Blum Holdings, Inc.: Form 10-Q for the period ended Mar 31, 2025

This management’s discussion and analysis (“MD&A”) of the financial condition and results of operations of Blum Holdings, Inc. (“Blüm” or the “Company”) is for the three months ended March 31, 2025. The following discussion should be read in conjunction with, and is qualified in its entirety by, the consolidated financial statements and the accompanying notes presented in Item 1 of this Quarterly Report on Form 10-Q (this "Form 10-Q") and those discussed in Item 8 of the Company’s Annual Report on Form 10-K (the “Form 10-K”) filed with the SEC on March 13, 2025. Except for historical information, the discussion in this section contains forward-looking statements that involve risks and uncertainties. Future results could differ materially from those discussed below for many reasons, including the risks described in “Cautionary Language Concerning Forward-Looking Statements,” “Item 1A—Risk Factors” and elsewhere in this Form 10-Q.

COMPANY OVERVIEW

Our Business

Blüm is a publicly traded holding company with operations throughout California committed to providing the highest quality of medical and adult use cannabis products and related services. The Company is home to Korova, a brand of high potency products across multiple product categories, currently available in California. The Company formerly operated Blüm Santa Ana, a premier cannabis dispensary in Orange County, California, which was sold in June 2024. The Company previously owned dispensaries in California which operated as Blüm in Oakland and Blüm in San Leandro, which were sold in November 2024. In May 2024, the Company began operating the retail store, Cookies Sacramento, and providing consulting services for two additional dispensaries located in Northern California. As of March 31, 2025, the Company had 77 employees.

We are organized into two reportable segments:

• Cannabis Retail – Includes cannabis-focused retail, both physical stores and non-store front delivery
• Cannabis Distribution – Includes cannabis distribution operations

Either independently or in conjunction with third parties, we operate medical marijuana retail and adult use dispensaries in California.

Our corporate headquarters are located at 11516 Downey Avenue, Downey, California 90241 and our telephone number is (888) 909-5564. Our website address is www.blumholdings.com (http://www.blumholdings.com). No information available on or through our websites shall be deemed to be incorporated into this Form 10-Q. Our common stock, par value $0.001 (the “Common Stock”), is quoted on the OTC Markets Group, Inc’s OTCQB tier under the symbol “BLMH.”

Recent Developments

Adnant Engagement

On January 1, 2025, the Company entered into an Amended and Restated Engagement Letter with Adnant, LLC wherein the term of the engagement was extended to December 31, 2025 and the monthly service fee was decreased from $0.25 million to $0.08 million, which shall be payable monthly subject to the Company having a sufficient cash balance.

Intended Acquisitions

On January 2, 2025, the Company entered into a binding term sheet with Mt. Tam Ventures II, LLC ("MTV II") pursuant to which the Company intends to negotiate and enter into an Acquisition Agreement or Share Exchange Agreement, or similarly situated document, pursuant to which the Company shall acquire 100% of the membership interests of MTV II (the "Transaction"). Upon closing of the Transaction, the Company shall pay $0.25 million in cash to MTV II and issue 1,931,152 shares of common stock of the Company (the "Common Stock") to the various holders of the membership interests of MTV II (the "Sellers"). The Company shall also issue to the Sellers a Common Stock purchase warrant to purchase up to 238,368 shares of the Company with an exercise price of $0.54. The aggregate value exchanged shall be equal to $3.93 million. Closing of the Transaction is subject to the execution of definitive agreements and regulatory approvals among other customary conditions.

On January 8, 2025, the Company entered into a binding term sheet with Mesh Ventures, LLC ("Mesh") pursuant to which the Company intends to negotiate and enter into a Merger Agreement or Share Exchange Agreement, or similarly situated document for the Company's acquisition of 100% of the membership interests of Mesh (the "Transaction"). Upon closing of the Transaction, the Company shall pay $0.36 million in cash to Mesh to pay agreed upon debts and liabilities and shall issue 4,531,965 shares of Common Stock to the various holders of the membership interests of Mesh (the "Sellers"). The Company shall also issue to the Sellers warrants to purchase, in the aggregate, up to 471,989 shares of Common Stock, at an exercise price of $0.64 per share. The aggregate value exchanged is expected to equal to $8.99 million. Closing of the Transaction is subject to the execution of definitive agreements and regulatory approvals among other customary conditions.

