Myseum.AI, Inc.: Form 10-Q for the period ended Mar 31, 2025

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited consolidated financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and related notes for the year ended December 31, 2024 included in our Annual Report on Form 10-K filed with the Securities Exchange Commission, or SEC. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included elsewhere in this Quarterly Report on Form 10-Q. All amounts in this report are in U.S. dollars, unless otherwise noted.

Overview

We are a private messaging, cybersecurity, and social media company that not only focuses on protecting privacy on personal devices, but also protects user information after it is shared with others. We believe that one’s right to privacy should not end the moment they click “send”, and that we all deserve the same right to privacy online that we enjoy in our own living rooms. Our flagship product, DatChat Messenger & Private Social Network, is a privacy platform and mobile application that gives users the ability to communicate with the privacy and protection they deserve. Recently, we have expanded our business and product offerings to include the development of our Myseum platform, a secure digital content management and storage solution for families, groups and individuals. In addition, as a result of our acquisition of RPM Interactive, Inc. in October 2024, we have repositioned our majority-owned subsidiary, Dragon Interact, Inc. (recently renamed RPM Interactive, Inc.) away from the development of the Habytat platform to focus on becoming an AI generated publishing company of trivia mobile game apps and vodcasts/podcasts designed to publish content across hundreds of evergreen topics every day and be distributed to all major streaming platforms. See “Business – RPM Interactive, Inc.” and “Business – The Habytat.”

DatChat Messenger & Private Social Network

Our platform allows users to exercise control over their messages and posts, even after they are sent. Through our application, users can delete messages that they have sent, on their own device and the recipient’s device as well. There is no set time limit within which they must exercise this choice. A user can elect at any time to delete a message that they previously sent to a recipient’s device.

The application also enables users to hide secret and encrypted messages behind a cover, which messages can only be unlocked by the recipient and which are automatically destroyed after a fixed number of views or fixed amount of time. Users can decide how long their messages last on the recipient’s device. The application also includes a screen shot protection system, which makes it virtually impossible for the recipient to screenshot a message or picture before it gets destroyed. In addition, users can delete entire conversations at any time, making it like the conversation never even happened.

In addition to the foregoing, the application also provides users with the ability to connect via an encrypted live video chat that also is designed to prevent screenshots or screen grabs. The application integrates with iMessage, making private messages potentially available to hundreds of millions of users.

Myseum Social Media Platform

We recently launched our Myseum social media platform, an innovative social media platform that brings a fresh approach to digital media and content management, allowing users to create a digital legacy that can be easily shared today and with future generations. Backed by AI technology and proprietary software, the multi-tiered social media ecosystem enables individuals, families, and other groups to store and share digital content such as messages, photos, videos, and documents within a highly secure and private family library. Myseum allows users to create amazing albums and galleries for everyone to see, create special private and secure galleries with limited access, personalize a user’s newsfeed with updates from other Myseums and leave time released video messages for both now and future generations.

RPM Interactive, Inc.

In October 2024, our majority owned subsidiary, Dragon Interact, Inc. (“Dragon”), entered into a Share Exchange Agreement with RPM Interactive, Inc., a Florida corporation (“RPM”), pursuant to which Dragon acquired 100% of the equity interests of RPM, including all assets of RPM in consideration for the issuance of 3,500,000 restricted shares of Dragon’s common stock. RPM’s assets included an artificial intelligence (“AI”) tool used for publishing AI-generated consumer gaming and podcasting/vodcasting applications and certain intellectual property. As part of the acquisition, Dragon has changed its corporate name to RPM Interactive, Inc. (“RPM Interactive”) and shifted its focus to developing AI-driven podcast and gaming technologies.

Following the acquisition, in January 2025, we returned 3,500,000 shares of the RPM Interactive common stock held by us to RPM Interactive, which shares were cancelled and are no longer outstanding on RPM Interactive’s stock ledger. Following these transactions, we hold 9,000,000 shares of the RPM Interactive’s common stock, or approximately 34% of its outstanding shares.

The Habytat

Prior to the acquisition of RPM, we developed and launched, in November 2022, the Habytat, a virtual space that blends real world and virtual realities into one, in real time, using emerging technology like virtual and augmented reality, to create a highly immersive 3D environment. We had further contemplated spinning-off our Habytat platform business into a new standalone public company pursuant to a distribution of the shares. As discussed above, following our acquisition of RPM in October 2024, we ceased our development of the Habytat platform and are evaluating ways to utilize the technology that had been developed by our subsidiary.

