CervoMed Inc.: Form 10-Q for the period ended Jun 30, 2015

You should read the following discussion of our financial condition and results of operations together with the unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this report and other financial information included in this report. The following discussion may contain predictions, estimates and other forward looking statements that involve a number of risks and uncertainties, including those discussed under “Part I — Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Special Note Regarding Forward Looking Statements” in this report and under “Part I — Item 1A. Risk Factors” in our annual report on Form10-K for the fiscal year ended December 31, 2014. These risks could cause our actual results to differ materially from any future performance suggested below.

Business Overview

We are a specialty biopharmaceutical company focused on developing products for oncology, ophthalmology, and dermatology. Our lead product is a novel PI3K/Akt/mTOR pathway inhibitor which has completed two Phase I clinical trials for age-related macular degeneration and is in preclinical development in oncology, specifically glioblastoma multiforme. Our current pipeline also includes a “soft” anti-androgen compound for the treatment of acne vulgaris. Our novel inhibition of the PI3K/Akt/mTOR pathway and unique targeting of the androgen receptor show promise in a number of additional diseases, which we are evaluating for the purpose of creating innovative therapies that are safe and effective treatments to satisfy unmet medical needs.

Our portfolio of product candidates is summarized in the following table:

Oncology

Our novel PI3K/Akt/mTOR pathway inhibitor, RES-529, is in preclinical development for oncology. Through a series of in vitro and in vivo animal models, RES-529 has been shown to have activity in several cancer types due to its ability to target and inhibit the PI3K/Akt/mTOR signal transduction pathway. RES-529 is a first-in-class inhibitor of both TORC1 and TORC2 that is mechanistically differentiated from other PI3K/Akt/mTOR pathway inhibitors currently in development. Signaling components of the PI3K/Akt/mTOR pathway are central regulators of cell proliferation, growth, differentiation, survival and angiogenesis. Up to 80 percent of tumor types have been shown to have an aberrant up-regulation of the PI3K pathway. Activation of this pathway has been observed in glioblastoma patients and is being pursued aggressively as a target for therapeutic intervention. We have shown activity in both in vitro and in vivo glioblastoma animal models and have demonstrated that RES-529 is orally bioavailable and can cross the blood brain barrier.

We believe the glioblastoma market represents substantial financial upside given the significant unmet medical need due to limited and modestly effective therapies. We plan to complete necessary work to start a Phase I/II glioblastoma human clinical trial in 2016. We also plan to initiate Phase II studies in other tumor types once the RES-529 maximum tolerated dose is determined in the initial portion of the glioblastoma study. We intend to focus in areas where preclinical evidence of activity has been demonstrated, specifically breast, prostate and/or lung cancers. In January 2015, the U.S. Food and Drug Administration (“FDA”) granted Orphan Drug Designation for RES-529 for the treatment of glioblastoma multiforme.

Ophthalmology

The specific focus of our prescription ophthalmology business is on pathologies showing an aberrant up-regulation of the PI3K/Akt/mTOR pathway in the area of ophthalmology. Two human Phase I clinical studies with one of our palomids known as “RES-529” have been completed for wet age-related macular degeneration (“AMD”), both studies of which showed preliminary evidence of biologic activity and no serious toxicity. One of the two completed studies was sponsored by Paloma Pharmaceuticals, Inc., a company we acquired in March 2014, using intravitreal administration and was completed in December 2011. The second study was sponsored and conducted by The National Eye Institute using subconjunctival administration and was completed in July 2012. We currently are planning Phase I/II studies with RES-529 for wet age-related macular degeneration that we expect to begin in 2016 after we finalize CMC (chemistry, manufacturing and control) work for subconjunctival administration and complete necessary preclinical studies.

Dermatology

Our prescription dermatology business is based primarily upon a “soft” anti-androgen, known as “RES-440,” which is under development for the treatment of acne vulgaris. RES-440 has completed in vitro and in vivo proof-of-concept studies in tissue and animal models. We currently are working on CMC and necessary pre-clinical studies and are planning Phase I/Phase II studies in 2016 for the treatment of acne.

