FRESH VINE WINE, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the financial statements and
related notes to those statements as included elsewhere in this Quarterly Report
on Form 10-Q. In addition to historical financial information, the following
discussion and analysis contains forward-looking statements that involve risks,
uncertainties, and assumptions. See "Cautionary Note Regarding Forward-looking
Statements" included elsewhere in this Quarterly Report on Form 10-Q. Our actual
results may differ materially from those anticipated in these forward-looking
statements as a result of many factors, including those discussed in Part I
"Item 1A. Risk Factors" included in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2021.


Fresh Vine Wine, Inc. (the "Company") is a premier producer of low carb, low
calorie, premium wines in the United States. Founded in 2019, Fresh Vine Wine
brings an innovative "better-for-you" solution to the wine market. We currently
sell seven proprietary varietals: Cabernet Sauvignon, Pinot Noir, Chardonnay,
Sauvignon Blanc, Rosé, Sparkling Rosé, and a limited Reserve Napa Cabernet
Sauvignon. All varietals are produced and bottled in Napa, California.

Our wines are distributed across the United States and Puerto Rico through
wholesale, retail, and direct-to-consumer (DTC) channels. We are able to conduct
wholesale distribution of our wines in all 50 states and Puerto Rico, and we are
licensed to sell through DTC channels in 43 states. As of September 30, 2022, we
hold active relationships with wholesale distributors in 48 states, up from 43
states as of June 30, 2022, and currently have additional states in which
licensing is pending. We are actively working with leading distributors,
including Southern Glazer's Wine & Spirits (SGWS), Johnson Brothers, and
Republic National Distributing Company (RNDC), to expand our presence across the
contiguous United States.

Our core wine offerings are priced strategically to appeal to mass markets and
sell at a list price between $15 and $25 per bottle. Given the Fresh Vine Wine
brand's celebrity backing, "better-for-you" appeal, and overall product quality,
we believe that it presents today's consumers with a unique value proposition
within this price category. Additionally, Fresh Vine Wine is one of very few
products available at this price point that includes a named winemaker, Jamey

Our marketing activities focus primarily on consumers in the 21-to-34 year old
demographic with moderate to affluent income and on those with a desire to
pursue a healthy and active lifestyles, which is reinforced through our sports
marketing partnerships across all four major United States professional sports

Our asset-light operating model allows us to utilize third-party assets,
including land and production facilities. This approach helps us mitigate many
of the risks associated with agribusiness, such as isolated droughts or fires.
Because we source product inputs from multiple geographically dispersed vendors,
we reduce reliance on any one vendor and benefit from broad
availability/optionality of product inputs. This is particularly important as a
California-based wine producer where droughts or fires can have an extremely
detrimental impact to a company's supply chain if not diversified.

The Company delivered strong first half 2022 top line operational results and is
looking forward to inclusion in future seasonal retail resets for both large and
national chains. The Company has heavily invested in inventory through September
30, 2022, specifically through advanced purchases of wine in response to
increased demand, as well to support the introduction of new varietals in 2022
including Sauvignon Blanc, Rosé and Sparkling Rosé. The Company believes that
this increase in inventory will allow the Company to meet balance of year and
early 2023 demand as well as mitigate supply chain risks the industry is facing.
The Company has added headcount in the first and second quarters of 2022 to
support operational growth and national sales distribution while also
maintaining a cash preservation plan. See note 15 to the accompanying financial
statements for additional information on the Company's cash preservation


Key Financial Metrics

We use net revenue, gross profit (loss) and net income (loss) to evaluate the
performance of Fresh Vine Wine. We also use the non-financial key metrics of
cases sold and point of distribution (PODs). For the quarter ended September 30,
2022, Fresh Vine Wine branded offerings sold approximately 6,200 cases of wine
(approximately 310,000 5oz glasses), compared to 6,200 and 8,400 cases in the
first and second quarters of 2022, respectively. The Company added 4,649 PODs in
the nine months ended September 30, 2022, bringing total PODs to 5,560, up from
911 PODS as of December 31, 2021. These metrics are useful in helping us to
identify trends in our business, prepare financial forecasts and make capital
allocation decisions, and assess the comparable health of our business relative
to our direct competitors.

                    Three months ended                 Nine months ended
                       September 30,                     September 30,
                   2022             2021             2022              2021
Net revenue    $    535,584     $    546,621     $   2,484,086     $  1,050,765
Gross profit   $    (65,962 )   $    223,810     $     434,436     $    343,692
Net loss       $ (2,560,040 )   $ (1,531,046 )   $ (11,405,173 )   $ (8,094,635 )

Components of operating results and trends that could affect our results of operations

Net Revenue

Our net revenue consists primarily of wine sales to distributors and retailers,
which together comprise our wholesale channel, and directly to individual
consumers through our DTC channel. Net revenues generally represent wine sales
and shipping, when applicable, and to a lesser extent branded merchandise and
wine club memberships. For wine and merchandise sales, revenues are recognized
at time of shipment. For Wine Club memberships, revenues are recognized
quarterly at the time of fulfilment.

We refer to the volume of wine we sell in terms of cases. Each case contains 12
standard bottles, in which each bottle has a volume of 750 milliliters. Cases
are sold through Wholesale/Retail or DTC channels.

The following factors and trends in our business have driven net revenue results
since January 1, 2021, and are expected to be key drivers of our net revenue for
the foreseeable future:

Brand recognition: As we expand our marketing presence and drive visibility
through traditional and modern marketing methods, we expect to build awareness
and name recognition for Fresh Vine Wine in consumers' minds. Brand awareness
will be built substantially through social media channels, where we are able to
immediately access more than 30 million potential consumers through our
celebrities' Instagram and Facebook platforms. Additionally, it will be built
through complementary sports marketing partnerships across the National Football
League, National Hockey League, National Basketball Association, and Major
League Baseball.

Portfolio evolution: As a relatively new, high-growth brand, we expect and seek
to learn from our consumers. We will continuously evolve and refine our products
to meet our consumers' specific needs and wants, adapting our offering to
maximize value for our consumers and stakeholders. Our growth mindset, coupled
with our differentiated production and distribution platform, will enable us to
accelerate growth and deliver on our value proposition over time.


One way in which we will evolve our portfolio is through product extensions.
Fresh Vine Wine added a sixth varietal, Sauvignon Blanc, late in the second
quarter of 2022 and seventh varietal, Sparkling Rosé, in the third quarter of
2022, currently offering seven varietals (Cabernet Sauvignon, Cabernet Sauvignon
Reserve, Pinot Noir, Chardonnay, Sauvignon Blanc, Rosé, and Sparkling Rosé)
within its product portfolio. In the future, we can use the same knowledge and
supplier networks to launch new varietals with much greater efficiency than we
were previously able to achieve.

Distribution expansion and acceleration: Purchasing by distributors and loyal
accounts that continue to feature our wines are key drivers of net revenue. We
plan to continue broadening our distributor network, adding new geographies, and
increasing each distributor's average order size as we accelerate growth.

Opportunistic evaluation of strategic acquisitions: With strong internal
knowledge and a depth of experience in private equity and the broader financial
services industry, we intend to maintain a strategic and opportunistic approach
to evaluating acquisitions and growing through acquisition. We will also remain
open to other inorganic growth activities, including joint ventures and
strategic alliances, as we seek to accelerate this business to market. While we
have not identified any prospective targets to date, we consider this a core
competency of our leadership team and believe that this presents us with a
viable growth alternative as we move forward.

Seasonality: In line with industry norms, we anticipate our net revenue to peak
during the quarter spanning from October through December due to increased
consumer demand around the major holidays. This is particularly true in our DTC
revenue channel, where marketing programs will often be aligned with the holiday
season and product promotions will be prevalent.

Revenue Channels

Our sales and distribution platform is built upon a highly developed network of
distributor accounts. Within this network, we have signed agreements in place
with several of the nation's largest distributors including Southern Glazer's
Wine & Spirits and RNDC, among others. While we are actively working with these
distributors in certain markets, they operate across the United States and we
intend to grow our geographic/market presence through these relationships. The
development of these relationships and impacts to our related product mix will
impact our financial results as our channel mix shifts.

? Wholesale channel: In accordance with sales practices in the wine industry, sales

to retailers and distributors occur below the SRP (suggested retail price). We work

in close collaboration with distributors to increase wine volumes and the number of products

sold through their retail accounts in their respective territories.

? DTC channel: Wines sold through our DTC channels are generally sold at the SRP,

although we periodically offer various promotions. Our DTC channel continues

grow due to a number of factors, including the expansion of e-commerce sites

and social media capabilities.

? Services to related parties: We have entered into service agreements with related parties

wine industry stakeholders to ensure representation and distribution

services. These services were suspended in June 2022 to enable the Company

lean team to prioritize growth and expansion of the Fresh vine wine Mark.

Wholesale channel sales made on credit terms generally require payment within
30 days of delivery; however our credit terms with Southern Glazer's Wine &
Spirits requires payment within 60 days of delivery. During periods in which our
net revenue channel mix reflects a greater concentration of wholesale sales, we
typically experience an increase in accounts receivable for the period to
reflect the change in sales mix; payment collections in the subsequent period
generally reduce our accounts receivable balance and have a positive impact
cash flows.

While we seek to increase revenue across all channels, we expect the majority of
our future revenue to be driven through the wholesale channel. We intend to
maintain and expand relationships with existing distributors and form
relationships with new distributors as we work to grow the Company. With
multiple varietals within the Fresh Vine Wine portfolio, we consider ourselves
to be a 'one-stop shop' for better-for-you wines. We continue to innovate with
new products at competitive price points and strive to enhance the experience as
we increase revenue with new and existing consumers.


In the DTC channel, our comprehensive approach to consumer engagement in both
online and traditional forums is supported by an integrated e-commerce platform.
Our marketing efforts target consumers who have an interest in healthy and
active lifestyles. We attempt to motivate consumers toward a simple and easy
purchasing decision using a combination of defined marketing programs and a
modernized technology stack.

Increasing customer engagement is a key driver of our business and results of
operations. We continue to invest in our DTC channel and in performance
marketing to drive customer engagement. In addition to developing new product
offerings and cross-selling wines in our product portfolio, we focus on
increasing customer conversion and retention. As we continue to invest in our
DTC channel, we expect to increase customer engagement and subsequently deliver
greater satisfaction. We also distribute our wines via other wine e-commerce
sites such as and and plan to continue to add affiliate
retail websites.

Percentage of Net Revenue by Channel

We calculate net revenue percentage by channel as net revenue made through our
wholesale channel to distributors, through our wholesale channel directly to
retail accounts, and through our DTC channel, respectively, as a percentage of
our total net revenue. We monitor net revenue percentage across revenue channels
to understand the effectiveness of our distribution model and to ensure we are
employing resources effectively as we engage customers. See Note 2 to the
accompanying financial statements for further details.

Cost of Revenues

Cost of revenues (or cost of goods sold) is comprised of all direct product
costs such as juice, bottles, caps, corks, labels, capsules, storage and
shipping. Additionally, we also categorize boxes and quality assurance testing
within our cost of revenues. We expect that our cost of revenues will increase
as our net revenue increases. As the volume of our product inputs increase, we
intend to work to renegotiate vendor contracts with key suppliers to reduce
overall product input costs as a percentage of net revenue.

Additionally, the Company includes shipping fees in all DTC revenues. These fees
are paid by end consumers at time of order and subsequently itemized within
cost of each individual sale.

As a commodity product, the cost of wine fluctuates due to annual harvest yields
and the availability of juice. This macroeconomic consideration is not unique to
Fresh Vine Wine, although we are conscious of its potential impact to our
product cost structure.

Gross Profit (Loss)

Gross profit (loss) is equal to our net revenue less cost of revenues. As we
grow our business in the future, we expect gross profit to increase as our
revenue grows and as we optimize our cost of revenues. For the three-month
period ended September 30, 2022 the Company experienced a gross loss due to the
timing of revenue recognition as net revenues for product shipped were
insufficient to cover fixed costs such as storage and shipping fees in
combination with variable product costs.

Selling, general and administrative expenses

Selling, general, and administrative expenses consist of selling expenses,
marketing expenses, and general and administrative expenses. Selling expenses
consist primarily of direct selling expenses in our wholesale and DTC channels,
including payroll and related costs, product samples, processing fees, and other
outside service fees or consulting fees. Marketing expenses consist primarily of
advertising costs to promote brand awareness, contract fees incurred as a result
of significant sports marketing agreements, customer retention costs, payroll,
and related costs. General and administrative expenses consist primarily of
payroll and related costs.

Equity-Based Compensation

Equity-based compensation consists of the non-cash expense resulting from our
issuance of equity or equity-based grants issued in exchange for employee or
non-employee services. We measure equity-based compensation cost at the grant
date based on the fair value of the award and recognize the compensation expense
over the requisite service period, which is generally the vesting period. We
recognize any forfeitures as they occur.


Comparison of three and nine months completed September 30, 2022 and 2021

Net income, cost of income and gross profit

                      Three months ended                                         Nine months ended
                         September 30,                  Change                     September 30,                     Change
                      2022          2021            $             %            2022            2021              $             %
Net revenue         $ 535,584     $ 546,621        (11,037 )         -2 %   $ 2,484,086     $ 1,050,765       1,433,321          136 %
Cost of revenues      601,546       322,811        278,735           86 %     2,049,650         707,073       1,342,577          190 %
Gross profit        $ (65,962 )   $ 223,810       (289,772 )       -129 %   $   434,436     $   343,692          90,744           26 %

For the three months ended September 30, 2022, net revenue was flat compared to
the same periods in 2021 due to timing of orders and seasonality. For the nine
months ended September 30, 2022, we experienced an increase of 136% in net
revenue compared to the same periods in 2021. The increase in net revenue for
the nine month period was primarily attributable to our increasing presence in
the wholesale market and additional varietal offerings. In correlation with
increasing sales, cost of revenues during the three and nine months ended
September 30, 2022 increased 86% and 190%, respectively, compared to the same
periods in 2021 due to volumes of shipments as well as higher storage fees.

Selling, general and administrative expenses

                         Three months ended                                           Nine months ended
                            September 30,                    Change                     September 30,                     Change
                         2022           2021             $             %            2022            2021              $             %
Selling expenses      $   296,408     $  92,638         203,770          220 %   $ 1,020,340     $   274,490         745,850          272 %
Marketing expenses        463,541       589,019        (125,478 )        -21 %     2,137,408       1,162,583         974,825           84 %
General and
expenses              $ 1,640,233     $ 613,161       1,027,072          168 %   $ 5,997,700     $ 1,535,459       4,462,241          291 %

For the three and nine months ended September 30, 2022, selling, general and
administrative expenses increased 85% and 208%, respectively, compared to the
same periods in the 2021. Selling, general and administrative expense increases
were largely driven by certain one-time charges associated with the leadership
transition described in Note 6 to the accompanying financial statements, as well
as increases in general and administrative expenses due to higher staffing
headcount and related salaries and additional consulting, legal and financial
expenses as operational activity increased from 2021 to 2022. In addition, the
Company incurs incremental costs due to the Company being a public reporting
company in 2022, such as higher professional services for accounting, finance
and legal, as well as higher insurance expenses and listing fees, among others.
The increase in selling expenses primarily relates to our sponsorship agreements
in the sports and entertainment industry. The period-over-period increase in
marketing expenses primarily resulted from increased advertising, social media
marketing, tastings, and other promotion materials and events. We typically
expect selling and marketing expenses to follow our sales volume growth as the
activities are intended to generate revenues, however we expect these expenses
to be higher in the initial growth phase of the Company and begin to normalize
in the coming quarters.


Cash Flows

                                        Nine months ended
                                          September 30,
Cash provided by (used in):           2022              2021
Operating activities              $ (12,261,556 )   $ (2,011,612 )
Investing activities                          -             (250 )
Financing activities                   (387,069 )      2,236,527

(Decrease) net increase in cash ($12,648,625) $224,665

Cash used in operating activities increased in the 2022 period primarily due to
$3,771,586 spent to accelerate our inventory levels to meet anticipated demand
as well as higher advertising and marketing expenses resulting from increased
sponsorships, marketing agreements and other promotions aimed at accelerating
our growth during 2022. In addition, the Company increased staffing levels to
support the increased scale of our operations, as well as other costs associated
with expansion into new markets. See note 15 to the accompanying financial
statements for information on recent cash preservation initiatives.

Net cash used in investing activities was $0 and $250 for the nine months ended
September 30, 2022 and 2021, respectively.

Net cash used in financing activities was $387,069 and net cash provided by
financing activities was $2,236,527 for the nine months ended September 30, 2022
and 2021, respectively. The cash used in financing activities during the nine
months ended September 30, 2022 was primarily to pay off outstanding debt. The
cash provided by financing activities in the nine months ended September 30,
2021 was primarily due to proceeds from issuance of member units.

Cash and capital resources

Our primary cash needs are for working capital purposes, such as driving
awareness through advertising and marketing spend, adding staff, funding
operations, and purchasing inventory. Prior to our December 2021 initial public
offering, we funded our operational cash requirements primarily with funds
advanced from Damian Novak, our Executive Chairman and co-founder, and entities
affiliated with Mr. Novak. We also received proceeds from the sale of Class W
Units representing membership interests in the Company, which converted into
common stock upon our December 2021 conversion to a corporation (the "LLC
Conversion"), and we received short term loans in the form of promissory notes
from two of our equity holders, which supplemented the loans from Mr. Novak and
his affiliates as sources of operating capital, along with limited cash flows
from our operating activities. See "Financing Transactions" below.

We have incurred losses and negative cash flows from operations since our
inception in May 2019, including an operating loss of approximately $11.4
million for the nine months ended September 30, 2022 and operating losses of
approximately $9.9 million and $1.3 million during the years ended December 31,
2021 and 2020, respectively. As of September 30, 2022, we had an accumulated
deficit of $12,022,524 and a total stockholders' equity of $8,141,971.

As of September 30, 2022, we had $3,415,316 in cash, accounts receivable of
$585,551, inventory of $3,930,646, prepaid expenses of $2,046,177 of which
$1,289,760 is current prepaid expenses. On September 30, 2022, current assets
amounted to $9,165,660 and current liabilities were $1,881,197 resulting in a
working capital surplus (with working capital defined as current assets minus
current liabilities) of $7,284,463.

We expect to incur losses in future periods as we continue to invest in our
business. The Company incurred net losses of $2,560,040 and $11,405,173 for the
three and nine months ended September 30, 2022, compared to net losses of
$1,531,046 and $8,094,635 for the three and nine months ended September 30,
2021, respectively. As reflected on its statements of cash flows, the Company's
net cash used in operating activities during the nine months ended September 30,
2022 and 2021, was $12,261,556 and $2,011,612, respectively.


Although the Company's revenue generated during the nine months ended September
30, 2022 represents a 136% increase over its revenues generated in same period
of 2021, in addition to paying IPO fees and settling pre-IPO net outstanding
related party debt in the fourth quarter of 2021, the Company's operating
expenses have significantly exceeded its revenues over these periods. During the
nine months ended September 30, 2022 the Company has purchased additional
inventory in efforts to mitigate supply chain risks and incurred additional
expenses in order to invest in sales and marketing activities and increase
staffing and infrastructure to position the Company for future growth.
Meanwhile, the Company has put in place several cash preservation initiatives
starting in the third quarter of 2022, as reflected by the decrease in our net
loss to $2,560,040 in the third quarter of 2022 as compared to $4,558,890 during
the second quarter of 2022. See note 15 to the accompanying financial statements
for additional information on recent cash preservation initiatives.

The Company currently holds no debt and will seek debt or equity financing in
the near term to sustain existing operations. If adequate financing is not
available, the Company may be forced to curtail near-term growth priorities,
take measures to severely reduce our expenses and business operations, or
discontinue them completely. Such financing may be dilutive. At the current pace
of incurring expenses and without receipt of additional financing, the Company
projects that the existing cash balance will be sufficient to fund current
operations into the first quarter of 2023, after which additional financing will
be needed to satisfy obligations.

Additional financing may not be available on favorable terms or at all. If
additional financing is available, it may be highly dilutive to existing
shareholders and may otherwise include burdensome or onerous terms. The
Company's inability to raise additional working capital in a timely manner would
negatively impact the ability to fund operations, generate revenues, grow the
business and otherwise execute the Company's business plan, leading to the
reduction or suspension of operations and ultimately potentially ceasing
operations altogether. Should this occur, the value of any investment in the
Company's securities could be adversely affected.

These factors raise substantial doubt about the Company's ability to continue as
a going concern. The financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or
the amounts and classification of liabilities that might be necessary should the
Company be unable to continue as a going concern.

In an effort to preserve capital, the Company's leadership team has already
deferred certain investments in additional inventory, curtailed its sales and
marketing efforts and staffing, and taken other measures to reduce expenses and
business operations. Collectively, these cost reduction efforts have reduced the
Company's cash requirements by more than $6.3 million for the second half of
calendar year 2022, preserving capital for our highest priority expenses and
investments and providing additional runway for the growth strategy to gain
traction in market. See note 15 to the accompanying financial statements for
additional information on recent cash preservation initiatives, including the
termination of ten employees on the internal sales team and the engagement of a
third party vendor to more efficiently and effectively facilitate current and
future sales.

In parallel, the Company continues to execute its growth strategy, opening up
new distributor and retail relationships, expanding to new geographic markets,
and introducing new product extensions. As noted in note 15 to the accompanying
financial statements, the Company has also engaged a third party vendor as a
strategic approach to grow direct to consumer sales. The Company believes that
these efforts will further accelerate top-line growth in ways that will only
improve liquidity measures as the Company converts receivables to cash.

Financing Transactions

We have financed our operations through a combination of debt and equity financing.

Since the Company's inception in May 2019, Damian Novak, our Executive Chairman
and co-founder, and affiliates of Mr. Novak have incurred expenses on our behalf
or advanced funds to us from time to time as needed to satisfy our working
capital requirements and expenses. The reimbursable expenses and advances were
reflected as related party payables on our balance sheet and were not evidenced
promissory notes or other written documentation. On December 17, 2021, we used a
portion of the proceeds from our initial public offering to repay $2.0 million,
representing the outstanding amount of these related party payables, net of
related party receivables that Mr. Novak and his affiliates owed to us at that

In November 2020, we sold 50,000 Class W Units representing membership interests
in the Company to an investor at a price of $5.00 per unit, for gross proceeds
of $250,000. Such Class W Units converted into an aggregate of 309,672 shares of
our common stock upon the LLC Conversion.

In January 2021, we sold 40,000 Class W Units representing membership interests
in the Company to an investor at a price of $5.00 per unit, for gross proceeds
of $200,000. Such Class W Units converted into an aggregate of 247,738 shares of
our common stock upon the LLC Conversion.

During the period from April 2021 through September 2021, we sold an aggregate
of 60,388 Class W Units representing membership interests in the Company to
investors at a price of $34.94 per unit, for gross proceeds of $2,109,945. Such
Class W Units converted into an aggregate of 374,017 shares of our common stock
upon the LLC Conversion.


In September 2021, the Company entered into an agreement with an unrelated party
to pledge certain eligible accounts receivable for a cash advance at a
percentage of the outstanding amount, with the remaining balance due upon
collection from the customer. The agreement has an initial term of one year
which will automatically renew for successive one year terms unless the Company
provides a notice of termination at least 60 days prior to the termination date.
The receivables are pledged with full recourse, which means we bear the risk of
non-payment. The amounts advanced to the Company are classified as a secured
loan on our balance sheet and any fees computed on the outstanding amounts are
treated as interest expense on our statement of operations. See Note 12 to the
accompanying financial statements for more details.

In September 2021, we issued a $216,000 promissory note to a stockholder of the
Company that became due and payable upon the December 17, 2021 closing of our
initial public offering. In October 2021, we issued another $216,000 promissory
note to a different stockholder of the Company that became due and payable upon
the December 17, 2021 closing of our initial public offering. Collectively, the
stockholders holding these notes owned approximately 3.63% of our outstanding
shares immediately prior to our initial public offering.

In December 2021, we completed an initial public offering of our common stock,
in which we sold 2,200,000 shares. The shares began trading on The NYSE American
stock exchange on December 14, 2021. The shares were sold at an initial public
offering price of $10.00 per share, resulting in net proceeds to the Company of
approximately $19.2 million, after deducting underwriting discounts and
commissions and estimated offering expenses payable by us.

Significant Accounting Policies and Estimates

The Company's significant accounting policies are detailed in "Note 1: Summary
of Significant Accounting Policies" to the financial statements included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2021. The
Company follows these policies in preparation of the financial statements.

Off-balance sheet arrangements

We have not engaged in any off-balance sheet activities as defined in Section 303(a)(4) of Regulation SK.

Accounting standards and recent accounting pronouncements

See Note 1 to our financial statements for a discussion of recent accounting pronouncements.

Emerging Growth Company Status

Pursuant to the JOBS Act, a company constituting an "emerging growth company"
is, among other things, entitled to rely upon certain reduced reporting
requirements and is eligible to take advantage of an extended transition period
to comply with new or revised accounting standards applicable to public
companies. We are an emerging growth company and have elected to use this
extended transition period for complying with new or revised accounting
standards that have different effective dates for public and private companies
until the earlier of the date we (i) are no longer an emerging growth company or
(ii) affirmatively and irrevocably opt out of the extended transition period
provided in the JOBS Act. Our financial statements may, therefore, not be
comparable to those of other public companies that comply with such new or
revised accounting standards.


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