Recent Events

Return of Subsidiary Shares

In January 2025, we returned 3,500,000 shares of the Subsidiary’s. common stock held by us to the Subsidiary, which shares were cancelled and are no longer outstanding on the Subsidiary’s stock ledger. Following this transaction, we held 12.5 million shares of the Subsidiary’s common stock, or approximately 34% of its outstanding shares.

January 2025 Offering

On January 8, 2025, we entered into a securities purchase agreement with certain institutional investors, pursuant to which we sold 1,200,000 shares of our common stock at a purchase price of $4.25 per share of Common Stock. Proceeds from the offering were approximately $5.1 million, prior to deducting placement agent’s fees and other offering expenses payable by the Company. The shares of Common Stock were offered by the Company pursuant to its shelf registration statement on Form S-3 (File No. 333-268058), which was declared effective by the Securities and Exchange Commission on December 6, 2022, a base prospectus dated December 6, 2022, and a prospectus supplement dated January 8, 2025. The closing of the offering took place on January 9, 2025. In addition, pursuant to the terms of the offering, the Company issued to The Benchmark Company, LLC, the exclusive placement agent for the offering, warrants to purchase up to 60,000 shares of the Company’s common stock, at an exercise price equal to 100.0% of the offering price per share of Common Stock, or $4.25 per share. The Placement Agent Warrant is exercisable during the four-and-a-half year period commencing six months after the date of the closing of this Offering.

Basis of Presentation

The financial statements contained herein have been prepared in accordance with accounting principles generally accepted in the United States of America (the “U.S. GAAP”) and the requirements of the Securities and Exchange Commission.

Critical Estimates

This 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 U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reported period. In accordance with U.S. GAAP, we base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances. Actual results may differ from these estimates if conditions differ from our assumptions. While our significant accounting policies and significant estimates are more fully described in Note 2 in the “Notes to Financial Statements”, we believe the following estimates are critical to the process of making significant judgments and estimates in preparation of our consolidated financial statements.

Capitalized internal-use software costs

We capitalize costs to develop or purchase internal-use software in accordance with ASC section 350-40, Intangibles — Goodwill and Other — Internal-Use Software. Costs incurred to develop internal-use software are expensed as incurred during the preliminary project stage. Internal-use software development costs are capitalized upon purchase and during the application development stage, which is after: (i) the preliminary project stage is completed; and (ii) management authorizes and commits to funding the project and it is probable the project will be completed and used to perform the intended function. Capitalization ceases at the point where the software project is substantially complete and ready for its intended use, and after all substantial testing is completed. Upgrades and enhancements are capitalized if it is probable that those expenditures will result in additional functionality. Amortization is provided for on a straight-line basis over the expected useful life of the internal-use software development costs and related upgrades and enhancements. When the existing software is replaced with new software, the unamortized costs of the old software are expensed when the new software is ready for its intended use. During the three months ending March 31, 2025, we capitalized certain software development costs incurred amounting to $72,625 since the Company’s software development projects were in the application development stage. During the three months ending March 31, 2024, software development costs incurred internally, other than purchased software, were expensed since the Company’s software development projects were in the preliminary project stage. Such costs were included in research and development costs on the accompanying unaudited consolidated statement of operations and comprehensive loss.

Noncontrolling interests

The Company follows ASC Topic 810, “Consolidation,” governing the accounting for and reporting of noncontrolling interests (“NCI”) in partially owned consolidated subsidiaries and the loss of control of subsidiaries. Certain provisions of this standard indicate, among other things, that NCI be treated as a separate component of equity, not as a liability, that increases and decreases in the parent’s ownership interest that leave control intact be treated as equity transactions rather than as step acquisitions or dilution gains or losses, and that losses of a partially-owned consolidated subsidiary be allocated to noncontrolling interests even when such allocation might result in a deficit balance. The net loss attributed to NCI was separately designated in the accompanying consolidated statements of operations and comprehensive loss. Losses attributable to NCI in a subsidiary may exceed a NCI’s interests in the subsidiary’s equity. The excess attributable to NCI is attributed to those interests. NCI shall continue to be attributed their share of losses even if that attribution results in a deficit NCI balance.

