Dare Bioscience, Inc. 10-K

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with our consolidated financial statements and the notes thereto included in Part II, Item 8 of this report. This following discussion includes forward-looking statements. See PART I "CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS,” above. Forward-looking statements are not guarantees of future performance and our actual results may differ materially from those currently anticipated and from historical results depending upon a variety of factors, including, but not limited to, those discussed in Part I, Item 1A of this report under the heading “Risk Factors,” which are incorporated herein by reference. Business Overview We are a clinical-stage biopharmaceutical company committed to advancing innovative products for women’s health. We are driven by a mission to identify, develop and bring to market a diverse portfolio of differentiated therapies that expand treatment options, improve outcomes and facilitate convenience for women, primarily in the areas of contraception, vaginal health, sexual health and fertility. Our business strategy is to in-license or otherwise acquire the rights to differentiated product candidates in our areas of focus, some of which have existing clinical proof-of-concept data, to take those candidates through mid to late-stage clinical development, and to establish and leverage strategic partnerships to achieve commercialization. We and our wholly owned subsidiaries operate in one business segment. Since July 2017, we have assembled a portfolio of clinical-stage and pre-clinical-stage candidates. While we will continue to assess opportunities to expand our portfolio, our current focus is on advancing our existing product 82 candidates through mid and late stages of clinical development or FDA approval. Our portfolio includes three product candidates in advanced clinical development: • DARE-BV1 , a novel thermosetting bioadhesive hydrogel formulated with clindamycin phosphate 2% to be administered in a single vaginally delivered application, as a first line treatment for bacterial vaginosis; • Ovaprene® , a hormone-free, monthly vaginal contraceptive; and • Sildenafil Cream, 3.6% , a proprietary cream formulation of sildenafil for topical administration to the vulva and vagina for treatment of female sexual arousal disorder. Our portfolio also includes three product candidates in Phase 1 clinical development or that we believe are Phase 1-ready: • DARE-HRT1 , a combination bio-identical estradiol and progesterone intravaginal ring for the treatment of menopausal symptoms, including vasomotor symptoms, as part of a hormone therapy following menopause; • DARE-FRT1 , an intravaginal ring containing bio-identical progesterone for the prevention of preterm birth and broader luteal phase support as part of an in vitro fertilization treatment plan; and • DARE-VVA1 , a vaginally delivered formulation of tamoxifen to treat vulvar vaginal atrophy, or VVA, in patients with hormone- receptor positive breast cancer. In addition, our portfolio includes these pre-clinical stage product candidates: • DARE-LARC1 , a combination product designed to provide long-acting, reversible contraception comprising an implantable, user-controlled wireless drug delivery system and levonorgestrel; • ORB-204 and ORB-214 , injectable formulations of etonogestrel designed to provide contraception over 6-month and 12-month periods, respectively; and • DARE-RH1 , a novel approach to non-hormonal contraception for both men and women by targeting the CatSper ion channel. See ITEM 1. "BUSINESS," in Part I of this report for additional information regarding our product candidates. Our primary operations have consisted of, and are expected to continue to consist primarily of, product research and development and advancing our portfolio of product candidates through clinical development and regulatory approval. We expect that the majority of our research and development expenses in 2021 and 2022 will support the advancement of DARE-BV1, Ovaprene and Sildenafil Cream, 3.6%. To date, we have not obtained any regulatory approvals for any of our product candidates, commercialized any of our product candidates or generated any revenue. We are subject to several risks common to clinical-stage biopharmaceutical companies, including dependence on key individuals, competition from other companies, the need to develop commercially viable products in a timely and cost-effective manner, and the need to obtain adequate additional capital to fund the development of product candidates. We are also subject to several risks common to other companies in the industry, including rapid technology change, regulatory approval of products, uncertainty of market acceptance of products, competition from substitute products and larger companies, compliance with government regulations, protection of proprietary technology, dependence on third parties, and product liability. The effect of the COVID-19 pandemic and efforts to reduce the spread of COVID-19 remain a rapidly evolving and uncertain risk to our business, operating results, financial condition and stock price. In November 2020, the U.S. began to experience a substantial surge in cases and hospitalizations and intensive care unit capacity became strained. States and counties across the country imposed or re-imposed stay-at-home orders and shutdowns of non-essential businesses in efforts to reduce spread of the disease. As of March 29, 2021, the U.S. Food