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Item 7. Management’s Discussion and Analysis

2024-04-01 compared with 2023-03-02 · 166 added, 143 removed, 208 unchanged (60% of the section changed)

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We are a clinical-stage biotechnology company discovering and developing tumor-activated immuno-oncology, or I-O, therapies with the goal of significantly improving outcomes for people living with cancer without the systemic side effects of current I-O treatments.

We are leveraging our proprietary geographically precise solutions, or GPS, platform to build a pipeline of novel, tumor-activated molecules, including cytokines and other biologics, which are designed to optimize their therapeutic index by localizing anti-tumor activity within the tumor microenvironment.

Current I-O therapies have

curative potential for patients with cancer;

We are leveraging our proprietary platform to build a pipeline of novel, tumor-activated I-O molecules that are designed to optimize the therapeutic index by localizing anti-tumor activity within the tumor microenvironment, including tumor-activated cytokines and antibodies (including bispecifics) and immune cell engagers (including tumor-activated cell engagers and tumor-activated effector-enhanced cell engagers).

Current I-O therapies have curative potential for patients with cancer;

however, their potential is significantly curtailed by systemic toxicity that results from activity of the therapeutic molecule outside the tumor microenvironment.

Our molecules are engineered to localize activity within the tumor microenvironment with minimal systemic effects, resulting in the potential to achieve enhanced anti-tumor activity and increasing the population of patients who may be eligible to receive our medicines.

Our most advanced tumor-activated, clinical-stage product candidates are XTX202, an interleukin 2, or IL-2, therapy, XTX301, an interleukin 12, or IL-12, therapy and XTX101, an Fc-enhanced, anti-CTLA-4 monoclonal antibody, or mAb.

In addition to our clinical-stage product candidates, we are continuing to leverage our GPS platform and expertise in developing tumor-activated I-O therapies as we seek to expand our pipeline of discovery-stage programs and develop additional tumor-activated immunotherapies, including product candidates with a range of tumor targeting approaches.

Our most advanced tumor-activated, clinical-stage product candidates are XTX101, an Fc-enhanced, anti-CTLA-4 monoclonal antibody, or mAb, XTX301, an interleukin 12, or IL-12, therapy, and XTX202, an interleukin 2, or IL-2, therapy.

In 2023, we presented clinical data across these programs showing initial clinical validation for each of these molecules and our tumor-activated approach.

In addition to our clinical-stage product candidates, we are continuing to leverage our differentiated research platform and expertise in developing tumor-activated I-O therapies to advance preclinical development for tumor-activated bispecific molecules and immune cell engager molecules (including tumor-activated cell engagers and tumor-activated effector-enhanced cell engagers).

To date, we have financed our operations primarily from proceeds raised through private placements of preferred units and convertible preferred stock, a debt financing and our initial public offering, or IPO, of common stock in October 2021.

Through December 31, 2022, we have received an aggregate of $350.9 million in net proceeds from such transactions, including aggregate net proceeds of $116.4 million from our IPO, an aggregate of $224.5 million in net proceeds from the sale and issuance of preferred units and convertible preferred stock, and $10.0 million in net proceeds from our debt financing with Pacific Western Bank, or PacWest.

We are party to a sales agreement with Cowen and Company LLC, or Cowen, under which we may issue and sell shares of our common stock, from time to time, having an aggregate offering price of up to $75.0 million, subject to the terms and conditions of the sales agreement.

As of December 31, 2022, we have not issued or sold any of our common stock pursuant to the sales agreement and $75.0 million of shares of common stock remain available to be sold pursuant to the sales agreement, which sales, if any, would be made under our universal shelf registration statement on Form S-3, or the 2022 Shelf.

We have not generated any revenue from product sales and do not expect to generate any revenue from product sales for at least the next several years, if at all.

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Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our product candidates, if approved.

Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve profitability.

Even if we are able to generate revenue from product sales, we may not become profitable.

Recent Developments

Exclusive License Agreement with Gilead

On March 27, 2024, our wholly-owned subsidiary, Xilio Development, Inc., or Xilio Development, entered into an exclusive license agreement with Gilead Sciences, Inc., or Gilead, pursuant to which it granted Gilead an exclusive global

license to develop and commercialize XTX301, our tumor-activated IL-12 product candidate, and specified other molecules directed to IL-12.

Xilio Development will be responsible for conducting clinical development for XTX301 in the ongoing Phase 1 clinical trial through an initial planned Phase 2 dose expansion.

Following the delivery by Xilio Development of a specified clinical data package for XTX301 related to the Phase 1 clinical trial and planned Phase 2 clinical trial, Gilead can elect to transition responsibilities for the development and commercialization of XTX301 to Gilead, subject to the terms of the license agreement and payment by Gilead of a $75.0 million transition fee.

Under the license agreement, we are eligible to receive approximately $43.5 million in upfront payments, including a cash payment of $30.0 million and an initial equity investment by Gilead of approximately $13.5 million of our common stock at a purchase price of $1.97 per share.

The initial equity investment closed on March 28, 2024, and the $30.0 million upfront cash payment is payable by Gilead within a specified time period promptly following signing of the license agreement.

We will be eligible to receive up to $604.0 million in additional contingent payments, which include (i) the proceeds from up to three additional private placements of common stock, (ii) the $75.0 million transition fee and (iii) specified development, regulatory and sales-based milestones.

Prior to the potential transition fee, up to $29.0 million of the total contingent payments are related to the potential additional private placements of common stock and a near-term development milestone.

In addition, we are eligible to receive tiered royalties ranging from high single digits to mid-teens on annual global net product sales.

In connection with the execution of the license agreement, on March 27, 2024, we entered into a stock purchase agreement with Gilead.

In addition to the initial equity investment by Gilead of approximately $13.5 million of our common stock, through March 27, 2025, we may, at our election and subject to the terms and conditions of the stock purchase agreement, cause Gilead to purchase up to approximately $11.5 million of additional shares of common stock (including, at Gilead’s sole election, prefunded warrants in lieu of shares of common stock) in up to three additional private placements at a predetermined price per share specified therein, at all times subject to Gilead not being deemed the beneficial owner of greater than 19.9% of our common stock upon the closing of the applicable additional private placement with Gilead.