The Company allocates certain corporate common expenses to its subsidiaries based on the ratio of direct subsidiary expenses to total consolidated expenses. Management believes that this allocation method is reasonable.

The Company accounts for its noncontrolling interest in RPM Interactive in accordance with ASC Topic 810-10-45, which requires the Company to present noncontrolling interests as a separate component of total shareholders’ equity on the consolidated balance sheets and the consolidated net loss attributable to its noncontrolling interest be clearly identified and presented on the face of the consolidated statements of operations. Through January 10, 2024, the date that VR Interactive purchased 8,000,000 shares of RPM Interactive from Metabizz LLC, any noncontrolling interest eliminated in consolidation. Because this change in ownership moved from a consolidated entity (the VIE entities) to a nonconsolidated entity (VR Interactive), subsequent to January 10, 2024 the Company ceased eliminating the noncontrolling interest in consolidation and recorded an initial negative noncontrolling interest in total equity for the portion of equity ownership not attributable to DatChat based on the minority interest holders’ ownership interest in the carrying value of RPM Interactive’s equity. Due to the issuance of common shares by RPM Interactive, during the three months ended March 31, 2025, the Company recorded aggregate initial negative noncontrolling interest of $188,810 in total equity for the portion of additional equity ownership not attributable to the Company based on the minority interest holders’ ownership interest in the carrying value of RPM Interactive’s equity. The Company allocated $145,914 of the net loss of the subsidiary to noncontrolling interest during the three months ended March 31, 2025. As a result of changes in RPM Interactive outstanding common stock and the Company’s share of losses of subsidiary since January 2024, aggregate noncontrolling interest deficit amounted to $2,472,513 as of March 31, 2025.

Variable interest entities

Pursuant to ASC 810-10-25-22, an entity is defined as a VIE if it either lacks sufficient equity to finance its activities without additional subordinated financial support, or it is structured such that the holders of the voting rights do not substantively participate in the gains and losses of the entity. When determining whether an entity that meets the definition of a business qualifies for a scope exception from applying VIE guidance, the Company considers whether: (i) it has participated significantly in the design of the entity, (ii) it has provided more than half of the total financial support to the entity, and (iii) substantially all of the activities of the VIE are conducted on its behalf. A VIE is consolidated by its primary beneficiary, the party that has the power to direct the activities that most significantly impact the VIE’s economic performance and has the right to receive benefits or the obligation to absorb losses of the entity that could be potentially significant to the VIE. The primary beneficiary assessment must be re-evaluated on an ongoing basis.

Based on the Company’s analysis, on February 14, 2023, Metabizz, LLC, a Florida corporation, and Metabizz SAS, a company incorporated under the laws of Columbia (collectively “Metabizz”), were determined to be VIE entities in accordance with ASC 810-10-25-22 because the equity owners in Metabizz did not have the characteristics of a controlling financial interest and the initial equity investments in these entities may be or were insufficient to meet or sustain its operations without additional subordinated financial support from DatChat. The equity owners of Metabizz had only a nominal equity investment at risk, and the Company absorbed or received a majority of the entity’s expected losses or benefits. The Company participated significantly in the design of Metabizz. The Company provided working capital advances to Metabizz to allow Metabizz to fund its day-to-day obligations. Substantially all of the activities of Metabizz were conducted for the Company’s benefit, as evidenced by the fact that the operations of Metabizz consisted of development of software and technologies to be used by RPM Interactive and the Company provided working capital to Metabizz to pay employees and independent contractors to perform the development services on behalf of the Company. Repayment of the working capital advances is not guaranteed by the equity owner of Metabizz and creditors of Metabizz do not have recourse against the Company. Accordingly, the Company was required to consolidate the assets, liabilities, revenues and expenses of Metabizz using the fair value method. Additionally, the managing partner of Metabizz was also the Chief Innovation Officer of RPM Interactive. Since Metabizz, LLC and Metabizz SAS were considered VIE’s, any noncontrolling interest eliminated in consolidation. In connection with the initial consolidation of Metabizz, on February 14, 2023 (the initial consolidation date), the Company recorded a gain on initial consolidation of variable interest entities of $42,737.

On March 31, 2024, based on the Company’s analysis, the Company deconsolidated Metabizz, LLC and Metabizz SAS. During the three months ended March 31, 2024, the Company ceased doing business with Metabizz, LLC and Metabizz SAS and will pay technology professionals directly. In connection with the deconsolidation of Metabizz, LLC and Metabizz SAS, during the three months ended March 31, 2024, the Company recorded a gain on deconsolidation of $107.

