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28

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2022

OR

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from to

Commission File Number: 001-38529

 

Verrica Pharmaceuticals Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

46-3137900

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

44 West Gay Street, Suite 400

West Chester, PA

19380

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (484) 453-3300

 

N/A

(Former address of principal executive offices)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.0001 par value

 

VRCA

 

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of May 2, 2022, the registrant had 27,519,053 shares of common stock, $0.0001 par value per share, outstanding.

 

 

Auditor Firm Id:

185

Auditor Name:

KPMG LLP

Auditor Location:

Philadelphia, PA

 


 

VERRICA PHARMACEUTICALS INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION

 

 

 

Item 1.

 

Financial Statements (Unaudited)

 

1

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

14

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risks

 

21

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

21

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

22

 

 

 

 

 

Item 1A.

 

Risk Factors

 

22

 

 

 

 

 

Item 6.

 

Exhibits

 

23

 

 

 

 

 

Signatures

 

25

 

 

 


PART I. FINANCIAL INFORMATION

 

Item 1. Unaudited Condensed Financial Statements

VERRICA PHARMACEUTICALS INC.

CONDENSED BALANCE SHEETS

(in thousands, except share and per share amounts)

(Unaudited)

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

10,407

 

 

$

15,752

 

Marketable securities

 

 

11,497

 

 

 

54,602

 

Restricted cash

 

 

40,000

 

 

 

 

Unbilled receivable

 

 

431

 

 

 

 

Prepaid expenses and other assets

 

 

3,437

 

 

 

3,974

 

Total current assets

 

 

65,772

 

 

 

74,328

 

Property and equipment, net

 

 

4,155

 

 

 

3,894

 

Operating lease right-of-use asset

 

 

1,548

 

 

 

1,608

 

Other non-current assets

 

 

142

 

 

 

295

 

Total assets

 

$

71,617

 

 

$

80,125

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

531

 

 

$

845

 

Accrued expenses and other current liabilities

 

 

2,014

 

 

 

3,266

 

Operating lease liability

 

 

250

 

 

 

245

 

Financing lease liability

 

 

6

 

 

 

6

 

Debt, net

 

 

41,999

 

 

 

41,693

 

Total current liabilities

 

 

44,800

 

 

 

46,055

 

Operating lease liability

 

 

1,384

 

 

 

1,449

 

Financing lease liability

 

 

15

 

 

 

16

 

Total liabilities

 

 

46,199

 

 

 

47,520

 

Commitments and Contingencies (Note 10)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.0001 par value; 10,000,000 shares authorized; no shares
 issued and outstanding as of March 31, 2022 and December 31, 2021

 

 

 

 

 

 

Common stock, $0.0001 par value; 200,000,000 authorized;
27,624,197 shares issued and 27,519,053 shares outstanding as of March 31, 2022 and December 31, 2021

 

 

3

 

 

 

3

 

Treasury stock, at cost, 105,144 shares as of March 31, 2022 and December 31, 2021

 

 

 

 

 

 

Additional paid-in capital

 

 

172,913

 

 

 

171,597

 

Accumulated deficit

 

 

(147,436

)

 

 

(138,966

)

Accumulated other comprehensive loss

 

 

(62

)

 

 

(29

)

Total stockholders’ equity

 

 

25,418

 

 

 

32,605

 

Total liabilities and stockholders’ equity

 

$

71,617

 

 

$

80,125

 

 

The accompanying notes are an integral part of these condensed financial statements.

1


VERRICA PHARMACEUTICALS INC.

CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except share and per share amounts)

(Unaudited)

 

 

 

For the Three Months Ended March 31,

 

 

 

 

2022

 

 

2021

 

 

 

 

 

 

 

 

 

 

License revenue

 

$

431

 

 

$

12,000

 

 

Operating expenses:

 

 

 

 

 

 

 

Research and development

 

 

2,723

 

 

 

5,362

 

 

General and administrative

 

 

5,118

 

 

 

6,578

 

 

Total operating expenses

 

 

7,841

 

 

 

11,940

 

 

(Loss) income from operations

 

 

(7,410

)

 

 

60

 

 

Other income (expense):

 

 

 

 

 

 

 

Interest income

 

 

22

 

 

 

32

 

 

Interest expense

 

 

(1,082

)

 

 

(1,028

)

 

Total other expense

 

