BETTER THERAPEUTICS, INC. – 10-K – Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our financial statements and
related notes, included in Item 8 of this Annual Report. Unless otherwise
specified all dollar amounts are in
all amounts are in thousands, unless otherwise noted.
Overview
We are a prescription digital therapeutics company developing a clinically
validated, software-based novel form of CBT to address the root causes of CMDx.
Our mission is to advance human health through the power of behavior change. We
are developing a proprietary platform of FDA regulated software-based PDTs for
the treatment of cardiometabolic diseases by addressing the underlying causes of
the diseases. Our initial development efforts are focused on T2D, hypertension,
hyperlipidemia, NAFLD, NASH and CKD. Founded in 2015, we are led by executives
that have track records of building multi-billion dollar businesses and
extensive industry experience in developing and commercializing therapeutics.
We selected cardiometabolic diseases as our initial target markets because they
1) share lifestyle behavior as a common root cause, potentially enabling rapid
expansion of our platform across multiple related diseases, 2) rank amongst the
most prevalent and costly chronic diseases that are largely reversible and
preventable, offering opportunities for transformative impact and 3) represent
areas of significant unmet need because currently available drugs predominantly
treat symptoms, rather than addressing the root causes, often resulting in
disease progression and more costly healthcare interventions over time.
Our clinically validated PDTs are intended to be prescribed by physicians and
reimbursed by payers like traditional medicines. The mode of action embedded in
our PDTs is a novel form of CBT, targeting the specific behaviors that cause the
diseases we seek to treat. The CBT delivered by our PDTs is designed to enable
changes in neural pathways of the brain so that lasting changes in behavior
become possible.
Our lead prescription digital therapeutic product candidate, BT-001, completed a
first-in-class open label, randomized, controlled, parallel group clinical trial
for the treatment of patients with T2D in
primary and secondary endpoints as well as a host of exploratory endpoints. We
submitted a de novo classification request to the FDA in
marketing authorization of BT-001 for the treatment of adult patients with T2D
and in
was accepted for substantive review. A portion of our data was published in the
peer reviewed journal Diabetes Care in
novo review process as expected by us, in
for Additional Information from the FDA notifying us that, after review of our
submission, the FDA determined that additional information is required and
placed the review on hold. The letter outlined the
submission has a number of deficiencies, classified into major and minor
deficiencies. We requested a meeting with the FDA to clarify several of the
major deficiencies noted as well as to seek guidance on our options to address
them. That meeting also took place in February. During the meeting the FDA
provided helpful context, clarifications and guidance, and we are now compiling
our response to address the
questions, and our previously provided guidance that we anticipate
decision by the middle of 2023 remains unchanged. If we are unable to resolve
the deficiencies, we may need to amend the indications for use for which we are
seeking authorization and/or conduct another clinical trial, and the
authorization and commercial launch of BT-001 could be significantly delayed or
the authorization could be denied.
We also achieved positive top-line results in our LivVita study, a first-ever
clinical study evaluating the feasibility of our digitally delivered CBT to
reduce liver fat and improve liver disease biomarkers as a potential treatment
for NAFLD and NASH. Currently, there is no FDA approved treatment for these
conditions, which affect one in four Americans and cause approximately
billion
medical need, we intend to apply for breakthrough device designation from the
FDA for our investigational CBT-based treatment platform for these indications
in the first half of 2023. We plan to use data from this study and the
exploratory endpoints from the BT-001 pivotal trial to inform the potential
initiation of additional pivotal trials in support of seeking FDA authorization
in CMDx indications beyond T2D.