On August 27, 2024, the Company entered into an Asset Purchase Agreement with the Seller, pursuant to which it acquired from Seller the Assets (See Note 1) in consideration for the transfer by the Company of 8,000,000 restricted shares of common stock of RPM Interactive. Accordingly, as of September 30, 2024, the Company owned 45.5% of RPM Interactive. On August 27, 2024, based on the Company’s analysis, the Company determined that RPM Interactive met the definition of a VIE under the VIE model, which provides for situations in which control may be demonstrated other than by the possession of voting rights in RPM Interactive. Based on Company’s analysis, the Company continues to have the power to direct the activities of RPM Interactive that most significantly impact RPM Interactive’s economic performance and the obligation to absorb losses of RPM Interactive that could potentially be significant to RPM Interactive or the right to receive benefits from RPM Interactive that could potentially be significant to RPM Interactive. As of March 31, 2025 and December 31, 2024, the Company retained approximately 34.0% and 39.7%

Stock-based compensation

Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718, “Compensation — Stock Compensation” (“ASC 718”), which requires recognition in the financial statements of the cost of employee, non-employee and director services received in exchange for an award of equity instruments over the period the employee, non-employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). ASC 718 also requires measurement of the cost of employee, non-employee, and director services received in exchange for an award based on the grant-date fair value of the award. The fair value of each option granted is estimated as of the date of grant using the Black-Scholes-Merton option-pricing model, net of actual forfeitures. The fair value is amortized as compensation cost on a straight-line basis over the requisite service period of the awards, which is generally the vesting period. The Black-Scholes-Merton option-pricing model includes various assumptions, including the fair market value of our common stock, expected life of stock options, the expected volatility, and the expected risk-free interest rate, among others. These assumptions reflect our best estimates, but they involve inherent uncertainties based on market conditions generally outside of our control. As a result, if other assumptions had been used, stock-based compensation expense, as determined in accordance with authoritative guidance, could have been materially impacted. Furthermore, if we use different assumptions on future grants, stock-based compensation expense could be materially affected in future periods.

Recently Issued Accounting Pronouncements

Refer to the notes to the unaudited consolidated financial statements.

Results of Operations

Revenue

During the three months ended March 31, 2025 and 2024, we generated minimal revenues of $83 and $131, respectively, which consisted of subscription revenues.

Operating expenses

For the three months ended March 31, 2025, operating expenses amounted to $1,660,529 as compared to $1,663,550 for the three months ended March 31, 2024, a decrease of $3,021, or 0.2%. For the three months ended March 31, 2025 and 2024, operating expenses consisted of the following:

Compensation and related expenses

Compensation and related expenses include salaries, stock-based compensation, health insurance and other benefits.

During the three months ended March 31, 2025 and 2024, compensation and related expenses amounted to $967,280 and $897,664, respectively, an increase of $69,616, or 7.8%. The increase was attributable to an increase in executive bonus of $350,000, and an increase in stock-based compensation of $148,359 due to the issuance of new stock options, offset by an overall decrease in compensation and other related expenses of $428,743 due to a reduction in staff.

Marketing and advertising expenses

During the three months ended March 31, 2025 and 2024, marketing and advertising expenses amounted to $38,262 and $34,717, respectively, an increase of $3,545, or 10.2%. The increase was primarily due to an increase in promotions, branding and digital marketing strategies and social media ads.

Professional and consulting expenses

During the three months ended March 31, 2025 and 2024, we reported professional and consulting expenses of $455,484 and $253,625, respectively, an increase of $201,859, or 79.6%. The increase was primarily attributable to an increase in investor relations of $77,500, an increase in legal fees of $73,410, an increase in accounting fees of $40,137, an increase in consulting fees – related party of $18,000, and an increase of other professional fees of $1,485, offset by a decrease in aggregate consulting fees of $8,673, which includes a decrease in stock-based consulting fees of $52,323 and an increase in other consulting fees of $43,650.

Research and development expenses

During the three months ended March 31, 2025 and 2024, we incurred $6,000 and $233,918 in research and development expenses, a decrease of $227,918, or 97.4%. Research and development costs were incurred in connection with our Metaverse software development project, including the development of Habytat which is in the preliminary stage. As of March 31, 2025, we ceased development of our Metaverse software.

