Contineum Therapeutics, Inc.: Form 10-Q for the period ended Sep 30, 2024

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and related notes included in this Quarterly Report on Form 10-Q and the audited condensed financial statements and notes thereto as of and for the year ended December 31, 2023 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are included in our final prospectus filed with the Securities and Exchange Commission (“SEC”) pursuant to Rule 424(b) under the Securities Act of 1933, as amended (“Securities Act”) on April 8, 2024 (“Prospectus”) that forms a part of our registration statement on Form S-1 (File No. 333-278003).

This Quarterly Report on Form 10-Q may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such forward-looking statements, which represent our intent, belief, or current expectations, involve risks and uncertainties. We use words such as “may,” “will,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “predict,” “potential,” “believe,” “should” and similar expressions to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Such statements may include, but are not limited to, statements concerning projections about our accounting and finances, our clinical trial and product development plans and timelines, the indications, anticipated benefits of, and market opportunities for our drug candidates, our operating runway, our business strategies and plans, and other statements regarding future performance. Although we believe the expectations reflected in these forward-looking statements are reasonable, such statements are inherently subject to risk and we can give no assurances that our expectations will prove to be correct. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Quarterly Report on Form 10-Q. As a result of many factors, including without limitation those set forth under “Risk Factors” under Item 1A of Part II below, and elsewhere in this Quarterly Report on Form 10-Q, our actual results may differ materially from those anticipated in these forward-looking statements. We undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this report or to reflect actual outcomes.

Overview

We are a clinical stage biopharmaceutical company focused on discovering and developing novel, oral small molecule therapies that target biological pathways associated with specific clinical impairments for the treatment of neuroscience, inflammation and immunology (“NI&I”) indications with high unmet need.

We have focused our efforts on developing selective compounds targeting challenging molecular pathways, and through these efforts, have built a portfolio of small molecule drug candidates.

Our wholly-owned lead asset, PIPE-791, is a novel, brain penetrant, small molecule inhibitor of lysophosphatidic acid 1 receptor (“LPA1R”) in development for idiopathic pulmonary fibrosis (“IPF”) and Progressive multiple sclerosis (“Progressive MS”). LPA1R antagonism is a clinically validated mechanism, and we believe that our preclinical studies and Phase 1 healthy volunteer data support the continued development of PIPE-791 for both IPF and Progressive MS. Specifically, based on its high bioavailability, low plasma protein binding, and long receptor residence time in our preclinical studies compared to the preclinical data of other LPA1R antagonists that we know are currently in development, we also believe PIPE-791 has the potential to be a differentiated LPA1R therapy. We completed a Phase 1 clinical trial of PIPE-791 in healthy volunteers in support of clinical development in both IPF and Progressive MS. In September 2024, we submitted a clinical trial application ("CTA") to the Medicines and Healthcare products Regulatory Agency ("MHRA") to commence a Phase 1b open-label trial of PIPE-791 to measure the relationship of pharmacokinetics to lung and brain receptor occupancy by positron emission tomography imaging ("PET"). This Phase 1b trial will inform dose selection for our planned future Phase 2 trials of PIPE-791 in IPF and Progressive MS.

Our second drug candidate, PIPE-307, is a novel, small molecule selective inhibitor of the muscarinic type 1 M1 receptor (“M1R”), in development for depression and relapse-remitting multiple sclerosis (“RRMS”). M1R antagonism has been clinically validated in third-party trials in both depression and RRMS by scopolamine and clemastine, respectively. We have completed two Phase 1 trials of PIPE-307 in healthy volunteers, and we are conducting a Phase 2 trial of PIPE-307, which we have named VISTA, for the potential treatment of RRMS. To our knowledge, PIPE-307 is the most clinically advanced selective M1R antagonist in development. We are developing PIPE-307 in collaboration with Johnson & Johnson ("J&J").

In addition, we are leveraging our drug discovery capabilities synergistically with our clinical portfolio. In January 2024, we nominated and commenced preclinical studies for CTX-343, a peripherally-restricted (unable to cross the blood brain barrier) LPA1R antagonist. In parallel, we are actively conducting preclinical and discovery-phase experiments targeting other NI&I indications where our internally-discovered molecules may have therapeutic potential.

We are currently focused on developing the following product candidates in our pipeline:

We expect our operating expenses to significantly increase as we continue to develop, conduct clinical trials, and seek regulatory approvals for our drug candidates, engage in other research and development activities to expand our pipeline of drug candidates, expand our operations and headcount, maintain and expand our intellectual property portfolio, and, if we obtain approval for one or more of our drug candidates, launch commercial activities. We also expect to incur additional operating expenses as we continue operating as a public company. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing and scope of our clinical trials and our expenditures on other research and development activities.

As we continue to pursue our business plan, we expect to finance our operations through both public and private sales of equity, debt financings or other commercial arrangements, which could include income from collaborations, strategic partnerships or marketing, distribution, licensing or other strategic arrangements with third parties. However, there can be no assurance that any additional financing or strategic transactions will be available to us on acceptable terms, if at all. If events or circumstances occur such that we do not obtain additional funding, we may need to delay, reduce or eliminate our product development or future commercialization efforts, which could have a material adverse effect on our business, results of operations or financial condition. Further, if we raise funds through licensing or other commercial arrangements with third parties, we may be required to relinquish valuable rights to our technology, future revenue streams, research programs or drug candidates or may be required to grant licenses on terms that may not be favorable to us and/or may reduce the value of our common stock.

Collaboration

In February 2023, we entered into the license agreement with J&J (the "J&J License Agreement"), pursuant to which we granted J&J an exclusive, worldwide license to develop, manufacture and commercialize PIPE-307 in all indications.

J&J is generally responsible for all development, manufacturing and commercialization activities for PIPE-307. Upon J&J conducting a first Phase 3 clinical trial for a product using PIPE-307, we have an opt-in right to fund a portion of all Phase 3 and subsequent development costs for PIPE-307. If we opt to fund such development costs, then the royalties we are eligible to receive will increase by one to two percentage points.

We are conducting, at our own expense, a Phase 2 clinical trial of PIPE-307 in patients with RRMS. J&J has the right to discontinue our clinical trial if it has good faith concerns that this trial presents safety risks or could have a material adverse effect on its development or commercialization of PIPE-307. In addition, J&J has the right, in its sole discretion, to further develop or to elect not to develop PIPE-307 for this indication.

The J&J License Agreement expires on a licensed product-by-product and country-by-country basis upon the last to occur of: (i) the expiration of the last-to-expire licensed patent claim covering the composition of matter of the licensed compound in such licensed product in such country; (ii) the expiration of exclusive marketing rights conferred by a regulatory authority or applicable law (other than patent exclusivity) for such licensed product in such country; or (iii) ten years after the first commercial sale of such licensed product in such country. Either party may terminate the J&J License Agreement in the event of an uncured material breach by the other party or a bankruptcy or insolvency of the other party. J&J may terminate the J&J License Agreement without cause upon prior written notice to us. Upon any termination, all license rights granted to J&J terminate.

Financial Operations Overview

Revenue

We recognize license revenues as identified performance obligations are satisfied or other events occur, specifically related to our J&J License Agreement. Pursuant to the terms of the J&J License Agreement, we received an upfront payment of $50.0 million in May 2023. We are also eligible to receive approximately $1.0 billion in non-refundable, non-creditable milestone payments, pursuant to the terms of the J&J License Agreement. Additionally, we are eligible to receive tiered royalties in the low-double digit to high-teen percent range on net sales of products containing PIPE-307. We do not have any products approved for sale and we have not yet generated any revenue from product sales.

Operating Expenses

Research and Development

Research and development expenses consist primarily of costs incurred for our internal research and development activities.

Direct costs include:

• employee-related expenses, including salaries, related benefits, and travel that can be directly attributable to each research project;
• expenses incurred in connection with research, laboratory consumables and preclinical studies;
• expenses incurred in connection with conducting clinical trials, including investigator grants and site payments for time and pass-through expenses and expenses incurred under agreements with clinical research organizations ("CROs"), other vendors or central laboratories and service providers engaged to conduct our trials;
• the cost of consultants engaged in research and development related services;
• the cost to manufacture drug products for use in our preclinical studies and clinical trials; and
• costs related to regulatory compliance.

Unallocated internal research and development costs include:

• employee-related expenses, including salaries, related benefits, and travel that cannot be directly attributable to a specific research project;
• stock-based compensation for employees engaged in research and development functions; and
• facilities, depreciation and other related expenses.