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We believe we are differentiated from other companies in the PDT space in
several important ways, which we believe has the potential to result in better
commercial launch performance and peak revenue than those observed for
previously approved PDTs: 1) with our focus on cardiometabolic diseases, and T2D
as our lead indication, we are targeting very large patient populations with
significant unmet medical needs; 2) our investigational PDTs are designed to
deliver a treatment intervention that fits into the existing treatment paradigm,
e.g., current clinical guidelines for the treatment of diabetes highlight
behavior change as the foundation of treatment; 3) our proposed therapy has the
potential to generate substantial health economic benefits and the utilization
of our PDTs has the potential to improve profitability for payers; and 4) we
have a team with extensive industry experience in developing and commercializing
therapeutics. Furthermore, we believe our internally developed novel form of CBT
is differentiated from other approaches in the digital therapeutics space that
are incorporating CBT principles.
The clinical trial for BT-001 was the largest randomized controlled study of a
PDT conducted to date and included a diverse, nationally representative
population of 668 patients with a body mass index ("BMI ") ? 25 mg/m2, advanced
and difficult to treat T2D and a mean baseline A1c of 8.1%. Participants in the
trial had long standing (mean 11 years), poorly controlled T2D, high
cardiovascular risk, multiple comorbidities, multiple blood sugar lowering
medications, representing a difficult to treat patient population. Prior to the
start of the study, we discussed core aspects of the design of the trial with
the FDA during several formal meeting interactions. During these formal meeting
interactions, we aligned with the FDA that an appropriate endpoint is a
clinically meaningful change in A1c as determined by the mean change in A1c in
the BT-001 group compared to the mean change in the control group. Following
these discussions, we determined that participants would be randomized to
receive standard of care with or without BT-001 and that the primary and
secondary efficacy endpoints would be the difference in mean change from
baseline in A1c at 90 and 180 days. The study was powered to detect a 0.4% or
greater change in A1c at 90 days, between BT-001 and control and a statistically
significant change (p<0.05) in A1c at 180 days. The study also assessed a safety
endpoint (the occurrence, relatedness and severity of Adverse Events) at day 90
and 180. Two important study design features, based on guidance received in our
interactions with FDA, included a) the ability for physicians to adjust diabetes
medication for all participants throughout the duration of the trial and b) that
participants randomly assigned to use BT-001 were not mandated or incentivized
to use the CBT features contained in BT-001. We believe these features
established a very high bar for evaluating efficacy.
Our clinical trial of BT-001 achieved statistically significant and clinically
meaningful changes in both the primary and secondary endpoints. The primary
efficacy endpoint was the difference in mean change in A1c from baseline after
90 days of treatment. BT-001 met the primary endpoint, showing a highly
statistically significant improvement in A1c relative to the control group
(-0.4%, n=610, p <0.001). BT-001 showed a sustained and statistically
significant change relative to the control group on the secondary efficacy
endpoint, which was the mean change in A1c from baseline at 180 days (-0.3%,
n=517, p =0.01). Importantly, BT-001 met the 180 day endpoint even though 1.5
times more SOC patients increased blood sugar lowering medications relative to
those in the BT-001 arm prior to the 180 day A1c draw. After the day 180 A1c
draw, 1.7 times more SOC control patients increased their medications compared
to BT-001 patients. BT-001 demonstrated sustained and numerically improved A1c
levels, with A1c reduction from baseline improving from 0.3% at 90 days to 0.4%
at 180 days across the intent-to-treat population, suggesting a durable
treatment effect. Half of the BT-001 patients achieved a meaningful reduction in
A1c (defined as 0.4% reduction), with a mean A1c reduction of 1.3% within this
subset. The clinical trial also provided evidence that beyond reductions in A1c:
(1) there was a clear dose-response between greater engagement in CBT and
greater reductions in A1c, supporting CBT as a mechanism of action, (2) measures
of patient engagement, adherence, persistence, and satisfaction were all
positive, (3) BT-001 resulted in reassuring safety data, with significantly
fewer adverse (p<0.001) and serious adverse events (p=0.01) as compared to the
SOC control group, and (4) exploratory endpoint data revealed additional
cardiometabolic improvements as well as the potential to reduce the need for
medications and lower healthcare utilization compared to the control group,
supporting the potential, if authorized, for BT-001 to improve overall health of
patients with T2D and potentially reduce cost of care associated with the
progression of the disease.