and Drug Administration (FDA) had issued emergency use authorizations for three vaccines for the prevention of COVID-19. However, while President Biden recently said that there will be enough vaccine supply for every adult in the U.S. by the end of May 2021, the vaccination effort in the U.S. and elsewhere got off to a bumpy start and continues to face significant, complex challenges, and the timeline for the pandemic and its associated restrictions to end remain uncertain. Given the high level of uncertainty regarding the duration and impact of the pandemic on the U.S. and global economies, workplace environments and capital markets, we are unable to assess the full extent of the effects of the pandemic on our business. These effects could have a material adverse impact on our business, operating results and financial condition, including, without limitation, by adversely impacting our ability to raise capital when needed or on terms favorable or acceptable to us and increasing the anticipated aggregate costs and timelines for the 83 development and marketing approval of our product candidates. For further discussion of risks and uncertainties related to the COVID-19 pandemic, see the risk factor titled, The COVID-19 pandemic and efforts to reduce the spread of COVID-19 could negatively impact our business, including by increasing the cost and timelines for our clinical development programs. Recent Events Positive Topline Results from DARE-BVFREE Phase 3 Clinical Trial of DARE-BV1 In December 2020, we announced positive topline results from our DARE-BVFREE Phase 3 clinical trial of DARE-BV1 for the treatment of bacterial vaginosis. The study met its primary endpoint, demonstrating that a single administration of DARE-BV1 was superior to placebo as a primary therapeutic intervention for women diagnosed with bacterial vaginosis. Based on the topline results from the DARE-BVFREE study and our meetings and other communications with the FDA since we announced those results, we plan to submit an NDA for DARE-BV1 for the treatment of bacterial vaginosis by the end of the second quarter of 2021 and to request priority review status for the NDA upon submission. Assuming we submit the NDA in the second quarter of 2021, the FDA grants priority review and sets a PDUFA date within approximately six months from the NDA submission date, and the FDA approves the NDA in 2021, we would expect a commercial launch of DARE-BV1 in the United States in early 2022. See ITEM 1. "BUSINESS—Our Clinical Stage and Phase 1-ready Product Candidates and Programs—DARE-BV1," in Part I of this report for additional information regarding the DARE-BVFREE study and the DARE-BV1 program. Commencement of Phase 2b Clinical Trial of Sildenafil Cream, 3.6% In March 2021, we announced commencement of our Phase 2b clinical trial of Sildenafil Cream, 3.6% for the treatment of female sexual arousal disorder. We currently anticipate reporting topline data from the trial by year-end 2021. See ITEM 1. "BUSINESS—Our Clinical Stage and Phase 1-ready Product Candidates and Programs—Sildenafil Cream, 3.6%," in Part I of this report for additional information regarding the Sildenafil Cream, 3.6% program. Financial Overview Revenue To date we have not generated any revenue. In the future, and if we are successful in advancing our product candidates through late stages of clinical development and regulatory approval, we may generate revenue from product sales of approved products, if any, and license fees, milestone payments, research and development payments in connection with strategic partnerships, as well as royalties and commercial milestones resulting from the sale of products by partners. Our ability to generate such revenue will depend on the successful clinical development of our product candidates, the receipt of regulatory approvals to market such product candidates and the eventual successful commercialization of products. If we fail to complete the development of product candidates in a timely manner, or to receive regulatory approval for such product candidates, our ability to generate future revenue and our results of operations would be materially adversely affected. Research and Development Expenses Research and development expenses include research and development costs for our product candidates and transaction costs related to our acquisitions. We recognize all research and development expenses as they are incurred. Research and development expenses consist primarily of: • expenses incurred under agreements with clinical trial sites and consultants that conduct research and development and regulatory affairs activities on our behalf; • laboratory and vendor expenses related to the execution of nonclinical studies and clinical trials; • contract manufacturing expenses, primarily for the production of clinical supplies; • transaction costs related to acquisitions of companies, technologies and related intellectual property, and other assets; • milestones payments under our in-licensing arrangements and our merger agreement with Microchips that we incur, or the incurrence of which we deem probable; • internal costs that are associated with activities performed by our research and development organization and generally benefit multiple programs. 