 

(1,060

)

 

 

(996

)

 

Net loss

 

$

(8,470

)

 

$

(936

)

 

 

 

 

 

 

 

 

 

Net loss per share, basic and diluted

 

$

(0.31

)

 

$

(0.04

)

 

Weighted average common shares outstanding, basic and diluted

 

 

27,519,053

 

 

 

25,602,404

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(8,470

)

 

$

(936

)

 

Other comprehensive gain:

 

 

 

 

 

 

 

Unrealized (loss) gain on marketable securities

 

 

(33

)

 

 

2

 

 

Comprehensive loss

 

$

(8,503

)

 

$

(934

)

 

 

The accompanying notes are an integral part of these condensed financial statements.

2


VERRICA PHARMACEUTICALS INC.

CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Common Stock

 

 

Additional

 

 

 

Accumulated

 

 

Treasury Stock

 

 

Comprehensive

 

 

Stockholders’

 

 

 

Shares Issued

 

 

Amount

 

 

Paid-in Capital

 

 

 

Deficit

 

 

Shares

 

 

Cost

 

 

(Loss) Gain

 

 

Equity

 

 January 1, 2022

 

 

27,624,197

 

 

$

3

 

 

$

171,597

 

 

 

$

(138,966

)

 

 

105,144

 

 

$

 

 

$

(29

)

 

$

32,605

 

 Stock-based compensation

 

 

 

 

 

 

 

 

1,316

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,316

 

 Net loss

 

 

 

 

 

 

 

 

 

 

 

 

(8,470

)

 

 

 

 

 

 

 

 

 

 

 

(8,470

)

 Unrealized loss on marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(33

)

 

 

(33

)

 March 31, 2022

 

 

27,624,197

 

 

$

3

 

 

$

172,913

 

 

 

$

(147,436

)

 

 

105,144

 

 

$

 

 

$

(62

)

 

$

25,418

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

January 1, 2021

 

 

25,546,257

 

 

$

3

 

 

$

136,868

 

 

 

$

(103,886

)

 

 

105,144

 

 

$

 

 

$

1

 

 

$

32,986

 

 Stock-based compensation

 

 

 

 

 

 

 

 

1,403

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,403

 

 Issuance of common stock, net of issuance costs

 

 

2,033,899

 

 

 

 

 

 

28,115

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

28,115

 

 Exercise of stock options

 

 

15,708

 

 

 

 

 

 

240

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

240

 

 Net loss

 

 

 

 

 

 

 

 

 

 

 

 

(936

)

 

 

 

 

 

 

 

 

 

 

 

(936

)

 Unrealized gain on marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

2

 

March 31, 2021

 

 

27,595,864

 

 

$

3

 

 

$

166,626

 

 

 

$

(104,822

)

 

 

105,144

 

 

$

 

 

$

3

 

 

$

61,810

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed financial statements.

3


VERRICA PHARMACEUTICALS INC.

CONDENSED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

 

 

 

For the Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities

 

 

 

 

 

 

Net loss

 

$

(8,470

)

 

$

(936

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Stock-based compensation

 

 

1,316

 

 

 

1,403

 

Amortization of premiums (discounts) on marketable securities

 

 

49

 

 

 

(14

)

Depreciation expense

 

 

98

 

 

 

11

 

Non cash interest expense

 

 

300

 

 

 

393

 

Reduction in operating lease right-of-use asset

 

 

60

 

 

 

56

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

License receivable

 

 

 

 

 

(11,500

)

Prepaid expenses and other assets

 

 

537

 

 

 

13

 

Accounts payable

 

 

(314

)

 

 

525

 

Unbilled receivable

 

 

(431

)

 

 

 

Accrued expenses and other current liabilities

 

 

(1,425

)

 

 

(209

)

Deferred revenue

 

 

 

 

 

(500

)

Operating lease liability

 

 

(60

)

 

 

(27

)

Net cash used in operating activities

 

 

(8,340

)

 

 

(10,785

)

Cash flows from investing activities

 

 

 

 

 

 

Sales and maturities of marketable securities

 

 

47,508

 

 

 

20,500

 

Purchases of marketable securities

 

 

(4,485

)

 

 

(9,285

)

Purchases of property and equipment

 

 

(5

)

 

 

(311

)

Deposits

 

 

(5

)

 

 