The LivVita study, our clinical study evaluating the feasibility of our
digitally delivered CBT to reduce fatty liver and improve liver disease
biomarkers as a potential treatment for NAFLD and NASH was conducted in
collaboration with
center. This single arm interventional cohort study enrolled 22 patients
were given access to a 90-day CBT-based treatment platform. This clinical study
met its primary endpoint, showing a statistically significant positive signal
with an average relative reduction in MRI-PDFF of 16% (p=0.01) in the
intent-to-treat population (n=19). Additionally, the clinical study showed (i) a
statistically significant mean reduction in alanine transaminase (ALT) of -17
IU/L (p=0.002), (ii) a statistically significant mean change in FAST Score of
20% (p=0.01), (iii) no serious adverse events or device related adverse events,
and (iv) high engagement and patient satisfaction with treatment, with a Net
Promoter Score of +75 and 94% of subjects still using the app after 90 days.
NAFLD and NASH affects over 80 million adults in the
approved therapeutics for treating NAFLD or NASH.
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We also initiated real world evidence studies to evaluate the long-term
effectiveness and healthcare utilization changes associated with the use of
BT-001 for the treatment of T2D. The randomized, controlled, multi-site studies
are expected to enroll patients for a treatment period of at least 12 months.
Change in A1c and healthcare resource utilization will be evaluated and compared
to usual care. Interim study results are expected to be reported in the fourth
quarter of 2023, once a sufficient number of patients have completed an
incremental 180 days of treatment. The study seeks to provide payers and
providers with long-term data related to usage and outcomes in a real-world
setting.
Financial Overview
Since our inception in 2015, we have focused substantially all of our resources
on conducting research and development activities, including discovery and
preclinical studies, establishing and maintaining our intellectual property,
hiring personnel, raising capital and providing general and administrative
support for these operations. We have recorded revenue from a pilot program with
a private health insurance provider to provide a digital therapeutic program
that includes a mobile app. We have funded our operations to date primarily from
the issuance of convertible notes and simple agreements for future equity
("SAFEs"), the issuance and sale of our preferred units, borrowing on our Term
Loan Facility and funding from the merger with MCAD.
We have incurred net losses in each year since inception. Our net losses were
and 2021, respectively. As of
accumulated deficit of
Substantially all of our net losses have resulted from costs incurred in
connection with our research and development programs and from general and
administrative costs associated with our operations. We expect to continue to
incur significant expenses and increasing operating losses over at least the
next several years. We expect our expenses will increase substantially in
connection with our ongoing activities as we:
•
advance our lead product candidate, BT-001, through commercialization, if
authorized for marketing by the FDA;
•
advance our pilot stage product candidates through clinical trials;
•
pursue regulatory authorization or clearance of our products;
•
operate as a public company;
•
continue our preclinical programs and clinical development efforts; and
•
continue research activities for the discovery of new products.
On
purpose acquisition company (the "Merger Agreement"). In connection with the
merger agreement, MCAD entered into subscription agreements (the "Subscription
Agreements") dated as of
accredited investors, pursuant to which, among other things, MCAD agreed to
issue and sell, in a private placement immediately prior to the closing of the
business combination, an aggregate of 5,000,000 shares of its common stock for
merger with MCAD. We raised
business combination with MCAD. Under the Merger Agreement, MCAD acquired all of
the outstanding shares of Legacy BTX in exchange for 15,174,729 shares of MCAD.
In connection with the merger, MCAD was renamed
Impact of COVID-19
In
pandemic. The COVID-19 pandemic has not had a significant impact on our
operations. The ultimate impact of the COVID-19 pandemic or a similar health
epidemic is highly uncertain and subject to change. We do not yet know the full
extent of potential delays or impacts on our business, our clinical trial,
healthcare systems or the global economy as a whole. However, these effects
could harm our operations, and we will continue to monitor the COVID-19 pandemic
closely. Management is unable to estimate the future financial effects, if any,
to our business as a result of COVID-19 because of the high level of
uncertainties and unpredictable outcomes of this disease.