84 In 2020, our research and development expenses consisted primarily of costs associated with continued development of DARE-BV1, Ovaprene and Sildenafil Cream 3.6%. We expect research and development expenses to increase in the future as we continue to invest in the development of and seek regulatory approval for our clinical-stage and Phase 1-ready product candidates and as any other potential product candidates we may develop are advanced into and through clinical trials in the pursuit of regulatory approvals. Such activities will require a significant increase in investment in regulatory support, clinical supplies, inventory build-up related costs, and the payment of success-based milestones to licensors. In addition, we continue to evaluate opportunities to acquire or in-license other product candidates and technologies, which may result in higher research and development expenses due to, among other factors, license fee and/or milestone payments. Conducting clinical trials necessary to obtain regulatory approval is costly and time consuming. We may not obtain regulatory approval for any product candidate on a timely or cost-effective basis, or at all. The probability of success of our product candidates may be affected by numerous factors, including clinical results and data, competition, intellectual property rights, manufacturing capability and commercial viability. As a result, we cannot accurately determine the duration and completion costs of development projects or when and to what extent we will generate revenue from the commercialization of any of our product candidates. License Fees License fees consist of up-front license fees and annual license fees due under our in-licensing arrangements. General and Administrative Expense General and administrative expenses consist of personnel costs, facility expenses, expenses for outside professional services, including legal, audit and accounting services. Personnel costs consist of salaries, benefits and stock-based compensation. Facility expenses consist of rent and other related costs. Recently Issued Accounting Standards From time to time, the Financial Accounting Standards board, or FASB, or other standard setting bodies issue new accounting pronouncements. Updates to the FASB Accounting Standards Codification are communicated through issuance of an Accounting Standards Update. We have implemented all new accounting pronouncements that are in effect and that may impact our financial statements. We have evaluated recently issued accounting pronouncements and determined that there is no material impact on our financial position or results of operations. Critical Accounting Policies and Estimates Management’s discussion and analysis of financial condition and results of operations is based on our financial statements that we prepared in accordance with accounting principles generally accepted in the United States. Preparing these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses, and related disclosures. On an ongoing basis, we evaluate these estimates and judgments. We base our estimates on historical experience and on various assumptions we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results may differ materially from these estimates. Historically, revisions to our estimates have not resulted in a material change to the financial statements. The items in our financial statements requiring significant estimates and judgments are as follows: the fair value of stock-based compensation and purchase accounting . Stock-Based Compensation The compensation cost for all stock-based awards is measured at the grant date, based on the fair value of the award (determined using a Black-Scholes option pricing model), and is recognized as an expense over the requisite service period (generally the vesting period of the equity award). Determining the fair value of stock-based awards at the grant date requires significant estimates and judgments, including estimating the market price volatility of our common stock, future employee stock option exercise behavior and requisite service periods. Due to our limited history of stock option exercises we applied the simplified method prescribed by SEC Staff Accounting Bulletin 110, Share-Based Payment: Certain Assumptions Used in Valuation Methods - Expected Term, to estimate expected life. The fair value of non-employee stock options or stock awards are remeasured as the awards vest, and the resulting increase or decrease in fair value, if any, is recognized as an increase or decrease to compensation expense in the period the related services are rendered. Stock options or stock awards issued to non-employees who are not 85 directors with performance conditions are measured and recognized when the performance is complete or is expected to be met. Refer to Note 10 to our consolidated financial statements included in this report for more information. Business Combinations Assets acquired and liabilities assumed as part of a business acquisition are recorded at their estimated fair value at the date of acquisition. The excess of the total purchase consideration over the fair value of assets acquired and liabilities assumed is recorded as goodwill. Determining fair value of identifiable assets, particularly intangibles, and liabilities acquired also requires management to make estimates, which are based on all available information and, in some cases, assumptions with respect to the timing and amount of future revenue and expenses associated with an asset. Acquired In-Process Research and Development Expense We have acquired, and may continue to acquire, the rights to develop new product candidates. Payments to acquire a new product candidate, as well as future milestone payments associated with asset