ARROWHEAD RESEARCH CORP - 10-K - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Edgar Glimpses Via Acquire Media NewsEdge) Description of Business
Unless otherwise noted, (1) the term "Arrowhead" refers to Arrowhead Research
Corporation, a Delaware corporation, (2) the terms the "Company," "we," "us,"
and "our," refer to the ongoing business operations of Arrowhead and its
Subsidiaries, whether conducted through Arrowhead or a subsidiary of Arrowhead,
(3) the term "Subsidiaries" refers collectively to Arrowhead Madison Inc.
("Madison"), formerly known as "Roche Madison, Inc.", Alvos Therapeutics, Inc.
("Alvos"), Calando Pharmaceuticals, Inc. ("Calando"), Ablaris Therapeutics, Inc.
("Ablaris"), Agonn Systems, Inc. ("Agonn"), and Tego Biosciences Corporation
("Tego") as well as our former subsidiary, Unidym, Inc. ("Unidym"), which was
divested in January 2011, (4) the term "Minority Investments" refers
collectively to Nanotope, Inc. ("Nanotope") and Leonardo Biosystems, Inc.
("Leonardo") in which the company holds a less than majority ownership position,
and (5) the term "Common Stock" refers to Arrowhead's Common Stock and the term
"stockholder(s)" refers to the holders of Arrowhead Common Stock. All Arrowhead
share and per share data have been adjusted to reflect a one for ten reverse
stock split effected on November 17, 2011.
Arrowhead Research Corporation is a clinical stage targeted therapeutics company
with development programs in oncology, obesity, and chronic hepatitis B virus
infection. Arrowhead is focused on creating new therapeutics that are
preferentially taken up by target tissues in order to maximize a drug's efficacy
and potentially limit side effects associated with exposure to healthy cells.
Arrowhead has assembled a broad set of technologies and licenses to enable
targeted RNAi therapeutics capable of silencing specific gene products in
specific cells. Arrowhead has also assembled a proprietary targeting library
that may be used with its RNAi platforms as well as with small molecule or
peptide drugs. These platforms have yielded several drug candidates under both
internal and partnered development.
Critical Accounting Policies and Estimates
Management makes certain judgments and uses certain estimates and assumptions
when applying accounting principles generally accepted in the United States in
the preparation of our Consolidated Financial Statements. We evaluate our
estimates and judgments on an ongoing basis and base our estimates on historical
experience and on assumptions that we believe to be reasonable under the
circumstances. Our experience and assumptions form the basis for our judgments
about the carrying value of assets and liabilities that are not readily apparent
from other sources. Actual results may vary from what we anticipate and
different assumptions or estimates about the future could change our reported
results. We believe the following accounting policies are the most critical to
us, in that they are important to the portrayal of our consolidated financial
statements and require our most difficult, subjective or complex judgments in
the preparation of our consolidated financial statements. For further
information, see Note 1, Organization and Significant Accounting Policies, to
our Consolidated Financial Statements which outlines our application of
significant accounting policies and new accounting standards.
Revenue from product sales are recorded when persuasive evidence of an
arrangement exists, title has passed and delivery has occurred, a price is fixed
and determinable, and collection is reasonably assured.
We may generate revenue from technology licenses, collaborative research and
development arrangements, research grants and product sales. Revenue under
technology licenses and collaborative agreements typically consists of
nonrefundable and/or guaranteed technology license fees, collaborative research
funding, and various milestone and future product royalty or profit-sharing
Revenue associated with research and development funding payments under
collaborative agreements is recognized ratably over the relevant periods
specified in the agreement, generally the research and development period.
Revenue from up-front license fees, milestones and product royalties are
recognized as earned based on the completion of the milestones and product
sales, as defined in the respective agreements. Payments received in advance of
recognition as revenue are recorded as deferred revenue.
In October 2011, we acquired all of the outstanding common stock of Roche
Madison, Inc. and certain related intellectual property assets for a $50,000
promissory note and 1,288,158 shares of Arrowhead Common Stock, an estimated
consideration value of $5.1 million on the date of the acquisition. We assigned
the value of the consideration to the tangible assets and identifiable
intangible assets and the liabilities assumed on the basis of their fair values
on the date of acquisition. The excess of net assets over the consideration was
recorded as a nonoperating gain.