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Components of Results of Operations
Revenue
We expect that our primary sources of revenue will be through reimbursement for
our treatments by commercial insurers, Medicare, Medicaid and the
Administration
reimbursement coverage for our first PDT for treating T2D, BT-001, if authorized
for marketing by the FDA. We expect to pursue obtaining favorable rates and
broad reimbursement coverage through demonstrating and generating a
comprehensive portfolio of evidence to substantiate the value of BT-001 based on
its impact on clinical outcomes, total cost of care, and durability of effect.
Obtaining favorable rates and broad reimbursement coverage and timing of
obtaining such coverage for BT-001, if authorized for marketing by the FDA, and
our other product candidates is highly uncertain. As a result, the timing and
the amount of revenue we expect to recognize from monetizing our product
candidates may vary based on multiple factors.
We are engaging in business development efforts to maximize the value of BT-001
and our platform in non-dilutive ways. We are exploring opportunities to partner
with pharmaceutical, medical technology and technology companies
marketing traditional drug therapies for CMDx, and have a strategic interest in
digital health, or the organizational infrastructure to support the successful
development and commercialization of our platform. Opportunities may also exist
to co-develop novel combination products with a pharmaceutical company operating
in the cardiometabolic space.
Operating Expenses
We classify operating expenses into three main categories: (i) research and
development (ii) sales and marketing and (iii) general and administrative.
Research and Development
Our research and development expenses consist of external and internal expenses
incurred in connection with our research activities and development programs.
These expenses include external expenses, including expenses associated with
CROs and consultants engaged to manage and conduct clinical trials, other
research and development expenses associated with software development and
licenses, other external development services and expenses associated with
analysis and publications of research findings. Additionally, our research and
development expenses include internal personnel expenses, including expenses for
salaries and benefits, stock-based compensation, and allocation of certain
overhead expenses.
We capitalize our research and development internal use software costs related
to our digital therapeutic platform incurred during the application development
stage and separately present these costs on the balance sheet as capitalized
software development costs. Research and development costs incurred during the
preliminary planning and evaluation stage of the project were expensed as
incurred. To date, the majority of these expenses have been incurred to advance
our lead product candidate, BT-001.
We expect our research and development expenses to increase substantially for
the foreseeable future as we continue to invest in research and development
activities related to developing our platform and our product candidates, as our
product candidates advance into later stages of development, and as we continue
to conduct clinical trials. The successful development of our platform and 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.
Sales and Marketing
Sales and marketing expenses consist primarily of personnel-related costs,
advertising and public relations costs and consulting services. We expect our
sales and marketing expenses to increase for the foreseeable future as we
prepare for the potential commercial launch of BT-001. Our sales and marketing
efforts are expected to focus on targeting payers, patients and primary care
physicians through general awareness and branded promotional activities. We
initially plan to focus primarily on innovative healthcare systems and
Integrated Delivery Networks to reach a sizable number of primary care
physicians and endocrinologists with a modestly sized sales team.
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General and Administrative
General and administrative expenses consist primarily of personnel-related costs
and professional services including legal, audit and accounting services and
business insurance. Personnel-related costs consist of salaries, benefits, and
stock-based compensation. We expect our general and administrative expenses to
increase for the foreseeable future due to anticipated increases in headcount to
advance our product candidates and as a result of operating as a public company,
including expenses related to compliance with the rules and regulations of the
services.
Interest Expense, Net
Interest expense, net primarily consists of interest expense related to the
secured Term Loan Facility entered into in 2021, offset by interest earned on
excess cash.