acquisitions which are deemed probable of achievement, are immediately expensed as acquired in-process research and development provided that the product candidate has not achieved regulatory approval for marketing and, absent obtaining such approval, has no alternative future use. Results of Operations Comparison of the Years ended December 31, 2020 and 2019 The following table summarizes our consolidated results of operations for the years ended December 31, 2020 and 2019, and the change in the applicable category in terms of dollars: Years Ended December 31, Change 2020 2019 $ % Operating expenses: General and administrative $ 6,549,508 $ 5,265,438 $ 1,284,070 24 % Research and development 20,769,416 8,546,108 12,223,308 143 % License fees 83,333 533,334 (450,001) (84) % Loss from operations (27,402,257) (14,344,880) (13,057,377) (91) % Other income 1,514 81,050 (79,536) (98) % Net loss $ (27,400,743) $ (14,263,830) $ (13,136,913) 92 % Revenues We did not recognize any revenue for the years ended December 31, 2020 or 2019. General and administrative expenses The increase of approximately $1.3 million in general and administrative expenses from 2019 to 2020 was primarily attributable to increases in (i) personnel costs of approximately $640,000 reflecting the hiring of additional employees which resulted in increased salary, benefit and bonus expenses, (ii) expenses for legal, professional, and accounting services of approximately $212,000, (iii) insurance costs of approximately $192,000 due to increased premiums, (iv) rent and facilities expenses of approximately $183,000 due to the addition of two leases for office and laboratory facilities when we acquired Microchips in November 2019, and (v) stock-based compensation expense of approximately $161,000. We expect an increase in general and administrative expenses of approximately 10% to 15% in 2021 compared to 2020, primarily due to increased personnel expenses and other general corporate overhead. Our 2021 general and administrative expenses could also include significant costs related to commercial readiness activities for DARE-BV1 depending on the type and nature of commercial partnership we establish for DARE-BV1 in the U.S., which, if incurred, could increase our 2021 general and administrative expenses above our current expectation. 86 Research and development expenses The increase of approximately $12.2 million in research and development expenses from 2019 to 2020 was primarily attributable to increases of approximately (i) $11.6 million in costs related to development activities for our clinical-stage product candidates, primarily driven by the DARE-BVFREE Phase 3 clinical trial and manufacturing and regulatory affairs activities for Ovaprene; (ii) $2.0 million in costs related to development activities for our pre-clinical stage programs, primarily related to DARE-LARC1; (iii) $1.3 million in personnel costs reflecting our first full year of personnel costs for the former Microchips employees we hired in November 2019, and (iv) stock-based compensation expense of approximately $118,000. Those increases were partially offset by (a) an increase in grant funding recorded as a reduction to research and development expenses of approximately $2.4 million under grant awards for DARE-LARC1, Ovaprene and DARE-FRT1 and; (b) a cash payment of approximately $192,000 and a receivable of approximately $268,000, both of which are recorded as a reduction to research and development expenses and are related to Australia's research and development tax incentive which gives 43.5% of every dollar spent by eligible companies on eligible research and development activities back to those companies in a cash payment. We expect research and development expenses to increase significantly in 2021 as we continue to develop our product candidates and seek FDA approval for DARE-BV1. If we advance our programs as currently planned, our research and development expenses for 2021 could be more than double our research and development expenses for 2020. Our 2021 research and development expenses could include up to $4.5 million in milestone payments under license agreements related to certain of our product candidates payable by us to our third-party licensors and up to approximately $1.0 million in contingent consideration payments under our merger agreement with Microchips, all or any portion of which we may elect to pay to the former stockholders of Microchips in shares of our common stock. As discussed below in the section titled “Liquidity and Capital Resources,” we will need to raise substantial additional capital to continue to fund our operations and successfully execute our current operating plan. The pace and extent of our research and development activities and, therefore, our research and development spend, will depend on our cash resources. We expect our research and development spend to vary across our fiscal quarters. In regard to Sildenafil Cream, 3.6%, we anticipate that the costs of the planned Phase 2b clinical study will be approximately $15.0 to $17.0 million, not all of which will be payable in fiscal 2021. License fees The $450,001 decrease in license expenses from 2019 to 2020 was attributable to a decrease in license fees accrued or paid. During 2019, we accrued or paid $533,334 of license fees under our license agreements related to DARE-HRT1 and DARE-BV1. During 2020, we accrued or paid $83,333 of license fees under our license agreement related to DARE-HRT1. See Note 3 "License and Collaboration