Annual Report for Fiscal Year Ending March 31, 2026 (Form 10-K)

Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following management's discussion and analysis of financial condition and results of operations should be read in conjunction with our historical consolidated financial statements and the related notes. This management's discussion and analysis contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Any statements that are not statements of historical fact are forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause our actual results or events to differ materially from those expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in section Item 1A. "Risk Factors" in this Annual Report. Except as required by applicable law we do not undertake any obligation to update our forward-looking statements to reflect events or circumstances occurring after the date of this Annual Report.

Overview

We are a pharmaceutical and biotechnology services company that is focused on providing testing of drugs and drug candidates in three-dimensional ("3D") human tissue models of liver and intestine. We offer partners liver and intestinal toxicology insights using our new approach methodologies ("NAM") models. We anticipate accelerated adoption of human tissue models following the U.S. Food and Drug Administration ("FDA") announcement on April 10, 2025 to refine animal testing requirements in favor of these non-animal NAM methods. We also expect to offer bespoke services in the areas of investigational toxicology, mechanism of drug action elucidation, and other applications of these complex human tissue models.

Prior to March 2025, we were a clinical stage biotechnology company that was focused on developing FXR314 in inflammatory bowel disease ("IBD"), including ulcerative colitis ("UC"), based on demonstration of clinical promise in 3D human tissues as well as strong preclinical data. Our clinical focus was in advancing FXR314 in IBD, including UC and Crohn's disease. We planned to start a Phase 2a clinical trial in UC in the calendar year 2025 and were also exploring the potential for combination therapies using FXR314 and approved mechanisms in preclinical animal studies and our IBD disease models.

In March 2025, we sold our FXR program for $10.0 million, with $9.0 million paid at closing and $1.0 million held in escrow for a period of 15 months, with future milestones of up to $50.0 million in the aggregate to be paid if the lead asset, FXR314, hits key development, regulatory and commercial milestones. In July 2026, we received a milestone payment in the amount of $5.0 million upon the achievement of a certain development milestone related to FXR314.

Effective April 24, 2025, we changed our corporate name to VivoSim Labs, Inc. by filing a Certificate of Amendment to our Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware. We changed our name to reflect our new business model, which includes the use of other longstanding assets of the Company, intestinal and liver tox models and expertise, and our IP portfolio for 3D bioprinting.

We are now offering liver toxicology predictive screening and research services as well as working on predicting and studying the intestinal side effect profiles of drugs that are therapeutic candidates of pharmaceutical and biotech companies at all stages of drug development. Our services offer the potential benefit of reducing the significant risk and cost of bringing therapeutics to market through the regulatory process. It is estimated that less than 10% of drug candidates entering clinical trials are approved, with a portion of the failures due to unexpected liver toxicity or intestinal intolerability. In addition, even approved drugs are occasionally withdrawn after liver toxicity is determined to be caused by the drug in a phenomenon called drug induced liver injury. We presented findings at the May 2025 Digestive Disease Week scientific conference showing that our liver toxicology platform had a best-in-class predictive power. Our liver predictive power was shown to be 87.5% for a set of challenging liver toxicity cases - inclusive of classic cases of "liver tox misses" drugs with unforeseen liver toxicity found in clinical trials or drugs that were withdrawn from the market after liver toxicity issues emerged later. The platform identified correctly that 87.5% of the known liver-toxic drugs could be seen as liver toxic using NAMkind™ liver. This is known as the sensitivity of the platform, which we believe at 87.5% is a world's best. Importantly, the specificity was 100%, meaning that none of the compounds tested that are not liver toxic were incorrectly identified as having liver toxicity issues by the platform.

We use our proprietary technologies to build functional 3D human tissues that mimic key aspects of native human tissue composition, architecture, function, and disease. We believe these attributes can enable critical complex, multicellular disease models that can be used to study and develop clinically effective drugs across multiple therapeutic areas.

We have also used these human disease models to identify new molecular targets responsible for driving IBD and to explore the mechanism of action of known drugs including JAK inhibitors and related molecules. A portion of our internal research continues to focus on early stage internal drug discovery programs, validating targets, and testing potentially licensable or transactable external drug compounds to identify drug candidates for partnering and/or internal clinical development.

Critical Accounting Policies, Estimates, and Judgments

Our financial statements are prepared in accordance with U.S. generally accepted accounting principles. Any reference in this Annual Report to applicable guidance is meant to refer to the authoritative accounting principles generally accepted in the United States as found in the Accounting Standards Codification ("ASC") and Accounting Standards Updates of the Financial Accounting Standards Board. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We continually evaluate our estimates and judgments used in preparing our financial statements and related disclosures. All estimates affect reported amounts of assets, liabilities, revenues and expenses, as well as disclosures of contingent assets and liabilities. These estimates and judgments are also based on historical experience and other factors that are believed to be reasonable under the circumstances. Materially different results can occur as circumstances change and additional information becomes known.

Our significant accounting policies are set forth in "Note 1. Description of Business and Summary of Significant Accounting Policies" in the Notes to Consolidated Financial Statements contained within this Annual Report. Of those policies, we believe that the policies discussed below may involve a higher degree of judgment and may be more critical to an accurate reflection of our financial condition and results of operations. Accounting policies regarding stock-based compensation, revenue, and common stock warrant liabilities are considered critical, as they require significant assumptions.

Stock-based compensation

For purposes of calculating stock-based compensation, we estimate the fair value of stock options and shares acquirable under our 2022 Equity Incentive Plan ("2022 Plan"), Amended and Restated 2012 Equity Incentive Plan (the "2012 Plan"), our 2023 Employee Stock Purchase Plan (the "ESPP"), or our 2021 Inducement Equity Plan (the "Inducement Plan") using a Black-Scholes option-pricing model. The determination of the fair value of share-based payment awards utilizing the Black-Scholes model is affected by our stock price and a number of assumptions, including expected volatility, expected life, risk-free interest rate and expected dividends. Expected volatility is based on the Company-specific historical volatility rate. For certain options granted with vesting criteria contingent on market conditions, we engage with valuation specialists to calculate fair value and requisite service periods using Monte Carlo simulations. For certain options granted with vesting criteria contingent on pre-defined Company performance criteria, we periodically assess and adjust the expense based on the probability of achievement of such performance criteria. For shares acquirable under our ESPP, we use our Company-specific volatility rate. The expected life of the stock options is based on historical and other economic data trended into the future. The risk-free interest rate assumption is based on observed interest rates appropriate for the expected terms of our stock options. The dividend yield assumption is based on our history and expectation of no dividend payouts. If factors change and we employ different assumptions, our stock-based compensation expense may differ significantly from what we have recorded in the past.

For purposes of calculating stock-based compensation, we estimate the fair value of restricted stock units with pre-defined performance criteria, based on the closing stock price on the date of grant. No exercise price or other monetary payment is required for receipt of the shares issued in settlement of the respective award; instead, consideration is furnished in the form of the participant's service to us.

If there is a difference between the assumptions used in determining our stock-based compensation expense and the actual factors that become known over time, we may change the input factors used in determining stock-based compensation costs for future grants. These changes, if any, may materially impact our results of operations in the period such changes are made.

Revenue

Royalty revenue

We assess whether our license agreements are considered a contract with a customer under ASC Topic 606, Revenue from Contracts with Customers ("Topic 606") or an arrangement with a collaborator subject to guidance under ASC Topic 808, Collaborative Arrangements. At contract inception, we consider a variety of factors in determining the appropriate estimates and assumptions under these arrangements, such as whether we are a principal or agent, whether the elements are distinct performance obligations, whether there are determinable stand-alone prices, and, if applicable, whether any licenses are functional or symbolic. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Typically, non-refundable upfront fees have been considered fixed, while sales-based royalty payments have been identified as variable consideration which must be evaluated to determine if it has been constrained and, therefore, excluded from the transaction price.

For agreements that include sales-based royalties, we estimate and recognize revenue in the period the underlying sales occur. Key factors considered in the estimate include sales of products that include the underlying licensed intellectual property ("IP") and the

location of customers related to the jurisdictions of the licensed IP. In addition, variable consideration must be evaluated to determine if it is constrained and, therefore, excluded from the transaction price. Differences in the allocation of the transaction price between delivered and undelivered performance obligations can impact the timing of revenue recognition but do not change the total revenue recognized under any agreement.

Product revenue, net

Our former product-based division, Mosaic Cell Sciences ("Mosaic"), which was established in the fourth quarter of fiscal 2024, produced high-quality cell-based products for use in our R&D and for use by life science customers. We recognized product revenue when the performance obligation was satisfied, which was at the point in time that the customer obtained control of our products, typically upon delivery. Product revenues were recorded at the transaction price under Topic 606. We provided no right of return to our customers except in cases where a customer obtained authorization from us for the return. To date, there have been no product returns. We ended Mosaic's commercial operations during the third quarter of fiscal 2025.

Sale of FXR Program

On March 25, 2025, we sold our FXR program and related assets to Eli Lilly and Company (the "FXR Asset Sale"). The consideration for the FXR Asset Sale consisted of (i) an upfront cash payment by Lilly to us equal to $10.0 million, of which $9.0 million was paid at closing and the remaining $1.0 million was deposited into escrow for 15 months to satisfy claims for indemnification, (ii) the assumption by Eli Lilly and Company of certain liabilities related to the FXR program, and (iii) potential milestone payments by Eli Lilly and Company of up to $50.0 million in the aggregate, which are contingent upon the achievement of certain development, regulatory and commercial milestones. In July 2026, we received a milestone payment in the amount of $5.0 million upon the achievement of a certain development milestone related to FXR314.

We assessed whether this agreement was considered a contract with a customer pursuant to Topic 606 or subject to guidance pursuant to ASC Topic 610, Other Income ("Topic 610"). We considered a variety of factors in determining the appropriate assumptions under this arrangement, such as whether the counterparty was a customer, the nature of our operations, both historically and ongoing, and any contingent consideration constraints. We determined the counterparty was not a customer based on the nature of our ordinary business operations and recorded the transaction within other income under Topic 610. Furthermore, we determined the $1.0 million held in escrow was not constrained due to the terms of the indemnification language and it was therefore recognized as a component of the consideration received at the time of closing; however, we did determine future potential milestone payments that may be made by Eli Lilly were constrained due to the uncertainty of the milestones being met. If and when the future milestone payments are no longer considered constrained, we will record such payments in other income.

March 2026 Best Efforts Public Offering

On March 31, 2026, we priced a best efforts public offering (the "2026 Offering") which consisted of: (i) 286,557 shares of our common stock and 429,836 accompanying common warrants ("2026 Common Warrants") to purchase up to 429,836 shares of common stock at a combined public offering price of $1.14 per share and accompanying one and a half common warrants to purchase one share common stock and (ii) 2,345,022 pre-funded warrants ("2026 Pre-Funded Warrants") to purchase 2,345,022 shares of common stock and 3,517,533 accompanying 2026 Common Warrants to purchase up to 3,517,533 shares of common stock at a combined public offering price of $1.139 per pre-funded warrant and accompanying one and a half common warrants to purchase one share of common stock. Each 2026 Common Warrant has an exercise price of $1.71 per share of common stock.

We account for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant's specific terms and applicable authoritative guidance in ASC 480, Distinguishing Liabilities from Equity ("ASC 480") and ASC 815, Derivatives and Hedging ("ASC 815"). This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent reporting period while the warrants are outstanding. As a result of the 2026 Offering, we determined that the common stock and 2026 Pre-Funded Warrants issued are treated as equity instruments. The 2026 Common Warrants issued are treated as a common stock warrant liability and the fair value of the common stock warrant liability is considered a critical accounting estimate.

The fair value of the common stock warrant liability was $5.7 million as of March 31, 2026. The common stock warrant liability was measured using a Monte Carlo model and will be remeasured each reporting period, and the change in fair value will be recorded in earnings. The fair value of the common stock warrant liability is inherently sensitive to changes in the Company's stock price and related volatility assumptions.

Results of Operations

Comparison of the Years Ended March 31, 2026 and 2025

The following table summarizes our results of operations for the years ended March 31, 2026 and 2025 (in thousands, except percentages):

Revenues

For each of the years ended March 31, 2026 and 2025, total revenue was $0.1 million. Royalty revenue for each of the years ended March 31, 2026 and 2025, was related to the sales-based royalty revenue earned from licensing intellectual property. Product revenue was related to the Company's former Mosaic division which ended operations during the third quarter of fiscal 2025. Going forward, we expect to generate service revenues related to our service model.

Cost of Revenues

For the years ended March 31, 2026 and 2025, total cost of revenues was zero and less than $0.1 million, respectively, and was related to the Company's former Mosaic division which ended operations during the third quarter of fiscal 2025. Going forward, we expect cost of revenues to increase as we execute our service model.

Research and Development Expenses

The following table summarizes our research and development expenses for the years ended March 31, 2026 and 2025 (in thousands, except percentages):

Total research and development expenses decreased by $0.8 million, or 17%, from approximately $5.0 million for the year ended March 31, 2025 to approximately $4.2 million for the year ended March 31, 2026. Our full-time research and development staff decreased from an average of thirteen employees for the year ended March 31, 2025 to an average of ten employees for the year ended March 31, 2026. The decrease in total research and development activities consisted of a $0.6 million decrease in personnel related costs, which includes stock-based compensation, due to the decrease in headcount, and a $0.5 million decrease in material related costs mainly due to the write-down of inventory in the prior fiscal year. The decreases were offset by a $0.3 million increase in consulting costs related to specific research and development work to expand commercial service offerings to future customers.

Selling, General and Administrative Expenses

The following table summarizes our selling, general and administrative expenses for the years ended March 31, 2026 and 2025 (in thousands, except percentages):

Total selling, general and administrative expenses decreased by approximately $0.3 million, or 4%, from $7.7 million for the year ended March 31, 2025 to approximately $7.4 million for the year ended March 31, 2026. Our full-time selling, general, and administrative employees decreased from an average of five employees for the year ended March 31, 2025 to an average of three employees for the year ended March 31, 2026. Our operations for the year ended March 31, 2026 as compared to the year ended March 31, 2025 resulted in a $0.1 million net decrease in personnel related expenses, which includes stock-based compensation, due to the decrease in headcount. Of the $0.1 million decrease, there was a $0.2 million decrease in stock-based compensation due to certain equity awards fully vesting in the prior year. Additionally, there was a $0.2 million increase in recruiting expenses related to hiring our Chief Commercial Officer. The remaining $0.1 million decrease in personnel related expenses was related to the decrease in salary due to lower headcount. There was also a $0.5 million decrease in general corporate costs, which includes legal, investor relations, and offering expenses. Legal expenses decreased by approximately $0.6 million due to the Company selling its FXR program during the year ended March 31, 2025, which resulted in significant decreases in general and IP related legal costs. Investor relations expenses decreased by approximately $0.3 million due to allocating more budget in fiscal 2026 to the execution of the new service model strategy. Other miscellaneous corporate costs such as royalty expense, printing costs, and insurance decreased by approximately $0.3 million. The decreases in corporate costs were offset by increases to offering expenses related to the March 2026 offering, which were approximately $0.7 million. The decreases in general corporate costs were offset by a $0.3 million increase in consulting costs, which was related to executing the new service model strategy.

Other Income (Expense)

Other expense was approximately $2.4 million for the year ended March 31, 2026. Other expense consisted of a $2.7 million loss incurred as a result of the 2026 Offering, due to the fair value of the common stock warrants issued exceeding gross proceeds received. The $2.7 million expense was offset by $0.3 million interest income and a $0.1 million gain on investment in equity securities that were previously liquidated during fiscal 2024. The underlying security from the investment completed its dissolution during fiscal 2026 and the Company received the final liquidation, resulting in the gain. Other income was $10.1 million for the year ended March 2025. This income was related to the sale of our FXR program for $10.0 million during the year ended March 31, 2025.

Financial Condition, Liquidity and Capital Resources

Going forward, we intend to offer partners liver and intestinal toxicology insights using NAM models. We plan to work with pharmaceutical and biotech companies at all stages of drug development to reduce the significant risk and cost of bringing therapeutics to market through the regulatory process. We will also offer bespoke services in the areas of investigational toxicology, mechanism of drug action elucidation, and other applications of these complex human tissue models.

The accompanying Consolidated Financial Statements have been prepared on the basis that we are a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business. As of March 31, 2026, we had cash and cash equivalents of approximately $5.0 million and an accumulated deficit of $356.0 million. As of March 31, 2025, we had cash and cash equivalents of $11.3 million and an accumulated deficit of $342.2 million. We had negative cash flows from operations of $10.8 million and $9.5 million for the years ended March 31, 2026 and 2025, respectively.

As of March 31, 2026, we had total current assets of approximately $6.6 million and current liabilities of approximately $2.8 million, resulting in working capital of $3.8 million. At March 31, 2025, we had total current assets of approximately $12.1 million and current liabilities of approximately $3.7 million, resulting in working capital of $8.4 million.

The following table sets forth a summary of the primary sources and uses of cash for the years ended March 31, 2026 and 2025 (in thousands):

Operating activities

Net cash used in operating activities was approximately $10.8 million and $9.5 million for the years ended March 31, 2026 and 2025, respectively. The $1.3 million increase in operating cash usage, for the year ended March 31, 2026, was attributable primarily to $0.6 million in offering expenses related to the March 2026 Offering and $0.8 million decrease to accounts payable and accrued expenses.

Investing activities

Net cash provided by investing activities was $0.1 million and $9.0 million for the years ended March 31, 2026 and 2025, respectively. Net cash provided by investing activities for the year ended March 31, 2026 consisted of proceeds of previously liquidated equity securities. Net cash provided by investing activities for the year ended March 31, 2025 consisted primarily of the sale of our FXR program resulting in $9.0 million of proceeds.

Financing activities

Net cash provided by financing activities was approximately $4.4 million and $8.8 million for the years ended March 31, 2026 and 2025, respectively. During the year ended March 31, 2026, financing activities consisted of a public offering of common stock and accompanying common warrants and pre-funded warrants with gross proceeds of approximately $3.0 million, the sale of common stock through at-the-market ("ATM") share offerings with net proceeds of approximately $1.8 million, and the repayment of an insurance premium financing liability of approximately $0.4 million. Refer to "Operations funding requirements" below for further information regarding financing activities.

Operations funding requirements

Through March 31, 2026, we have financed our operations primarily through the sale of common stock through public offerings, including our ATM program, from revenue derived from the licensing of intellectual property, products and research-based services, grants, and collaborative research agreements, the sale of our FXR program, and from the sale of convertible notes.

Our ongoing cash requirements include research and development expenses, compensation for personnel, consulting fees, legal and accounting support, insurance premiums, facilities, maintenance of our intellectual property portfolio, license and collaboration agreements, listing on the Nasdaq Capital Market, and other miscellaneous fees to support our operations. We expect our total operating expense for the fiscal year ending March 31, 2027 to be approximately $10.7 million. Based on our current operating plan and available cash resources, we will need substantial additional funding to support future operating activities. We have concluded that the prevailing conditions and ongoing liquidity risks faced by us raise substantial doubt about our ability to continue as a going concern for at least one year following the date these financial statements are issued. The accompanying consolidated financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern.

On January 26, 2024, we filed a shelf registration statement on Form S-3 (File No. 333-276722) to register $150.0 million of common stock, preferred stock, debt securities, warrants and units, or any combination of the foregoing (the "2024 Shelf"). The 2024 Shelf was declared effective by the SEC on February 8, 2024.

On March 16, 2018, we entered into a Sales Agreement with Jones Trading Institutional Services LLC (the "Agent").

On January 26, 2024, we filed a prospectus with the 2024 Shelf (as amended, the "2024 ATM Prospectus"), pursuant to which we may offer and sell, from time to time, through the Agent, shares of our common stock in ATM sales transactions having an aggregate offering price of up to $2,605,728. We filed amendments to the 2024 ATM Prospectus on February 26, 2025 and again on April 11, 2025, pursuant to which we may offer and sell, from time to time through the Agent, shares of our common stock in ATM sales transactions having an additional aggregate offering price of up to $5,311,508 and $4,766,105, respectively. Any shares offered and sold in these ATM transactions are issued pursuant to the 2024 Shelf.

During the year ended March 31, 2026, we sold 701,729 shares of common stock in ATM offerings for net proceeds of approximately $1.8 million, all of which were sold pursuant to the 2024 Shelf. As of March 31, 2026, we have sold an aggregate of 1,198,134 shares of common stock in ATM offerings under the 2024 ATM Prospectus, with net proceeds of approximately $6.7 million. As of March 31, 2026, there was approximately $140.1 million available in future offerings under the 2024 Shelf, and approximately $3.1 million available for future offerings through our ATM program under the 2024 ATM Prospectus, as amended on April 11, 2025.

In the event that the aggregate market value of our common stock held by non-affiliates ("public float") is less than $75.0 million, the amount we can raise through primary public offerings of securities, including sales under the Sales Agreement, in any twelve-month period using shelf registration statements is limited to an aggregate of one-third of our public float. As of the date of filing of this Annual Report, our public float was less than $75.0 million, and therefore we are limited to an aggregate of one-third of our public float in the amount we could raise through primary public offerings of securities in any twelve-month period using shelf registration

statements, with such public float recalculated at the time of sale. If our public float meets or exceeds $75.0 million at any time, we will no longer be subject to the restrictions set forth in General Instruction I.B.6 of Form S-3.

On March 31, 2026, we priced the 2026 Offering, which consisted of: (i) 286,557 shares of our common stock and 429,836 accompanying common warrants ("2026 Common Warrants") to purchase up to 429,836 shares of common stock at a combined public offering price of $1.14 per share and accompanying one and a half 2026 Common Warrants to purchase one share common stock and (ii) 2,345,022 pre-funded warrants ("2026 Pre-Funded Warrants") to purchase 2,345,022 shares of common stock and 3,517,533 accompanying 2026 Common Warrants to purchase up to 3,517,533 shares of common stock at a combined public offering price of $1.139 per 2026 Pre-Funded Warrant and accompanying one and a half 2026 Common Warrants to purchase one share of common stock. Each 2026 Common Warrant will have an exercise price of $1.71 per share of common stock. The closing of the Offering occurred on March 31, 2026. We received gross proceeds of approximately $3.0 million and net proceeds of approximately $2.4 million from the 2026 Offering, after deducting the offering expenses payable by us, including the placement agent fees. The fair value of the placement agent warrants was approximately $0.1 million and was also considered an offering expense. All offering expenses were included within selling, general, and administrative expenses in the consolidated statement of operations and comprehensive loss during the year ended March 31, 2026. As the fair value of the common stock warrant liability of $5.7 million exceeded the gross proceeds from the offering, we recognized a $2.7 million loss on issuance of common stock during the year ended March 31, 2026.

Having insufficient funds may require us to relinquish rights to our technology on less favorable terms than we would otherwise choose. Failure to obtain adequate financing could adversely affect our operations. If we raise additional funds from the issuance of equity securities, substantial dilution to our existing stockholders would likely result. If we raise additional funds by incurring debt financing, the terms of the debt may involve significant cash payment obligations as well as covenants and specific financial ratios that may restrict our ability to operate our business. We cannot be sure that additional financing will be available if and when needed, or that, if available, we can obtain financing on terms favorable to our stockholders. Any failure to obtain financing when required will have a material adverse effect on our business, operating results, and financial condition.

Contractual Obligations and Commitments

We enter into contracts in the normal course of business with suppliers, consultants, and service providers. These agreements provide for termination at the request of either party generally with less than six-months notice and are therefore cancellable contracts. We do not currently expect any of these agreements to be terminated and did not have any noncancelable obligations under these agreements as of March 31, 2026.

We have operating lease arrangements for office space in San Diego, California. As of March 31, 2026, we had total undiscounted lease payment obligations of $0.5 million payable in the 12 months following March 31, 2026.

See "Note 7. Leases" and "Note 8. Commitments and Contingencies" in the Notes to the Consolidated Financial Statements contained in this Annual Report for additional information.

Effect of Inflation and Changes in Prices

Management does not believe that inflation and changes in price will have a material effect on our operations.

Recent Accounting Pronouncements

For information regarding recently adopted and issued accounting pronouncements, see "Note 12. Recent Accounting Pronouncements" in the Notes to the Consolidated Financial Statements contained in this Annual Report.