In April 2012, we acquired all of the outstanding common stock of Alvos
Therapeutics, Inc. in exchange for the issuance of 315,457 shares of Arrowhead
Common Stock, valued at $2.0 million at the time of acquisition. The
consideration was assigned to its tangible and intangible assets, and
liabilities based on estimated fair values at the time of acquisition.
The allocation of value to certain items, including property and equipment,
intangible assets and certain liabilities require management judgment, and is
based upon the information available at the time of acquisition.
Impairment of Long-lived Assets
We review long-lived assets for impairment whenever events or changes in
business circumstances indicate that the carrying amount of assets may not be
fully recoverable or that our assumptions about the useful lives of these assets
are no longer appropriate. If impairment is indicated, recoverability is
measured by a comparison of the carrying amount of an asset to estimated
undiscounted future cash flows expected to be generated by the asset. If the
carrying amount of an asset exceeds its estimated future cash flows, an
impairment charge is recognized in the amount by which the carrying amount of
the asset exceeds the fair value of the asset.
Impairment of Intangible assets
Intangible assets consist of in-process research and development, patents and
license agreements acquired in conjunction with a business acquisition.
Intangible assets are monitored for potential impairment whenever events or
circumstances indicate that the carrying amount may not be recoverable, and are
also reviewed annually to determine whether any impairment is necessary. Based
on early adoption of ASU 2012-02, the annual review of intangible assets is
performed via a two-step process. First, a qualitative assessment is performed
to determine if it is more likely than not that the intangible asset is
impaired. If required, a quantitative assessment is performed and, if necessary,
impairment is recorded.
We recognize stock-based compensation expense based on the grant date fair value
using the Black-Scholes options pricing model, which requires us to make
assumptions regarding certain variables including the risk-free interest rate,
expected stock price volatility, and the expected life of the award. The
assumptions used in calculating stock-based compensation expense represent
management's best estimates, but these estimates involve inherent uncertainties,
and if factors change or the Company used different assumptions, its stock-based
compensation expense could be materially different in the future.
Derivative Assets and Liabilities
We account for warrants and other derivative financial instruments as either
equity or assets/liabilities based upon the characteristics and provisions of
each instrument. Warrants classified as equity are recorded as additional
paid-in capital on our consolidated balance sheet and no further adjustments to
their valuation are made. Some of our warrants were determined to be ineligible
for equity classification because of provisions that may result in an adjustment
to their exercise price. Warrants classified as derivative liabilities and other
derivative financial instruments that require separate accounting as assets or
liabilities are recorded on our consolidated balance sheet at their fair value
on the date of issuance and are revalued on each subsequent balance sheet date
until such instruments are exercised or expire, with any changes in the fair
value between reporting periods recorded as other income or expense. We estimate
the fair value of these assets/liabilities using option pricing models that are
based on the individual characteristics of the warrants or instruments on the
valuation date, as well as assumptions for expected volatility, expected life
and risk-free interest rate. Changes in the assumptions used could have a
material impact on the resulting fair value. The primary input affecting the
value of our derivatives liabilities is the Company's stock price. For example,
at September 30, 2012, a 50% change in the value of the Company's stock price
would affect the value of the derivative liability by approximately $0.3 million
to $0.4 million, depending on other inputs.
Reverse Stock Split
As of November 17, 2011, the Company effected a 1 for 10 reverse stock split
(the "reverse stock split"). As a result of the reverse stock split, each ten
shares of the Company's Common Stock issued and outstanding immediately prior to
the reverse split was combined into one share of Common Stock. Also, as a result
of the Reverse Stock Split, the per share exercise price of, and the number of
shares of Common Stock underlying outstanding Company stock options, warrants,
Series A Preferred and any Common Stock based equity grants outstanding
immediately prior to the reverse stock split was proportionally adjusted, based
on the one-for-ten split ratio, in accordance with the terms of such options,
warrants or other Common Stock based equity grants as the case may be. No
fractional shares of Common Stock were issued in connection with the reverse
stock split. Stockholders instead received cash payment in lieu of any
fractional shares. Unless otherwise noted, all share and per share amounts in
these have been retrospectively adjusted to reflect the reverse stock split.
