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

The following discussion of SharpLink Gaming, Inc. and its wholly owned subsidiaries (collectively, “SharpLink Gaming,” “SharpLink,” “our Company,” the “Company,” “we,” “our,” and “us”), highlights the principal factors that have affected our financial condition and results of operations as well as our liquidity and capital resources for the periods described. This discussion should be read in conjunction with our condensed consolidated financial statements and the related notes included in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements included in our 2023 Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission on March 29, 2024. As discussed in the section titled “Note Regarding Forward-Looking Statements,” the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements.

In this Quarterly Report on Form 10-Q, unless the context indicates otherwise, references to “SharpLink Gaming,” “SharpLink,” “SharpLink US,” “our Company,” “the Company,” “we,” “our,” “ours” and “us” refer to SharpLink Gaming, Inc., a Delaware corporation, and its wholly owned subsidiaries. References to “SharpLink Israel” refer to SharpLink Gaming, Ltd., an Israel limited liability company, with which SharpLink US completed a domestication merger in February 2024.

Overview

Headquartered in Minneapolis, Minnesota, SharpLink Gaming is an online performance-based marketing company that leverages our unique fan activation solutions to generate and deliver high quality leads to our U.S. sportsbook and global casino gaming partners.

In December 2023, the Company discontinued investments into and operation of its C4 sports betting conversion technology (“C4”) due to the lack of market acceptance. C4 centered on monetizing our own proprietary audiences and our customers’ audiences of U.S. fantasy sports and casual sports fans and casino gaming enthusiasts by converting them into loyal online sports and iGaming bettors.

SharpLink also previously owned and operated an enterprise telecom expense management business (“Enterprise TEM”) acquired in July 2021 in connection with SharpLink’s go-public merger with Mer Telemanagement Solutions Ltd. Beginning in 2022, we discontinued operations for this business unit and sought a buyer for the business. On December 31, 2022, we completed the sale of this business to Israel-based Entrypoint South Ltd.

Continuing Operations

In December 2021, SharpLink acquired certain assets of FourCubed, including FourCubed’s online casino gaming-focused affiliate marketing network, known as PAS.net (“PAS”). For more than 18 years, PAS has focused on delivering quality traffic and player acquisitions, retention and conversions to regulated and global casino gaming operator partners worldwide. In fact, PAS won industry recognition as the European online gambling industry’s Top Affiliate Manager, Top Affiliate Website and Top Affiliate Program for four consecutive years by both igambingbusiness.com and igamingaffiliate.com. The strategic acquisition of FourCubed brought SharpLink talent with proven experience in affiliate marketing services and recurring net gaming revenue (“NGR”) contracts with many of the world’s leading online casino gambling companies, including Party Poker, bwin, UNIBET, GG Poker, 888 poker, betfair, World Poker Tour and others.

As part of our strategy to expand our affiliate marketing services to the emerging American sports betting market, in November 2022, we began a systematic roll-out of our U.S.-focused performance-based marketing business with the launch of 15 state-specific, content-rich affiliate marketing websites. Our user-friendly, state-specific domains are designed to attract, acquire and drive local sports betting and casino traffic directly to our sportsbook and casino partners’ which are licensed to operate in each respective state. As of January 2024, we are licensed to operate in 18 jurisdictions and own and operate sites serving 17 U.S. states (Arizona, Colorado, Iowa, Illinois, Indiana, Kansas, Louisiana, Maryland, Michigan, New Jersey, New York, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and Wyoming). As more states legalize sports betting, our portfolio of state-specific affiliate marketing properties may expand to include them. We largely utilize search engine optimization and programmatic advertising campaigns to drive traffic to our direct-to-player (“D2P”) sites.

Today, our vision is to power a targeted and personalized online sports betting and casino gaming environment that organically introduces fans to our operator partners through relevant tools and rich content – all in a safe, credible and responsible environment.