If Gilead elects to purchase prefunded warrants, each prefunded warrant will have an exercise price of $0.0001 per share of common stock, be immediately exercisable and remain exercisable until exercised in full.

Gilead may not exercise its prefunded warrants to the extent that it would beneficially own more than 19.99% of the number of shares of common stock outstanding immediately after giving effect to such exercise.

Any prefunded warrants that may be issued to Gilead in an additional private placement with Gilead will be in substantially the same form as the prefunded warrants issued to investors in the March 2024 private placement.

March 2024 Private Placement

On March 28, 2024, we entered into a securities purchase agreement with certain existing accredited investors, including Bain Capital Life Sciences and Rock Springs Capital, to issue and sell an aggregate of 1,953,125 shares of our common stock at a price of $0.64 per share and prefunded warrants to purchase up to an aggregate of 15,627,441 shares of our common stock at a purchase price of $0.6399 per prefunded warrant share, through a private investment in public equity financing.

The prefunded warrants will have an exercise price of $0.0001 per share of common stock, be immediately exercisable and remain exercisable until exercised in full.

We anticipate receiving aggregate gross proceeds from the private placement of approximately $11.3 million, before deducting placement agent fees and expenses payable by us.

The private placement is expected to close on April 2, 2024, subject to the satisfaction of customary closing conditions.

We expect to use the proceeds from the private placement to fund working capital and other general corporate purposes.

Strategic Portfolio Reprioritization and Workforce Reduction

On March 27, 2024, our board of directors approved a strategic portfolio reprioritization and restructuring.

As part of the strategic portfolio reprioritization and restructuring, we plan to:

● focus on rapidly advancing clinical development for XTX301 and XTX101 and leveraging our promising research platform to advance differentiated bispecific and cell-engager molecules;

● discontinue further investment in XTX202 as a monotherapy and explore strategic opportunities to continue to develop XTX202 with other agents;

● undertake efforts to further reduce our expenses and streamline our operations, including a reduction in headcount of 15 employees, representing approximately 21% of our workforce immediately prior to the workforce reduction.

Repayment of Loan and Security Agreement

In the first quarter of 2024, we repaid all amounts outstanding under the loan and security agreement, as amended, with Pacific Western Bank, or PacWest, and PacWest released all security interests in our and our affiliates’ assets.

Liquidity and Going Concern Overview

Since inception, we have incurred significant operating losses, including net losses of $76.4 million and $88.2 million for the years ended December 31, 2023 and 2022, respectively.

As of December 31, 2023, we had an accumulated deficit of $325.5 million.

We expect to incur significant expenses and operating losses for the foreseeable future.

We anticipate that our expenses will continue to increase significantly in connection with our ongoing activities, particularly as we:

We expect to continue to incur significant expenses and operating losses for the foreseeable future, particularly to the extent we:

● continue to advance our current research programs and conduct additional research programs;

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As a result, we will need substantial additional capital to support our continuing operations and pursue our strategy

Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of equity offerings, debt financings and other sources of funding, such as collaborations, licensing arrangements or other strategic transactions.

We may be unable to raise additional capital or enter into such other agreements or arrangements when needed on acceptable terms, or at all.

Our failure to raise capital or enter into such agreements as and when needed could have a material adverse effect on our business, results of operations and financial condition.

Even if we are able to generate revenue from product sales, we may not become profitable.

If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.

As of December 31, 2023, we had cash and cash equivalents of $44.7 million.

We believe that our existing cash and cash equivalents will be sufficient to enable us to fund our operating expenses and capital expenditure requirements into the second quarter of 2024.

Note Regarding the COVID-19 Pandemic

The impact of the COVID-19 pandemic continues to be widespread, rapidly-evolving and unpredictable on global societies, economies, financial markets, supply chains and business practices.

The extent of the impact of the COVID-19 pandemic, including variants of the COVID-19 virus, on our business, operations, and clinical development timelines and plans remains uncertain.

For a discussion regarding risks and uncertainties related to the impact of the COVID-19 pandemic and its potential impact on our business and financial results, please refer to our “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K.

Based on our current operating plans, we anticipate that our cash and cash equivalents as of December 31, 2023, together with (i) the $30.0 million upfront payment under the license agreement with Gilead, (ii) the approximately $13.5 million in proceeds from the initial private placement with Gilead, which closed on March 28, 2024, and (iii) the approximately $11.3 million in gross proceeds from our private placement, which is expected to close on April 2, 2024 (subject to customary closing conditions), and after giving effect to (a) one-time costs and anticipated future cost savings associated with our strategic portfolio reprioritization and workforce reduction announced in March 2024 and (b) the repayment in the first quarter of 2024 of the outstanding loan balance under our loan and security agreement with Pacific Western Bank, will be sufficient to fund our operating expenses and capital expenditure requirements into the second quarter of 2025.

However, we have based this estimate on

assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we anticipate.

In addition, since these amounts may not be sufficient to fund our operations for at least twelve months from the date of issuance of the consolidated financial statements included elsewhere in this Annual Report on Form 10-K, there is substantial doubt about our ability to continue as a going concern.

Our management has developed plans to fund our operations, which primarily consist of raising additional capital through one or more of the following:

additional equity or debt financings;

additional collaborations, partnerships or licensing transactions;

or other sources.

However, there can be no assurance that we will be able to complete any such transaction on acceptable terms or otherwise, and we may be unable to obtain sufficient additional capital.

If we are not able to secure sufficient additional capital in the near term, we may in the future need to implement additional cost reduction strategies, which could include delaying, limiting, further reducing or eliminating both internal and external costs related to our operations and research and development programs.

For more information, refer to “—Liquidity and Capital Resources—Capital Requirements and Going Concern” below and Note 1 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Financial Operations Overview

We have not generated any revenue since inception and do not expect to generate any revenue from the sale of products for at least the next several years, if at all.

If our development efforts for our current or future product candidates are successful and result in regulatory approval or if we enter into collaboration or license agreements with third parties, we may generate revenue in the future from product sales or payments from third-party collaborators or licensors.

If our development efforts for our current or future product candidates are successful and result in regulatory approval, we may generate revenue in the future from product sales.

In March 2024, Xilio Development entered into the license agreement with Gilead pursuant to which we are eligible to receive $43.5 million of upfront payments, including a cash payment of $30.0 million and an initial equity investment by Gilead of approximately $13.5 million of our common stock at a purchase price of $1.97 per share.

Operating Expenses

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These expenses include:

● personnel-related expenses, including salaries, bonuses, benefits and equity-based compensation expense for employees engaged in research and development functions;

● personnel-related expenses, including salaries, bonuses, benefits and stock-based compensation expense for employees engaged in research and development functions;

● costs incurred with third-party contract development and manufacturing organizations, or CDMOs, to acquire, develop and manufacture materials for both preclinical studies and current or future clinical trials;

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● costs incurred with third-party contract research organizations, or CROs, and other third parties in connection with the conduct of our current or future clinical trials;

● costs of sponsored research agreements and outside consultants, including their fees, equity-based compensation and related expenses;

● costs of sponsored research agreements and outside consultants, including their fees and related expenses;

● costs incurred to maintain compliance with regulatory requirements;

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● expenses incurred for the procurement of materials, laboratory supplies and non-capital equipment used in the research and development process;

● depreciation, amortization and other direct and allocated expenses, including rent, insurance, maintenance of facilities and other operating costs, incurred as a result of our research and development activities.

● depreciation, amortization and other direct and allocated expenses, including rent, maintenance of facilities and other operating costs, incurred as a result of our research and development activities.

We expense research and development costs as incurred.

We recognize external development costs based on an evaluation of the progress to completion of specific deliverables using information provided to us by our vendors.

Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our financial statements as prepaid expenses or accrued research and development expenses.

Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our consolidated balance sheets as prepaid expenses or accrued research and development expenses.

We record cost-sharing payments under our clinical trial collaboration with F.

Hoffmann-La Roche Ltd., which we refer to as the Roche clinical collaboration, as a reduction of research and development costs upon the achievement of each study development event specified in the clinical supply agreement.

Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are capitalized as assets, even when there is no alternative future use for the research and development.

The capitalized amounts are expensed as the related goods are delivered or the services are performed.

We use our personnel and infrastructure resources for our discovery efforts, including the advancement of our GPS platform, developing programs and product candidates and managing external research efforts.

We use our personnel and infrastructure resources for our discovery efforts, including the advancement of our platform technology, developing programs and product candidates and managing external research efforts.

A significant portion of our research and development costs have been, and will continue to be, external costs.

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Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials.

We expect that our research and development expenses will continue to increase for the foreseeable future as we advance our programs and product candidates into and through clinical development, and as we continue to develop additional product candidates.

We also expect our discovery research efforts and our related personnel costs will continue to increase and, as a result, we expect our research and development expenses, including costs associated with equity-based compensation, will continue to increase above historical levels.

In addition, we may incur additional expenses related to milestone and royalty payments payable to third parties with whom we have entered into, or may enter into license, acquisition, option or other agreements to acquire the rights to future products and product candidates.

We expect that our research and development expenses will remain approximately the same or will continue to increase for the foreseeable future as we advance our programs and our current or future product candidates into and through the development phase.

We expect our discovery research efforts and our related personnel costs to remain consistent with historical levels.

In addition, as we progress our most advanced product candidates in clinical development, we may incur additional expenses related to milestone and royalty payments payable to third parties with whom we have entered into, or may enter into license, acquisition, option or other agreements to acquire the rights to future products and product candidates.

In the event we are unable to raise sufficient additional capital in the near term to fund our operations, we will be required to adopt cost reduction strategies that seek to maintain our ability to continue the development of our most advanced product candidates in clinical development while otherwise reducing our overall research and development expenses.

At this time, we cannot reasonably estimate or know the nature, timing and projected costs of the efforts that will be necessary to complete the development of, and obtain regulatory approval for, any of our product candidates or programs.

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● the number and scope of preclinical and clinical programs we decide to pursue;

● our ability to maintain our current research and development programs and to establish new ones;

● our ability to implement and maintain cost reduction strategies, as well as the timing of such cost reductions;

● our ability to maintain our current research and development programs;

● our ability to establish an appropriate safety profile for our product candidates with IND-enabling studies;

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● our successful enrollment in and completion of clinical trials;

● our ability to successfully complete clinical trials with safety, potency and purity profiles that are satisfactory to the FDA or any comparable foreign regulatory authority;

● our ability to successfully complete clinical trials with safety, potency and purity profiles that are satisfactory to the U.S.

Food and Drug Administration, or the FDA, or any comparable foreign regulatory authority;

● our receipt of regulatory approvals from applicable regulatory authorities;

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● general economic conditions, including inflation.

● the impact of public health crises, including epidemics and pandemics such as the COVID-19 pandemic, on our business, operations, strategy, goals and anticipated milestones, as well as our response to such epidemics or pandemics.

A change in any of these variables with respect to the development of any of our product candidates would significantly change the costs, timing and viability associated with the development of that product candidate.

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General and Administrative Expenses

General and administrative expenses consist primarily of personnel-related costs, including salaries, bonuses, benefits, recruiting and equity-based compensation, for personnel in our executive, finance, legal, business development, human resources and other administrative functions.

General and administrative expenses consist primarily of personnel-related costs, including salaries, bonuses, benefits, recruiting and stock-based compensation, for personnel in our executive, finance, legal, business development, human resources and other administrative functions.

General and administrative expenses also include legal fees relating to corporate matters;

professional and consulting fees for accounting, auditing, tax, human resources and administrative consulting services;

board of directors’ fees;

insurance costs;

and facility-related expenses, which include depreciation costs and other allocated expenses for rent, maintenance of facilities, and other general administrative costs.

These costs relate to the operation of

the business and are in support of but separate from the research and development function and our individual development programs.

These costs relate to the operation of the business and are in support of but separate from the research and development function and our individual development programs.

Costs to secure and defend our intellectual property are expensed as incurred and are classified as general and administrative expenses.

We anticipate that our general and administrative expenses will increase in the future as we increase infrastructure to support the expected growth in our research and development activities.