Full Year Review
On October 21, 2011, the Company acquired Roche Madison, Inc. and other
intangible assets from Roche. The acquisition included a laboratory research
facility in Madison, Wisconsin comprising over 24,000 square feet. Roche Madison
Inc. employed 41 employees at the time of the acquisition. Due to the
significant new costs associated with the facility, its people and research
programs, salary costs, general and administrative costs, and research and
development costs increased significantly relative to prior periods. Going
forward, we expect this increased cost structure to continue as research and
development efforts are accelerated.
On April 11, 2012, the Company acquired Alvos Therapeutics, Inc., a targeted
therapeutics company. Prior to the acquisition, Alvos licensed a large platform
proprietary human-derived Homing Peptides and the method for their discovery
from MD Anderson Cancer Center. The company hired one employee as a result of
the acquisition, and the operations of Alvos are being integrated into our
research facility in Madison, Wisconsin.
Results of Operations
The Company had a net loss of $22.1 million for the year ended September 30,
2012, compared to a net loss of $3.5 million for the year ended September 30,
2011, an increase of $18.6 million.
The change in the net loss was the result of a number of factors. During the
year ended September 30, 2011, the Company recognized income from discontinued
operations of $5.4 million related to the gain on disposal of Unidym, which was
not repeated in the current period. In fiscal 2012, the Company recorded an
impairment charges and recorded as reserve against a receivable from its
unconsolidated affiliates, in the amount of $4.1 million. In fiscal 2012, the
company recorded a loss on disposal of equipment of $1.1 million, related to
non-strategic equipment obtained in conjunction with the acquisition of Roche
Madison, and subsequently sold. These losses were partially offset by a gain
recorded on the acquisition of Roche Madison of $1.6 million. All of these items
are non-operating, one-time occurrences. However, research and development costs
increased significantly in the current fiscal year due to the acquisition of
Roche Madison, its facility costs, personnel costs, and program costs. Details
of the results of operations are presented below.
The Company generated revenue of $147,000 during the year ended September 30,
2012, due to license agreements obtained in conjunction with the acquisition of
Roche Madison, as compared to revenue of $296,000 during the year ended
September 30, 2011. The revenue in 2011 was primarily related to a qualifying
therapeutic discovery grant received by Calando.
The analysis below details the operating expenses and discusses the expenditures
of the Company within the major expense categories. For purposes of comparison,
the amounts for the years ended September 30, 2012 and 2011 are shown in the
Salary & Wage Expenses-Fiscal 2012 compared to Fiscal 2011
The Company employs management, administrative, and scientific and technical
staff at its corporate offices and its research facility. Salaries and wages
expense consists of salary and related benefits. Salary and benefits include two
major categories: general and administrative compensation expense, and research
and development compensation expense, based on the primary activities of each
employee. The following table provides detail of salary and related benefits
expenses for the years ended September 30, 2012 and 2011.
Twelve months % of Twelve months % of
Ended Expense Ended Expense Increase (Decrease)
September 30, 2012 Category September 30, 2011 Category $ %
G&A-compensation-related $ 3,107 48 % $ 1,144 81 % $ 1,963 172 %
R&D-compensation-related 3,308 52 % 264 19 % 3,044 1153 %
Total $ 6,415 100 % $ 1,408 100 % $ 5,007 356 %
During the year ended September 30, 2012, G&A compensation expense increased
$1,963,000. During the fiscal year, upon the acquisition of Roche Madison, the
Company expanded its senior management team. Its G&A headcount also increased
due to several Madison employees classified as G&A. During the year ended
September 30, 2012, R&D compensation expense increased $3,044,000. This increase
was due to employees hired upon the acquisition of Roche Madison.
General & Administrative Expenses-Fiscal 2012 compared to Fiscal 2011
The following table provides details of our general and administrative expenses
for the fiscal years 2012 and 2011.