Other Indications/Products

We have rights to and own technologies and potential products beyond just those described above. It is our strategy to focus at the current time on oncology, ophthalmology and dermatology, specifically gliobastoma, wet AMD and acne, as described in this report. Beyond the potential products described in this report, we intend to continue to review our technologies and potential products on a regular basis and consider internal development in the future and the potential to out-license portions of our technology and potential products to other biopharmaceutical companies with greater focus and resources than ours or potentially in-license additional technologies and products for development. In addition, we intend to consider the acquisition of other technologies, products and companies that may be synergistic with ours to build our portfolio of potential products.

In furtherance of this strategy, on April 30, 2015, we transferred certain of our non-focus technology rights to Or-Genix Therapeutics, Inc. (“Or-Genix”) in exchange for a 19.9% ownership interest in Or-Genix, representing 2,484,395 shares of the common stock of Or-Genix, and we purchased $250,000 in perpetual non-redeemable preferred stock. The rights we transferred include exclusive rights to a compound formerly known as “RES-102,” which is a “soft” estrogen potentially to be developed for the treatment of aging skin fragility/thinning and vulvo-vaginal atrophy, and exclusive rights to a compound formerly known as “RES-214,” a non-prescription cosmeceutical product under development by a sublicensee. We previously licensed these rights from Yale University and as part of this transaction assigned those license agreements to Or-Genix. We also assigned our rights under a sublicense agreement with Ferndale Pharma Group, Inc. for the formulation, manufacture, sale and marketing of RES-214. Or-Genix is founded and owned primarily by Yael Schwartz, Ph.D., a former member of our Board of Directors and former Executive Vice President, Preclinical Development. The transfer of these technology rights to Or-Genix was executed since we are focusing our development efforts and resources on our other technologies.

Financial Summary

Our working capital totaled $15,262,112, including $16,472,761 in cash and cash equivalents, as of June 30, 2015, compared to total working capital of $21,832,217, including $21,883,887 in cash and cash equivalents, as of December 31, 2014.

We recognized no revenues and our operating expenses were $3,970,955 and $7,489,891 during the three and six months ended June 30, 2015, respectively. Our research and development expense increased 318% and 511% to $1,115,796 and $2,667,348 during the three and six months ended June 30, 2015, respectively, compared to the three and six months ended June 30, 2014 as a result of the research and development of our technologies and product candidates. Our general and administrative expenses increased 55% and 73% to $1,881,278 and $3,842,378 during the three and six months ended June 30, 2015, respectively, compared to the three and six months ended June 30, 2014 as a result of salary expense and employee and director non-cash stock-based compensation expenses.

We recognized a net loss of $(3,969,322) and $(7,485,738) for the three and six months ended June 30, 2015, respectively, or $(0.21) and $(0.40) per share, compared to net loss of $(4,455,232), and $(5,835,407), or $(0.35) and $(0.62) per share, for the three and six months ended June 30, 2015, respectively. We expect to continue to recognize net losses for the foreseeable future.

We intend to use our existing cash and cash equivalents for working capital and to fund the research and development of our technologies and product candidates. We believe our cash and cash equivalents as of June 30, 2015 will be sufficient to fund our planned operations at least into the second half of 2016.

Results of Operations for Three and Six Months Ended June 30, 2015 Compared to Three and Six Months Ended June 30, 2014

For a complete understanding of our results of operations for the three and six months ended June 30, 2015 compared to the same periods ended June 30, 2014, we reference those certain adjustments for prior period misstatements recorded in the fourth quarter of 2014 related to prior 2014 interim and prior annual periods which were deemed immaterial. See Note 2 to our consolidated financial statements for the year ended December 31, 2014, included in our annual report on Form 10-K for the year ended December 31, 2014, for further information as to the nature of the adjustments recorded in the fourth quarter of 2014. The following table sets forth our results of operations for the three months ended June 30, 2015 and 2014.

The following table sets forth our results of operations for the six months ended June 30, 2015 and 2014.

Revenues

We recognized no revenues during the three and six months ended June 30, 2015 or 2014.

Operating Expenses

Operating expenses were $3,970,955 during the three months ended June 30, 2015, representing an increase of 120%, compared to $1,801,479 during the three months ended June 31, 2014. Operating expenses were $7,489,891 during the six months ended June 30, 2015, representing an increase of 136%, compared to $3,172,999 during the six months ended June 30, 2014. These increases were due to an increase in research and development expenses as a result of the research and development of our technologies and product candidates, an increase in general and administrative expenses as a result of salary expense and employee and director non-cash stock-based compensation expenses, and the recognition of former employee severance expense.

