Intensity Therapeutics, Inc.: Form 10-Q for the period ended Sep 30, 2023

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements generally relate to future events or our future financial or operating performance and may include statements concerning, among other things, our business strategy (including anticipated trends and developments in, and management plans for, our business and the markets in which we operate), financial results, operations, and the markets and communities in which we, our clients, and partners operate, results of operations, revenues, operating expenses, and capital expenditures, sales and marketing initiatives and competition. In some cases, you can identify forward-looking statements because they contain words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “suggests,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. These statements are not guarantees of future performance; they reflect our current views with respect to future events and are based on assumptions and are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from expectations or results projected or implied by forward-looking statements.

We discuss many of these risks in our Final Prospectus on Form 424(b)(4) dated June 29, 2023, in greater detail under the heading “Risk Factors” and in other filings we make from time to time with the Securities and Exchange Commission (“SEC”). Also, these forward-looking statements represent our estimates and assumptions only as of the date of this Quarterly Report on Form 10-Q, which are inherently subject to change and involve risks and uncertainties. Unless required by federal securities laws, we assume no obligation to update any of these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated, to reflect circumstances or events that occur after the statements are made. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors. Such factors include, but are not limited to, the following:

• the initiation, timing, progress and results of future preclinical studies and clinical trials, and our research and development programs;
• our need to raise additional funding before we can expect to generate any revenues from product sales;
• our plans to develop and commercialize our product candidates;
• the timing or likelihood of regulatory filings and approvals;
• the ability of our research to generate and advance additional product candidates;
• the implementation of our business model, strategic plans for our business, product candidates and technology;
• our commercialization, marketing and manufacturing capabilities and strategy;
• the rate and degree of market acceptance and clinical utility of our system;
• our competitive position;
• our intellectual property position;
• developments and projections relating to our competitors and our industry;
• our ability to maintain and establish collaborations or obtain additional funding; and
• our estimates regarding expenses, future revenue, capital requirements and needs for additional financing.

You should read this Quarterly Report on Form 10-Q and the documents that we reference in this report and have filed with the SEC, including our Final Prospectus on Form 424(b)(4) dated June 29, 2023, completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

References to “Notes” are notes included in our unaudited Financial Statements appearing elsewhere in this Quarterly Report on Form 10-Q.

Unless otherwise indicated, the terms “Intensity,” “Company,” “we,” “us,” or “our” refer to Intensity Therapeutics, Inc.

Overview

Intensity Therapeutics, Inc. is a clinical-stage biotechnology company committed to applying scientific leadership in the field of localized cancer reduction leading to anti-cancer immune activation. Our approach involves the direct injection into tumors of a unique product created from our DfuseRx℠ discovery platform.

The concept of intratumoral treatment (IT) has been an objective of clinicians since the first discovery of chemotherapeutic agents. Keeping the drug in the tumor and sparing the body of toxicity. The challenge with IT treatment approaches is that a tumor’s lipophilic, high fat and pressurized microenvironment is incompatible with and does not absorb water-based products. We believe that intratumoral drug delivery is a chemistry challenge and that prior or current IT treatments have formulated their product without consideration of the incompatibility of water and tumors. Another issue with IT or local delivery has been that metastatic cancer is a whole body disease. Local treatments need a systemic component to be effective for a survival benefit. Accordingly, there remains a continued unmet need for the development of direct IT therapies for solid tumors that provide high local killing efficacy coupled with nontoxic systemic anti-cancer effects. We believe we have created such a product candidate with the necessary chemistry to overcome this local delivery challenge and a mechanism of action that induces a systemic effect. Clinical and nonclinical evidence shows that our drug candidate’s mechanism of tumor killing also leads to immune activation in certain cancers.

Our platform creates patented anti-cancer product candidates comprising active anti-cancer agents and amphiphilic molecules. Amphiphilic molecules have two distinct components: one part is soluble in water and the other is soluble in fat or oils. When certain amphiphilic compounds are mixed with therapeutic agents, such as chemotherapies, the agents can also become soluble in both fat and water. Our product candidates include novel formulations consisting of potent anti-cancer drugs mixed together with these amphiphilic agents.

Our lead product candidate, INT230-6, consists of two proven anti-cancer cytotoxic agents, cisplatin and vinblastine sulfate, mixed with the amphiphilic molecule (SHAO) — all in one vial. The anti-cancer agents, cisplatin and vinblastine sulfate, used in our product candidate are both generic and are available to purchase in bulk supply commercially. In 2017, we initiated a Phase 1/2 dose escalation study using INT230-6 in the United States under an investigational new drug application (“IND”) authorized by the FDA and in Canada following receipt of a no objection letter from Health Canada. The study, IT-01, explored the safety and efficacy of INT230-6 in patients with refractory or metastatic cancers. We completed enrollment of study IT-01 in June 2022 and locked the IT-01 database in February 2023 and finalized the clinical study report in September 2023.

The IT-01 trial dosed 110 patients. This clinical trial used our lead product candidate INT230-6 alone; in combination with Merck’s Keytruda® (pembrolizumab) for patients with advanced solid malignancies including pancreatic, bile duct, squamous cell, and non-MSI high colon cancers; and in combination with Bristol Myers Squibb’s Yervoy® (ipilimumab) for patients with breast cancer, liver cancer, and advanced sarcoma. In the third quarter of 2023 we completed the clinical study reports (CSR) for the IT-01 trial. We expect to deliver the reports and other information to our partners in the fourth quarter of 2023.

Our second clinical trial (the INVINCIBLE Study or IT-02) tested INT230-6 in early stage breast cancer for patients not suitable for presurgical chemotherapy. The study enrolled 91 subjects; enrollment is now complete. This clinical trial was a Phase 2 randomized, window of opportunity for patients who were ineligible or chose not to have presurgical chemotherapy. The key endpoint was whether INT230-6 could reduce patient’s cancer by 50% to 100% defined as a major pathological response compared to no treatment (the current standard of care) or a saline injection and stimulate a systemic anti-cancer immune response prior to surgery. Substantial reduction of cancer presurgically in aggressive forms of cancer has been shown to correlate with delaying disease recurrence. Other endpoints of the INVINCIBLE study were to understand the percentage of necrosis that can be achieved in tumors especially tumors larger than 2 cm in longest diameter and whether either a local or whole body anti-cancer immune response could be induced. In the third quarter of 2023 we finalized the statistical analysis plan and the design of the tables listings and figures.

On September 7, 2023, the Company announced that the FDA’s Office of Orphan Products Development has granted orphan-drug designation for the treatment of soft tissue sarcoma to the three active moieties comprising INT230-6, cisplatin, vinblastine sulfate, and the diffusion enhancer SHAO-FA (((2-hydroxybenzoyl) amino) octanoate). The Orphan Drug Designation qualifies the Company for incentives including tax credits for qualified clinical trials, exemption from user fees and potentially seven years of marketing exclusivity for products containing these three key components should the Company gain approval of INT230-6 for treatment of soft tissue sarcoma.

Phase 3 Sarcoma Study

The Company intends to test INT230-6 as a treatment in advance soft tissue sarcoma with an endpoint of overall survival. In the third quarter of 2023, the Company continued to work on the protocol for Study IT-03 which treats soft tissue sarcoma. To achieve this objective immediately following the close of the IPO we reserved a slot with our drug product manufacturing vendor to produce a new batch of INT230-6 in the fourth quarter of 2023 that would be suitable for phase 3 clinical use. For phase 3 development and validation of new assays for determining vinblastine and SHAO concentrations in our drug product was required. The assay for cisplatin was already phase 3 ready. The new assays have been developed. we anticipate validation of the methods to begin and complete in the fourth quarter. In our meeting with FDA held in October of 2021, the Agency requested we schedule a Chemical Manufacturing and Controls (CMC) meeting to discuss the issues needed for phase 3 and product registration. We submitted our CMC questions in Q3 to the Agency. The FDA granted us a meeting that is scheduled to occur in the fourth quarter of 2023. In the third quarter of 2023 we drafted several of the required documents necessary for commencing the soft tissue sarcoma phase 3 study. Our intent is to submit an IND to FDA with the phase 3 protocol in the fourth quarter of 2023.

Phase 2/3 Program in Presurgical Breast Cancer

Based on the data generated and presented to date, we are working to develop a phase 2/3 study protocol in presurgical (neoadjuvant) breast cancer. The study will test INT230-6 in combination with the standard of care (SOC) treatment (chemotherapy/immunotherapy) compared to SOC alone in women with triple negative breast cancer. The clinical materials being manufactured in the fourth quarter of 2023 for the sarcoma study will also be used in the breast cancer study. The endpoint for the phase 2 portion of the trial will a change in pathological complete response rate for the combination compared to the SOC alone. That data will allow for sizing of the phase 3 program.

Since our inception in 2012, our operations have included business planning, hiring personnel, raising capital, building our intellectual property portfolio, and performing both research and development on our product candidates. We have incurred net losses since inception and expect to incur net losses in the future as we continue our research and development activities. To date, we have funded our operations primarily through approximately $54.5 million in cash received from the net proceeds of sales of our common stock, preferred stock and convertible notes. As of September 30, 2023, we had approximately $6.7 million of cash and cash equivalents plus approximately $9.0 million in investments in U.S. Treasury bills. Since our inception, we have incurred significant operating losses. We incurred net losses of $2.3 million and $1.8 million for the three months ended September 30, 2023 and 2022, respectively, and losses of $7.4 million and $6.1 million for the nine months ended September 30, 2023 and 2022, respectively. As of September 30, 2023, we had an accumulated deficit of approximately $47.3 million. We expect to incur significant expenses and operating losses for the next several years. See “Funding Requirements” below.

We expect our expenses to increase as we continue to:

• Initiate Phase 3 programs in sarcoma and/or breast cancer;
• Complete our current Phase 2 programs;
• Advance our preclinical research and bring new product candidates into clinical development;
• Incur manufacturing costs for additional GMP batches of our product candidates and enhancer molecules;
• Seek regulatory approvals for any of our product candidates that successfully complete clinical trials;
• Hire additional personnel;
• Expand our operational, financial, and management systems;
• Invest in measures to protect our existing and new intellectual property; and
• Establish a sales, marketing, medical affairs, and distribution infrastructure to commercialize any product candidates for which we may obtain marketing approval and intend to commercialize.

Our ability to ultimately generate revenue to achieve profitability will depend heavily on the development, approval, and subsequent commercialization of our product candidates. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.

As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through the sale of equity, debt financing, or other capital sources, which may include collaborations with other companies or other strategic transactions. We may not be able to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as and when needed, we would have to significantly delay, reduce, or eliminate the development and commercialization of one or more of our product candidates.

Components of Results of Operations

Revenue

To date, we have not generated any revenue from product sales and we do not expect any revenue from the sale of product in the foreseeable future. We have not generated any revenue from licensing of our technology or product candidates yet either. If our development efforts for any of our product candidates are successful and result in regulatory approval, then we may generate revenue in the future from product sales or licensing. We cannot predict if, when, or to what extent we will generate revenue from the commercialization, licensing or sale of any of our product candidates. We may never succeed in obtaining regulatory approval for any of our product candidates.

Research and Development Costs

Salaries and Payroll Taxes

Salaries and payroll taxes include Company employees involved in our pre-clinical research and clinical trials. This includes medical officers, project management, manufacturing staff and research scientists. The payroll taxes include all government required payments such as social security and unemployment taxes.

Benefits

We offer a partially funded health insurance and dental insurance plan. We maintain a defined contribution plan for all employees age 21 and older who have completed one year of service. This 401K plan makes a matching contribution equal to 100% of an employee’s contribution, up to 3% of an employee’s eligible earnings.

Clinical Trial and Other Costs

Research costs include:

• Pre-clinical research
• Manufacture of new enhancer compounds,
• Manufacture and labelling of GMP product candidate
• Product candidate stability testing of GMP batches
• Costs due to clinical trials for patient care
• Other clinical trial costs such as shipping, storage, and analytical testing
• Scientific consulting costs related to non-employees involved in research. This category includes: statistical analysis, clinical trial operations, development of product manufacturing techniques, and internet research related to oncology and chemistry issues that may impact our preclinical or clinical research.

Stock-Based Compensation

Stock-based compensation is the expense related to stock options granted to our employees and board members and warrants granted to our independent consultants who work in the research aspects.

General and Administrative Costs

Salaries and Payroll Taxes

Salaries and payroll taxes include Company employees who are involved in fund raising, management, and our financial administration. The payroll taxes include all government required payments such as social security and unemployment taxes.

Benefits

We offer a partially funded health insurance and dental insurance plan. We maintain a defined contribution plan for all employees age 21 and older who have completed one year of service. This 401K plan makes a matching contribution equal to 100% of an employee’s contribution, up to 3% of an employee’s eligible earnings.

Legal

Legal costs relate primarily to our corporate administration. All legal costs relate to expenses for outside law firms.

Patent and Trademark

Patent and Trademark are the legal costs and filing costs to establish and maintain patents in 38 countries.

Insurance

Insurance includes: directors and officers insurance, workers compensation insurance, product liability insurance, business insurance, employee and cyber liability insurance.

Facilities and Rent

Facilities and rent through June 30, 2023 is the cost of maintaining our office facility in Westport, Connecticut. The three months ended September 30, 2023 includes some minor costs related to temporary storage of furniture and equipment as we transitioned into our new office space.

In July 2023, we signed a lease to move into 2,686 square feet of office space at 1 Enterprise Drive, Suite 430, Shelton, Connecticut to improve recruiting of staff and to reduce costs. The three months ended September 30, 2023 includes the cost of renting and maintaining this office space.

The commencement date of the Shelton Lease is September 1, 2023 and rent for September 2023 was $2,842. The initial payments for base rent is zero for the first six months, $2,910 for each of the next six months, and gradually increase to $3,275 per month for the final months of the lease. The Company has an option to cancel this lease after 36 months.

Investor Relations

Investor relations are costs paid to outside consultants to develop the materials to present to current and prospective investors, and to arrange meetings with potential investors.

Accounting Services

Accounting services include the cost of our independent auditors for our annual audit, quarterly reviews, and services related to the filing forms with the Securities and Exchange Commission. Accounting services also includes costs related to the preparation of income tax returns, and the cost of maintaining our accounting system. Accounting services on our IPO were not included in this category. The costs related to the IPO were recorded as a reduction of proceeds of the offering and are part of additional paid-in capital on the September 30, 2023 balance sheet.

Consulting Services

Consulting Services are services provided by non-employees for general and administrative tasks. This includes human resources, finance, board compensation, and internet support.

Other

Other general and administrative costs include such items as office supplies, computer related costs, public relations costs, recruiting costs and conferences.

Stock-Based Compensation

Stock-based compensation is the expense related to stock options granted to our employees and board members and warrants granted to our independent consultants who work in the general and administrative aspects.

Other income and expenses

We earned interest income on our cash balances and investments in U.S. Treasury bills.

We incurred interest expense on our convertible notes through June 29, 2023. Accrued interest was converted into common stock upon commencement of our IPO.

We accumulated federal research and development tax credits in prior tax years that are recoverable through a refund of Social Security taxes paid in current fiscal periods.

Results of Operations

The following tables summarize our results of operations for the three months ended September 30, 2023 and 2022:

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Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

Research and Development expenses increased by 16.5%. Salaries and payroll taxes decreased by 54.1% from the third quarter of 2022 to the third quarter of 2023, primarily due to the decrease in two headcount. Additionally, the CEO devoted more time towards general and administrative in 2023 due to his work related to the IPO. Benefits decreased by 61.3% for these same reasons that salaries and payroll taxes decreased. Clinical trial and other research costs increased by $116,354 primarily due to approximately $307,300 of costs in 2023 related to the manufacture of our next batch of drug which is scheduled to occur in the fourth quarter of 2023. The Company also incurred approximately $164,100 of preliminary costs related to the Phase 3 study on Sarcoma in 2023. Costs related to Studies IT-01 and IT-02 decreased since their enrollments were completed in June 2022 and August 2022, respectively. The increase in stock based compensation is predominantly due to the third quarter of 2022 having a reduction of approximately $132,000 due to forfeited stock options.

General and Administrative expenses increased by 87.6%. Salaries and payroll taxes increased by $29,274 due to a larger percentage of the CEO’s time being spent on general and administrative activities and a salary increase to the Principal Accounting Officer. Legal expenses in 2022 include costs related to an unsuccessful attempt at an IPO. Insurance increased due to the additional directors and officers’ insurance as a publicly held company. Accounting services increased due to quarterly reviews and accounting services related to activities as a publicly held company. Consulting service is predominantly the cost of our vice president of corporate finance.

Other income (expense) in the third quarter of 2022 was predominantly interest expense on the convertible notes which were converted to common stock on June 29, 2023. Other income (expense) in the third quarter of 2023 was predominantly interest income earned on marketable debt securities and cash and cash equivalents which increased in the third quarter of 2023 due to the proceeds from both the IPO and the sale of the overallotment shares.

The deemed dividend represents the value that was transferred to the Series B and C preferred stockholders upon triggering of anti-dilution provisions.

The following tables summarize our results of operations for the nine months ended September 30, 2023 and 2022:

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Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

Research and Development expenses decreased by 29.6%. Salaries and payroll taxes decreased by 57.3% since 2022, predominantly due to four research employees leaving the Company from February 2022 through June 2023. Benefits decreased by 55.2% for the same reason. Clinical trial and other research costs decreased by approximately $1.0 million predominantly due to studies IT-01 and IT-02 that completed their enrollments in June 2022 and August 2022 respectively. The end of enrollments resulted in a significant decrease in patient care costs. These decreases were slightly offset by the third quarter of 2023 costs related to the new manufacturing batch as preliminary work on the Phase 3 Sarcoma study noted earlier. Stock based compensation increased by approximately $353,700 because the nine months ended September 30, 2022 include a reduction of approximately $132,000 due to forfeited options from a former employee and the options and warrants issued in December 2022.

General and Administrative expenses increased by 8.0%. Salaries and payroll taxes increased by 18.5% due to a larger percentage of the CEO’s time being spent on general and administrative activities and a salary increase to the Principal Accounting Officer. Legal expenses decreased by $224,186; 2022 had legal costs related to unsuccessful attempts at an IPO. Insurance increased due to the additional directors and officers’ insurance as a publicly held company. Facilities and rent decreased since we relocated our offices to a less expensive space that also locates us closer to an area where we believe will have better employee recruitment.

Other income (expense) in the first nine months of 2022 included interest expense on the convertible notes which were converted to common stock on June 29, 2023. Other income (expense) in the first nine months of 2023 includes approximately $2.3 million loss on debt conversion at the time of the IPO, plus $148,026 of interest income earned on marketable debt securities and cash and cash equivalents which increased in the third quarter of 2023 due to the proceeds of both our IPO and the sale of overallotment shares.

The deemed dividend represents the value that was transferred to the Series B and C preferred stockholders upon triggering of anti-dilution provisions.

Liquidity and Capital Resources

Since our inception, we have not generated any revenue from product sales and have incurred significant operating losses. We expect to continue to incur significant expenses and operating losses for the foreseeable future as we advance the clinical development of our product candidates. We expect that our research and development and general and administrative costs will continue to increase significantly, including in connection with conducting clinical trials for our product candidates, developing our manufacturing capabilities and building and qualifying our manufacturing facility to support clinical trials and commercialization and providing general and administrative support for our operations, including the cost associated with operating as a public company. As a result, we will need additional capital to fund our operations, which we may obtain from additional equity or debt financings, collaborations, licensing arrangements or other sources.

We do not currently have any approved products and have never generated any revenue from product sales. We have financed our operations primarily through an initial investment from our founder, the issuance and sale of convertible debt notes, the issuance and sale of private equity financings, and an IPO, after which shares of our common stock began trading on the Nasdaq Capital Market (“Nasdaq”) under the symbol “INTS” on June 30, 2023. As of September 30, 2023, our cash and cash equivalents and investments in U.S. treasury bills were approximately $15.6 million. Based on our balances in cash, cash equivalents, and investments in U.S. treasury bills, we project to have sufficient cash to fund our current operating plan until July 2025. This operating plan includes the increase in staffing such as the Vice President of Clinical Operations and a manufacturing focused chemical engineer who began in September 2023.

The following table summarizes the net cash provided by (used in) operating activities and financing activities for the periods indicated:

Operating Activities

Net cash used in operating activities for the nine months ended September 30, 2023 was approximately $6.3 million. This is primarily attributable to the loss of approximately $7.4 million offset by: approximately $2.3 million for the non-cash loss on the conversion of convertible notes into shares of common stock; approximately $1.0 million for the non-cash stock based compensation; an increase of approximately $0.9 million to prepaid insurance expense, and a decrease in accounts payable and accrued expenses of approximately $1.6 million.

Net cash used in operating activities for the nine months ended September 30, 2022 was predominantly the net loss of approximately $6.1 million. The predominant differences between the approximately $6.1 million in operating loss and the approximately $3.8 million in net cash flows from operating activities are approximately $0.5 million in non-cash stock compensation and approximately $1.6 million increase in accounts payable and accrued expenses.

Investing Activities

The Company invested approximately $8.8 million of the proceeds of both the IPO and sale of the overallotment shares in U.S. treasury bills with original maturities between approximately 3 and 6 months.

There was no cash provided by or used in investing activities for the nine months ended September 30, 2022.

Financing Activities

Net cash provided by financing activities for the nine months ended September 30, 2023 consisted predominantly of approximately $22.4 million in gross proceeds from both the IPO and sale of the overallotment shares, less underwriter fees and issuance costs of approximately $2.2 million. The Company received approximately $243,000 from the sale of convertible notes prior to the IPO and $50,000 in proceeds from the exercise of warrants and option.

There was no net cash provided by financing activities for the nine months ended September 30, 2022.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of September 30, 2023.

Seasonality

Our business experiences limited seasonality.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. The preparation of our financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, costs and expenses, and the disclosure of contingent assets and liabilities in our financial statements. These items are monitored and analyzed by us for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base our estimates on historical experience, known trends and events, and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may materially differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in the notes to our financial statements included elsewhere in this report, we believe that the following accounting policies are those most significant to the judgments and estimates used in the preparation of our financial statements.

Accrued Research and Development Expenses

Research and development costs are expensed as incurred. We record the estimated patient care costs as services are provided but not yet invoiced and include these costs in the accrued expenses in the balance sheet and within research other expense in the statement or operations.

Equity-Based Compensation

We recognize compensation costs related to stock option grants to employees and board members and warrant grants to nonemployees based on the estimated fair value of the awards on the date of grant. We estimate the grant date fair value and the resulting stock-based compensation expense using the Black-Scholes option-pricing model. The grant date fair value of the stock-based awards is recognized on a straight-line basis over the requisite service periods, which are generally the vesting period of the respective awards. Forfeitures are accounted for as they occur.

We historically have been a private company and lack company-specific historical and implied volatility information for our shares. Therefore, we estimate our expected share price volatility based on the historical volatility of publicly traded peer companies and expect to continue to do so until such time as we have adequate historical data regarding the volatility of our own traded share price.

JOBS Act Accounting Election

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

Subject to certain conditions set forth in the JOBS Act, if, as an “emerging growth company”, we choose to rely on such exemptions we may not be required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis), and (iv) disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the CEO’s compensation to median employee compensation. These exemptions will apply for a period of five years following the completion of our IPO or until we are no longer an “emerging growth company,” whichever is earlier.

Historically, as a privately held company, we have maintained internal controls over financial reporting but we have a material weakness due to a lack of segregation of duties since we have a limited administrative staff. However, these internal controls have not been subject to the testing required under the standards of publicly traded companies by Section 404 of Sarbanes-Oxley. We are not currently required to comply with SEC rules that implement Section 404 of the Sarbanes-Oxley Act, and are therefore not required to make a formal assessment of the effectiveness of our internal controls over financial reporting for that purpose. However, at such time as Section 404 of the Sarbanes-Oxley Act is applicable to us, we will be required to evaluate our internal controls over financial reporting.

Evaluation of Disclosure Controls and Procedures: We maintain disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to ensure that the information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and such information is accumulated and communicated to management, including the Chief Executive Officer, Executive Vice President of Corporate Finance, the Interim Chief Financial Officer (who is also the Controller and Principal Accounting Officer) and two other independent financial consultants, as appropriate, to allow timely decisions regarding required disclosure. Disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurances of achieving the desired controls.

As of September 30, 2023, we carried out an evaluation, under the supervision and with the participation of our management, including the Chief Executive Officer, Executive Vice President of Corporate Finance and the Interim Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures defined above. Based upon that evaluation, our Chief Executive Officer, Executive Vice President of Corporate Finance and Interim Chief Financial Officer have concluded that, as of September 30, 2023, our disclosure controls and procedures were not effective at the reasonable assurance level. In June 2023, the Company appointed an Interim Chief Financial Officer and Executive Vice President of Corporate Finance, but there continues to be a lack of segregation of duties due to a limited number of administrative employees and consultants resulting in a material weakness in internal controls.

In response to the above identified weakness, we are taking the following remediation measures:

• We are reassessing our accounting procedures and, as part of the financial reporting process, plan to implement the use of supplementary checks and additional reviews and evaluations of transactions to improve the accuracy and reliability of our financial information.
• We are adding appropriate resources to ensure that such procedures are implemented and adequate reviews are performed.

Our Chief Executive Officer, along with other key members of management, are and will be active participants in these remediation processes and such processes will be subject to audit committee oversight. We believe these steps will improve the effectiveness of our internal controls. While we plan to take the above steps to remediate these weaknesses, we cannot assure you that we will be able to fully remediate them, which could impair our ability to accurately and timely meet our public company reporting requirements.

Limitations on the Effectiveness of Controls Our management, including the Chief Executive Officer, Executive Vice President, Corporate Finance and the Chief Financial Officer, recognizes that any set of controls and procedures, no matter how well-designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, with us have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of controls. For these reasons, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. This lack of segregation of duties from a limited number of administrative employees is a material weakness in internal controls. In our plan to start to address these weaknesses, in August 2021, the Company established a Chief Financial Officer position through a consulting agreement with Danforth Advisors in order to add an additional layer of oversight on the financial reporting process with assistance from another Danforth consultant to address this material weakness. In June 2023, to meet listing requirements of Nasdaq, our Principal Accounting Officer and Controller, John Wesolowski, became our full-time Interim Chief Financial Officer and James Ahlers became our Executive Vice President of Corporate Finance.

As of the date of this Quarterly Report, other than the below, there have not been any material changes to the information related to the “Risk Factors” disclosure in the Company’s Final Prospectus on Form 424(b)(4) dated June 29, 2023. Our business involves significant risks. You should carefully consider the risks and uncertainties described in our Final Prospectus, together with all of the other information in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements and related notes as disclosed in our Final Prospectus. The risks and uncertainties described in our prospectus are not the only ones we face.

Additional risk and uncertainties that we are unaware of or that we deem immaterial may also become important factors that adversely affect our business. The realization of any of these risks and uncertainties could have a material adverse effect on our reputation, business, financial condition, results of operations, growth and future prospects as well as our ability to accomplish our strategic objectives. In that event, the market price of our common stock could decline and you could lose part or all of your investment.

The recent attack by Hamas on Israel from the Gaza Strip could have an unpredictable effect on the global economy and on international and local securities markets, and adversely affect our business and results of operations.

On October 7, 2023, Hamas militants and members of other terrorist organizations infiltrated Israel’s southern border from the Gaza Strip and conducted a series of terror attacks on civilian and military targets. Thereafter, these terrorists launched extensive rocket attacks on Israeli population and industrial centers located along the Israeli border with the Gaza Strip. Shortly following the attack, Israel’s security cabinet declared war against Hamas. The intensity and duration of Israel’s current war against Hamas is difficult to predict.

A downturn in the worldwide economy resulting the recent attack by Hamas on Israel from the Gaza Strip and other conflicts with a global impact that may arise from time to time could have a material adverse effect on our business, results of operations, and/or financial condition.