Twelve months % of Twelve months % of
Ended Expense Ended Expense Increase (Decrease)
September 30, 2012 Category September 30, 2011 Category $ %
Professional/outside services $ 1,800 28 % $ 2,383 63 % $ (583 ) -24 %
Patent expense 1,024 16 % 604 16 % 420 70 %
Facilities and related 120 2 % 168 4 % (48 ) -29 %
Travel 369 6 % 201 5 % 168 84 %
Business insurance 202 3 % 194 5 % 8 4 %
Communication and Technology 196 3 % 96 3 % 100 104 %
Office expenses 91 1 % 54 1 % 37 69 %
Other 2,637 41 % 95 3 % 2,542 NM
Total $ 6,439 100 % $ 3,795 100 % $ 2,644 70 %
Professional/outside services include legal, accounting and other outside
services retained by Arrowhead and its subsidiaries. All periods include
normally occurring legal and accounting expenses related to SEC compliance and
other corporate matters. Professional/outside services expense was $1,800,000
during the year ended September 30, 2012, compared to $2,383,000 in the
comparable prior period. In the prior period, the Company recorded expenses of
$663,000 related to stock issued for financing commitments in association with
the September 2011 financing in conjunction with the acquisition of Roche
Patent expense was $1,024,000 during the year ended September 30, 2012, compared
to $604,000 in the comparable prior period. During the year ended September 30,
2012, approximately half of the patent expense was related to fees paid to
patent counsel for the maintenance of newly acquired intellectual property in
conjunction with the acquisition of Roche Madison. The balance of patent expense
primarily relates to Calando's intellectual property portfolio, and to a lesser
extent the intellectual property acquired in conjunction with the Alvos
acquisition and the Ablaris patent portfolio. The Company expects to continue to
invest in patent protection as the Company extends and maintains protection for
its current portfolios and files new patent applications as its product
applications are improved.
Facilities and related expense was $120,000 during the year ended September 30,
2012, compared to $168,000 in the comparable prior period. Facilities and
related expense within general and administrative expenses primarily relate to
rental costs associated with the Company's headquarters in Pasadena, California.
Facilities expense decreased due to reduction in the company's rental expense
because its lease for its corporate headquarters expired. During most of fiscal
2012, the Company occupied smaller and less expensive office space. In August
2012, the Company moved into a new facility. Its rental costs in fiscal 2013 are
expected to increase relative to the temporary space occupied in 2012.
Travel expense was $369,000 during the year ended September 30, 2012, compared
to $201,000 in the comparable prior period. Travel expense increased due to
travel associated with the acquisition of Roche Madison Inc., as well as
additional travel costs related to Madison-based employees. During fiscal 2012,
the Company hired a Chief Operating Officer and a Chief Business Officer, whose
job functions require travel. Also, travel costs are expected to increase in the
future due to increased travel between the Madison and Pasadena locations.
Travel expense includes costs related to travel by Company personnel for
operational business meetings at other company locations, business initiatives
and collaborations throughout the world with other companies, marketing,
investor relations, fund raising and public relations purposes. Travel expenses
can fluctuate from quarter to quarter and from year to year depending on current
projects and activities.
Business insurance expense was $202,000 during the year ended September 30,
2012, compared to $194,000 in the comparable prior period. The company
experienced favorable rate decreases in its Directors and Officers insurance
coverage, which was offset by additional insurance costs associated with
Communication and technology expense was $196,000 during the year ended
September 30, 2012, compared to $96,000 in the comparable prior period. The
increase was related to software maintenance costs at Madison, primarily desk
top software and license renewal fees on software related to the operation of
Office expenses are administrative costs to facilitate the operations of the
Company's office facilities in Pasadena and Madison, and include office
supplies, copier/printing costs, postage/delivery, professional
dues/memberships, books/subscriptions, staff amenities, and professional
training. Office expenses were $91,000 during the year ended September 30, 2012,
compared to $54,000 in the comparable prior period. The increase in office
expenses was related to costs incurred at its newly acquired Madison facility.
Other expense was $2.6 million during the year ended September 30, 2012 compared
to $95,000 in the comparable prior period. During the year ended September 30,
2012, the Company recorded reserves against receivable from its unconsolidated
affiliates, Nanotope and Leonardo in the amount of $2.5 million.
Research and Development Expenses-Fiscal 2012 compared to Fiscal 2011
R&D expenses are related to the Company's on-going research and development
efforts, primarily related to its laboratory research facility in Madison,
Wisconsin, and also include outsourced R&D services. The following table
provides detail of research and development expense for the years ended
September 30, 2012 and 2011.