During the nine months ended September 30, 2024, we realigned our organizational structure and resources to more closely align with our strategic priorities. As a result of the change in our organizational structure, we have one reportable segment, consisting of Affiliate Marketing, for the purpose of making operational and resource decisions and assessing financial performance.

During the three and nine months ended September 30, 2024 and 2023, our continuing operations generated revenues of $881,690 and $1,349,331, respectively, for the three months ended and $2,838,908and $3,925,618respectively, for the nine months ended representing a 34.7% decrease on a comparative quarter over quarter basis and a 27.7% decrease on a comparative year-over-year basis.

Sale of Legacy MTS Business

On December 31, 2022, SharpLink Israel closed on the sale of its legacy MTS business (“Legacy MTS”) to Israel-based Entrypoint South Ltd., a subsidiary of Entrypoint Systems 2004 Ltd. In consideration of Entrypoint South Ltd. acquiring all rights, title, interests and benefits to Legacy MTS, including 100% of the shares of MTS Integratrak Inc., one of the Company’s U.S. subsidiaries, Entrypoint South Ltd. will pay SharpLink an earn-out payment (an “Earn-Out Payment”) equal to three times Legacy MTS’ Earnings Before Interest, Taxes Depreciation and Amortization (“EBITDA”) for the year ending December 31, 2023, up to a maximum earn-out payment of $1 million (adjusted to reflect net working capital as of the closing date). Within ten (10) calendar days of the approval by the board of directors of the Buyer of the audited annual financial statements of the business as at December 31, 2023, and for the 12-month period ending on such date (as applicable, the “Earn-Out Schedule Delivery Date”), which shall occur no later than May 31, 2024, Buyer shall deliver to the Seller a schedule certified by its Chief Executive Officer and Chief Financial Officer (an “Earn-Out Schedule”) setting forth the computation of the Earn-Out Payment (as applicable), if any, together with the calculation thereof in an agreed Excel table format (including, but not limiting to all relevant details of the EBITDA calculations for the year 2023). During the 2nd quarter ended June 30, 2024, the Company was notified that the Earn-Out Payment amount was $297,387. The Earn-Out Payment in full was received by the Company in July 2024. No further earn-out is expected.

Discontinued Operations

SharpLink’s business-building platform previously included the provision of Free-To-Play (“F2P”) sports game and mobile app development services to a marquis list of customers, which included several of the biggest names in sports and sports betting, including Turner Sports, NBA, NFL, PGA TOUR, NASCAR and BetMGM, among others. In addition, we previously owned and operated a variety of proprietary real-money fantasy sports and sports simulation games and mobile apps through our SHGN sports business unit, which also owned and operated LeagueSafe, one of the fantasy sports industry’s most trusted sources for collecting and protecting private fantasy league dues.

On January 18, 2024, SharpLink sold all of the issued and outstanding membership interests, as applicable, in our Sports Gaming Client Services and SHGN business units to RSports for $22.5 million in an all-cash transaction, pursuant to the signing of a purchase agreement and other related agreements. Nearly all of the employees of these acquired business units moved to RSports to help ensure a seamless transition.

The historical results of our Sports Gaming Client Services and SHGN businesses have been reflected as discontinued operations in our condensed consolidated financial statements for all periods prior to the Sale of Business.

Nasdaq Notice

On May 23, 2023, SharpLink received a notice (the “Notice”) from the Listing Qualifications Department of The Nasdaq Stock Market (“Nasdaq”) stating that SharpLink did not comply with the equity standard for continued listing on The Nasdaq Capital Market. Nasdaq Listing Rule 5550(b)(1) (the “Rule”) requires listed companies to maintain stockholders’ equity of at least $2.5 million under the net equity standard. As of the Quarterly Report filed on Form 10-Q at September 30, 2023, SharpLink reported total stockholders’ deficit of $4,463,917. SharpLink did not meet the alternative standards for market value of listed securities or net income from continuing operations, thus SharpLink was not in compliance with Nasdaq’s Listing Rule.