We recognized $1,115,796 and $2,667,348 in research and development expenses during the three and six months ended June 30, 2015, respectively, compared to $266,906 and $436,238 in research and development expenses during the three and six months ended June 30, 2014, respectively. We expect that our research and development expenses will increase significantly in future periods compared to prior year periods due to our anticipated efforts in the research and development of our technologies and product candidates.

General and administrative expenses were $1,881,278 during the three months ended June 30, 2015, representing an increase of 55% from $1,210,832 during the three months ended June 30, 2014. General and administrative expenses were $3,842,378 during the six months ended June 30, 2015, representing an increase of 73% from $2,221,690 during the six months ended June 30, 2014. These increases were primarily due to employee and director non-cash stock-based compensation expenses. We expect that our general and administrative expenses will increase in future periods compared to prior year periods as a result of increased personnel to support our product development efforts.

Stock-based compensation expense, which is included in research and development expenses and general and administrative expenses, was $527,189 during the three months ended June 30, 2015, representing an increase of 273%, over $141,315 during the three months ended June 30, 2014. Stock-based compensation expense was $1,132,616 during the six months ended June 30, 2015, representing an increase of 289%, over $291,200 during the six months ended June 30, 2014.

Employee related severance was $967,683 for the three and six months ended June 30, 2015, respectively. The costs are severance related charges following the resignation of our former Executive Vice President Preclinical Development and former Vice President of Pharmaceutical Sciences in April 2015 and former Chief Scientific Officer in June 2015.

Depreciation and amortization was $6,198 and $12,482 during the three and six months ended June 30, 2015, respectively, compared to $323,741 and $515,071 during the three and six months ended June 30, 2014, respectively. These decreases were primarily related to a decrease in amortization expense attributable to intangible assets acquired in our acquisition of Canterbury Laboratories LLC and Hygeia Therapeutics, Inc. due to our abandonment and write-off of such intangible assets during the fourth quarter of 2014.

Loss on Settlement of Notes Payable

Loss on settlement of notes payable – related parties was $1,829,562 for the three and six months ended June 30, 2014. During the second quarter of 2014, we issued shares of common stock and warrants to purchase shares of common stock to a member of our Board of Directors in exchange for notes payable in the aggregate principal amount of $1,050,000. There was no loss on settlement of notes payable – related parties incurred in the three and six months ended June 30, 2015.

Loss on settlement of notes payable was $876,543 for the three and six months ended June 30, 2014. During the second quarter of 2014, we issued shares of common stock to a creditor upon conversion of a promissory note in the principal amount of $500,000. There was no loss on settlement of notes payable incurred in the three and six months ended June 30, 2015.

Other (Income) Expenses

Other income was $1,633 and $4,153 during the three and six months ended June 30, 2015, respectively, compared to other income of $2,466 and $446 during the three and six months ended June 30, 2014, respectively. Other income for the three and six months ended June 30, 2015 related primarily to the recognition of interest income.

Interest Expense

Interest expense was zero during the three and six months ended June 30, 2015 compared to $136,584 and $194,878 during the three and six months ended June 30, 2014. These decreases were due to a reduction in our total indebtedness during the last three quarterly periods of 2014, which eliminated all of our debt as of December 31, 2014.

Benefit From Income Taxes

Benefit from income taxes was zero during the three and six months ended June 30, 2015 compared to $186,470 and $238,129 for the three and six months ended June 30, 2014 related primarily to a reduction in deferred taxes related to the amortization of intangible assets.

Net Loss

We recognized a net loss of $(3,969,322) for the three months ended June 30 2015, or $(0.21) per share, compared to net loss of $(4,455,232), or $(0.35) per share, for the three months ended June 30, 2014. We recognized a net loss of $(7,485,738) for the six months ended June 30, 2015, or $(0.40) per share, compared to net loss of $(5,835,407), or $(0.62) per share, for the six months ended June 30, 2014. We expect to incur net losses in future periods for the foreseeable future as we plan to continue our efforts to advance our technologies and product candidates.