Results of Operations
Comparisons of the Years Ended
The following table summarizes our results of operations for the periods
presented (in thousands):
Twelve Months Ended, December 31,
2022 2021 $ Change % Change
Operating expenses:
Research and development 16,440 19,436 (2,996 ) -15 %
Sales and marketing 6,979 2,336 4,643 199 %
General and administrative 14,843 8,788 6,055 69 %
Total operating expenses $ 38,262 $ 30,560 $ 7,702 25 %
Loss from operations (38,262 ) (30,560 ) (7,702 ) 25 %
Interest expense, net (1,491 ) (185 ) (1,306 ) 706 %
Gain on loan forgiveness - 647 (647 ) -100 %
Change in fair value of SAFEs - (10,390 ) 10,390 -100 %
Loss before provision for income taxes (39,753 ) (40,488 ) 735 -2 %
Provision for (benefit from) income taxes 7 (153 ) 160 -105 %
Net loss $ (39,760 ) $ (40,335 ) $ 575 -1 %
Research and Development Expenses
Research and development expenses were
31, 2022
representing a decrease of
completed the BT-001 pivotal trial offset by a
personnel related costs related to expanding our software development
capabilities and a
software costs.
Sales and Marketing Expenses
Sales and marketing expenses were
2022
representing an increase of
expenses was primarily related to an increase of
related costs and a
associated with commercial readiness activities to support the potential launch
of BT-001.
General and Administrative Expenses
General and administrative expenses were
2021
and administrative expenses was primarily related to the increased costs of
being a public company, including
million
including consulting, audit and legal fees.
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Interest Expense, Net
Interest expense, net was
compared to
increase of
of interest expenses incurred on the secured Term Loan Facility with Hercules
Capital.
Change in Fair Value of SAFEs
The expense related to the change in fair value of our SAFEs was
ended
result of our business combination and the conversion of SAFEs to common stock.
Gain on Loan Forgiveness
On
Bank Corporation
established under the Coronavirus Aid, Relief, and Economic Security Act of
2020. In
on loan forgiveness of
accrued interest at the date of forgiveness.
Liquidity and Capital Resources
We have primarily funded our operations through the sale of preferred stock,
convertible notes, SAFEs and funding from our business combination with MCAD.
On
with the Merger Agreement, MCAD entered into Subscription Agreements with
certain institutional and accredited investors, pursuant to which, among other
things, MCAD agreed to issue and sell, in a private placement immediately prior
to the closing of our business combination, an aggregate of 5,000,000 PIPE
Shares. On
million
Under the Merger Agreement, MCAD acquired all of the outstanding shares of
Legacy BTX in exchange for 15,174,729 shares of MCAD.
On
Capital, Inc., providing for an up to
facility. The Term Loan Facility has a maturity date of
can be extended to
assets. Payments due for the Term Loan Facility are interest-only until
2023
achievement of certain milestones), after which principal shall be repaid in
equal monthly installments. Interest is payable monthly in arrears. The
outstanding principal bears interest at the greater of (a) 8.95% or (b) 8.95%
plus the prime rate minus 3.25%. Prepayment of the outstanding principal is
permitted under the Loan Agreement and subject to certain prepayment fees. We
incurred
Loan Agreement. Debt issuance costs are being amortized through the maturity
date of the Term Loan Facility and are reported as a direct reduction of
long-term debt on the balance sheets. In addition, we will be required to pay an
end of term charge of the greater of (a)
outstanding principal upon repayment of the Term Loan Facility. We are accruing
this end of term charge over the term of the Loan Agreement and the accrued
balance is reported as a direct addition to the long-term balance on the balance
sheets. Amortization expense related to the debt issuance costs and accretion of
the end of term charge, are both included in interest expense, net on the
accompanying statements of operations and comprehensive loss and totaled
thousand
2021, respectively. We are permitted to borrow under the Term Loan Facility in
four tranches based on the completion of certain milestones which include, as
set forth more fully in the Loan Agreement: (i)
of our business combination, (ii)
clinical trial results sufficient to submit a de-novo classification request
with respect to BT-001 and have initiated a second pivotal trial prior to
for the marketing of BT-001 for the improvement of glycemic control and have
initiated a pivotal trial for a new indication in people with T2D and received,
prior to
financings, and (iv)
Hercules Capital's approval. In
the Loan Agreement. In
Agreement. We did not initiate a second pivotal trial prior to
2022
borrowing is no longer available to us. As
outstanding debt balance, net of unamortized debt issuance costs and including
the accrued end of term charge was
The interest rate was 13.2% and 8.95% as of
there was
liabilities on the accompanying balance sheets as of
respectively.