General and administrative expenses

During the three months ended March 31, 2025 and 2024, general and administrative expenses amounted to $193,503 and $243,626, a decrease of $50,123, or 20.6%. The decrease was primarily attributable to a decrease in computer and internet expenses of $26,517, a decrease in proxy meeting expenses of $19,288, and a decrease in other general and administrative expenses of $4,318.

Loss from Operations

During the three months ended March 31, 2025, loss from operations amounted to $1,660,446 as compared to $1,663,419 during the three months ended March 31, 2024, a decrease of $2,973, or 0.2%.

Other Income (Expense)

Other income (expenses) primarily consisted of interest income, gain on deconsolidation of variable interest entities, and foreign currency exchange loss. During the three months ended March 31, 2025 and 2024, we reported other income, net of $41,336 and $101,612, respectively.

During the three months ended March 31, 2025, other income, net solely consisted of interest income of $41,336. During the three months ended March 31, 2024, other income, net primarily consisted of interest income of $114,470, gain on deconsolidation of variable interest entities of $107, and a foreign currency exchange loss of $12,965.

Net Loss and Net Loss Attributable to Common Shareholders

Due to the foregoing reasons, during the three months ended March 31, 2025 and 2024, our net loss was $1,619,110 and $1,561,807, respectively, an increase of $57,303, or 3.7%. During the three months ended March 31, 2025 and 2024, after adjusting net loss for the net loss of subsidiary attributable to noncontrolling interest of $145,914 and $423,995, respectively, net loss attributable to common shareholders of was $1,473,196, or ($0.36) per common share (basic and diluted) and $1,137,812, or ($0.41) per common share (basic and diluted), respectively, an increase of $335,384, or 29.5%.

Liquidity, Capital Resources and Plan of Operations

As of March 31, 2025, we had cash and cash equivalents of $1,265,478 and short-term investments of $5,785,219. Short-term investments include U.S. Treasury zero coupon bills that are all highly rated and have initial maturities between four and twelve months.

The accompanying unaudited consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business. As of March 31, 2025, we had cash and cash equivalents of $1,265,478, short-term investments of $5,785,219, and working capital of $6,506,071. Short-term investments include U.S. Treasury zero coupon bills that are all highly rated and have initial maturities between four and twelve months. On January 8, 2025, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with certain institutional investors pursuant to which the Company agreed to sell to such investors 1,200,000 shares of common stock of the Company at a purchase price of $4.25 per share of Common Stock (the “Offering”). The closing of the sales of these securities under the Purchase Agreement took place on January 9, 2025 and we received net proceeds of $4,532,000. Net cash used in operations was $1,405,389 for the three months ended March 31, 2025. Until such time that the Company implements its growth strategy, it expects to continue to generate operating losses in the foreseeable future, mostly due to corporate overhead, research and development, and costs of being a public company. We believe that our existing working capital and cash on hand will provide sufficient cash to enable the Company to meet its operating needs and debt requirements for the next twelve months from the issuance date of this report.

Our primary uses of cash have been for research and development, compensation and related expenses, fees paid to third parties for professional services, marketing and advertising expenses, and general and administrative expenses. All funds received have been expended in the furtherance of growing the business. We received funds from the sale of our common stock, sale of common stock in our subsidiary, RPM Interactive, and the exercise of warrants. The following trends are reasonably likely to result in changes in our liquidity over the near to long term:

• An increase in working capital requirements to finance our current business,
• Cost of research and development,
• Addition of administrative, technical and sales personnel as the business grows, and
• The cost of being a public company.

Cash Flow Activities for the Three Months ended March 31, 2025 and 2024

Cash Flows from Operating Activities

Net cash used in operating activities totaled $1,405,389 and $1,477,240 for the three months ended March 31, 2025 and 2024, respectively, a decrease of $71,851.

Net cash flow used in operating activities for the three months ended March 31, 2025 primarily reflected a net loss of $1,619,110 adjusted for the add-back of non-cash items consisting of depreciation and amortization of $5,541, and accretion of stock-based stock option and common stock expense of $155,054, offset by changes in operating assets and liabilities primarily consisting of an increase in prepaid expenses of $15,959, and an increase in accounts payable and accrued expenses of $69,092.