Liquidity and Capital Resources

Working Capital

Our working capital totaled $15,262,112, including $16,472,761 in cash and cash equivalents, as of June 30, 2015, compared to working capital of $21,832,217, including $21,883,887 in cash and cash equivalents, as of December 31, 2014.

The following table summarizes our working capital as of June 30, 2015 and December 31, 2014:

We expect to continue to incur net losses for the foreseeable future. We intend to use our existing cash and cash equivalents for working capital and to fund the research and development of our technologies and product candidates.

Cash Flows

The following table sets forth our cash flows for the six months ended June 30, 2015 and 2014:

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Operating Activities

Cash used in operating activities was primarily unchanged during the six month periods ended June 30, 2015 and 2014. $5,132,899 cash used in operating activities expended on research and development and general and administrative activities during the six months ended June 30, 2015 approximated the $5,121,098 cash used in operating activities for the six months ended June 30, 2014 primarily due to the payment of pre-2014 liabilities during the six months ended June 30, 2014.

Investing Activities

Net cash used in investing activities was $278,227 for the six months ended June 30, 2015 compared to $0 during the six months ended June 30, 2015. The investment in Or-Genix accounted for $250,000 and purchase of fixed assets accounted for $28,227 of cash used in investing activities for the six months ended June 30, 2015.

Financing Activities

Net cash provided by financing activities was $0 during the six months ended June 30, 2015 compared to $32,005,727 during the six months ended June 30, 2014. Net cash provided by financing activities during the prior year period resulted primarily from proceeds from our 2014 private placement.

Capital Requirements

We expect to incur substantial expenses and generate significant operating losses as we continue to execute our business strategy, including:

• synthesis and formulation of our product candidates;
• conducting preclinical and clinical trials to pursue our product development initiatives;
• hiring additional personnel for managerial, research and development, operations and other functions; and
• implementing improved operational, financial and management systems.

To date, we have used primarily equity and debt financings to fund our ongoing business operations and short-term liquidity needs, and we expect to continue this practice for the foreseeable future. During 2014, we completed a private placement pursuant to which we raised approximately $35.6 million in gross proceeds and $31.9 million in net proceeds, after paying placement agent fees and commission and offering expenses. In the private placement, we issued an aggregate of 8,895,685 shares of our common stock and warrants to purchase an aggregate of 2,668,706 shares of common stock. Investors received warrants to purchase 0.3 share of common stock for each share of common stock that investors purchased in the private placement. The purchase price of each common stock/warrant unit was $4.00. Each warrant is exercisable into one share of common stock at an initial exercise price of $4.80 per share.

We believe our cash and cash equivalents as of June 30, 2015 will be sufficient to fund our planned operations at least into the second half of 2016. However, we may require additional funds earlier. Accordingly, there is no assurance that we will not need or seek additional funding prior to such time. We may elect to raise additional funds even before we need them if market conditions for raising additional capital are favorable.

As of June 30, 2015, we did not have any existing credit facilities under which we could borrow funds. We may seek to raise additional funds through various sources, such as equity and debt financings, or through strategic collaborations and license agreements. We can give no assurances that we will be able to secure additional sources of funds to support our operations, or if such funds are available to us, that such additional financing will be sufficient to meet our needs or on terms acceptable to us. This risk may increase if economic and market conditions deteriorate. If we are unable to obtain additional financing when needed, we may need to terminate, significantly modify or delay the development of our product candidates and our operations, or we may need to obtain funds through collaborators that may require us to relinquish rights to our technologies or product candidates that we might otherwise seek to develop or commercialize independently. If we are unable to obtain additional financing when needed, we may be forced to explore strategic alternatives, such as selling or merging our company or winding down our operations and liquidating our company.

To the extent that we raise additional capital through the sale of our common stock, the interests of our current stockholders may be diluted. If we issue preferred stock or convertible debt securities, it could affect the rights of our common stockholders or reduce the value of our common stock. In particular, specific rights granted to future holders of preferred stock or convertible debt securities may include voting rights, preferences as to dividends and liquidation, conversion and redemption rights, sinking fund provisions, and restrictions on our ability to merge with or sell our assets to a third party. Debt financing, if available, may 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.

Contractual Obligations

Set forth below is information concerning our known contractual obligations as of June 30, 2015 that are fixed and determinable by year starting with the twelve months ending June 30, 2016.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, as defined by the rules and regulations of the SEC that have or are reasonably likely to have a material effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources. As a result, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these arrangements.

Critical Accounting Policies

Certain of our critical accounting estimates require the application of significant judgment by management in selecting the appropriate assumptions in determining the estimate. By their nature, these judgments are subject to an inherent degree of uncertainty. We develop these judgments based on our historical experience, terms of existing contracts, our observance of trends in the industry and information available from other outside sources, as appropriate. Actual results may differ from these judgments under different assumptions or conditions. Different, reasonable estimates could have been used for the current period. Additionally, changes in accounting estimates are reasonably likely to occur from period to period. Both of these factors could have a material impact on the presentation of our financial condition, changes in financial condition or results of operations. All of our critical accounting policies are more fully described in “Part II — Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” set forth in our annual report on Form 10-K for the year ended December 31, 2014. There have been no changes to our critical accounting policies since December 31, 2014, except for the following additional information on our goodwill.

Goodwill

Our goodwill as of June 30, 2015 was approximately $12.1 million. Goodwill is the excess of the cost of an acquired entity over the net amounts assigned to tangible and intangible assets acquired and liabilities assumed. We apply ASC 350 “Goodwill and Other Intangible Assets,” which requires testing for goodwill impairment on an annual basis. We assess goodwill for impairment as part of our annual reporting process in the fourth quarter. In between valuations, we conduct additional tests if circumstances indicate a need for testing.

An annual impairment review was most recently completed on December 31, 2014. As of the December 31, 2014 impairment review, there was no impairment loss associated with recorded goodwill as the estimated fair value exceeded the carrying amount. The fair value of the reporting unit as of December 31, 2014, for the purpose of assessing the impairment of goodwill, was determined based on a primary analysis method, which provided a market capitalization of $66.1 million as of December 31, 2014. We determined that the fair value of our businesses for accounting purposes was equal to our market capitalization of approximately $66.1 million, which we then compared to our stockholders’ equity of $38.2 million, noting that fair value exceeded the carrying value, and therefore, indicated no impairment of goodwill.

We consider certain triggering events when evaluating whether an interim impairment analysis is warranted. Among these would be a significant long-term decrease in our market capitalization based on events specific to our operations. Although our market capitalization has decreased significantly during the past several months, as of June 30, 2015, the Company’s market capitalization approximated its stockholders’ equity of $31.8 million. Management concluded that given the short time period of the noted decrease, the inactive trading activity in the Company’s stock and the lack of a specific event triggering the decrease, there has not been a sustained decrease in the Company’s share price; and therefore, no triggering event has occurred during the first six months of 2015. If our recent stock price decline continues or if our market capitalization does not increase, it is possible that our goodwill might experience an impairment at the next annual impairment review anticipated during fourth quarter of 2015 or earlier if management determines that a triggering event has occurred.

Special Note Regarding Forward-Looking Statements

This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created by those sections. In addition, we or others on our behalf may make forward-looking statements from time to time in oral presentations, including telephone conferences and/or web casts open to the public, in news releases or reports, on its Internet web site or otherwise. All statements other than statements of historical facts included in this report that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements including, in particular, the statements about our plans, objectives, strategies and prospects regarding, among other things, our business, operating results and financial condition. We have identified some of these forward-looking statements with words like “believe,” “may,” “will,” “should,” “could,” “would,” “might,” “possible,” “potential,” “expect,” “intend,” “plan,” “predict,” “project,” “anticipate,” “estimate,” “approximate,” “continue,” other words and terms of similar meaning and the use of future dates. These forward-looking statements may be contained in this section, the notes to our financial statements and elsewhere in this report. Our forward-looking statements generally relate to:

• our business strategies;
• the status and anticipated development of our product candidates;
• the market size and anticipated market acceptance of our product candidates;
• our future operating expenses, including research and development expenses and general and administrative expenses, our anticipated burn rate and whether and how long our existing cash and cash equivalents will be sufficient to fund our operations;
• our goodwill and the possible future impairment thereof;
• the effect of new accounting pronouncements and future health care, tax and other legislation; and
• our anticipated substantial and continuing losses.