(69

)

Net cash provided by investing activities

 

 

43,013

 

 

 

10,835

 

Cash flows from financing activities

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

 

 

 

240

 

Proceeds from issuance of debt, net of issuance costs

 

 

 

 

 

4,975

 

Debt Issuance Costs

 

 

(17

)

 

 

 

Repayment of financing lease

 

 

(1

)

 

 

 

Proceeds from issuance of common stock, net of issuance costs

 

 

 

 

 

28,150

 

Net cash (used in) provided by financing activities

 

 

(18

)

 

 

33,365

 

Net increase in cash, cash equivalents and restricted cash

 

 

34,655

 

 

 

33,415

 

Cash, cash equivalents and restricted cash at the beginning of the period

 

 

15,752

 

 

 

10,686

 

Cash, cash equivalents and restricted cash at the end of the period

 

$

50,407

 

 

$

44,101

 

 

 

 

 

 

 

 

Supplemental disclosure of noncash investing and financing activities:

 

 

 

 

 

 

Property and equipment purchases payable or accrued at period end

 

$

459

 

 

$

253

 

Change in unrealized gain on marketable securities

 

$

(33

)

 

$

2

 

Cash paid for interest

 

$

725

 

 

$

634

 

The accompanying notes are an integral part of these condensed financial statements.

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VERRICA PHARMACEUTICALS INC.

Notes to Condensed Financial Statements

(Unaudited)

Note 1—Nature of Business

Verrica Pharmaceuticals Inc. (the “Company”) was formed on July 3, 2013 and is incorporated in the State of Delaware. The Company is a dermatology therapeutics company committed to the development and commercialization of novel treatments that provide meaningful benefit for people living with skin diseases.

Liquidity

The Company has incurred substantial operating losses since inception and expects to continue to incur significant operating losses for the foreseeable future and may never become profitable. As of March 31, 2022, the Company had an accumulated deficit of $147.4 million. On March 17, 2021, the Company entered into the Torii Agreement (Note 11), pursuant to which the Company received an upfront payment from Torii of $11.5 million in April 2021. On March 25, 2021, the Company closed a follow-on public offering in which it sold 2,033,899 shares of common stock at a public offering price of $14.75 per share, resulting in net proceeds of $28.1 million after deducting underwriting discounts and commissions and offering expenses.

In March 2020, the Company entered into a Mezzanine Loan Agreement (see Note 7) pursuant to which the Company borrowed (i) $35.0 million in March 2020 and (ii) $5.0 million on March 1, 2021. On March 1, 2022, the Company entered into a second amendment to the Mezzanine Loan Agreement (the “Second Mezzanine Loan Amendment”). Pursuant to the Second Mezzanine Loan Amendment the Company is no longer required to maintain a minimum liquidity ratio or achieve minimum levels of trailing six-month net product revenues but will be required to maintain a minimum balance equal to the outstanding amount of the Term Loans under the Existing Mezzanine Credit Facility (as defined in Note 7) in a separate money market account with Silicon Valley Bank (“SVB”). Additionally, the Company entered into a second amendment (the “Second Senior Loan Amendment”) to the Senior Loan Agreement (as defined in Note 7). Pursuant to the Second Senior Loan Amendment, the Company is no longer required to achieve minimum levels of trailing six-month net product revenues.

As of March 31, 2022 the Company had cash, cash equivalents, marketable securities and restricted cash of $61.9 million. The Company believes its existing cash, cash equivalents and marketable securities as of March 31, 2022 will be sufficient to support Company’s planned operations into the third quarter of 2022. Substantial additional financing will be needed by the Company to fund its operations. The Company's condensed financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The condensed 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 result from the outcome of this uncertainty. The Company anticipates incurring additional losses until such time, if ever, that it can obtain marketing approval to sell, and then generate significant sales of VP-102. These factors raise substantial doubt about the Company's ability to continue as a going concern within one year after the date the financial statements are issued. The Company plans to secure additional capital in the future through equity or debt financings, partnerships, or other sources to carry out the Company’s planned development activities. If the Company is unable to raise capital when needed or on attractive terms, the Company would be forced to delay, reduce or eliminate its research and development programs or future commercialization efforts.