Twelve months % of Twelve months % of
Ended Expense Ended Expense Increase (Decrease)
September 30, 2012 Category September 30, 2011 Category $ %
Outside labs & contract services $ 1,096 20 % $ 605 19 % $ 491 81 %
In vivo studies 302 6 % 29 1 % 273 941 %
Drug Manufacturing 1,256 23 % 68 2 % 1,188 1747 %
Consulting 655 12 % 440 13 % 215 49 %
License, royalty & milestones 274 5 % 2,045 63 % (1,771 ) -87 %
Laboratory supplies & services 793 15 % 2 0 % 791 NM
Facilities and related 787 15 % 8 0 % 779 NM
Sponsored research 185 3 % 75 2 % 110 147 %
Other research expenses 43 1 % 6 0 % 37 617 %
Total $ 5,391 100 % $ 3,278 100 % $ 2,113 64 %
Outside lab and services expense was $1,096,000 during the year ended
September 30, 2012, compared to $605,000 in the comparable prior period. The
increase is due to outside services contracted to complement the research
performed at our Madison facility, which was acquired in October 2012, and not
part of the prior period expenses.
In vivo studies expense was $302,000 during the year ended September 30, 2012,
compared to 29,000 in the comparable prior period. The current period expense
relates to preclinical animal studies at our Madison research facility, and we
expect this increased level of expense for such studies to continue at an
elevated level as the company accelerates its product development efforts. The
prior period expense related to certain limited outsourced in vivo studies
related to Calando.
Drug manufacturing expense was $1,256,000 during the year ended September 30,
2012, compared to $68,000 in the comparable prior period. Approximately half of
the drug manufacturing expense related to raw materials, specifically, polymer
components for RONDEL. Prior year costs for this program were $68,000. The other
half of the drug manufacturing costs relate to our manufacturing campaign
related to the Company's Hepatitis B Virus (HBV) program, which began in the
fourth quarter of fiscal 2012, for use in upcoming GLP toxicity studies planned
in the first half of fiscal 2013. The Company is utilizing outside manufacturers
to produce these components; these costs will continue until the manufacturing
campaign is completed in 2013.
Consulting expense was $655,000 during the year ended September 30, 2012,
compared to $440,000 in the comparable prior period. The increase in consulting
expense was primarily related to fees paid to our consultants monitoring our
clinical trial at Calando, as well as clinical consulting costs for a planned
clinical trial in HBV, as well as higher costs associated with the scientific
advisory board at Ablaris.
License, royalty & milestone expense was $274,000 during the year ended
September 30, 2012, compared to $2,045,000 in the comparable prior period. The
licensing fees, royalty and milestones expenses during the prior year reflect a
one-time to $2 million in licensing fees paid to University of Texas M.D.
Anderson Cancer Center for the anti-obesity compound licensed by Ablaris. The
current year expense also relates to Ablaris and was payable to the University
of Texas M.D. Anderson Cancer Center related to a milestone achieved by dosing
its first patient in an obesity/prostate cancer clinical trial.
Stock-based compensation expense
Stock-based compensation expense, a noncash expense, was $1,241,000 during the
year ended September 30, 2012, compared to $1,376,000 during the comparable
prior period. Stock-based compensation expense is based upon the valuation of
stock options granted to employees, directors, and certain consultants. Many
variables affect the amount expensed, including the Company's stock price on the
date of the grant, as well as other assumptions. Based on the completion of
vesting of a number of stock options during the second half of fiscal 2011,
compensation expense related to those awards ended. This was mostly offset by
additional options granted to new and existing employees in fiscal 2012.
Depreciation and amortization expense
Depreciation and amortization expense, a noncash expense, was $1,749,000 during
the year ended September 30, 2012, compared to $268,000 during the comparable
prior period. The majority of depreciation and amortization expense relates to
depreciation on lab equipment obtained as part of the acquisition of Roche
Madison. In addition, the Company records depreciation on leasehold improvements
at its Madison research facility. The Madison facility was acquired in October
2011; therefore, there was no related depreciation in the prior year. Finally,
certain patents acquired previously have been capitalized and amortized over the
remaining useful lives of the respective patents.
Other Income / Expense
Other income / expense changed from income of $1,045,000 in fiscal 2011 to other
expense of $1,021,000 in fiscal 2012. During fiscal 2012, the Company recorded
several nonrecurring items: Impairment of its investment in its unconsolidated
affiliate, Nanotope of $1.4 million, a loss on the disposal of fixed assets of
$1.1 million, and a gain recorded upon the acquisition of Roche Madison of $1.6
million, and an impairment of its investment in Leonardo of $0.2 million. Other
component of other income/expense was the change in value of derivatives, which
was $387,000 in fiscal 2012, compared to $1.1 million in fiscal 2011.