On January 31, 2025, the Company entered into a binding letter of intent with a third-party seller for the acquisition of 100% of the common stock of a licensed cannabis dispensary in Northern California (the “Target”). The total consideration for the transaction shall be $2.00 million, comprised of (i) $1.30 million in cash, (ii) $0.20 million in cash or stock subject to earn-outs, and (iii) $0.50 million in shares of the Company’s Common Stock. In addition, performance-based bonuses may be payable on the first anniversary of closing. The proposed transaction is subject to the execution of definitive agreements. On January 31, 2025, Blum Management Holdings, Inc. entered into a senior secured convertible promissory note for $0.50 million, bearing 8.0% interest and maturing on March 31, 2025, with an option to convert into shares of the Target, subject to performance-based adjustments. On March 31, 2025, the maturity date of the promissory note was amended to May 30, 2025.

Unsecured Note Financing

On January 8, 2025, the Company issued unsecured promissory notes in the aggregate principal amount of $0.10 million (the “January 2025 Notes”) amongst four separate investors (the “Lenders”). The January 2025 Notes have a maturity date of December 30, 2026 with no interest accruing except for default interest and no prepayment penalty. The January 2025 Notes are convertible at the Lenders’ individual election into a convertible promissory note that shall include (i) an automatic conversion into the shares of capital stock issued by Blüm in its next bona fide equity financing with proceeds to Blüm of at least $10.00 million or such lesser amount as approved by Lenders at a conversion price equal to the lesser of (x) 85% of the lowest price paid by the cash investors in such financing and (y) the price represented by a $30.00 million pre-money valuation of Blüm. The Company issued to the Lenders warrants to purchase, in the aggregate, up to 7,812 shares of the Company's Common Stock, at an exercise price of $0.64 per share.

On February 25, 2025, the Company issued an unsecured promissory note in the principal amount of $0.20 million which matures on September 30, 2025 and bears no interest. The Company may prepay the principal balance in full at any time without penalty.

Settlement with People's California, LLC

On February 12, 2025, Unrivaled and Halladay Holding reached a settlement with People's California, LLC ("People's") in an in-person judicial settlement conference, which is in the process of being documented and submitted to the Bankruptcy Court for approval, pursuant to Rule 9019 of the Federal Rules of Bankruptcy Procedure. On March 27, 2025, the parties executed definitive documentation for the terms of the settlement. The terms of the settlement must be presented to the Bankruptcy Court for approval with a noticed motion and opportunity for hearing and order thereon pursuant to Rule 9019 of the Federal Rules of Bankruptcy Procedure.

Outlook

The Company will continue to focus on its performing assets and seek out additional opportunities, particularly California based assets. In particular, the Company continues to emphasize on business fundamentals including a robust, curated and diverse product offering, improving inventory turn and vendor management to continue to optimize gross margins, effective marketing strategies focused on driving loyalty, creating dynamic websites that provide a seamless brand experience, reactivation of lapsed customers, and new customer acquisitions while continuing to deliver positive ROIs. The Company remains excited as it embarks on reinvigorating the Korova brand. This outlook is based on several management assumptions that are largely outside the control of the Company, including the continued overall down trending market conditions and highly promotional competitive landscape in our key markets. With a disciplined approach to analyzing retail performance and customer relationship management, a management team with extensive retail and cannabis industry and capital markets experience, deep relationships in the industry, and a commitment to investing in its team and, specifically, its company culture, the Company is encouraged that it will emerge from its restructuring efforts as an effective cannabis company. We will continue to seek further opportunities to expand profitability and maximize returns for its shareholders.

RESULTS OF OPERATIONS

The below table outlines our consolidated statements of operations for the three months ended March 31, 2025 and 2024:

(in thousands)

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Three Months Ended March 31, 2025 Compared to Three Months Ended March 31, 2024 (Unaudited)

Revenue

Overall revenue for the three months ended March 31, 2025 was $2.24 million compared to $1.77 million for the three months ended March 31, 2024, an increase of $0.47 million or 26.3%. Revenue from continuing operations for the three months ended March 31, 2025 was composed of retail revenue of $2.17 million and distribution revenue of $0.07 million. This compared to prior year revenue from continuing operations which composed of retail revenue of $1.75 million and distribution revenue of $0.02 million.

Retail revenue for the three months ended March 31, 2025 increased by $0.42 million or 23.7% compared to the same period in prior year primarily due to the transactions on May 1, 2024, wherein the Company's retail operations consisted of three new dispensaries in the current quarter compared to two legacy dispensaries in the prior year.

Distribution revenue for the three months ended March 31, 2025 was relatively consistent with the same period in the prior year.

Gross Profit

Cost of goods sold for the three months ended March 31, 2025 was $1.05 million, an increase of $0.07 million or 7.5% compared to $0.98 million for the three months ended March 31, 2024. During the fiscal first quarter of 2024, the Company operated two retail locations - Blüm Oakland and Blüm San Leandro. By the fiscal first quarter of 2025, the Company had transitioned to three entirely new retail locations in Northern California, resulting from the transactions on May 1, 2024, with no overlap from the prior year’s locations.

Gross profit from continuing operations for the three months ended March 31, 2025 was $1.19 million compared to $0.8 million for the three months ended March 31, 2024, an increase of $0.39 million or 49.2%. The increase in gross profit was primarily impacted by the increase in revenue as described above. The Company's overall gross margin increased for the three months ended March 31, 2025 to 53.2% as compared to 45.0% for the same period in the prior year primarily driven by the higher profitability of the three dispensaries added to the Company's retail portfolio on May 1, 2024. Gross profit for on-going retail operations improved from 46.1% for the three months ended March 31, 2024 up to 55.2% for the three months ended March 31, 2025 for the same reasons.

Selling, General & Administrative Expenses

Selling, general and administrative expenses for the three months ended March 31, 2025 were $2.49 million compared to $4.39 million for the three months ended March 31, 2024, a decrease of $1.89 million or 43.2%. The decrease in selling, general and administrative expenses was primarily due to a decrease of $1.24 million in professional fees, a decrease of $0.39 million in rental and facility expenses, and a decrease of $0.15 million in insurance expense. The reduction in selling, general and administrative expenses reflects the Company's operational restructuring for a leaner corporate structure.

Operating Loss

The Company realized an operating loss from continuing operations of $1.3 million for the three months ended March 31, 2025 compared to $3.59 million for the three months ended March 31, 2024, a decrease of $2.29 million or 63.7%. The decrease in operating loss was primarily due to the decrease in selling, general and administrative expenses as described above, coupled with the increase in gross profit.

Other Income

The Company recognized other income of $0.98 million for the three months ended March 31, 2025 compared to $0.11 million for the three months ended March 31, 2024. This was primarily due to a management service termination fee of $0.70 million received in the current year, offset by an unrealized gain on investments of $0.42 million in the prior year. In addition, the Company recognized a change in fair value of derivative liability of $0.52 million in the current year, versus no derivative liabilities in the prior year.

Provision for Income Taxes

Provision for income tax expense for continuing operations was $0.25 million for the three months ended March 31, 2025 compared to $0.03 million for the three months ended March 31, 2024, an increase of $0.22 million or 814.8%. For the three months ended March 31, 2025, the Company calculated its provision for income taxes during the interim reporting period by applying an estimate of the federal income tax rate on gross profit for the current period.

Discontinued Operations

Net income from discontinued operations was $0.0 million for the three months ended March 31, 2025 compared to $0.46 million for the comparative prior period, a decrease of $0.46 million or 100.0%. Discontinued operations for all periods presented consist of the Company's cultivation operations, Blüm Santa Ana, and The Spot. These operations were fully divested as of December 31, 2024, and as a result, the Company had no income or loss from discontinued operations during the three months ended March 31, 2025.

Three Months Ended March 31, 2025 Compared to Three Months Ended December 31, 2024 (Unaudited)

The below table outlines our consolidated statements of operations for the fiscal first quarter of 2025 compared to the fiscal fourth quarter of 2024:

(in thousands)

Revenue

Overall revenue for the three months ended March 31, 2025 was $2.24 million compared to $3.06 million for the three months ended December 31, 2024, a decrease of $0.82 million or 26.7%. Revenue from continuing operations for the three months ended March 31, 2025 was composed of retail revenue of $2.17 million and distribution revenue of $0.07 million. This compared to the prior quarter ended December 31, 2024 in which revenue from continuing operations consisted of retail revenue of $3.01 million and distribution revenue of $0.05 million.

Retail revenue for the three months ended March 31, 2025 decreased by $0.84 million or 27.9% compared to the consecutive prior quarter ended December 31, 2024. This was primarily due to the sale of Blüm Oakland and Blüm San Leandro on November 5, 2024.

Distribution revenue for the fiscal first quarter ended March 31, 2025 was generally consistent with the fiscal fourth quarter ended December 31, 2024.

Gross Profit

Cost of goods sold for the three months ended March 31, 2025 was $1.05 million, a decrease of $0.64 million or 37.8%, compared to $1.69 million for the three months ended December 31, 2024. The decrease in cost of goods sold was primarily due to the decrease in revenue as described above, in addition to improved promotional strategies and more efficient cost management.

Gross profit from continuing operations for the three months ended March 31, 2025 was $1.19 million compared to $1.37 million for the three months ended December 31, 2024, a decrease of $0.18 million or 13.1%. The decrease in gross profit was directly impacted by the decrease in revenue as described above. The Company's overall gross margin improved from the prior consecutive quarter at 53.2% compared to 44.8% for the three months ended December 31, 2024. The improvement was primarily due to the optimization of promotions and discounts, leading to a more favorable cost-to-revenue ratio and improved profitability. Similarly, gross margin for on-going retail operations increased to 55.2% for the three months ended March 31, 2025 compared to 51.1% for the preceding quarter.

Selling, General & Administrative Expenses

Selling, general and administrative expenses for the three months ended March 31, 2025 were $2.49 million compared to $3.72 million for the three months ended December 31, 2024. The quarter-over-quarter decrease of $1.23 million or 33.0% was due to the sale of Blüm Oakland and Blüm San Leandro in November 2024, resulting in a decrease of $0.21 million in salaries and benefits, $0.18 million in rental and facility expenses, and $0.29 million in insurance expenses. In addition, professional fees decreased by $0.37 million compared to the preceding quarter, which was primarily due to the Amended and Restated Engagement Letter with Adnant, LLC dated January 1, 2025 wherein the monthly service fee was decreased from $0.25 million to $0.08 million.

Operating Loss

The Company realized an operating loss from continuing operations of $1.3 million for the three months ended March 31, 2025 compared to an operating income of $17.59 million for the three months ended December 31, 2024, a decrease of $18.89 million or 107.4%. The decrease in operating income from the preceding quarter was primarily due to a gain on disposal of assets of $19.93 million for the disposition of Blüm Oakland and Blüm San Leandro and the bankruptcy petition filed by Unrivaled and Halladay Holding during the fiscal fourth quarter, versus no such transactions in the current period.

Other Income

The Company recognized other income of $0.98 million for the three months ended March 31, 2025 compared to $0.01 million for the three months ended December 31, 2024. This was primarily due to a management service termination fee of $0.70 million received in the current quarter. In addition, changes in fair value of derivative liability increased by $0.33 million compared to the preceding quarter as a result of fluctuations in the underlying share price and associated market volatility.

Provision for Income Taxes

Provision for income tax expense for continuing operations was $0.25 million for the three months ended March 31, 2025 compared to $0.67 million for the three months ended December 31, 2024, a decrease of $0.43 million or 63.2%. For the three months ended March 31, 2025, the Company calculated its provision for income taxes during the interim reporting period by applying an estimate of the federal income tax rate on gross profit for the current period.

Discontinued Operations

Net income from discontinued operations was $0.0 million for the three months ended March 31, 2025 compared to $0.23 million for the consecutive prior quarter, a decrease of $0.23 million or 100.0%. Discontinued operations for all periods presented consist of the Company's cultivation operations, Blüm Santa Ana, and The Spot. These operations were fully divested as of December 31, 2024, and as a result, the Company had no income or loss from discontinued operations during the three months ended March 31, 2025.

Non-GAAP Reconciliations

Non-GAAP earnings is a supplemental measure of our performance that is neither required by, nor presented in accordance with, U.S. generally accepted accounting principles (“US GAAP”). Non-GAAP earnings is not a measurement of the Company's financial performance under US GAAP and should not be considered as alternative to net income, operating income, or any other performance measures derived in accordance with US GAAP, or as alternative to cash flows from operating activities as a measure of the Company's liquidity. In addition, in evaluating non-GAAP earnings, you should be aware that in the future the Company will incur expenses or charges such as those added back to calculate non-GAAP earnings. The Company's presentation of non-GAAP earnings should not be construed as an inference that its future results will be unaffected by unusual or nonrecurring items.