Note 2—Significant Accounting Policies

Basis of Presentation

The accompanying unaudited interim condensed financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) as determined by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the unaudited interim condensed financial statements reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the balances and results for the periods presented. They may not include all of the information and footnotes required by GAAP for complete financial statements. Therefore, these financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended December 31, 2021, filed with the Securities and Exchange Commission (the “SEC”) on March 2, 2022. The results of operations for any interim periods are not necessarily indicative of the results that may be expected for the entire fiscal year or any other interim period.

The Company has been actively monitoring the coronavirus (“COVID-19”) pandemic and its impact globally. Management believes the financial results for the year ended December 31, 2021 and the three months ended March 31, 2022, were not significantly impacted by COVID-19. In addition, management believes the remote working arrangements, travel restrictions and any other regulations imposed by various governmental jurisdictions have had limited impact on the Company’s ability to maintain internal operations during the year. The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s

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business, results of operations and financial condition will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain it or treat COVID-19. As a direct result of COVID-19, the Company decided to delay the initiation of its previously planned Phase 2 clinical trial to evaluate VP-103 in subjects with plantar warts.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. These estimates and assumptions are based on current facts, historical experience as well as other pertinent industry and regulatory authority information, including the potential future effects of COVID-19, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results may differ materially and adversely from these estimates. To the extent there are material differences between the estimates and actual results, the Company’s future results of operations will be affected.

Significant Accounting Policies

Restricted Cash

Restricted cash at March 31, 2022 includes a cash deposit with SVB as required under the Existing Mezzanine Credit Facility with a minimum balance equal to the outstanding amount of the Term Loans under the Existing Mezzanine Credit Facility.

Net Loss Per Share

Net loss per share of common stock is computed by dividing net loss by the weighted average number of shares of common stock outstanding for the period. Diluted net loss per share excludes the potential impact of common stock options and unvested shares of restricted stock because their effect would be anti-dilutive due to the Company’s net loss. Since the Company had a net loss in each of the periods presented, basic and diluted net loss per common share are the same.

The table below provides potential shares outstanding that were not included in the computation of diluted net loss per common share, as the inclusion of these securities would have been anti-dilutive:

 

 

 

As of March 31,

 

 

 

2022

 

 

2021

 

Shares issuable upon exercise of stock options

 

 

3,768,955

 

 

 

3,571,708

 

Non-vested shares under restricted stock grants

 

 

425,000

 

 

 

475,000

 

 

Note 3—Investments in Marketable Securities

 

Investments in marketable securities consisted of the following as of March 31, 2022 and December 31, 2021 (in thousands):

 

 

 

March 31, 2022

 

 

 

Amortized

 

 

Gross Unrealized

 

 

Gross Unrealized

 

 

Fair

 

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

U.S. Treasury securities

 

$

5,025

 

 

$

 

 

$

(40

)

 

$

4,985

 

Commercial paper

 

 

2,499

 

 

 

 

 

 

 

 

$

2,499

 

Asset-backed securities

 

 

4,035

 

 

 

 

 

 

(22

)

 

$

4,013

 

Total marketable securities

 

$

11,559

 

 

$

 

 

$

(62

)

 

$

11,497

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2021

 

 

 

Amortized

 

 

Gross Unrealized

 

 

Gross Unrealized

 

 

Fair

 

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

U.S. Treasury securities

 

$

15,272

 

 

$

 

 

$

(15

)

 

$

15,257

 

Commercial paper

 

 

28,980

 

 

 

 

 

 

 

 

 

28,980

 

Asset-backed securities

 

 

10,379

 

 

 

 

 

 

(14

)

 

 

10,365

 

Total marketable securities

 

$

54,631

 

 

$

 

 

$

(29

)

 

$

54,602

 

 

Unrealized gains and losses on marketable securities are recorded as a separate component of accumulated other comprehensive gain included in stockholders’ equity. Realized gains (losses) are included in interest income (expense) in the statement of operations and comprehensive loss on a specific identification basis. There were no marketable securities with a maturity of greater than one year

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for either period presented. To date, the Company has not recorded any impairment charges on marketable securities related to other-than-temporary declines in market value.

Accretion of bond discount and premium on marketable securities and interest income on marketable securities is recorded as interest income on the statement of operations and comprehensive loss.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:

Level 1 — Quoted market prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The following tables presents fair value of the Company’s marketable securities (in thousands):

 

 

 

Fair Value Measurement as of March 31, 2022

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets