KEZAR LIFE SCIENCES, INC. Discussion and analysis by management of the financial position and operating results. (form 10-Q)

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You should read the following management's discussion and analysis of our
financial condition and results of operations in conjunction with our unaudited
condensed consolidated financial statements and related notes thereto included
in Part I, Item 1 of this Quarterly Report on Form 10-Q, and with our audited
consolidated financial statements and related notes thereto for the year ended
December 31, 2020 included in our Annual Report on Form 10-K, as filed with the
U.S. Securities and Exchange Commission, or the SEC, on March 11, 2021, or the
Annual Report.

Overview

We are a clinical-stage biotechnology company discovering and developing
breakthrough treatments in immune-mediated and oncologic disorders. We believe
therapies that inhibit multiple drivers of disease by targeting fundamental
upstream control processes within the cell have the potential for profound
therapeutic benefit in a number of difficult-to-treat diseases. To that end, we
are advancing two drug development programs that harness different master
regulators of cellular function: the first targets the immunoproteasome which is
responsible for protein degradation in cells of the immune system and drives
many key aspects of immune cell function, and the second targets the Sec61
translocon, which is located on the endoplasmic reticulum and represents the
beginning of the protein secretion pathway. Targeting these fundamental
regulators of cellular function offers an attractive approach to treating many
diseases.

Our lead product candidate, KZR-616, is a first-in-class selective
immunoproteasome inhibitor that has completed Phase 1a testing in healthy
volunteers and a Phase 1b trial in patients with systemic lupus erythematosus,
or SLE. We are now leveraging its broad therapeutic potential in two Phase 2
clinical trials, MISSION and PRESIDIO, treating patients with severe autoimmune
diseases characterized by high levels of unmet need. The Phase 2 portion of our
MISSION clinical trial is evaluating KZR-616 in patients with lupus nephritis,
or LN. The PRESIDIO Phase 2 clinical trial is evaluating KZR-616 in
dermatomyositis, or DM, and polymyositis, or PM, indications for which we have
been granted orphan drug designation, or ODD, by the U.S. Food and Drug
Administration, or FDA. Based on Phase 1 clinical data generated to date with
KZR-616, as well as preclinical data with selective immunoproteasome inhibitors,
we believe that KZR-616 has the potential to address multiple chronic
immune-mediated disorders.

We believe that the immunoproteasome is a validated target for the treatment of
a wide variety of immune-mediated disorders given its ability to regulate
multiple drivers of the inflammatory disease process. Many inflammatory
disorders are currently treated one cytokine or cell type at a time, but the
immunoproteasome affects a broad spectrum of immune regulators. The compelling
published activity seen with non-selective proteasome inhibitors administered to
patients with severe autoimmune diseases provides proof of principle that
inhibiting the immunoproteasome results in broad immunomodulatory benefit. Based
on the results from our Phase 1a studies in healthy volunteers and the Phase 1b
portion of our MISSION clinical trial, KZR-616 has largely avoided the adverse
effects associated with currently marketed non-selective proteasome inhibitors,
as exhibited in clinical studies conducted by third parties, including side
effects which we believe prevent them from being utilized as a chronic treatment
in autoimmune disorders. We have seen encouraging clinical activity and
biomarker data in the SLE and LN patients who received KZR-616 in the Phase 1b
portion of the MISSION trial. We acquired exclusive worldwide rights to KZR-616
pursuant to a license agreement with Onyx Therapeutics, Inc., a wholly owned
subsidiary of Amgen, Inc., in June 2015.

Additionally, we are advancing our novel research platform targeting the Sec61
translocon and the protein secretion pathway to discover and develop small
molecule therapeutics for oncology and autoimmune indications. Our first
clinical candidate in this program, KZR-261, has demonstrated broad anti-tumor
activity in preclinical models of both solid and hematologic malignancies. We
recently initiated our Phase 1 clinical trial of KZR-261, assessing safety,
tolerability and preliminary tumor activity of KZR-261 in solid tumors. We
believe this discovery platform has the potential to yield additional small
molecule product candidates that offer the potential of combination therapy in a
single agent. If successfully developed and approved, these small molecules
could serve as alternatives to currently marketed biologic therapeutics to act
as cytotoxic anti-cancer agents or to block the secretion of novel targets of
interest in immuno-oncology or inflammation.