We also expect to continue to incur increased expenses associated with operating as a public company, including increased costs of accounting, audit, legal, regulatory and tax-related services attributable to maintaining compliance with exchange listing standards and Securities and Exchange Commission, or SEC, requirements, director and officer insurance costs and investor and public relations costs.

We also expect to incur additional intellectual property-related expenses as we file patent applications to protect intellectual property arising from our research and development activities.

Other Income (Expense), Net

Other income (expense), net consists primarily of interest income earned from our cash and cash equivalents.

This interest income is partially offset by interest expense principally on the note payable under our debt arrangement with PacWest and gains or losses associated with changes in the fair value of contingent liabilities associated with the consummation of specified transactions, including our IPO.

Upon completion of our IPO in October 2021, our contingent liability with PacWest and our other contingent derivative liability became due and payable.

These fees were paid during the fourth quarter of 2021 and as a result, no further gains or losses will be recognized related to those contingent liabilities.

We anticipate that our general and administrative expenses will remain consistent with historical levels as we maintain our infrastructure to support our research and development activities.

We also expect to continue to incur significant expenses associated with operating as a public company, including increased costs of accounting, audit, legal, regulatory and tax-related services attributable to maintaining compliance with exchange listing standards and U.S.

Securities and Exchange Commission, or SEC, requirements, directors’ and officers’ liability insurance costs and investor and public relations costs.

We also expect to continue to incur additional expenses related to intellectual property as we file patent applications to protect intellectual property arising from our research and development activities.

In the event we are unable to obtain sufficient additional capital in the near term, we will need to implement cost reduction strategies that seek to reduce our

general and administrative expenses while maintaining sufficient infrastructure to support our planned research and development activities and operations as a public company.

Other Income, Net

Other income, net consists primarily of interest income earned from our cash and cash equivalents, interest expense principally on the note payable under our debt arrangement with PacWest and amortization of the debt discount related to debt issuance costs.

Since our inception, we have not recorded any U.S.

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These loss carryforwards are available to reduce future federal taxable income, if any.

As of December 31, 2022, we also had federal and state research and development carryforwards of approximately $5.2 million and $2.5 million, respectively, which may be available to offset any future income tax and which will begin to expire in 2033.

As of December 31, 2023, we also had federal and state research and development credit carryforwards of approximately $7.8 million and $3.1 million, respectively, which may be available to offset any future income tax and which will begin to expire in 2033.

These loss and credit carryforwards are subject to review and possible adjustment by the appropriate taxing authorities.

Utilization of our NOL carryforwards and research and development credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that have occurred previously or that could occur in the future in accordance with Section 382 of the Internal Revenue Code of 1986, or Section 382, as well as similar state provisions.

These ownership changes may limit the amount of NOL and research and development credit carryforwards that can be utilized annually to offset future taxable income and taxes, respectively.

These “ownership changes”, as defined by Section 382, may limit the amount of NOL and research and development credit carryforwards that can be utilized annually to offset future taxable income and taxes, respectively.

In general, an ownership change as defined by Section 382 results from transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more than 50% over a three-year period.

Since our formation, we have raised capital through the issuance of units and capital stock on several occasions.

These financings may have resulted in a change of control as defined by Section 382.

These financings may have resulted in an “ownership change”.

We have not yet completed a detailed study of our inception to date “ownership change” activity.

In addition, we have not yet conducted a study of our research and development credit carry forwards.

In addition, we have not yet conducted a study of our research and development credit carryforwards.

Such a study may result in an adjustment to our research and development credit carryforwards;

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Loss from operations

Other income (expense), net

Total other income (expense), net

Other income, net

Total other income, net

Research and Development Expenses

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Other early programs and indirect research and development

Personnel-related (including equity-based compensation)

Personnel-related

Total research and development expenses

Research and development expenses increased by $8.0 million from $51.2 million for the year ended December 31, 2021 to $59.2 million for the year ended December 31, 2022.

The increase in research and development expenses was primarily due to the following:

● $6.8 million increase in expenses incurred in connection with XTX301, primarily driven by an increase of approximately $4.6 million in manufacturing activities, an increase of approximately $1.2 million related to preclinical development activities and an increase of approximately $1.0 million in clinical development activities related to our Phase 1 clinical trial for XTX301;

● $5.3 million increase in personnel-related costs, primarily driven by higher research and development headcount and a corresponding increase of approximately $4.2 million in salaries, bonuses and benefits, and an increase of approximately $1.1 million in equity-based compensation;

● $3.4 million increase in other early programs and indirect research and development expenses, primarily driven by an increase in manufacturing activities and external expenses related to preclinical research and development activities;

● $2.8 million increase in clinical development activities related to our Phase 1 clinical trial for XTX202, which were offset by decreases in manufacturing expenses and preclinical expenses for XTX202 of approximately $6.6 million and $3.8 million, respectively, as the program advanced further into clinical development in 2022.

Research and development expenses decreased by $7.1 million from $59.2 million for the year ended December 31, 2022 to $52.1 million for the year ended December 31, 2023.

The decrease in research and development expenses was primarily due to the following:

● XTX101 costs decreased by $4.6 million, primarily driven by a $2.0 million cost-sharing payment that we earned under our Roche clinical collaboration and recorded as a reduction in research and development expenses and a decrease of manufacturing costs of $2.2 million due to costs associated with the production of drug substance and drug product incurred during the year ended December 31, 2022 for which there were no comparable costs during the year ended December 31, 2023;

● XTX202 costs increased by $3.6 million, primarily driven by a $5.3 million increase in clinical development activities related to our Phase 1/2 clinical trial, partially offset by a $1.3 million decrease in manufacturing activities and a $0.2 million decrease in preclinical activities;

● XTX301 costs decreased by $5.0 million, primarily driven by a $4.6 million decrease in manufacturing activities relating to the initial supply of clinical trial material in the comparable period, a $2.4 million decrease in preclinical activities and a $0.2 million decrease in regulatory activities relating to the filing of our investigational

new drug application in the comparable period, partially offset by a $2.3 million increase in clinical development activities related to our Phase 1 clinical trial;

● personnel-related costs decreased by $1.1 million, primarily driven by a $0.6 million decrease in salaries, bonuses and benefits due to lower research and development headcount, which was partially offset by an increase in average compensation, a $0.3 million decrease in stock-based compensation and a $0.2 million decrease in recruiting costs.

General and Administrative Expenses

The following table summarizes our general and administrative expenses for the years ended December 31, 2023 and 2022 (in thousands):

Personnel-related (including equity-based compensation)

Personnel-related

Professional and consulting fees

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Total general and administrative expenses

General and administrative expenses increased by $6.1 million from $23.9 million for the year ended December 31, 2021 to $29.9 million for the year ended December 31, 2022.

The increase in general and administrative expenses was primarily due to the following:

● $4.0 million increase in personnel-related costs, primarily driven by higher general and administrative headcount and a corresponding increase of approximately $2.3 million in salaries, bonuses and benefits, and an approximately $2.3 million increase in equity-based compensation, which includes approximately $0.6 million in non-recurring compensation expense resulting from the modification of previously issued stock options, partially offset by a decrease of approximately $0.6 million in recruiting costs;

● $2.8 million increase in facility-related and other general and administrative expenses, primarily driven by increases in costs incurred as a result of becoming a publicly traded company, including directors’ and officers’ liability insurance and other corporate related costs associated with increased overall corporate headcount;

● These increases were partially offset by a $0.7 million decrease in professional and consulting fees.

Other Income (Expense), Net

Other income (expense), net changed by $1.7 million from other expense of $0.8 million for the year ended December 31, 2021 to other income of $0.9 million for the year ended December 31, 2022.

The change in other income (expense), net was primarily due to an increase in interest income earned from higher interest rates on higher average cash balances as a result of the net proceeds received from our IPO.

General and administrative expenses decreased by $3.0 million from $29.9 million for the year ended December 31, 2022 to $27.0 million for the year ended December 31, 2023.

The decrease in general and administrative expenses was primarily due to the following:

● personnel-related costs decreased by $0.9 million, primarily driven by a $0.8 million decrease in stock-based compensation, as the prior year period included $0.6 million in non-recurring compensation expense resulting from the modification of previously issued stock options;

● professional and consulting fees decreased by $1.0 million, primarily driven by a decrease in consulting fees;

● facility-related and other general and administrative expenses decreased by $1.0 million, primarily driven by lower costs related to directors’ and officers’ liability insurance and a reduction in other general and administrative expenses.

Other Income, Net

Other income, net increased by $1.8 million from $0.9 million for the year ended December 31, 2022 to $2.7 million for the year ended December 31, 2023.

The increase in other income, net was primarily due to an increase in interest income earned on our cash and cash equivalents due to higher interest rates and lower interest expense on our note payable under our debt arrangement with PacWest as a result of the commencement of the repayment of principal beginning in January 2023.

Liquidity and Capital Resources

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We have not yet commercialized any of our product candidates, which are in preclinical or early clinical development, and we do not expect to generate revenue from sales of any products for several years, if at all.

To date, we have financed our operations primarily from proceeds raised through private placements of preferred units and convertible preferred stock, a debt financing and our IPO.

Through December 31, 2023, we have received an aggregate of

$350.9 million in net proceeds from such transactions, including $116.4 million in net proceeds from our IPO, $224.5 million in net proceeds from the sale and issuance of preferred units and convertible preferred stock, and $10.0 million in net proceeds from our debt financing with PacWest.

As of December 31, 2023, we had cash and cash equivalents of $44.7 million.

In November 2022, we entered into a sales agreement with Cowen, under which we may issue and sell shares of our common stock, from time to time, having an aggregate offering price of up to $75.0 million, subject to the terms and conditions of the sales agreement.

Under the license agreement with Gilead, we are eligible to receive approximately $43.5 million in upfront payments, including a cash payment of $30.0 million and an initial equity investment by Gilead of approximately $13.5 million of our common stock at a purchase price of $1.97 per share.

On March 28, 2024, we entered into a securities purchase agreement with certain existing accredited investors pursuant to which we expect to receive approximately $11.3 million of gross proceeds upon closing of the March 2024 private placement, which is expected to close on April 2, 2024 (subject to customary closing conditions).

In November 2022, we filed a universal shelf registration statement on Form S-3 with the SEC, or Form S-3, to register for sale up to $250,000,000 of our common stock, preferred stock, debt securities, units and warrants, which we may issue and sell from time to time in one or more offerings, which became effective on November 18, 2022 (333-268264).

In November 2022, we also entered into a sales agreement, or the Sales Agreement, with Cowen and Company LLC, under which we may issue and sell shares of our common stock, from time to time, having an aggregate offering price of up to $75.0 million, subject to the terms and conditions of the Sales Agreement.

Through the filing date of this Annual Report on Form 10-K, we have not issued or sold any shares of our common stock pursuant to the Sales Agreement.

Issuances or sales of common stock pursuant to the Sales Agreement, if any, would be made under the Form S-3 and the corresponding prospectus related to the issuance and sale of shares of common stock pursuant to the Sales Agreement.

The following table provides information regarding our cash flows for each period presented (in thousands):

Net cash provided by (used in):

Net cash used in:

Operating activities

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Financing activities

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

Net decrease in cash, cash equivalents and restricted cash

Operating Activities

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We have historically experienced negative cash flows from operating activities as we invested in research and development of our product candidates, including preclinical studies, clinical trials, manufacturing and manufacturing process development.

The cash used in operating activities resulted primarily from our net losses adjusted for non-cash charges, which are generally due to equity-based compensation, depreciation and amortization, as well as changes in components of operating assets and liabilities, which are generally due to increased expenses and timing of vendor payments.

During the year ended December 31, 2022, net cash used in operating activities of $75.7 million was primarily due to our net loss of $88.2 million, partially offset by net non-cash expenses of $10.5 million and changes in operating assets and liabilities of $2.0 million.

The cash used in operating activities resulted primarily from our net losses adjusted for non-cash charges, which are generally due to stock-based compensation, depreciation and amortization, as well as changes in components of operating assets and liabilities, which are generally due to increased expenses and timing of vendor payments.