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The Loan Agreement contains customary representations, warranties, non-financial
covenants, and events of default. The Loan Agreement also contains subjective
acceleration clauses. In the event a subjective acceleration clause is invoked,
the outstanding principal, interest, end of term charge and prepayment penalty
would become payable on demand by the lender. The lender has not invoked any of
the subjective acceleration clauses as of the date of issuance of these
financial statements. As disclosed in Note 1 to the Company's financial
statements, the Company's liquidity and capital resource issues could lead to
the failure of a financial covenant in the year ending
additional funding.
As of
deficit of
expenses, which predominantly consist of research and development expenses
related to our lead product candidate, BT-001, preclinical programs, activities
to prepare for a potential commercial launch, if BT-001 is authorized for
marketing and general and administrative expenses. 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 and accrued expenses. We have
incurred negative cash flows from operating activities and investing activities
and significant losses from operations in the past. We expect to incur
substantial expenses in the foreseeable future for the development and potential
commercialization of our product candidates and ongoing internal research and
development programs.
Under our current operating plan, we believe we have sufficient capital to fund
our operations through the first quarter of 2023. Accordingly, there is
substantial doubt regarding our ability to continue as a going concern. We plan
to seek additional funding through various financing sources, including the sale
of our equity and/or debt securities, and we are exploring other non-dilutive
financing options. If we are unable to obtain additional funding, or if we are
unable to raise additional capital in sufficient amounts or on terms acceptable
to us, we may have to significantly delay, reduce or terminate our product
development programs or plans for commercialization. We could also be required
to limit or terminate our operations, make reductions in our workforce,
discontinue our development programs, liquidate all or a portion of our assets
or pursue other strategic alternatives.
Summary Statement of Cash Flows
The following table sets forth the primary sources and uses of cash and cash
equivalents for the periods presented below:
Year Ended Year Ended
December 31, December 31,
2022 2021
Cash used in operating activities $ (28,930 ) $ (30,818 )
Cash used in investing activities (1,180 ) (1,071 )
Cash provided by financing activities 5,284 72,332
Net increase (decrease) in cash and cash equivalents
Cash Used in Operating Activities
During the twelve months ended
activities was
offset by a decrease in our net operating assets and liabilities of
and
liabilities was primarily due to a decrease in prepaid expenses and other assets
of
million
compensation expense and depreciation and amortization expense.
During the twelve months ended
activities was
an increase in our net operating assets and liabilities of
partially offset by
operating assets and liabilities was due to an increase in prepaid expenses and
other assets of
payable and accrued expenses of
million
depreciation and amortization expense, loss on the change in fair value of SAFEs
and gain on PPP Loan forgiveness.
Cash Used in Investing Activities
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During the twelve months ended
activities was
internal-use software costs.
During the twelve months ended
activities was
internal-use software costs.
Cash Provided by Financing Activities
During the twelve months ended
activities was
issuance of long-term debt, the issuance of shares under our 2021 Employee Stock
Purchase Plan (the "2021 ESPP") and the exercise of common stock options.
During the twelve months ended
activities was
our Business Combination and PIPE investment,
the issuance of SAFEs and
long-term debt.
Contractual Obligations and Commitments
Contractual obligations are cash amounts that we are obligated to pay as part of
certain contracts that we have entered into during the normal course of
business. We do not have any contractual obligations and other commitments as of
Off-Balance Sheet Arrangements
Since the date of our incorporation, we have not engaged in any off-balance
sheet arrangements.