We expense our research and development costs as they are incurred. We record advance payments for goods or services to be received in the future for use in research and development as prepaid expenses. We then expense the prepaid amounts as the related goods are delivered or the services are performed.

We track outsourced development costs, consultant costs and other external research and development costs such as third-party contract costs relating to manufacturing, clinical trial activities, translational medicine and toxicology activities to specific programs. We allocate employee related costs, including salaries and related benefits based upon the level of effort for each specific project. Certain employee activities that cannot be allocated to any one specific project or management related activities are considered indirect costs. The following table summarizes our research and development expenses for the three and nine months ended September 30, 2024 and 2023. The direct external development program expenses reflect external costs attributable to our clinical development and preclinical programs and personnel costs that can be directly attributed to a development program. The unallocated internal research and development costs include unallocated personnel costs, facility costs, stock-based compensation, laboratory consumables and discovery and research related activities.

(in thousands)

(in thousands)

15

Research and development activities are central to our business model. There are numerous factors associated with the successful commercialization of any of our drug candidates, including future clinical trial design and various regulatory requirements, many of which we cannot determine with accuracy at this time based on our stage of development. In addition, future regulatory factors beyond our control may impact our clinical development programs. Drug candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our drug candidates and our costs may increase if we exercise our opt-in right to fund a portion of all Phase 3 and subsequent development costs for PIPE-307 pursuant to the J&J License Agreement. However, we expect that our research and development expenses will increase substantially in connection with our planned preclinical and clinical development activities in the near term and for the foreseeable future.

The successful development of our drug candidates is highly uncertain. This is due to numerous risks and uncertainties, including the following:

• successful completion of preclinical studies and clinical trials;
• delays in regulators or institutional review boards authorizing us or our investigators to commence or continue our clinical trials;
• our ability to negotiate agreements with clinical trial sites or CROs;
• the number of clinical sites included in our clinical trials;
• raising additional funds necessary to complete clinical development of our drug candidates;
• obtaining and maintaining patent, trade secret and other intellectual property protection and regulatory exclusivity for our drug candidates;
• establishing and qualifying manufacturing capabilities for clinical supplies of our drug candidates, whether directly or through qualified third party manufacturers;
• our ability to receive necessary regulatory approvals from the U.S. Food and Drug Administration and comparable governmental bodies outside the United States;
• our decision to elect to fund a portion of Phase 3 and subsequent development costs for PIPE-307;
• coverage for our products by governmental and third party payors;
• protecting and enforcing our rights in our intellectual property portfolio;
• our ability to successfully compete with our competitors and their product offerings; and
• maintaining a continued acceptable safety profile of the products following approval.

A change in the outcome of any of these variables with respect to the development of our drug candidates may significantly impact the costs and timing associated with the development of our drug candidates. We may never succeed in obtaining regulatory approval for any of our drug candidates or successfully commercialize our products, even if approved.

General and Administrative

General and administrative expenses consist primarily of salaries and employee-related costs, including stock-based compensation, for personnel in executive, finance and other administrative functions. Other significant costs include legal fees relating to intellectual property, patent applications, and corporate matters, professional fees for accounting and consulting services and facility-related costs.

We expect our general and administrative expenses will increase for the foreseeable future to support our increased research and development activities, the growth of our business operations and headcount and to reflect increased operating expenses as we continue operating as a public company. These increased costs will likely include increased expenses related to audit, legal, regulatory services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance premiums and investor relations costs.

Other Income (Expense)

Interest Income

Interest income consists of interest earned on our cash, cash equivalents and marketable securities.

Interest Expense

Interest expense consists of (i) interest on our outstanding loan and security agreement (the "Loan Agreement") with First Citizens Bank ("First Citizens"), and (ii) amortization of our debt discount associated with the Loan Agreement recorded in connection with the fair value of the warrant issued to First Citizens, the debt issuance costs incurred and the obligation to make a final payment fee. We repaid all of the outstanding principal on the Loan Agreement as of June 2023.

Results of Operations

Comparison of the Three Months Ended September 30, 2024 and 2023

The following table summarizes our results of operations (in thousands) for the periods indicated:

Research and development expenses. Research and development expenses were $9.7 million and $6.5 million for the three months ended September 30, 2024 and 2023, respectively. The increase of $3.2 million from period to period was primarily due to a $1.1 million increase in contract research organization costs primarily related to our ongoing VISTA Phase 2 clinical trial for PIPE-307 for the potential treatment of RRMS, a $1.5 million increase in expenses for toxicology studies primarily for PIPE-791, a $0.6 million increase in personnel-related expense, and a $0.7 million increase in stock-based compensation. Partially offsetting these increases was a $0.7 million decrease in manufacturing expenses for PIPE-791.

General and administrative expenses. General and administrative expenses were $3.3 million and $1.6 million for the three months ended September 30, 2024 and 2023, respectively. The increase of $1.7 million was primarily due to a $0.2 million increase in consulting and legal expenses, a $1.1 million increase in stock-based compensation, and a $0.3 million increase in personnel-related expenses.

Interest income. Interest income was $2.7 million and $1.7 million for the three months ended September 30, 2024 and 2023, respectively. The increase of $1.0 million was due to an increase in funds invested in marketable securities and an increase in the yields earned on our marketable securities from the three months ended September 30, 2023 to the three months ended September 30, 2024.

Comparison of the Nine Months Ended September 30, 2024 and 2023

The following table summarizes our results of operations (in thousands) for the periods indicated:

License revenue. There was no revenue recognized for the nine months ended September 30, 2024. License revenues were $50.0 million for the nine months ended September 30, 2023 and was solely attributable to the upfront payment from J&J pursuant to the J&J License Agreement.

Research and development expenses. Research and development expenses were $25.4 million and $19.6 million for the nine months ended September 30, 2024 and 2023, respectively. The increase of $5.8 million was primarily due to a $4.1 million increase in contract research organization costs primarily related to our ongoing VISTA Phase 2 clinical trial for PIPE-307 for the potential treatment of RRMS and our completed Phase 1 healthy volunteer clinical trial for PIPE-791, a $3.4 million increase in expenses for toxicology studies primarily for PIPE-791, a $1.7 million increase in personnel-related expense, and a $1.2 million increase in stock-based compensation. Partially offsetting these increases was a $3.0 million decrease in consulting expense associated with contractual milestone payments related to the receipt of the upfront payment from the J&J License Agreement and a $2.4 million decrease in manufacturing expenses for PIPE-791.

General and administrative expenses. General and administrative expenses were $8.4 million and $4.7 million for the nine months ended September 30, 2024 and 2023, respectively. The increase of $3.8 million was primarily due to a $1.3 million increase in consulting and legal expenses, a $1.8 million increase in stock-based compensation, and a $0.5 million increase in personnel-related expenses.

Interest income. Interest income was $6.4 million and $2.8 million for the nine months ended September 30, 2024 and 2023, respectively. The increase of $3.6 million was due to an increase in funds invested in marketable securities and an increase in the yields earned on our marketable securities from the nine months ended September 30, 2023 to the nine months ended September 30, 2024.

Change in fair value of investor rights and obligations liability. We recognized a $2.9 million gain related to the decrease in fair value of our investor rights and obligations liability for the nine months ended September 30, 2023 as a result of reducing the Series B convertible preferred stock premium liability to zero. This was the result of the termination of certain rights due to the change in a specified limited partner’s status in May 2023.

Provision for income taxes. For the nine months ended September 30, 2024, the Company did not record a U.S. federal or state income tax provision due to forecasted pretax operating losses for the year ended December 31, 2024. For the nine months ended September 30, 2023, the Company recorded a tax expense of $0.6 million on pretax income of $31.1 million.

Liquidity and Capital Resources

Sources of Liquidity

We have incurred net losses and negative cash flows from operations in nearly every reporting period since our inception and anticipate that we will continue to incur net losses for the foreseeable future. We expect to incur substantial expenditures as we advance our drug candidates through clinical development, undergo the regulatory approval process, engage in other research and development activities to expand our pipeline of drug candidates, expand our operations and headcount, maintain and expand our intellectual property portfolio and, if we obtain approval for one or more of our drug candidates, launch commercial activities. We also expect to incur additional costs associated with our operating as a public company, including significant legal, accounting, investor relations, director and officer insurance, and other expenses that we did not incur as a private company.

Through September 30, 2024, we have funded our operations primarily through the issuance of convertible promissory notes, the private placements of our convertible preferred stock, the J&J License Agreement, our Loan Agreement with First Citizens, and net proceeds from our initial public offering ("IPO"). Through September 30, 2024, we have raised gross proceeds of approximately $312.8 million from the issuance of our convertible preferred stock, promissory notes, our Class A common stock in the IPO, and have received an upfront payment from the J&J License Agreement of $50.0 million. Upon the closing of the IPO, the Company’s outstanding convertible preferred stock automatically converted into Class A common stock or Class B common stock, as applicable. In April 2024, we raised approximately $107.9 million in net proceeds from the IPO of our shares of Class A common stock. As of September 30, 2024, we had an accumulated deficit of $102.8 million.

As of September 30, 2024, we had cash, cash equivalents and marketable securities of $213.9 million. Management believes our existing cash, cash equivalents, and marketable securities will be sufficient to support our operations for at least 12 months from the date of this Quarterly Report on Form 10-Q.

As we continue to pursue our business plan, we expect to finance our operations through both public and private sales of equity, debt financings or other commercial arrangements, which could include milestone payments from collaborations, strategic partnerships or marketing, distribution, licensing or other strategic arrangements with third parties. However, there can be no assurance that any additional financing or strategic transactions will be available to us on acceptable terms, if at all. If events or circumstances occur such that we do not obtain additional funding, we may need to delay, reduce or eliminate our product development or future commercialization efforts, which could have a material adverse effect on our business, results of operations or financial condition. Further, if we raise funds through licensing or other commercial arrangements with third parties, we may be required to relinquish valuable rights to our technology, future revenue streams, research programs or drug candidates or may be required to grant licenses on terms that may not be favorable to us and/or may reduce the value of our common stock.

Cash Flows

The following table sets forth a summary of our cash flows for the periods indicated (in thousands):

Operating Activities

Net cash used in operating activities was $22.6 million for the nine months ended September 30, 2024, which primarily related to our net loss of $27.7 million, partially offset by $2.6 million of non-cash charges for stock-based compensation, depreciation and amortization, accretion of premiums/discounts on investments, and non-cash operating lease expense and a $2.4 million change in operating assets and liabilities. Net cash provided by operating activities was $30.1 million for the nine months ended September 30, 2023, which primarily related to our net income of $30.5 million and a $1.8 million change in operating assets and liabilities, partially offset by $2.2 million of non-cash charges such as accretion of debt discount and debt issuance costs, stock-based compensation, depreciation and amortization, accretion of premiums/discounts on investments, and non-cash operating lease expense.

Investing Activities

Net cash used in investing activities was $60.4 million for the nine months ended September 30, 2024, which primarily related to $172.1 million of purchases of marketable securities and $0.3 million of purchases of property and equipment, partially offset by $112.0 million of sales and maturities of marketable securities. Net cash used in investing activities was $74.6 million for the nine months ended September 30, 2023, which primarily related to $119.9 million of purchases of marketable securities and $0.1 million of purchases of property and equipment, partially offset by $45.4 million of sales and maturities of marketable securities.

Financing Activities

Net cash provided by financing activities was $108.4 million for the nine months ended September 30, 2024, which primarily related to $107.9 million of net proceeds from the issuance of common stock in the Company's IPO and $0.1 million of proceeds from the exercise of stock options. Net cash provided by financing activities was $56.5 million for the nine months ended September 30, 2023, which primarily related to $60.1 million of net proceeds from the issuance of Series C convertible preferred stock and $0.1 million of proceeds from the exercise of stock options, partially offset by $3.8 million of principal payments on debt.

Funding Requirements

We expect our operating expenses to significantly increase as we continue to develop and seek regulatory approvals for our drug candidates, engage in other research and development activities to expand our pipeline of drug candidates, expand our operations and headcount, maintain and expand our intellectual property portfolio, and, if we obtain approval for one or more of our drug candidates, launch commercial activities. Management believes our existing cash, cash equivalents, and marketable securities will be sufficient to support our operations for at least 12 months from the date of this Quarterly Report on Form 10-Q. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and our actual results could vary materially. We have based this estimate on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we expect. Additionally, the process of testing our drug candidates in clinical trials is costly, and the timing of progress and expenses in these trials is uncertain.

Our future capital requirements will depend on many factors, including:

• the type, number, scope, progress, expansions, results, costs and timing of, our clinical trials and preclinical studies for our drug candidates or other potential drug candidates or indications which we are pursuing or may choose to pursue in the future;
• the outcome, timing and costs of regulatory review of our drug candidates;
• the costs and timing of manufacturing for our drug candidates;
• our efforts to enhance our operational systems and hire additional personnel to satisfy our obligations as a public company, including enhanced internal controls over financial reporting;
• the costs associated with hiring additional personnel and consultants as our preclinical and clinical activities expand;
• the costs and timing of establishing or securing manufacturing facilities for our drug candidates;
• the costs and timing of establishing sales and marketing capabilities if any of our drug candidates are approved;
• our ability to establish and maintain strategic collaborations, licensing or other arrangements;
• the financial terms of any such agreements that we may enter into;
• our decision to elect to fund a portion of Phase 3 and subsequent development costs for PIPE-307;
• the costs of obtaining, maintaining and enforcing our patent and other intellectual property rights; and
• costs associated with any drug candidates, products or technologies that we may in-license or acquire.

Until such time as we can generate significant revenue from sales of our drug candidates, if ever, we expect to finance our cash needs through public or private equity or debt financings or other commercial arrangements, including collaborations, strategic partnerships or marketing, distribution, licensing or other strategic arrangements with third parties. We may be unable to raise additional funds or enter into such commercial arrangements when needed, on favorable terms, or at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, or other similar arrangements with third parties, we may be required to relinquish valuable rights to our drug candidates, future revenue streams or research programs or may be required to grant licenses on terms that may not be favorable to us and may reduce the value of our common stock. If we are unable to raise additional funds through equity or debt financings or through commercial arrangements when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our drug candidates even if we would otherwise prefer to develop and market such drug candidates ourselves.

Contractual Obligations and Commitments

Our contractual obligations and commitments relate to our operating leases that relate primarily to our leases of office and laboratory space in San Diego, California. Our total contractual commitments for our lease agreements amount to approximately $7.8 million as of September 30, 2024.

We enter into contracts in the normal course of business for contract research services, contract manufacturing services, professional services and other services and products for operating purposes. These contracts generally provide for termination after a notice period, and, therefore, are cancelable contracts and not included in the table above.

Off-Balance Sheet Arrangements

During the periods presented, we did not have, nor do we currently have, any off-balance sheet arrangements as defined under the rules and regulations of the SEC.

Critical Accounting Policies and Significant Judgments and Estimates

Our discussion and analysis of financial condition and results of operations are based upon our condensed financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosures. On an ongoing basis, our actual results may differ significantly from our estimates.

There have been no material changes to our critical accounting estimates from those described under our “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Significant Judgements and Estimates” included in our Prospectus, except that from the effectiveness date of our registration statement on Form S-1 (File No. 333-278003), our common stock is publicly traded and we therefore no longer require common stock valuations.

Emerging growth company and smaller reporting company status

We are an “emerging growth company”, as defined in the Jumpstart Our Business Startups Act of 2012 (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 elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. We will remain an emerging growth company until the earlier of (i) December 31, 2029, the last day of the fiscal year following the fifth anniversary of the completion of the Company's IPO, (ii) the last day of the fiscal year (a) in which we have total annual gross revenue of at least $1.235 billion or (b) in which we are deemed to be a large accelerated filer, which means the market value of our voting and non-voting common stock that is held by non-affiliates exceeds $700 million as of the prior June 30th, or (iii) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

We are also a “smaller reporting company” as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We have elected to take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as the market value of our voting and non-voting common stock held by non-affiliates is less than $250 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100 million during the most recently completed fiscal year and the market value of our voting and non-voting common stock held by non-affiliates is less than $700 million measured on the last business day of our second fiscal quarter.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and our principal financial officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures. Based on this evaluation of our disclosure controls and procedures as of September 30, 2024, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures as of such date were effective at the reasonable assurance level. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Changes in Internal Control over Financial Reporting

During the quarter ended September 30, 2024, there have been no changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15(d)-15(f) promulgated under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Investing in our common stock involves a high degree of risk. In addition to the information set forth in this Quarterly Report on Form 10-Q, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes, you should consider carefully the factors discussed in Part I, Item 1A, “Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2024 filed with the Securities and Exchange Commission on May 16, 2024. The occurrence of any of the risks and uncertainties described in such Quarterly Report could materially and adversely affect our business, financial condition, results of operations and prospects. In that event, the price of our common stock could decline and you could lose part or all of your investment. Furthermore, such risks are not the only ones we face; additional risks and uncertainties not currently known or that we currently deem to be immaterial may also materially adversely affect our business, financial condition or results of operations.