During the year ended December 31, 2023, net cash used in operating activities of $68.6 million was primarily due to our net loss of $76.4 million and changes in operating assets and liabilities of $1.7 million, partially offset by net non-cash expenses of $9.4 million.

Investing Activities

During the years ended December 31, 2022 and 2021, net cash used in investing activities of $1.9 million and $1.1 million, respectively, was primarily due to purchases of property and equipment.

During the years ended December 31, 2023 and 2022, net cash used in investing activities of $0.5 million and $1.9 million, respectively, was due to purchases of property and equipment.

Financing Activities

During the year ended December 31, 2023, net cash used in financing activities of $6.5 million consisted of repayments of debt principal and payments on our finance lease for certain lab equipment, partially offset by proceeds from the issuance of common stock under our employee stock purchase plan and the exercise of stock options.

During the year ended December 31, 2022, net cash used in financing activities of $0.1 million consisted primarily of payments on our finance lease for certain lab equipment, partially offset by proceeds received from the exercise of stock options.

During the year ended December 31, 2021, net cash provided by financing activities of $260.7 million consisted primarily of proceeds from the sale and issuance of our Series B convertible preferred stock, the sale and issuance of our Series C convertible preferred stock and from the sale and issuance of common stock from our IPO.

Capital Requirements

We expect our future capital requirements to increase substantially over time in connection with our ongoing research and development activities, particularly as we advance our current and planned clinical development of our product candidates and expand the research efforts and preclinical activities associated with our other existing programs and discovery platform.

Capital Requirements and Going Concern

We expect our future capital requirements to increase substantially over time in connection with our ongoing research and development activities, particularly as we advance our current and planned clinical development of our product candidates and maintain the research efforts and preclinical activities associated with our other existing programs and discovery platform.

In addition, we expect to continue to incur additional costs associated with operating as a public company.

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As of December 31, 2023, we had cash and cash equivalents of $44.7 million.

We believe that our existing cash and cash equivalents will be sufficient to enable us to fund our operating expenses and capital expenditure requirements into the second quarter of 2024.

We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect.

Because of the numerous risks and uncertainties associated with product development, and because the extent to which we may enter into collaborations with third parties for the development of our product candidates is unknown, we may incorrectly estimate the timing and amounts of increased capital outlays and operating expenses associated with advancing the research and development of our product candidates.

Based on our current operating plans, we anticipate that our cash and cash equivalents as of December 31, 2023, together with (i) the $30.0 million upfront payment under the license agreement with Gilead, (ii) the approximately $13.5 million in proceeds from the initial private placement with Gilead, which closed on March 28, 2024, and (iii) the approximately $11.3 million in gross proceeds from our private placement, which is expected to close on April 2, 2024 (subject to customary closing conditions), and after giving effect to (a) one-time costs and anticipated future cost savings associated with our strategic portfolio reprioritization and workforce reduction announced in March 2024 and (b) the repayment in the first quarter of 2024 of the outstanding loan balance under our loan and security agreement with PacWest, will be sufficient to fund our operating expenses and capital expenditure requirements into the second quarter of 2025.

However, we have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we anticipate.

Our management has developed plans to fund our operations, which primarily consist of raising additional capital through one or more of the following:

additional equity or debt financings;

additional collaborations, partnerships or licensing transactions;

or other sources.

However, there can be no assurance that we will be able to complete any such transaction on acceptable terms or otherwise, and we may be unable to obtain sufficient additional capital.

The accompanying consolidated financial statements included elsewhere in this Annual Report on Form 10-K have been prepared on a going

concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business for the foreseeable future.

The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

Because of the numerous risks and uncertainties associated with product development, and because the extent to which we may enter into additional collaborations with third parties for the development of our product candidates is unknown, we may incorrectly estimate the timing and amounts of increased capital outlays and operating expenses associated with advancing the research and development of our product candidates.

Our funding requirements and timing and amount of our operating expenditures will depend on many factors, including, but not limited to:

● the scope, progress, results and costs of research and development for our current and future product candidates, including our current and planned clinical trials for our clinical-stage cytokine product candidates, XTX202 and XTX301, and ongoing preclinical development for our current and future product candidates;

● the scope, progress, results and costs of research and development for our current and future product candidates, including our current and planned clinical trials for our clinical-stage product candidates, XTX101, XTX301 and XTX202, and ongoing preclinical development for our current and future product candidates;

● our ability to implement and maintain cost reduction strategies, as well as the timing of such cost reductions;

● the scope, prioritization and number of our research and development programs;

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● the extent to which we may acquire or in-license other products, product candidates, technologies or intellectual property, as well as the terms of any such arrangements;

● our ability to seek, establish and maintain a collaboration to further develop XTX101, our Fc-enhanced, tumor-activated anti-CTLA-4, with a collaborator, including the financial terms and any cost-sharing arrangements of any such collaboration;

● the costs of continuing to expand our operations and operating as a public company.

● our ability to maintain our clinical collaboration to further develop XTX101, our Fc-enhanced, tumor-activated anti-CTLA-4, in combination with atezolizumab, including the cost-sharing arrangements of such collaboration;

● the timing and amount of milestones, equity investments and other contingent payments under our partnership with Gilead for XTX301;

● the costs of maintaining our operations and continuing to operate as a public company;

● whether we are able to overcome the substantial doubt about our ability to continue as a going concern.

Identifying potential product candidates and conducting preclinical studies and clinical trials is a time consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain regulatory approval and achieve product sales.

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Our expectation with respect to our ability to fund our currently planned operations is based on estimates that are subject to various risks and uncertainties.

Our operating plan may change as a result of many factors currently unknown to management and there can be no assurance that our current operating plan will be achieved in the time frame anticipated by us, and we may need to seek additional capital sooner than anticipated.

Our operating plan may change as a result of many factors currently unknown to management and there can be no assurance that our current operating plan will be achieved in the time frame anticipated by us, and we may exhaust our available capital resources sooner than we expect.

Adequate additional capital may not be available to us on acceptable terms, or at all.

Market volatility resulting from the COVID-19 pandemic, adverse changes in domestic and international fiscal, monetary and other policies and political relations, regional or global conflicts, uncertainty around global economic conditions, or other factors could also adversely impact our ability to access capital as and when needed.