Critical Accounting Policies, Significant Judgments and Use of Estimates
Our financial statements have been prepared in accordance with generally
accepted accounting principles in
financial statements requires us to make estimates and assumptions that affect
the reported amounts of assets, liabilities and expenses, as well as the related
disclosure of contingent assets and liabilities as of the date of the financial
statements. Our estimates are based on our historical experience, management's
evaluation of the relevant facts and circumstances 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. We believe that the accounting policies discussed below are critical
to understanding our historical and future performance, as these policies relate
to the more significant areas involving management's judgments and estimates.
While our significant accounting policies are described in the notes to our
financial statements, we believe that the following critical accounting policies
are most important to understanding and evaluating our reported financial
results.
Fair Value Measurements
The carrying value of our financial instruments, including cash equivalents,
accounts payable and accrued liabilities approximates fair value due to their
short-term nature. Our Loan Agreement includes a variable interest rate and
accordingly approximates fair value. Our investment portfolio consists of money
market funds, which are carried at fair value. We have determined the carrying
value to be equal to the fair value and have classified these investments as
Level 1 financial instruments.
Property and Equipment, Net
Property and equipment, net, which includes computer, equipment and software is
stated at cost, less accumulated depreciation. Depreciation is calculated using
the straight-line method over the estimated useful life of 3 years. Expenditures
for repairs and maintenance are expensed in the period incurred.
Capitalized Internal-Use Software Costs
Costs incurred to develop our software based platform for internal use consist
primarily of direct employee-related and third-party contractor costs and are
accounted for pursuant to ASC 350-40,
during the
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preliminary planning and evaluation stage of the project are expensed as
incurred. Costs incurred during the application development stage of the project
are capitalized and amortized over an estimated useful life of 3 years.
Impairment of Long-Lived Assets
We review long-lived assets for impairment when circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of these
assets is measured by a comparison of the carrying amounts to the sum of the
future undiscounted cash flows the assets are expected to generate over the
remaining useful lives of the assets. If a long-lived asset fails a
recoverability test, we measure the amount by which the carrying value of the
asset exceeds its fair value. There were no events or changes in business
circumstances during the twelve months ended
the carrying amounts of any long-lived assets were not fully recoverable.
Equity-Based Compensation Expense
We account for equity-based compensation arrangements granted to employees in
accordance with ASC 718, "Compensation: Stock Compensation", by measuring the
grant date fair value of the award and recognizing the resulting expense over
the period during which the employee is required to perform service in exchange
for the award. Equity-based compensation expense is only recognized for awards
subject to performance conditions if it is probable that the performance
condition will be achieved.
We account for equity-based compensation arrangements issued to non-employees
using the fair value approach prescribed by ASU 2018-07, "Compensation-Stock
Compensation (ASC 718): Improvements to Non-employee Share-Based Payment
Accounting". The value of non-employee equity-based compensation is measured at
the grant date using a fair value-based measure.
The grant date fair value of options with performance-based market conditions is
determined using a
on service conditions and market conditions, we use the straight-line method to
recognize compensation expense over the respective service period. For awards
that contain performance conditions, we determine the appropriate amount to
expense based on the anticipated achievement of performance targets, which
requires judgment, including forecasting the achievement of future specified
targets. At the date performance conditions are determined to be probable of
achievement, we record a cumulative expense catch-up, with remaining expense
amortized over the remaining service period. Throughout the performance period,
we re-assess the estimated performance and update the number of
performance-based awards that we believe will ultimately vest.
Discounted stock purchases under our 2021 ESPP are valued on the first date of
the offering period using the Black-Scholes option-pricing model to compute the
fair value of the lookback provision plus the purchase discount. Discounted
stock purchases under our 2021 ESPP are recognized over the offering period.
We account for forfeitures when they occur. For awards forfeited before
completion of the requisite service period, previously recognized compensation
cost is reversed in the period the award is forfeited.
