ruling on our Overseas research and development activities, considering such activities to be eligible research and development activities under the Australian Incentive Program.
During the year ended December 31, 2023, we received $2.3 million of research and development tax incentive payments from the Commonwealth of Australia as a result of the 2022 research and development activities. During the year ended December 31, 2024, we did not receive any research and development tax incentive payments from the Commonwealth of Australia as a result of the 2023 research and development activities. We expect to receive $0.8 million of research and development tax incentive payments during the year ended December 31, 2025 for research and development activities performed during 2023.
The remaining R&D incentive receivable has been recorded as “Research and development incentive receivable” in the consolidated balance sheets.
Foreign Currency Losses
We recorded an immaterial amount of foreign currency losses for the years ended December 31, 2024 and 2023. The change in foreign currency losses is due to the changes in the Australian dollar exchange rate related to activities of the Australian entity.
Liquidity and Capital Resources
Since our inception, we have been engaged in organizational activities, including raising capital, and research and development activities. We do not yet have a product that has been approved by the Food and Drug Administration (the “FDA”) and have not yet achieved profitable operations or generated positive cash flows from operations. There is no assurance that profitable operations, if achieved, could be sustained on a continuing basis. Further, our future operations are dependent on the success of efforts to raise additional capital, our research and commercialization efforts, regulatory approval, and, ultimately, the market acceptance of our products.
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In accordance with Accounting Standards Codification (“ASC”) 205-40, Going Concern, we have evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the consolidated financial statements are issued. As of December 31, 2024, we had cash and cash equivalents of $47.2 million. Additionally, we had an accumulated deficit of $467.4 million at December 31, 2024, and during the year ended December 31, 2024, we incurred a net loss of $67.6 million. We expect to continue to generate operating losses in the foreseeable future. We believe that our cash and cash equivalents of $47.2 million as of December 31, 2024, will be sufficient to fund our operating expenses for at least the next 12 months from the issuance of this Annual Report on Form 10-K.
In addition, to support our future operations, we will seek additional funding through public or private equity financings or government programs and will seek funding or development program cost-sharing through collaboration agreements or licenses with larger pharmaceutical or biotechnology companies. If we do not obtain additional funding or development program cost-sharing, we could be forced to delay, reduce or eliminate certain clinical trials or research and development programs, reduce or eliminate discretionary operating expenses, and delay company and pipeline expansion, which could adversely affect our business prospects. The inability to obtain funding, as and when needed, could have a negative impact on Leap’s financial condition and our ability to pursue our business strategies and could force us to sell ourselves or engage in some other strategic transaction at an unfavorable price and on other unfavorable terms or to discontinue our business and operations entirely, wind-up and liquidate.
Cash Flows
The following table summarizes our sources and uses of cash for each of the periods presented:
Year Ended December 31,
2024
2023
(in thousands)
Cash used in operating activities
$
(60,299)
$
(43,753)
Cash provided by investing activities
—
48,969
Cash provided by (used in) financing activities
37,184
(30)
Effect of exchange rate changes on cash and cash equivalents
(279)
(43)
Net increase (decrease) in cash and cash equivalents
$
(23,394)
$
5,143
Operating activities.
Net cash used in operating activities for the year ended December 31, 2024 was primarily related to our net loss of $67.6 million and net changes in working capital, including a decrease in lease liabilities of $0.4 million. These changes were partially offset by an increase in accounts payable and accrued expenses of $0.9 million, an increase in income tax payable of $0.6 million, a decrease of $0.1 million in prepaid expenses and other assets, a decrease of $0.2 million in other assets, noncash stock-based compensation expense of $5.5 million and change in a right-of-use asset of $0.4 million.
Net cash used in operating activities for the year ended December 31, 2023 was primarily related to our net loss of $81.4 million and net changes in working capital, including a decrease in lease liabilities of $0.4 million. These changes were partially offset by a decrease in research and development incentive receivable of $1.3 million, a decrease of $0.7 million in other assets, an increase in accounts payable and accrued expenses of $0.7 million, a decrease of $0.2 million in prepaid expenses and other assets, noncash IPR&D expense of $29.6 million, noncash stock-based compensation expense of $5.1 million and change in a right-of-use asset of $0.4 million.
Investing Activities.
Net cash provided by investing activities for the year ended December 31, 2023 was related to cash acquired in connection with the acquisition of Flame of $50.4 million and payment of direct and incremental costs of $1.4 million associated with the acquisition of Flame. There were no investing activities during the year ended December 31, 2024.
Financing Activities.
Net cash used in financing activities for the year ended December 31, 2024 consisted of $40.0 million in gross proceeds from the April 2024 Private Placement and $0.1 million of proceeds upon the exercise of stock options and warrants, partially offset by $2.9
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million of offering costs paid. Net cash used in financing activities for the year ended December 31, 2023 primarily consisted of an immaterial amount paid by the Company for the redemption of 10,000 shares of the warrants issued in connection with a public offering in 2019.
Capital Requirements
We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the preclinical activities and clinical trials of our product candidates in development.
Our expenses will also increase as we:
● pursue the clinical development of our most advanced product candidate, sirexatamab, and our preclinical product candidate, FL-501;
● maintain, expand and protect our intellectual property portfolio; and
● expand our operational, financial and management systems and increase personnel, including personnel to support our clinical development, manufacturing and commercialization efforts and our operations as a public company.
Additional funding may not be available at the time needed on commercially reasonable terms, if at all.
Contractual Obligations and Contingent Liabilities
On May 16, 2022, we entered into a third amendment to the 47 Thorndike Street Lease, the (“Third Amendment”). Under the Third Amendment, we extended the term of the 47 Thorndike Street Lease through July 31, 2024. Under the Third Amendment, we paid the monthly base rent amount of $37,000 contemplated by the 47 Thorndike Street Lease through January 31, 2023, with an increase that commenced on February 1, 2023 adjusting the monthly base rent amount to approximately $37,696 through January 31, 2024, and then another increase commencing on February 1, 2024 adjusting the monthly base rent amount to $38,335 for the period of February 2024 through July 31, 2024.
On January 3, 2024, we entered into a fourth amendment to the 47 Thorndike Street Lease, the (“Fourth Amendment”). Under the Fourth Amendment, we extended the term of the 47 Thorndike Street Lease through July 31, 2025. Under the Fourth Amendment, we will continue to pay the current monthly base rent amount of $38,335 contemplated by the 47 Thorndike Street Lease through July 31, 2024, with an increase commencing on August 1, 2024 adjusting the monthly base rent amount to approximately $38,974 through July 31, 2025.
We remain committed to $0.1 million of non-cancellable commitments under manufacturing agreements with vendors to manufacture DKN-01 for use in clinical trials.
This description of our contractual obligations does not include potential future milestones or royalties that we may be required to make under license and collaboration agreements due to the uncertainty of events requiring payment under these agreements.
We enter into contracts in the normal course of business with clinical research organizations for clinical and preclinical research studies, external manufacturers for product for use in our clinical trials, and other research supplies and other services as part of our operations. These contracts generally provide for termination on notice, and therefore are cancelable contracts and not included as contractual commitments.
Recently Issued Accounting Pronouncements
We have reviewed all recently issued standards and have determined that, other than as disclosed in Note 2 to our consolidated financial statements included in this Annual Report on Form 10-K, such standards will not have a material impact on our financial statements or do not otherwise apply to our operations.
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