As reported on a Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on December 12, 2023, SharpLink submitted a hearing request with the Nasdaq Hearings Panel (the “Panel”) on November 28, 2023, relating to the Staff’s determination to delist the Company’s securities from Nasdaq due to the Company’s failure to meet the minimum $2.5 million shareholders’ equity requirement for continued listing as defined by the Rule. On November 28, 2023, the Company was notified by Nasdaq that an oral hearing (the “Hearing”) had been scheduled for February 20, 2024; and, the delisting action referenced in the Staff’s determination letter, dated November 21, 2023, had been stayed, pending a final determination by the Panel.

On January 25, 2024, SharpLink filed a Current Report on Form 8-K with the SEC, disclosing details of the sale of its Sports Gaming Client Services and SportsHub Gaming Network business units to RSports for $22.5 million in an all-cash transaction. As a result, the Company’s total stockholders’ equity exceeded $2.5 million as of the date of the above referenced Form 8-K filing and the Company believed that it had regained compliance with all applicable continued listing requirements and had requested that the Staff determine whether the Hearing should be cancelled.

On February 7, 2024, SharpLink received formal notification from Nasdaq that the Company’s previously announced deficiency under the Rule had been cured, and the Company had regained compliance with all applicable continued listing standards. Therefore, the Hearing before the Nasdaq Hearings Panel, originally scheduled for February 20, 2024, was cancelled. SharpLink’s Common Stock continues to be listed and traded on Nasdaq.

On July 11, 2024, SharpLink received a notice (the "Notice") from Nasdaq Listing Qualifications indicating that the Company is no longer in compliance with the minimum bid price requirement for continued listing set forth in Listing Rule 5550(a)(2), which requires listed securities to maintain a minimum bid price of $1.00 per share. The rules also provide SharpLink a compliance period of 180 calendar days to regain compliance. According to the Notice, the Company has until January 7, 2025 to regain compliance with the minimum bid price requirement. SharpLink can regain compliance if at any time during this 180-day period, the closing bid price of its Common Stock is at least $1.00 for a minimum of ten consecutive business days, in which case SharpLink will be provided with written confirmation of compliance by Nasdaq and this matter will be closed. In the event that the Company fails to regain compliance after the initial 180-day period, SharpLink may then be eligible for additional time if it meets the continued listing requirements for market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the bid price requirement, and will be required to provide written notice of its intention to cure the deficiency during the second compliance period equal to an additional 180 calendar days. If SharpLink cannot demonstrate compliance by the end of the second compliance period, Nasdaq will notify SharpLink that its Common Stock is subject to delisting. The Notice has no immediate effect on SharpLink’s listing or the trading of its Common Stock, and during the grace period, as may be extended, the Company’s Common Stock will continue to trade on The Nasdaq Capital Market under the symbol “SBET.”

Redomestication from Israel to Delaware

On February 13, 2024, SharpLink Israel completed its previously announced domestication merger (“Domestication Merger”), pursuant to the terms and conditions set forth in an Agreement and Plan of Merger (the “Domestication Merger Agreement”), dated June 14, 2023 and amended July 24, 2023, among SharpLink Israel, SharpLink Merger Sub Ltd., an Israeli company and a wholly owned subsidiary of SharpLink US (“Domestication Merger Sub”) and SharpLink Gaming, Inc. (“SharpLink US”). The Domestication Merger was achieved through a merger of Domestication Merger Sub with and into SharpLink Israel, with SharpLink Israel surviving the merger and becoming a wholly owned subsidiary of SharpLink US. The Domestication Merger was approved by the shareholders of SharpLink Israel at an extraordinary special meeting of shareholders held on December 6, 2023. SharpLink US’s Common Stock commenced trading on the Nasdaq Capital Market under the same ticker symbol, SBET, on February 14, 2024.

At-The-Market ("ATM") Offering

On May 1, 2024, Company entered into an ATM Sales Agreement (the “ATM Sales Agreement”) with A.G.P./Alliance Global Partners (the “Agent”) pursuant to which the Company may offer and sell, from time to time, through the Agent, as sales agent and/or principal, shares of its common stock, par value $0.0001 per share (the “Common Stock”), having an aggregate offering price of up to $1,676,366, subject to certain limitations on the amount of Common Stock that may be offered and sold by the Company set forth in the ATM Sales Agreement (the “Offering”). The Company is not obligated to make any sales of Shares under the ATM Sales Agreement and any determination by the Company to do so will be dependent, among other things, on market conditions and the Company’s capital raising needs. As of November 14, 2024, SharpLink has raised gross proceeds of $71,343 from sales of Shares under the ATM Sales Agreement.

Exchange Agreement with Alpha Capital Anstalt

As previously reported on a Current Report on Form 8-K, dated February 16, 2023, on February 15, 2023, SharpLink issued a warrant to Alpha Capital Anstalt ("Alpha”) to purchase 880,000 common shares (as adjusted for the 1-for-10 -reverse stock split) of the Company (the "2023 Warrant”). The 2023 Warrant provided that in the event of a fundamental transaction, which included a sale of substantially all of the Company’s assets, at Alpha’s option, the Company would repurchase the 2023 Warrant from Alpha on the terms set forth in Section 3(e)(ii) of the 2023 Warrant (the "Warrant Repurchase”). On January 18, 2024, SharpLink sold substantially all of its assets as was disclosed in a Current Report on Form 8-K, filed on January 24, 2024 (the "Asset Sale”).

On January 19, 2024, SharpLink and Alpha entered into a settlement agreement (the "Settlement Agreement”) whereby Alpha agreed to waive (i) the event of default under Section 3(e)(ii) of the 2023 Warrant in connection with the Asset Sale. Pursuant to Section 5(1) of the 2023 Warrant, Alpha agreed to waive its right to the Warrant Repurchase at the time of the Asset Sale. The Settlement Agreement provides that the Warrant Repurchase for its Black Scholes value would take place upon the earlier of (a) June 30, 2024; (b) the Company raising a gross amount of not less than $3,000,000 whether by equity or debt; and (c) the Company entering into a "fundamental transaction” as defined in the 2023 Warrant. The Parties fixed the Black Scholes value of the 2023 Warrant for purposes of the Warrant Repurchase at $900,000.

On March 6, 2024, SharpLink entered into an Exchange Agreement (the "Exchange Agreement”) with Alpha. Pursuant to the terms and conditions set forth in the Exchange Agreement, the Company agreed to exchange the 2023 Warrant for (i) 156,207 shares of Common Stock (the "Shares”), (ii) a pre-funded warrant in the amount of 469,560 shares of Common Stock (the "Pre-Funded Warrant”) and (iii) the unexchanged balance of the 2023 Warrant Repurchase (the "Warrant Repurchase Balance”). The Warrant Repurchase Balance is valued at $260,111 on the date of the Exchange Agreement and shall be subject to the repurchase terms set forth in the Settlement Agreement.

On June 30, 2024, SharpLink negotiated an Amendment to the Exchange Agreement (the "Amendment") to reduce the strike price per warrant of the unexchanged balance of the 2023 Warrants Repurchase Balance from $4.07 to $0.0001 and to remove the re-purchase option. The modification to the Exchange Agreement was valued on June 29, 2024, the day before the modification, using Black Scholes option-pricing model. The Company recorded a fair value adjustment of $17,996 on the condensed consolidated statements of operations for the nine months ended September 30, 2024 and removed the remaining accrued warrant liability of $152,386 through an adjustment to additional paid-in capital.

Results of Operations

The following table provides certain selected financial information for the periods presented:

For the Three Months Ended September 30, 2024 Compared to the Three Months Ended September 30, 2023

For the three months ended September 30, 2024, revenues declined 34.7% to $881,690 compared to $1,349,331 reported for the same three-month period in the prior year. The decrease is largely due to the market conditions softening and the loss of customers.

Gross Profit

For the three months ended September 30, 2024, gross profit totaled $172,645, reflecting a 55.8% decrease from a gross profit of $390,666 for the three months ended September 30, 2023. Our gross profit margin declined to 19.6% % from 29.0% for the three months ended September 30, 2024 and 2023, respectively. The decline represents highercasino payouts due to large winnings by individuals during the three months ended September 30, 2024. For the casino business, as greater payouts are made to winners, this has the impact of reducing gross profit.

Total Operating Expenses

For the three months ended September 30, 2024, total operating expenses decreased 46.0% to $970,080 from $1,795,057 reported for the same three-month period in the prior year. The decrease was attributable to lower payroll, audit and legal, insurance, marketing and travel-related costs in the third quarter of 2024 compared to the 3rd quarter in 2023. The 3rd quarter of 2023 also included expenses in connection with the expansion initiatives associated with our Affiliate Marketing Services.

Net Income (Loss) from Continuing Operations

Largely attributable to the Company’s concerted effort to lower payroll and other discretionary costs, net loss from continuing operations decreased 61.1% to $(787,992) for the three months ended September 30, 2024, compared to a net loss from continuing operations of $(2,027,447)reported for the same three months in 2023.

Net Income (Loss) from Discontinued Operations, Net of Tax

For the three months ended September 30, 2024, net loss from discontinued operations, net of tax decreased 88.2% to $(97,139), which compared to a net loss from discontinued operations, net of tax of $(822,100) for the three months ended September 30, 2023. The decrease in net loss is due to the gain on the wind down of MTS business operations.

Net Income (Loss)

As a result of the aforementioned reasons, net loss for the three months ended September 30, 2024 totaled $(885,131), which was an 68.9% improvement from a net loss of $(2,849,547) reported for three months ended September 30, 2023.

For the Nine Months Ended September 30, 2024 Compared to the Nine Months Ended September 30, 2023

For the nine months ended September 30, 2024, revenues declined 27.7% to $2,838,908 compared to $3,925,618 reported for the same nine-month period in the prior year. The decrease is largely due to the market conditions softening and the loss of customers.

Gross Profit

For the nine months ended September 30, 2024, gross profit totaled $739,987, reflecting a 37.4% decrease from a gross profit of $1,182,067 for the nine months ended September 30, 2023. Our gross profit margin decreased to 26.1% from 30.1% for the nine months ended September 30, 2024 and 2023, respectively. As mentioned previously, during the three months ended September 30, 2024, we experienced higher casino payouts due to large individual winnings, resulting in a decrease in our gross profit. For the casino business, as greater payouts are made to winners, this has the impact of reducing gross profit.

Total Operating Expenses

For the nine months ended September 30, 2024, total operating expenses decreased 25.9% to $4,426,835 from $5,977,327 reported for the same nine-month period in the prior year. The decrease was primarily due to primarily due to higher business insurance and payroll expenses, audit and legal, marketing and travel related costs in the nine months ended September 30, 2023 associated with the Company’s expansion initiatives of our Affiliate Marketing Services at that time.

Net Income (Loss) from Continuing Operations

Largely attributable to the Company’s concerted effort to lower payroll and other discretionary costs, net loss from continuing operations decreased 47.4% to $(3,465,467) for the nine months ended September 30, 2024, compared to a net loss from continuing operations of $(6,590,689) reported for the same nine months in 2023.

Net Income (Loss) from Discontinued Operations, Net of Tax

For the nine months ended September 30, 2024, net income from discontinued operations, net of tax increased 673.3% to $14,467,733, which compared to a net loss from discontinued operations, net of tax of $(2,523,754) for the nine months ended September 30, 2023. The increase is due to the gain on the sale of SHGN and Sports Gaming Client Services in January 2024 for $22.5 million.

Net Income (Loss)

As a result of the aforementioned reasons, net income for the nine months ended September 30, 2024 totaled $11,002,266, which was a 220.7% improvement from a net loss of $(9,114,443) reported for nine months ended September 30, 2023.

Cash Flows

Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023

As of September 30, 2024, cash on hand was $1,850,206, a 25.6%decrease when compared to cash on hand of $2,487,481 as of December 31, 2023.

For the nine months ended September 30, 2024, net cash used in operating activities from continuing operations totaled $(4,434,002) compared to net cash used for operating activities from continuing operations of $(3,820,153) in the prior year. Net cash used in operating activities from discontinued operations was $(17,112,182), which compared to net cash provided by operating activities of $10,033,364 from discontinued operations for the same nine-month period in 2023. Overall, net cash (used in) provided by operating activities was $(21,546,184) and $6,213,211for the nine months ended September 30, 2024 and 2023, respectively. The change in the operating cashflows was largely attributable to the gain on the sales of assets in connection with the Sale of the Company’s SHGN and Sports Gaming Client Services businesses in January 2024. Additionally, in 2023, SHGN's division, LeagueSafe, a secure online payment and league dues management website, received cash coinciding with the start of the NFL season.

For the nine months ended September 30, 2024, net cash provided by the Company’s investing activities from continuing operations totaled $148,281, an increase of 169.3% when compared to cash used for investing activities from continuing operations of $(214,093) for the same nine-month period in 2023. For the nine months ended September 30, 2024 and 2023, net cash used for investing activities from discontinued operations was $(18,857,834) and $(630,257), respectively. The increase in total cash used in investing activities is due to cash received from the sale of business of $22,500,000, net of the cash transferred of $41,357,834. The majority of the cash transferred of $41,357,834 was reflected in discontinued operations customer deposits liability and deferred revenue of $36,959,573 and $4,888,704, respectively.

For the nine months ended September 30, 2024, net cash used for financing from continuing operations was $(12,337,694), a 269.5% decrease when compared to net cash provided by financing activities from continuing operations of $7,279,771 for the same nine-month period in 2023. For the nine months ended September 30, 2024 net cash used in financing activities from discontinued operations was $5,835,352 compared to net cash provided by financing activities of $583,135 for the nine months ended September 30, 2023. The decline was largely due to the issuance of a $4,000,000 convertible debenture to an institutional investor and proceeds from a line of credit secured from our commercial lender in February 2023, offset primarily by repayments of $19,205,606 in debt in the first quarter of 2024, including the repayment of the convertible debenture for $4,395,753.

Liquidity and Capital Resources

As of September 30, 2024, we had working capital of $2,001,113. For the three and nine months ended September 30, 2024, we had a net loss from continuing operations of $(787,992) and $(3,465,467), respectively, compared to a net loss from continuing operations of $(2,027,447) and $(6,590,689), respectively, reported for the same three and nine months in 2023.

SharpLink Israel completed the Sale of our Sports Gaming Client Services and SHGN business units for $22.5 million in an all-cash transaction in January 2024. In connection with the closing of the Sale of Business, SharpLink Israel repaid in full all outstanding term loans and lines of credit with Platinum Bank, together with accrued but unpaid interest and all other amounts due in connection with such repayment under existing credit agreements, totaling an aggregate $14,836,625, and thereby terminating all existing credit facilities with Platinum Bank and discharging the debt on the Company’s balance sheet. In addition, SharpLink Israel redeemed the outstanding convertible debenture issued to Alpha for 110% of the outstanding balance, plus accrued and unpaid interest, for or $4,484,230, thereby satisfying all obligations under the debenture and discharging the debt on the balance sheet.

On May 1, 2024, Company entered into an ATM Sales Agreement (the “ATM Sales Agreement”) with A.G.P./Alliance Global Partners (the “Agent”) pursuant to which the Company may offer and sell, from time to time, through the Agent, as sales agent and/or principal, shares of its common stock, par value $0.0001 per share (the “Common Stock”), having an aggregate offering price of up to $1,676,366 (“Shares”), subject to certain limitations on the amount of Common Stock that may be offered and sold by the Company set forth in the ATM Sales Agreement (the “Offering”). The Company is not obligated to make any sales of Shares under the ATM Sales Agreement and any determination by the Company to do so will be dependent, among other things, on market conditions and the Company’s capital raising needs. As of November 14, 2024, SharpLink has raised gross proceeds of $71,343 from sales of Shares under the ATM Sales Agreement.

In addition to funds that may be raised through the ATM Sales Agreement, we may need to raise additional capital to fund the Company’s growth and future business operations. We cannot be certain that additional funding will be available on acceptable terms or at all. If we are not able to secure additional funding when needed to support our business and to respond to business challenges, develop new technology and services or enhance our existing offering, track and comply with applicable laws and regulations, improve our operating infrastructure, enhance our information security systems to combat changing cyber threats and expand personnel to support our business, we may have to delay or reduce the scope of planned strategic initiatives. Moreover, any additional equity financing that we obtain may dilute the ownership held by our existing shareholders. The economic dilution to our shareholders will be significant if our stock price does not materially increase, or if the effective price of any sale is below the price paid by a particular shareholder. Any debt financing could involve substantial restrictions on activities and creditors could seek additional pledges of some or all of our assets. If we fail to obtain additional funding as needed, we may be forced to cease or scale back operations, and our results, financial conditions and stock price would be adversely affected. As such, these factors, among others, raise substantial doubt about the ability of the Company to continue as a going concern for a reasonable period.

Off-Balance Sheet Arrangements

On September 30, 2024, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources. Since our inception, except for standard operating leases accounted for prior to January 1, 2022, we have not engaged in any off-balance sheet arrangements, including the use of structured finance, special purpose entities or variable interest entities.

Inflation

Our opinion is that inflation did not have a material effect on our operations for the nine months ended September 30, 2024.

Climate Change

Our opinion is that neither climate change, nor governmental regulations related to climate change, have had, or are expected to have, any material effect on our operations.

New Accounting Pronouncements

Recently Issued Accounting Pronouncements Not Yet Adopted

In November 2023, the FASB issued Accounting Standards Update 2023-07 – Segment Reporting (Topic ASC 280) Improvements to Reportable Segment Disclosures. This Accounting Standards Update improves reportable segment disclosure requirements, primarily through enhanced disclosure about significant segment expenses. The enhancements under this update require disclosure of significant segment expenses that are regularly provided to the Chief Operating Decision Maker (“CODM”) and included within each reported measure of segment profit or loss, require disclosure of other segment items by reportable segment and a description of the composition of other segment items, require annual disclosures under Topic ASC 280 to be provided in interim periods, clarify use of more than one measure of segment profit or loss by the CODM, require that the title of the CODM be disclosed with an explanation of how the CODM uses the reported measures of segment profit or loss to make decisions, and require that entities with a single reportable segment provide all disclosures required by this update and required under Topic ASC 280. ASU 2023-07 is effective for public business entities for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company believes the adoption of ASC 280 will not have a material impact on its condensed consolidated financial statements.

In December 2023, the FASB issued Accounting Standards Update 2023-09 – Income Taxes (Topic ASC 740) Income Taxes. This Accounting Standards Update improves the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. The amendments in ASU 2023-09 will become effective at the beginning of our 2025 fiscal year. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. We do not expect that this guidance will have a material impact upon our financial position and results of operations.

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide the information required by this Item.

Evaluation of Disclosure and Control Procedures

The Company’s Chief Executive Officer and the Company’s Chief Financial Officer evaluated the effectiveness of the Company’s disclosure controls and procedures as of September 30, 2024 and concluded that the Company’s disclosure controls and procedures are effective. The term disclosure controls and procedures means controls and other procedures that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is accumulated, recorded, processed, summarized and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure to be reported within the time periods specified in the SEC’s rules and forms.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(t) and 15d-15(f) under the Exchange Act, during the nine months ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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