Agreements—In License Agreements" to the accompanying consolidated financial statements for more information about our license agreements. Other income The decrease of $79,536 in other income from 2019 to 2020 was primarily due to a decrease in interest earned on cash balances in 2020. Liquidity and Capital Resources Plan of Operations and Future Funding Requirements We prepared the accompanying consolidated financial statements on a going concern basis, which assumes that we will realize our assets and satisfy our liabilities in the normal course of business. We have a history of losses from operations, we expect negative cash flows from our operations to continue for the foreseeable future, and we expect that our net losses will continue for at least the next several years as we develop and seek to bring to market our existing product candidates and potentially acquire, license and develop additional product candidates. These circumstances raise substantial doubt about our ability to continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and reclassification of assets or the amounts and classifications of liabilities that may result from the outcome of the uncertainty of our ability to remain a going concern. At December 31, 2020, our accumulated deficit was approximately $71.4 million, our cash and cash equivalents were approximately $4.7 million, and our working capital deficit was approximately $0.7 million. For the year ended December 31, 2020, we incurred a net loss of $27.4 million and had negative cash flow from operations of approximately $25.2 million. 87 Our primary uses of capital are, and we expect will continue to be, staff-related expenses, the cost of clinical trials and regulatory activities related to our product candidates, costs associated with contract manufacturing services and third-party clinical research and development services, payments due under license agreements and our merger agreement with Microchips upon the successful achievement of milestones of our product candidates, legal expenses, other regulatory expenses and general overhead costs. Our future funding requirements could also include significant costs related to commercialization of our product candidates, if approved, depending on the type and nature of commercial partnerships we establish. As discussed above, we expect our expenses, and in particular our research and development expenses, to increase significantly in 2021 compared to 2020 as we continue to develop and seek to bring to market our product candidates, with a focus on DARE-BV1, Ovaprene and Sildenafil Cream, 3.6%. To date, we have not obtained any regulatory approvals for any of our product candidates, commercialized any of our product candidates or generated any product revenue, and we cannot anticipate if or when we will generate any revenue. We have devoted significant resources to acquiring our portfolio of product candidates and to research and development activities for our product candidates. We must obtain regulatory approvals to market and sell any of our products in the future. We will need to generate sufficient safety and efficacy data on our product candidates for them to receive regulatory approvals and to be attractive assets for potential strategic partners to license or for pharmaceutical companies to acquire, and for us to generate cash and other license fees related to such product candidates. Based on our current operating plan estimates, we do not have sufficient cash to satisfy our working capital needs and other liquidity requirements over at least the next 12 months from the date of issuance of the accompanying financial statements. Historically, the cash used to fund our operations has come from a variety of sources. During 2020, we received (1) approximately $15.2 million in net proceeds from ATM sales of shares of our common stock; (2) approximately $7.7 million in net proceeds from sales of shares of our common stock under our equity line; (3) approximately $2.5 million under an existing grant from the Bill & Melinda Gates Foundation that funded a portion of research and development expenses for DARE-LARC1; (4) approximately $1.8 million upon the exercise of warrants to purchase 1.8 million shares of our common stock; (5) a $1.0 million upfront non-refundable license fee payment under our license agreement with Bayer HealthCare, LLC, (6) approximately $722,000 under an existing grant from the National Institutes of Health, or NIH, that funded a portion of the Ovaprene PCT clinical study costs; (7) approximately $367,000 under a loan we obtained under the Paycheck Protection Program, or the PPP, of the Coronavirus Aid, Relief and Economic Security Act administered by the U.S. Small Business Administration, or the SBA; and (8) approximately $192,000 in cash under Australia's research and development tax incentive program. From January 1, 2021 and through March 29, 2021, we received (a) approximately $7.4 million in net proceeds from ATM sales of shares of our common stock; (b) approximately $3.9 million in net proceeds from sales of shares of our common stock under our equity line; (c) approximately $139,000 under existing grants from the NIH that funded (i) a portion of the Ovaprene PCT clinical study costs and (ii) a portion of the research and development expenses for DARE-FRT1; and (d) approximately $50,000 upon the exercise of warrants to purchase 52,500 shares of our common stock. We will need to raise substantial additional capital to continue to fund our operations