Non-GAAP earnings has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of the Company's results as reported under US GAAP. Some of these limitations are (i) it does not reflect the Company's cash expenditures, or future requirements for capital expenditures or contractual commitments, (ii) it does not reflect changes in, or cash requirements for, the Company's working capital needs, (iii) it does not reflect interest expense, or the cash requirements necessary to service interest or principal payments, on the Company's debt, (iv) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and non-GAAP earnings does not reflect any cash requirements for such replacements, (v) it does not adjust for all non-cash income or expense items that are reflected in the Company's statements of cash flows, and (vi) other companies in our industry may calculate this measure differently than we do, limiting its usefulness as comparative measures.

The Company compensates for these limitations by providing specific information regarding the US GAAP amounts excluded from such non-GAAP financial measures. The Company further compensates for the limitations in our use of non-GAAP financial measures by presenting comparable US GAAP measures more prominently.

The Company believes that non-GAAP earnings facilitates operating performance comparisons from period to period by isolating the effects of some items that vary from period to period without any correlation to core operating performance or that vary widely among similar companies. These potential differences may be caused by variations in capital structures (affecting interest expense) and the age and book depreciation of facilities and equipment (affecting relative depreciation expense). The Company also presents non-GAAP earnings because (i) it believes that this measure is frequently used by securities analysts, investors and other interested parties to evaluate companies in the Company's industry, (ii) the Company believes that investors will find these measures useful in assessing the Company's ability to service or incur indebtedness, and (iii) the Company uses non-GAAP earnings internally as benchmark to compare its performance to that of its competitors.

In the presentation of the financial results below, the Company reconciles non-GAAP Adjusted EBITDA Loss with net loss attributable to continuing operations, the most directly comparable US GAAP measure. Management believes that this presentation may be more meaningful in analyzing our income generation.

On a non-GAAP basis, the Company recorded non-GAAP Adjusted EBITDA Loss of $0.42 million for the three months ended March 31, 2025 compared to $3.32 million for the three months ended March 31, 2024. The details of those expenses and non-GAAP reconciliation of these non-cash items are set forth below:

(in thousands)

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LIQUIDITY, CAPITAL RESOURCES AND GOING CONCERN

We incurred pre-tax net loss from continuing operations of $0.32 million for the three months ended March 31, 2025 and have an accumulated deficit of $421.65 million and $421.08 million at March 31, 2025 and December 31, 2024, respectively. As of March 31, 2025, we had a working capital deficit of $7.59 million, including $0.43 million of cash, compared to a working capital deficit of $6.79 million, including $1.04 million of cash, as of December 31, 2024. Current assets were approximately 0.20 times current liabilities as of March 31, 2025, compared to approximately 0.30 times current liabilities as of December 31, 2024.

We have not been able to generate sufficient cash from operating activities to fund our ongoing operations. Since our inception, we have raised capital through private sales of Common Stock, preferred stock, and debt securities. Our future success is dependent upon our ability to achieve profitable operations and generate cash from operating activities. There is no guarantee that we will be able to generate enough revenue and/or raise capital to support our operations. We will be required to raise additional funds through public or private financing, additional collaborative relationships or other arrangements until we are able to raise revenues to a point of positive cash flow. We continue to evaluate various options to further reduce our cash requirements to operate at a reduced rate, as well as options to raise additional funds, including obtaining loans and selling Common Stock. There is no guarantee that we will be able to generate enough revenue and/or raise capital to support our operations, or if we are able to raise capital, that such capital will be available to us on acceptable terms, on an acceptable schedule, or at all.

The risks and uncertainties surrounding the Company’s ability to continue to raise capital and its limited capital resources raise substantial doubt as to the Company’s ability to continue as a going concern for twelve months from the issuance of these financial statements. The accompanying consolidated financial statements have been prepared in accordance with US GAAP, which contemplate our continuation as a going concern.

Operating Activities

Cash used in operating activities for the three months ended March 31, 2025 was $0.36 million compared to $0.73 million for the three months ended March 31, 2024, a decrease of $0.37 million, or 50.3%. The decrease in cash used in operating activities was due to the increase in gross profit of $0.39 million, which was primarily due the implementation of the Company's retail strategy. In May 2024, the Company expanded its retail operations through the addition of three dispensaries in Northern California, which represented all of the Company's retail operations during the fiscal first quarter of 2025. This contrasts with the three months ended March 31, 2024, during which the Company's retail operations consisted of Blum Oakland and Blum San Leandro, which were subsequently sold in November 2024. Since August 2022, management implemented a restructuring and reorganization to stabilize operations and position the Company for profitability. As part of this initiative, the Company integrated three retail locations in Northern California and strategically disposed of non-core and underperforming assets, allowing the Company to redirect resources and enable better allocation of capital. Management anticipates improvements in cash flow from operating activities as the Company continues to execute its strategic restructuring.

Investing Activities

Cash used in investing activities for the three months ended March 31, 2025 was $0.41 million compared to cash provided by investing activities of $1.27 million for the three months ended March 31, 2024, a decrease of $1.67 million, or 132.0%. The decrease in cash provided by investing activities was primarily due to proceeds from investments of $1.30 million in the prior year, compared to the issuance of notes receivable of $0.50 million in the current year.

Financing Activities

Cash provided by financing activities for the three months ended March 31, 2025 was $0.16 million compared to cash used in financing activities of $0.03 million for the three months ended March 31, 2024, a decrease of $0.19 million, or 651.7%. The decrease in cash used in financing activities as compared to the prior year was primarily due to cash proceeds of $0.50 million from the January 2025 Notes and the unsecured promissory note dated February 25, 2025, versus no financing in the comparative prior period. This was offset by a decrease of $0.11 million in payments of debt principal.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section discusses our unaudited consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, accrued expenses, financing operations, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The most significant accounting estimates inherent in the preparation of our financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources. These accounting policies are described in “Note 2 – Summary of Significant Accounting Policies” of the notes to unaudited consolidated financial statements included in this Form 10-Q.

DISCLOSURE ABOUT OFF-BALANCE SHEET ARRANGEMENTS

As of March 31, 2025, the Company does not have any transactions, agreements or other contractual arrangements that constitute off-balance sheet arrangements.

Under the supervision and with the participation of our management, our principal executive officer and our principal financial officer are responsible for conducting an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of March 31, 2025. Based on this evaluation, our principal executive officer and principal financial officer concluded as of the evaluation date that our disclosure controls and procedures were not effective to a reasonable level as of March 31, 2025.

Based on the results of its assessment, our management concluded that our internal control over financial reporting was not effective as of March 31, 2025 based on such criteria due to material weaknesses in internal control over financial reporting described below:

Material Weaknesses in Internal Control over Financial Reporting

• Failure to timely record transactions and to timely review account reconciliations resulting in post-closing adjustments and restatement of the financial statements.
• The Company’s primary user access controls (i.e. provisioning, de-provisioning, and quarterly user access review) to ensure appropriate segregation of duties that would adequately restrict user and privileged access to the financially relevant systems and data to appropriate Company personnel were not operating effectively. Automated process-level controls and manual controls that are dependent upon the information derived from such financially relevant systems were also determined to be ineffective as a result of such deficiency.

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Remediation Plan

We plan to enhance our internal control over financial reporting in an effort to remediate the material weaknesses described above. We are committed to ensuring that our internal control over financial reporting is designed and operating effectively. Our remediation process will include:

• Enhancing the organizational structure to support financial reporting processes and internal controls.
• Investing in IT systems to enhance our operational and financial reporting and internal controls.
• Establishing effective general controls over IT systems to ensure that information produced can be relied upon by process level controls is relevant and reliable.
• Providing guidance, education and training to employees relating to our accounting policies and procedures.
• Further developing and documenting detailed policies and procedures regarding business processes for significant accounts, critical accounting policies and critical accounting estimates.

We expect to remediate these material weaknesses during fiscal year 2025. However, we may discover additional material weaknesses that may require additional time and resources to remediate.

Changes in Internal Control Over Financial Reporting

We regularly assess the adequacy of our internal controls over financial reporting and enhance our controls in response to internal control assessments and external audit and regulatory recommendations. No changes in internal control over financial reporting have been identified in connection with the evaluation of disclosure controls and procedures during the quarter ended March 31, 2025 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Certain factors that may affect the Company’s business or operations are described under “Risk Factors” in Part I, Item 1A, of our Annual Report on Form 10-K (the “Annual Report”). There have been no material changes to our risk factors from the risk factors previously disclosed in the 2024 Annual Report.