These forward-looking statements are based on current expectations about future events affecting us and are subject to uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control and could cause our actual results to differ materially from those matters expressed or implied by our forward-looking statements. Forward-looking statements (including oral representations) are only predictions or statements of current plans and can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties, including, among other things, risks associated with:

• our history of operating losses and negative cash flow;
• our ability to generate revenues and obtain profitability;
• our ability to obtain additional capital when needed or on acceptable terms and the effect of any future equity or debt financings on our stockholders;
• our ability to successfully choose which of our product candidates should be developed and in which order;
• the potential for changes in our focus on certain product candidates to other product candidates;
• our success in developing new products and technologies, obtaining any required regulatory approvals for such products and technologies and obtaining market acceptance and commercial success with respect to such new products and technologies;
• the timing of when, if ever, our product candidates will be approved and introduced commercially;
• the size of the market and the level of market acceptance of our product candidates if and when they are commercialized;
• our dependence on the successful development, regulatory approval and commercialization of our product candidates, which include primarily RES-529 and RES-440, which are in early stage development;
• uncertainties regarding clinical drug development and the failure of our clinical trials to adequately demonstrate the safety and efficacy of our product candidates, which could prevent or delay regulatory approval and commercialization;
• our dependence upon third-party clinical research organizations and other third parties to conduct and oversee our clinical trials and other aspects of product development;
• our ability to acquire or invest in new businesses, products and technologies by way of a license, acquisition or merger transaction and the effect of such a transaction on our stockholders, business, operating results and financial condition;
• our ability to comply with extensive laws, rules and regulations;
• our ability to protect our proprietary technology and to operate our business without infringing the proprietary rights of third parties;
• our ability to compete in a competitive industry;
• our dependence upon key employees;
• our prior and any future acquisitions, including difficulties in integrating the acquired businesses and their respective personnel and products; difficulties or delays in realizing the anticipated benefits of our prior acquisitions or any additional acquired companies and their product candidates; challenges due to limited or no direct prior experience in new markets we may enter; the potential loss of key employees; inability to successfully develop new products and services on a timely basis that address our new market opportunities post-acquisition; unanticipated costs, litigation and other contingent liabilities; incurrence of acquisition and integration related costs, accounting charges, or amortization costs for acquired intangible assets; potential write-down of goodwill, acquired intangible assets and/or deferred tax assets; and additional legal, financial and accounting challenges and complexities in areas such as intellectual property, tax planning, cash management and financial reporting;
• our ability to maintain effective internal control over financial reporting;
• changes in applicable laws or regulations and our failure to comply with applicable laws, rules and regulations;
• changes in generally accepted accounting principles and the effect of new accounting pronouncements;
• conditions and changes in the biopharmaceutical industry or in general economic or business conditions;
• our ability to obtain and maintain a national securities exchange listing for our common stock and the ability of our stockholders to buy or sell our common stock in light of the low trading volume and liquidity of our common stock; and
• pending and future litigation, which could have an adverse effect on our business, financial condition or operating results.

For more information regarding these and other uncertainties and factors that could cause our actual results to differ materially from what we have anticipated in our forward-looking statements or otherwise could materially adversely affect our business, financial condition or operating results, see “Part I — Item 1A. Risk Factors” of our annual report on Form 10-K for the fiscal year ended December 31, 2014. The risks and uncertainties described above and in “Part I — Item 1A. Risk Factors” of our annual report on Form 10-K for the fiscal year ended December 31, 2014 are not exclusive and further information concerning us and our business, including factors that potentially could materially affect our financial results or condition, may emerge from time to time. We assume no obligation to update, amend or clarify forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements. We advise you, however, to consult any further disclosures we make on related subjects in our future annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K we file with or furnish to the Securities and Exchange Commission.

Evaluation of Disclosure Controls and Procedures

The term “disclosure controls and procedures” means our controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

We maintain disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) that are designed to provide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and we are required to apply our judgment in evaluating the cost-benefit relationship of possible internal controls. Our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered in this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of such period to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure.

Our principal executive officer and principal financial officer do not expect that our disclosure controls and procedures or internal controls will prevent all error and all fraud. Although our disclosure controls and procedures were designed to provide reasonable assurance of achieving their objectives, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented if there exists in an individual a desire to do so. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Change in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting that occurred during the quarter ended June 30, 2015 that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.