Income Taxes
We account for income taxes using the asset and liability method under which
deferred tax assets and liabilities are determined based on the differences
between the financial reporting and tax bases of assets and liabilities with
consideration given to net operating losses and tax credit carryforwards.
Deferred tax assets and liabilities are measured using the enacted tax rates
that are expected to be in effect when the differences are expected to reverse.
We assess the likelihood that deferred tax assets will be recovered from future
taxable income and a valuation allowance is established when necessary to reduce
deferred tax assets to the amounts more likely than not expected to be realized.
We adopted Accounting Standards Update ("ASU") No. 2015-17, Income Taxes -
Balance Sheet Classification of Deferred Taxes, and classified our deferred
income taxes as non-current in the balance sheets.
We recognize and measure uncertain tax positions using a two-step approach. The
first step is to evaluate the tax position taken or expected to be taken by
determining if the weight of available evidence indicates that it is more likely
than not that the tax position will be sustained in an audit, after resolution
of any related appeals or litigation processes. The second step is to measure
the tax benefit as the largest amount that is more than 50% likely to be
realized upon ultimate settlement. Significant judgment is required to evaluate
uncertain tax positions. We evaluate our uncertain tax positions on a regular
basis. Our evaluations are based on a number of factors, including changes in
facts and circumstances, changes in tax law, correspondence with tax authorities
during the course of the audit, and effective settlement of audit issues.
87
--------------------------------------------------------------------------------
Net Loss Per Share Attributable to Common Stockholders
Basic and diluted net loss per share calculations are presented in accordance
with
per Share and are calculated on the basis of the weighted average number of
common shares outstanding during the period. Diluted per share calculations
includes the dilutive effect of common stock equivalents in years with net
income. As we have reported net losses for all periods presented, all
potentially dilutive securities are antidilutive and, accordingly, basic net
loss per share equals diluted net loss per share.
Emerging Growth Company and Smaller Reporting Company Status
We are an "emerging growth company" as defined in Section 2(a)(19) of the
Securities Act as modified by the JOBS Act. As such, we are eligible for and
intend to take advantage of certain exemptions from various reporting
requirements applicable to other public companies that are not emerging growth
companies for as long as we continue to be an emerging growth company, including
(i) the exemption from the auditor attestation requirements with respect to
internal control over financial reporting under Section 404(b) of the
Sarbanes-Oxley Act, (ii) the exemptions from say-on-pay, say-on- frequency and
say-on-golden parachute voting requirements and (iii) reduced disclosure
obligations regarding executive compensation in our periodic reports and proxy
statements.
We will remain an emerging growth company until the earlier of: (i) the last day
of the fiscal year (a) following the fifth anniversary of the closing of our
initial public offering, (b) in which we have total annual gross revenue of at
least
filer" under the Exchange Act, which would occur if the market value of our
common equity held by non-affiliates exceeds
business day of our most recently completed second fiscal quarter; or (ii) the
date on which we have issued more than
securities during the prior three-year period.
In addition, the JOBS Act provides that an emerging growth company can take
advantage of an extended transition period for complying with new or revised
accounting standards. This allows an emerging growth company to delay the
adoption of certain accounting standards until those standards would otherwise
apply to private companies. We have elected to avail ourselves of this extended
transition period and, as a result, we may adopt new or revised accounting
standards on the relevant dates on which adoption of such standards is required
for non-public companies instead of the dates required for other public
companies.
Additionally, we are a "smaller reporting company" as defined in Item 10(f)(1)
of Regulation S-K. Smaller reporting companies may take advantage of certain
reduced disclosure obligations, including, among other things, providing only
two years of audited financial statements. We will remain a smaller reporting
company until the last day of the fiscal year in which (i) the market value of
our ordinary shares held by non-affiliates exceeds
fiscal year and the market value of our ordinary shares held by non-affiliates
exceeds
Recently Adopted Accounting Pronouncements
See Note 2 to our annual financial statements for the year ended
2022
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