Liquidity and Cash Resources
As a development stage company, Arrowhead has historically financed its
operations through the sale of securities of Arrowhead and its Subsidiaries.
Research and development activities have required significant capital investment
since the Company's inception, and are expected to continue to require
significant cash investment in fiscal 2012.
At September 30, 2012, the Company had cash on hand of approximately $3.4
million. In addition, the Company had subscriptions receivable from previous
financings of $1.0 million, and a short term note receivable of approximately
$2.4 million. Cash and cash equivalents decreased $4.1 million during fiscal
2012 from $7.5 million at September 30, 2011 to $3.4 million at September 30,
Cash used in operating activities was $16.0 million, which represents the
on-going expenses of its research and development programs, and corporate
overhead. Cash outlays were primarily composed of the following: salary and
payroll-related costs was $6.5 million, general and administrative costs were
$4.0 million, research and development costs were $4.8 million. $0.9 million was
used to fund operating expenses at Arrowhead's two minority interest companies,
Nanotope and Leonardo. Cash expenses were somewhat offset by cash received from
revenues of $0.2 million.
Cash provided by investing activities was $0.4 million, primarily related to
cash received from the sale of investments of $0.5 million, proceeds from the
disposal of fixed assets of $0.3 million, offset by capital expenditures of $0.5
Cash provided by financing activities of $10.8 million includes $11.0 million
received related to cash received from the sale of Common Stock, offset by
principal payments on capital leases of $0.2 million.
These matters raise substantial doubt about the Company's ability to continue as
a going concern. These financial statements were prepared under the assumption
that the Company will continue as a going concern and do not include any
adjustments that might result from the outcome of that uncertainty.
Recent Financing Activity / Sources of Capital:
In December 2012, the Company sold 1.9 million units at a price of $2.26 per
unit in a public offering. Each unit consisted of one share of Common Stock and
a warrant to purchase 0.5 share of Common Stock, exercisable at $2.20. Gross
proceeds from the offering were $4.3 million, which included a $500,000
promissory note due February 1, 2013. Commissions and other offering expenses
are expected to be approximately $300,000.
On August 10, 2012, the Company sold 2.3 million units at a price of $2.76 per
unit in a registered offering to institutional and individual investors. Each
unit consisted of one share of Common Stock and a warrant to purchase 0.75 share
of Common Stock exercisable at $3.25 per share. Gross proceeds from the offering
were approximately $6.2 million, with net proceeds of approximately $5.8 million
after deducting commissions and other offering expenses.
On September 30, 2011, the Company sold 1,458,917 shares of Common Stock at a
price of $3.80 per share. Cash proceeds received in fiscal 2011 were $4.6
million, cash proceeds in the first six months of fiscal 2012 were $0.4 million,
and the balance is expected to be received in 2012. On October 4, 2011, the
Company completed a second closing to the offering in which the Company sold
138,158 shares of Common Stock at a price of $3.80 per share. Cash proceeds were
On October 20, 2011, the Company and Lincoln Park Capital Fund, LLC, an Illinois
limited liability company ("LPC") entered into a $15 million purchase agreement,
together with a registration rights agreement, whereby LPC agreed to purchase up
to $15 million of Common Stock, subject to certain limitations, from time to
time during the three-year term of the agreement. Additionally, the Company
filed a registration statement with the U.S. Securities & Exchange Commission
covering the resale of the shares that may be issued to LPC under the agreement.
On January 30, 2012, the SEC declared the registration statement effective for
the resale of such shares. The Company has the right, in its sole discretion,
over a 36-month period to sell up to $15 million of Common Stock (subject to
certain limitations) to LPC, depending on certain conditions as set forth in the
agreement. As of September 30, 2012, the Company had drawn $1 million from the
Although the Company has sources of liquidity, as described above, the Company
anticipates that further equity financings, and/or asset sales and license
agreements will be necessary to continue to fund operations in the future.
Off-Balance Sheet Arrangements
As of September 30, 2012, we did not have any off-balance sheet arrangements, as
defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
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