Since the commencement of our operations, we have devoted substantially all of
our resources to performing research and development activities in support of
our product development efforts, hiring personnel, raising capital to support
and expand such activities and providing general and administrative support for
these operations. We do not have any products approved for sale and have not
generated any revenue from product sales. We have funded our operations to date
primarily from the issuance and sale of equity securities. 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 current or future product candidates and programs. We have incurred
significant operating losses since our inception. Our net losses were $41.7
million and $40.4 million for the year ended December 31, 2020 and the nine
months ended September 30, 2021, respectively, and we expect to continue to
incur significant losses for the foreseeable future. As of September 30, 2021,
we had an accumulated deficit of $166.4 million. We anticipate that a
substantial portion of our capital resources and efforts in the foreseeable
future will be focused on discovering new potential therapeutics,



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complete the necessary development, obtain regulatory approval and prepare for the potential commercialization of our product candidates.


We expect to continue to incur significant expenses and increasing operating
losses for at least the next several years. Our net losses may fluctuate
significantly from period to period, depending on the timing of our planned
clinical trials and expenditures on other research and development activities.
We expect our expenses will increase substantially over time as we:

• continue the ongoing and planned development of the KZR-616 and KZR-261;

• seek to discover and develop other product candidates, including

preclinical studies and clinical trials for these product candidates;

• maintain, protect and expand our intellectual property portfolio

rights, including patents, trade secrets and know-how

• request marketing authorizations for KZR-616, KZR-261 and any future product

        candidates that successfully complete clinical trials;


    •   establish a sales, marketing, manufacturing and distribution
        infrastructure to commercialize any product candidate for which we may
        obtain marketing approval;


    •   continue to build a portfolio of product candidates through the

the acquisition or licensing of drugs, product candidates or technologies;

• set up operational, financial, management and compliance systems; and

• attract, hire and retain additional administrative, clinical and regulatory resources

and scientific staff.

Third Quarter Highlights and Recent Developments


In August 2021, we completed target enrollment of 24 subjects in our PRESIDIO
Phase 2 clinical trial evaluating the safety and efficacy of KZR-616 for the
treatment of DM and PM. We expect top-line data for PRESIDIO to be available in
the second quarter of 2022.

In October 2021, the first patient was dosed in our Phase 1 clinical trial of
KZR-261. The study will be conducted in two parts: dose escalation in subjects
with locally advanced or metastatic solid malignancies, and dose expansion in
subjects with selected tumor types. The Phase 1 trial will assess safety and
tolerability, including determination of a recommended Phase 2 dose, evaluate
pharmacokinetics and pharmacodynamics, and explore preliminary anti-tumor
activity.

In November 2021, we reached target enrollment of 20 subjects in the Phase 2
portion of our MISSION clinical trial, an open-label study evaluating the safety
and efficacy of KZR-616 for the treatment of LN. We expect top-line data for the
Phase 2 portion of MISSION to be available in the second quarter of 2022.

In November 2021, we entered into a loan and security agreement, or the Loan
Agreement, with Oxford Finance LLC, or Oxford Finance, which provides up to
$50.0 million in borrowing capacity across five potential tranches. The initial
tranche of $10.0 million was funded at the closing of the Loan Agreement, and an
additional $10.0 million will be available at our election from July 1, 2022 to
December 30, 2022. Subsequent tranches of $20.0 million each would become
available upon achieving milestones related to our MISSION Phase 2 clinical
trial, our PRESIDIO Phase 2 clinical trial and our KZR-261 Phase 1 clinical
trial, up to the aggregate maximum amount of $50.0 million. The Loan Agreement
bears interest at a floating per annum rate (based on the actual number of days
elapsed divided by a year of 360 days) equal to the sum of (a) the greater of
(i) the 30-day U.S. LIBOR rate reported in The Wall Street Journal on the last
business day of the month that immediately precedes the month in which the
interest will accrue and (ii) 0.08%, plus (b) 7.87%. We are required to make
monthly interest-only payments prior to the amortization date of January 1,
2025, subject to a potential one-year extension upon satisfaction of certain
conditions. The loan facility is secured by all assets except intellectual
property and will mature on November 1, 2026. There are no warrants or financial
covenants associated with the Loan Agreement.







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Our Pipeline

The following table shows the status and initial direction of our product candidates and our protein secretion program:

[[Image Removed]]


Compound therapeutic indication development stage discovery preclinical phase 1
phase 2 phase 3 KZR-616 lupus nephritis (LN) mission Dematomyositis (DM) /
Polymyositis presidio Protein secretion inhibition KZR-261 oncology IND-enabling
activities KZR-TBD oncology & autoimmunity



Overview of financial transactions

Research and development costs

Research and development costs consist primarily of costs incurred for the development of our product candidates, which include:

    •   employee-related expenses, which include salaries, benefits and
        stock-based compensation;

• fees paid to consultants for services directly related to our product

        development and regulatory effort;


    •   expenses incurred under agreements with third-party contract

organizations, investigative clinical trial sites and consultants who

        conduct research and development activities on our behalf;


  • costs associated with preclinical studies and clinical trials;


  • costs associated with technology and intellectual property licenses;


  • the costs related to production of clinical supplies; and

• facilities and other assigned expenses, which include rental expenses

and other costs related to facilities and other supplies.



We expense all research and development costs in the periods in which they are
incurred. Costs for certain development activities are recognized based on an
evaluation of the progress to completion of specific tasks using information and
data provided to us by our vendors, collaborators and third-party service
providers.

We are eligible under the AusIndustry Research and Tax Development Tax Incentive
Program to obtain a cash amount from the Australian Taxation Office. The tax
incentive is available to us on the basis of specific criteria with which we
must comply related to research and development expenditures in Australia. These
research and development tax incentives are recognized as contra research and
development expenses when there is reasonable assurance that the incentive will
be received, the relevant expenditure has been incurred by our Australian
subsidiary, Kezar Life Sciences Australia Pty Ltd, a proprietary company limited
by shares, and the amount



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of the consideration can be reliably measured. The amounts are determined based
on a cost-reimbursement basis, and the incentive is related to our research and
development expenditures and is due to us regardless of whether any Australian
tax is owed.

The following table summarizes our research and development expenses incurred during the respective periods (in millions):



                                            Three Months Ended September 30,            Nine Months Ended September 30,
                                               2021                   2020               2021                    2020
                                                      (unaudited)                                 (unaudited)
Research and development expenses by
program:
KZR-616                                  $            6.8         $         5.2     $          18.7         $          14.1
Protein Secretion                                     3.7                   3.1                10.5                     8.8
Total research and development
expenses                                 $           10.5         $         8.3     $          29.2         $          22.9




We expect our research and development expenses to increase substantially for
the foreseeable future as our product candidates advance into later stages of
development. The process of conducting the necessary clinical research to obtain
regulatory approval is costly and time-consuming, and the successful development
of our product candidates is highly uncertain. As a result, we are unable to
determine the duration and completion costs of our research and development
projects or when and to what extent we will generate revenue from the
commercialization and sale of any of our product candidates.

General and administrative expenses


Our general and administrative expenses consist primarily of personnel costs,
allocated facilities costs and expenses for outside professional services,
including legal, human resource, information technology and audit services.
Personnel costs consist of salaries, benefits and stock-based compensation. We
will incur additional expenses as we increase the size of our administrative
function to support the growth of our business.

Interest income

Our interest income is made up of interest income earned on our cash, cash equivalents and marketable securities.

Results of operations

Comparison of the three completed months September 30, 2021 and 2020



                                 Three Months Ended September 30,
(dollars in millions)              2021                     2020            $ Change
Operating expenses:
Research and development     $           10.5         $            8.3     $      2.2
General and administrative                4.0                      3.3            0.7
Total operating expenses                 14.5                     11.6            2.9
Loss from operations                    (14.5 )                  (11.6 )         (2.9 )
Interest income                             -                      0.3           (0.3 )
Net loss                     $          (14.5 )       $          (11.3 )   $     (3.2 )



Research and development costs


Research and development expenses increased by $2.2 million for the three months
ended September 30, 2021, compared to the three months ended September 30, 2020.
The increase was primarily due to an increase of $1.0 million in clinical trial
related costs for KZR-616 and $0.7 million in clinical start-up costs for
KZR-261, an increase of $0.7 million in personnel expenses due to an increase in
headcount and salaries, an increase of $0.1 million in stock-based compensation,
an increase of $0.3 million in consulting expenses and an increase of $0.2
million in manufacturing and research expenses driven by increased drug
substance and drug product manufacturing, offset by a decrease of $0.7 million
in preclinical expenses related to the Protein Secretion program.



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General and administrative expenses

General and administrative expenses increased by $ 0.7 million for the three months ended September 30, 2021, compared to the three months ended September 30, 2020. The increase is mainly due to an increase in $ 0.5 million stock-based compensation and an increase of $ 0.2 million personnel and recruitment costs due to the increase in staff and salaries.

Interest income


Interest income decreased by $0.3 million for the three months ended September
30, 2021, compared to the three months ended September 30, 2020. The decrease
was due to lower interest rates and the lower balances in cash equivalents and
marketable securities.

Comparison of the completed nine months September 30, 2021 and 2020

                                  Nine Months Ended September 30,
(dollars in millions)              2021                     2020            $ Change
Operating expenses:
Research and development     $           29.2         $           22.9     $      6.3
General and administrative               11.4                      9.0            2.4
Total operating expenses                 40.6                     31.9            8.7
Loss from operations                    (40.6 )                  (31.9 )         (8.7 )
Interest income                           0.2                      1.1           (0.9 )
Net loss                     $          (40.4 )       $          (30.8 )   $     (9.6 )

Research and development costs


Research and development expenses increased by $6.3 million for the nine months
ended September 30, 2021, compared to the nine months ended September 30, 2020.
The increase was primarily due to an increase of $2.1 million in research and
manufacturing expenses driven by increased drug product manufacturing, an
increase of $1.3 million in clinical trial related costs for KZR-616 and $1.2
million in clinical start-up costs for KZR-261, an increase of $1.8 million in
personnel expenses due to an increase in headcount and salaries, an increase of
$0.7 million in stock-based compensation, an increase of $0.7 million in
consulting expenses, and an increase of $0.3 million in facility-related
expenses, offset by a decrease of $1.8 million in preclinical expenses related
to the Protein Secretion program.

General and administrative expenses


General and administrative expenses increased by $2.4 million for the nine
months ended September 30, 2021, compared to the nine months ended September 30,
2020. The increase was primarily due to an increase of $1.3 million in
stock-based compensation and an increase of $0.7 million in personnel and
recruiting expenses due to an increase in headcount and salaries, an increase of
$0.2 million in directors and officers liability insurance, and an increase of
$0.2 million in facilities related expenses.

Interest income


Interest income decreased by $0.9 million for the nine months ended September
30, 2021, compared to the nine months ended September 30, 2020. The decrease was
due to lower interest rates.

Liquidity and capital resources

Overview


As of September 30, 2021, we had $57.1 million in cash and cash equivalents and
$63.7 million of marketable securities invested in a U.S. Treasury money market
fund, U.S. Treasury securities, commercial paper and corporate debt securities.
As of September 30, 2021, our cash equivalents and marketable securities had an
average maturity of approximately three months and the longest maturity was nine
months.

We have incurred operating losses and experienced negative operating cash flows
since our inception and anticipate that we will continue to incur losses for at
least the foreseeable future. Our net loss was $40.4 million for the nine months
ended September 30, 2021, and we had an accumulated deficit of $166.4 million as
of September 30, 2021.

We believe that our cash, cash equivalents and marketable securities in the
September 30, 2021 will be sufficient to meet our projected operational needs for at least the next 12 months from the date of publication of these financial statements. We based this

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estimate based on assumptions that could prove to be incorrect, and we could use our available capital resources sooner than expected.

Market Offer Program


In September 2020, we entered into a Sales Agreement, or the ATM Agreement, with
Cowen and Company, LLC, or Cowen, pursuant to which we can offer and sell, from
time to time at our sole discretion through Cowen, as our sales agent, shares of
our common stock having an aggregate offering price of up to $50.0 million. Any
shares of our common stock sold will be issued pursuant to our shelf
registration statement on Form S-3 (File No. 333-248752). We will pay Cowen a
commission equal to 3.0% of the gross sales proceeds of any shares of our common
stock sold through Cowen under the ATM Agreement and also have provided Cowen
with indemnification and contribution rights. During the nine months ended
September 30, 2021, we sold an aggregate of 1,823,984 shares of our common stock
for gross proceeds of approximately $12.1 million at a weighted average purchase
price of $6.63 per share pursuant to the ATM Agreement. In October 2021, we sold
an additional 525,037 shares of our common stock pursuant to the ATM Agreement
for gross proceeds of approximately $4.6 million at a weighted average purchase
price of $8.67 per share. Approximately $183.4 million remains available under
the shelf registration statement.