Market volatility resulting from adverse changes in domestic and international fiscal, monetary and other policies and political relations, regional or global conflicts, uncertainty around global economic conditions, instability in financial markets, current or future pandemics or other factors could also adversely impact our ability to access capital as and when needed.

To the extent that we raise additional capital through the sale of equity or securities convertible into or exchangeable for equity, the ownership interest of our existing stockholders may be diluted, and the terms of such securities may include liquidation or other preferences that adversely affect the rights of our existing stockholders.

Additional debt and preferred equity, if available, may also 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 and may require that we issue warrants, which could potentially dilute the ownership interest of our existing stockholders.

If we raise additional capital through collaborations, partnerships, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our intellectual property, future revenue streams, research programs or product candidates or products, and we may be required to grant licenses on terms that may not be favorable to us.

If we are unable to raise additional capital through equity or debt offerings when needed, we may have to significantly delay, reduce or eliminate some or all of our product development or future commercialization efforts, or grant rights to develop and market product candidates or products that we would have otherwise preferred to develop and market ourselves.

Contractual Obligations

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Loan and Security Agreement

In November 2019, we entered into a loan and security agreement with PacWest, as amended, which we refer to as the loan agreement, under which we borrowed $10.0 million under a term loan, which amount remains outstanding.

Borrowings under the loan agreement are collateralized by substantially all of our assets, excluding intellectual property.

Interest on amounts outstanding accrues at a variable annual rate equal to the greater of (i) the prime rate plus 0.25% or (ii) 4.75%.

As of December 31, 2022, the interest rate on the term loan is 7.75%.

We were required to make interest-only payments on any outstanding balances through December 31, 2022.

We commenced making equal monthly payments of principal plus interest in January 2023, and we will be required to make such payments until the term loan matures on June 30, 2024.

Under the loan agreement, we paid a one-time success fee of $0.8 million to PacWest in the fourth quarter of 2021 upon the closing of our IPO.

The loan agreement contains customary representations, warranties and covenants and also includes customary events of default, including payment defaults, breaches of covenants, a change of control and occurrence of a material adverse effect.

In November 2019, we entered into a loan and security agreement with PacWest, as amended, which we refer to as the loan agreement, under which we borrowed $10.0 million under a term loan.

Borrowings under the loan agreement were collateralized by substantially all of our assets, excluding intellectual property.

Interest on amounts outstanding accrued at a variable annual rate equal to the greater of (i) the prime rate plus 0.25% or (ii) 4.75%.

As of December 31, 2023, the interest rate on the term loan was 8.75%.

We made interest-only payments on the outstanding balance through December 31, 2022.

We commenced making equal monthly payments of principal plus interest in January 2023, and we were required to make such payments until the term loan matured on June 30, 2024.

As of December 31, 2023, the outstanding principal balance under the loan agreement was $3.3 million.

In the first quarter of 2024, we repaid all amounts outstanding under the loan agreement, and PacWest released all security interests in our and our subsidiaries’ assets.

Lease Agreement

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We have not included payments contingent upon the achievement of certain development, regulatory or commercial milestones on our consolidated balance sheets.

For further information regarding certain of our license agreements and amounts that could become payable in the future under those agreements, please see Note 7, Intellectual Property Licenses, to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.

For further information regarding certain of our license agreements and amounts that could become payable in the future under those agreements, please see Note 6, Collaboration Agreements and Intellectual Property Licenses, to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.

In addition, we are party to certain agreements with contract research organizations for clinical trials and clinical supply manufacturing and with vendors for preclinical research studies and other services and products for operating purposes.

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Research and Development Expenses and Related Accruals

Research and development expenses are comprised of costs incurred in performing research and development activities, including salaries, equity-based compensation and benefits, facilities costs and laboratory supplies, depreciation, manufacturing expenses and external costs of outside vendors engaged to conduct planned clinical development, preclinical development, manufacturing and manufacturing process development and other research support activities.

Research and development expenses are comprised of costs incurred in performing research and development activities, including salaries, stock-based compensation and benefits, facilities costs and laboratory supplies, depreciation, manufacturing expenses and external costs of outside vendors engaged to conduct planned clinical development, preclinical development, manufacturing and manufacturing process development and other research support activities.

All costs associated with research and development activities are expensed as incurred.

As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued expenses as of each balance sheet date.

This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual

The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met.

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To date, there have been no material differences between our estimates of such expenses and the amounts incurred.

Equity-Based Compensation

We issue equity-based awards to employees, directors and non-employees, generally in the form of stock options.

We measure employee equity-based compensation based on the grant date fair value of the equity-based awards and recognize equity-based compensation expense on a straight-line basis over the requisite service period of the awards, which is generally the vesting period of the respective award, in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation—Stock Compensation , or ASC 718.

For awards subject to performance conditions, we recognize equity-based compensation expense using an accelerated recognition method over the remaining period when we determine that achievement of the milestone is probable.

Stock-Based Compensation

We issue stock-based awards to employees, directors and non-employees, generally in the form of stock options.

We measure employee stock-based compensation based on the grant date fair value of the stock-based awards and recognize stock-based compensation expense on a straight-line basis over the requisite service period of the awards, which is generally the vesting period of the respective award, in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation—Stock Compensation , or ASC 718.

We recognize forfeitures as they occur.

We classify equity-based compensation expense in the consolidated statements of operations and comprehensive loss in the same manner in which the award recipient’s salary and related costs are classified or in which the award recipient’s service payments are classified, as applicable.

Determination of the Fair Value of Equity-Based Awards

We classify stock-based compensation expense in the consolidated statements of operations and comprehensive loss in the same manner in which the award recipient’s salary and related costs are classified or in which the award recipient’s service payments are classified, as applicable.

Determination of the Fair Value of Stock-Based Awards

We estimate the fair value of our stock options granted with service-based conditions using the Black-Scholes option pricing model, which requires inputs of subjective assumptions, including:

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We completed our IPO in October 2021, and as a result there has not been a significant amount of time for which there has been a public market for the trading of our common stock, including a lack of company-specific historical and implied volatility data, therefore we base the estimate of expected volatility on the historical volatilities of a representative group of publicly traded guideline companies.