and successfully execute our current operating plan, including the development of our product candidates. We are currently evaluating a variety of capital raising options, including equity and debt financings, government or other grant funding, collaborations and strategic alliances or other similar types of arrangements to cover our operating expenses, including the development of our product candidates and any future product candidates we may license or otherwise acquire. The amount and timing of our capital needs have been and will continue to depend highly on many factors, including the product development programs we choose to pursue and the pace and results of our clinical development efforts. If we raise capital through collaborations, strategic alliances or other similar types of arrangements, we may have to relinquish, on terms that are not favorable to us, rights to some of our technologies or product candidates we would otherwise seek to develop or commercialize. There can be no assurance that capital will be available when needed or that, if available, it will be obtained on terms favorable to us and our stockholders, particularly in light of the effects that the COVID-19 pandemic has recently had on the capital markets and investor sentiment. In addition, equity or debt financings may have a dilutive effect on the holdings of our existing stockholders, and debt financings may subject us to restrictive covenants, operational restrictions and security interests in our assets. If we cannot raise capital when needed, on favorable terms or at all, we will not be able to continue development of our product candidates, will need to reevaluate our planned operations and may need to delay, scale back or eliminate some or all of our development programs, reduce expenses file for bankruptcy, reorganize, merge with another entity, or cease operations. If we become unable to continue as a going concern, we may have to liquidate our assets, and might realize significantly less than the values at which they are carried on our financial statements, and stockholders may lose all or part of their investment in our common stock. See ITEM 1A. "RISK FACTORS—Risks Related to Our Business— We will 88 need to raise additional capital to continue our operations and execute our current product development plans ,” above. Cash Flows The following table shows a summary of our cash flows for the periods indicated: Years Ended December 31, 2020 2019 Net cash used in operating activities $ (25,234,924) $ (13,315,480) Net cash provided by (used in) investing activities (17,625) 6,143,893 Net cash provided by financing activities 25,130,672 5,151,702 Effect of exchange rate changes on cash and cash equivalents 11,237 (5,897) Net decrease in cash $ (110,640) $ (2,025,782) Operating activities Cash used in operating activities during the year ended December 31, 2020 included a net loss of $27.4 million, decreased by non-cash stock-based compensation expense of $742,031. Components providing operating cash were an approximately $1.3 million increase in accrued expenses, a $1.0 million increase in deferred license revenue, a $157,725 increase in other non-current assets and deferred charges and a $95,042 increase in other receivables. Components reducing operating cash were a $454,133 increase in prepaid expenses, a $455,121 decrease in deferred grant funding, and a $61,850 decrease in accounts payable. Cash used in operating activities during the year ended December 31, 2019 included a net loss of $14.3 million, decreased by non-cash stock-based compensation expense of $462,239. Components providing operating cash were a $621,618 increase in accrued expenses, an increase of $608,650 in accounts payable, and an increase of $237,937 in other non-current assets and deferred charges. Components reducing operating cash were a $322,482 increase in prepaid expenses, a $238,109 increase in deferred grant funding, and a $201,423 increase in other receivables. Investing activities Cash used in investing activities during the year ended December 31, 2020 was related to minimal purchases of property and equipment. Cash provided by investing activities during the year ended December 31, 2019 consisted of the approximately $6.1 million of cash of Microchips as of the date we acquired Microchips. Financing activities Cash provided by financing activities during the year ended December 31, 2020 included approximately $15.2 million of net proceeds received from ATM sales of shares of our common stock, approximately $7.7 million of net proceeds received from sales of shares of common stock under our equity line, approximately $1.8 million received upon the exercise of warrants to purchase shares of our common stock, and approximately $367,000 in proceeds received under our PPP loan. Cash provided by financing activities during the year ended December 31, 2019 consisted of proceeds from the underwritten public offering completed in April 2019. Off-Balance Sheet Arrangements We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under applicable SEC rules. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Under SEC rules and regulations, as a smaller reporting company we are not required to provide the information required by this item. 89 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Our consolidated financial statements required to be included in this Item 8 are set forth in a separate section of this report commencing on page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.