Net cash flow used in operating activities for the three months ended March 31, 2024 primarily reflected a net loss of $1,561,807 adjusted for the add-back (reduction) of non-cash items consisting of depreciation and amortization of $5,782, amortization of right of use assets of $17,123, accretion of stock-based stock option and common stock expense of $59,018, a non-cash gain from deconsolidation of variable interest entities of $(107), and foreign currency exchange loss of $12,965, offset by changes in operating assets and liabilities primarily consisting of an increase in prepaid expenses of $52,659, an increase in accounts payable and accrued expenses of $61,794, and a decrease in operating lease liabilities of $19,376.

Cash Flows from Investing Activities

Net cash used by investing activities amounted to $2,905,332 and $648,447 for the three months ended March 31, 2025 and 2024, respectively.

During the three months ended March 31, 2025, we purchased short-term investments of $4,314,310 and received gross proceeds from the sale of short-term investments of $1,481,603. Additionally, we capitalized internal-use software of $72,625.

During the three months ended March 31, 2024, we purchased short-term investments of $3,337,115 and received gross proceeds from the sale of short-term investments of $2,688,668.

Cash Flows from Financing Activities

Net cash provided by financing activities totaled $4,379,500 and $1,420,773 for the three months ended March 31, 2025 and 2024, respectively.

During the three months ended March 31, 2025, we received $4,532,000 from the sale of common stock, net, and paid deferred offering costs of $152,500.

During the three months ended March 31, 2024, we received $559,251 from the sale of common stock, net, and received $861,522 from the sale of pre-funded warrants.

Off-Balance Sheet Arrangements

We have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholders’ equity or that are not reflected in our financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

JOBS Act

On April 5, 2012, the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) was enacted. Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.

We have chosen to take advantage of the extended transition periods available to emerging growth companies under the JOBS Act for complying with new or revised accounting standards until those standards would otherwise apply to private companies provided under the JOBS Act. As a result, our financial statements may not be comparable to those of companies that comply with public company effective dates for complying with new or revised accounting standards.

Subject to certain conditions set forth in the JOBS Act, as an “emerging growth company,” we intend to rely on certain of these exemptions, including, without limitation, (i) providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, as amended, and (ii) complying with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.235 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of our initial public offering, which would be December 31, 2024; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.

We are a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act and are not required to provide the information required by this Item.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that material information required to be disclosed in our periodic reports filed under the Securities Exchange Act of 1934, as amended, or 1934 Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to ensure that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer as appropriate, to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of our management, including the principal executive officer and the principal financial officer (principal financial officer), of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13(a)-15(e) under the 1934 Act, as of the end of the period covered by this report. Based on this evaluation, because of the Company’s limited resources and limited number of employees, management concluded that our disclosure controls and procedures were not effective As of March 31, 2025.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Exchange Act Rule 13a-15(f). Internal control over financial reporting is a process designed under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with GAAP. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

The ineffectiveness of our internal control over financial reporting was due to the following material weaknesses which we identified in our internal control over financial reporting:

• We lack segregation of duties within accounting functions duties as a result of our limited financial resources to support hiring of personnel.
• The lack of multiples levels of management review on complex business, accounting and financial reporting issues.
• We have not implemented adequate system and manual controls.

Remediation Plans

Management is committed to the remediation of the material weaknesses described above, as well as the improvement of the Company’s overall internal control over financial reporting. Management plans on implementing actions to remediate the underlying causes of the control deficiencies that gave rise to the material weaknesses. Remediation efforts include the possible hiring of additional accounting and finance personnel with appropriate expertise to strengthen overall controls and the establishment of disbursement review and approval processes. The material weaknesses will not be considered remediated until management designs and implements effective controls that operate for a sufficient period of time and management has concluded, through testing, that these controls are effective. Our management will monitor the effectiveness of our remediation plan and will make changes management determines to be appropriate. Until the remediation efforts (including any additional measures management identifies as necessary) are completed, the material weaknesses described above will continue to exist.

Changes in Internal Control over Financial Reporting.

There have been no changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Risk factors that affect our business and financial results are discussed in Part I, Item 1A “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2024 as filed with the SEC on March 31, 2025 (“Annual Report”). Except as set forth below, there have been no material changes in our risk factors from those previously disclosed in our Annual Report. You should carefully consider the risks described in our Annual Report, which could materially affect our business, financial condition or future results. The risks described in our Annual Report are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and/or operating results. If any of the risks actually occur, our business, financial condition, and/or results of operations could be negatively affected.