Funding requirements


Our primary use of cash is to fund operating expenses, primarily research and
development expenditures. Cash used to fund operating expenses is impacted by
the timing of when we pay these expenses, as reflected in the change in our
outstanding accounts payable, accrued expenses and prepaid expenses.

We will require additional financing to fund working capital and pay our
obligations. We may pursue financing opportunities through the issuance of debt
or equity. There can be no assurance that we will be successful in acquiring
additional funding at levels sufficient to fund our operations or on terms
favorable to us or at all. Our future funding requirements will depend on many
factors, including the following:

• the progress, timing, scope, results and costs of our clinical trials and

preclinical studies for our product candidates, including the ability to

register patients in a timely manner for our clinical trials;

• costs of obtaining clinical and commercial supplies for the KZR-616,

KZR-261 and any other product candidates that we may identify and develop;


  • the cost, timing and outcomes of regulatory approvals;

• the extent to which we may acquire or license other product candidates

        and technologies;


  • the cost of attracting, hiring and retaining qualified personnel;

• our ability to successfully market all product candidates for which

we get regulatory approval; and

• the costs of preparing, filing, prosecuting, defending and executing any

patents and other intellectual property rights.



Further, our operating plan may change, and we may need additional funds to meet
operational needs and capital requirements for clinical trials and other
research and development expenditures. Because of the numerous risks and
uncertainties associated with the development and commercialization of our
product candidates, we are unable to estimate the amounts of increased capital
outlays and operating expenditures associated with our current and anticipated
clinical studies.

If we need to raise additional capital to fund our operations, funding may not
be available to us on acceptable terms, or at all. The COVID-19 pandemic
continues to rapidly evolve and could result in significant disruption of global
financial markets. If such a disruption occurs, we could experience an inability
to access additional capital, which could in the future negatively affect our
operations. If we are unable to obtain adequate financing when needed, we may
have to delay, reduce the scope of or suspend one or more of our preclinical
studies, clinical trials, research and development programs or commercialization
efforts. We may seek to raise any necessary additional capital through a
combination of public or private equity offerings, debt financings,
collaborations and other licensing arrangements. If we raise additional capital
through debt financing, we may be subject to covenants limiting or restricting
our ability to take specific actions, such as incurring additional debt, making
capital expenditures or declaring dividends.



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Cash flow

Here is a summary of our cash flows for the periods indicated:



                                                            Nine Months Ended September 30,
                                                             2021                     2020
(dollars in millions)                                                 (unaudited)
Net cash used in operating activities                  $          (31.4 )       $          (27.6 )
Net cash provided by (used in) investing activities    $           54.0         $          (73.8 )
Net cash provided by financing activities              $           13.2         $           99.3



Cash flow from operating activities


During the nine months ended September 30, 2021, cash used in operating
activities was $31.4 million, which consisted of a net loss of $40.4 million and
a net change of $0.7 million in our net operating assets and liabilities,
adjusted by non-cash charges of $8.3 million. The non-cash charges consisted of
$5.7 million for stock-based compensation expense, $1.5 million of amortization
of premium and discounts on marketable securities and $1.1 million for
depreciation and amortization. The change in our net operating assets and
liabilities was primarily due to an increase of $1.2 million in accounts payable
and accrued liabilities, a decrease of $0.4 million in prepaid and other current
assets and a decrease of $0.8 million in operating lease liabilities.

During the nine months ended September 30, 2020, cash used in operating
activities was $27.6 million, which consisted of a net loss of $30.8 million and
a net change of $1.6 million in our net operating assets and liabilities,
adjusted by non-cash charges of $4.7 million. The non-cash charges consisted of
$1.2 million for depreciation and amortization and $3.7 million for stock-based
compensation expense, offset by $0.1 million of amortization of premium and
discounts on marketable securities. The change in our net operating assets and
liabilities was primarily due to an increase of $0.9 million in prepaid expenses
and other current assets and a decrease of $0.7 million in operating lease
liabilities.