For these analyses, we select companies with comparable characteristics and with historical share price information that approximates the expected term of the equity-based awards.

For these analyses, we select companies with comparable characteristics and with historical share price information that approximates the expected term of the stock-based awards.

We compute the historical volatility data using the daily closing prices for the selected companies’ shares during the equivalent period that approximates the calculated expected term of our stock options.

We will continue to apply this method until a sufficient amount of historical information regarding the volatility of our own stock price becomes available.

We estimate the expected term of our stock options granted to employees and directors using the simplified method, whereby the expected term equals the average of the vesting term and the original contractual term of the option.

We utilize this method as we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term and the plain nature of our equity-based awards.

The expected dividend yield is assumed to be

zero as we have no current plans to pay any dividends on common stock.

We estimate the expected term of our stock options granted to employees and directors using the simplified method as prescribed by the SEC Staff Accounting Bulletin No.

107, Share-Based Payment , whereby the expected term equals the average of the vesting term and the original contractual term of the option.

We utilize this method as we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term and the plain nature of our stock-based awards.

The expected dividend yield is assumed to be zero as we have no current plans to pay any dividends on common stock.

We have elected to use the expected term for stock options granted to non-employees, using the simplified method, as the basis for the expected term assumption.

However, we may elect to use either the contractual term or the expected term for stock options granted to non-employees on an award-by-award basis.

Determination of Fair Value of Common Stock

Subsequent to the completion of our IPO in October 2021, the fair value of our common stock has been determined based on the share price of our common stock on the Nasdaq Global Select Market.

If applicable, the current share price is adjusted to reflect material nonpublic information known to the company but unavailable to market participants at the time of the grant.

Prior to the completion of our IPO in October 2021, there was no public market for our common stock.

The estimated fair value of our common stock was approved by our board of directors, with input from management, as of the date of each award grant, considering the most recently available independent third-party valuations of our common stock and our board of directors assessment, with input from management, of additional objective and subjective factors that we believed were relevant and which may have changed from the date of the most recent valuation through the date of the grant.

These independent third-party valuations were performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants’ Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation .

We estimated the value of our equity using market approaches.

The market approach includes using the market adjusted equity value method, guideline initial public offering, or IPO, transactions method and the recent transaction method which “back solves” to a preferred price.

The hybrid approach is a scenario-based analysis and where one or more of the scenarios allocate the equity value utilizing the option-pricing method, or OPM.

We allocated equity value to our shares of common stock and shares of our convertible preferred stock, as the case may be, using either an OPM or a hybrid method, which is a hybrid between the OPM and the probability-weighted expected return method.

The OPM treats common securities and preferred securities as call options on the total equity value of a company, with exercise prices based on the value thresholds at which the allocation among the various holders of a company’s securities changes.

Under this method, the common stock has value only if the funds available for distribution to members exceed the value of the preferred security liquidation preference at the time of the liquidity event, such as a strategic sale or a merger.

When using the market approach to determine the equity value, we allocated the equity value to our shares of common stock, warrants and shares of our convertible preferred stock, as the case may be, using the OPM.

When using the hybrid approach, we estimated the probability-weighted value across multiple scenarios but used the OPM to estimate the allocation of value within at least one of the scenarios.

In addition to a scenario using the OPM, the hybrid method also considers an IPO scenario in which the shares of convertible preferred stock are assumed to convert to common stock.

The future value of the common stock in the IPO scenario was discounted back to the valuation date at an appropriate risk adjusted discount rate.

In the hybrid method, the present value indicated for each scenario was probability weighted to arrive at an indication of value for our common stock.

In addition to considering the results of these third-party valuations, our board of directors considered various objective and subjective factors to determine the fair value of our equity instruments as of each grant date, which may have been later than the most recently available third-party valuation date, including:

● the lack of liquidity of our equity as a private company;

● the prices of our convertible preferred stock sold to outside investors in arm’s length transactions and the rights, preferences and privileges of our convertible preferred stock as compared to those of our common stock, including the liquidation preferences of our convertible preferred stock;

● the progress of our research and development efforts, including the status of preclinical studies for our product candidates;

● our stage of development and business strategy and the material risks related to our business and industry;

● the achievement of enterprise milestones, including entering into strategic collaborative and license agreements;

● the valuation of publicly traded companies in the life sciences and biotechnology sectors, as well as recently completed mergers and acquisitions of peer companies;

● any external market conditions affecting the biotechnology industry and trends within the biotechnology industry;

● the likelihood of achieving a liquidity event, such as an initial public offering or a sale of our company, given prevailing market conditions;

● the analysis of initial public offerings and the market performance of similar companies in the biotechnology industry.

There are significant judgments and estimates inherent in these valuations.

These judgments and estimates included assumptions regarding our future operating performance, the stage of development of our product candidates, the timing and probability of a potential initial public offering or other liquidity event and the determination of the appropriate valuation methodology at each valuation date.

The assumptions underlying these valuations represented management’s best estimates, which involved inherent uncertainties and the application of management judgment.

As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our equity-based compensation expense could be materially different.

Emerging Growth Company and Smaller Reporting Company Status

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This provision allows an EGC to delay the adoption of some accounting standards until those standards would otherwise apply to private companies.

We have elected not to “opt out” of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we can adopt the new or revised standard at the time private companies adopt the new or revised standard and may do so until such time that we either (1) irrevocably elect to “opt out” of such extended transition period or (2) no longer qualify as an emerging growth company.

We have elected not to “opt out” of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or

private companies, we can adopt the new or revised standard at the time private companies adopt the new or revised standard and may do so until such time that we either (1) irrevocably elect to “opt out” of such extended transition period or (2) no longer qualify as an emerging growth company.

As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

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Recent Accounting Pronouncements

For a description of recent accounting pronouncements, see Note 2 of the notes to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.

For a description of recent accounting pronouncements, see Note 2, Summary of Significant Accounting Policies, to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.

Quantitative and Qualitative Disclosures About Market Risk

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What changed 10-K

Item 7. Management’s Discussion and Analysis