Cash flow from investing activities


Net cash provided by investing activities was $54.0 million for the nine months
ended September 30, 2021, primarily relating to the maturities of marketable
securities exceeding purchases of such marketable securities. Payments for the
purchases of property and equipment were $50,000 during the nine months ended
September 30, 2021.

Net cash used in investing activities was $73.8 million for the nine months
ended September 30, 2020, primarily relating to the purchases of marketable
securities exceeding maturities of such marketable securities. Payments for the
purchases of property and equipment were $0.1 million during the nine months
ended September 30, 2020.

Cash flow from financing activities


Net cash provided by financing activities for the nine months ended September
30, 2021 was $13.2 million, primarily relating to the net proceeds received from
sales of common stock under the ATM Agreement and $1.5 million from the issuance
of common stock pursuant to our employee equity plans.

Net cash provided by financing for the nine months ended September 30, 2020 was
$99.3 million, which consisted of $99.2 million of net proceeds received from
the underwritten public offerings and $0.1 million from the issuance of common
stock pursuant to our employee equity plans.

Contractual obligations and other commitments


During the nine months ended September 30, 2021, there were no material changes
to our contractual obligations and commitments described under "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in our
Annual Report.

Off-balance sheet provisions

We have not entered into any off-balance sheet arrangements and do not hold any interests in variable interest entities.

Critical accounting policies and estimates


Our management's discussion and analysis of our financial condition and results
of operations is based on our condensed consolidated financial statements, which
have been prepared in accordance with United States generally accepted
accounting principles. The



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preparation of these financial statements requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements, as well as the reported expenses incurred during the reporting
periods. Our estimates are based on our historical experience and on various
other factors that we believe are reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying value of
assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or
conditions.

There have been no material changes to our critical accounting policies from those described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report.

Status of Emerging growth company and one Small reporting company


We are an "emerging growth company," as defined in the Jumpstart Our Business
Startups Act of 2012, or the JOBS Act. Under the JOBS Act, emerging growth
companies can delay adopting new or revised accounting standards issued
subsequent to the enactment of the JOBS Act until such time as those standards
apply to private companies. We have irrevocably elected not to avail ourselves
of this exemption from new or revised accounting standards and, therefore, will
be subject to the same new or revised accounting standards as other public
companies that are not emerging growth companies.

In addition, we intend to rely on the other exemptions and reduced reporting
requirements provided by the JOBS Act. Subject to certain conditions set forth
in the JOBS Act, as an "emerging growth company," we are not required to, among
other things, (i) provide an auditor's attestation report on our system of
internal controls over financial reporting pursuant to Section 404(b) of the
Sarbanes-Oxley Act of 2002, (ii) provide all of the compensation disclosure that
may be required of non-emerging growth public companies under the Dodd-Frank
Wall Street Reform and Consumer Protection Act, (iii) comply with any
requirement that may be adopted by the Public Company Accounting Oversight Board
regarding mandatory audit firm rotation or a supplement to the auditor's report
providing additional information about the audit and the financial statements
(auditor discussion and analysis) and (iv) disclose certain executive
compensation-related items such as the correlation between executive
compensation and performance and comparisons of the Chief Executive Officer's
compensation to median employee compensation. These exemptions will apply until
December 31, 2023 or until we no longer meet the requirements of being an
emerging growth company, whichever is earlier.

We are also a smaller reporting company as defined in the Securities Exchange
Act of 1934, as amended, or the Exchange Act. We may continue to be a smaller
reporting company even after we are no longer an emerging growth company. We may
take advantage of certain of the scaled disclosures available to smaller
reporting companies and will be able to take advantage of these scaled
disclosures for so long as (i) our voting and non-voting common stock held by
nonaffiliates is less than $250.0 million measured on the last business day of
our second fiscal quarter or (ii) our annual revenue is less than $100.0 million
during the most recently completed fiscal year and our voting
and non-voting common stock held by non-affiliates is less than $700.0 million
measured on the last business day of our second fiscal quarter.



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