Canton Strategic Holdings, Inc.: Form 10-Q for the period ended Sep 30, 2023

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited interim condensed consolidated financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included in our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2022, as may be amended, supplemented or superseded from time to time by other reports we file with the SEC. All amounts in this report are in U.S. dollars, unless otherwise noted.

Throughout this Quarterly Report on Form 10-Q, references to “we,” “our,” “us,” the “Company,” or “Tharimmune,” refer to Tharimmune, Inc. (formerly, Hillstream BioPharma, Inc.), individually, or as the context requires, collectively with its subsidiaries.

Overview

Tharimmune is a clinical-stage biotechnology company developing therapeutic candidates in rare, inflammatory and oncologic conditions with high unmet need. On November 3, 2023, we entered into a patent license agreement (the “Avior Patent License Agreement”) with Avior Inc. d/b/a Avior Bio, LLC (“Avior”) pursuant to which we received an exclusive sublicensable right and license to Licensed Patent Rights (as defined in the Avior Patent License Agreement) and Licensed Technology (as defined in the Avior Patent License Agreement) to, among other things, Develop (as defined in the Avior Patent License Agreement), have Developed, make, have made, use, sell, import, export and commercialize AV104 (to be renamed TH104 and hereinafter referred to as TH104) and AV103 (to be renamed TH103 and hereinafter referred to as TH103) and to practice the Licensed Technology in connection with the foregoing, throughout the world. See “Recent Developments” below for additional information. In February 2023, the U.S. Food and Drug Administration (“FDA”) approved an investigational new drug (“IND”) application for TH104. TH104 has a dual mechanism of action by affecting multiple receptors, known to suppress chronic, debilitating pruritis or “uncontrollable itching”. With respect to TH104, we intend to first seek approval for the treatment of moderate to severe chronic pruritis in patients with primary biliary cholangitis (“PBC”), an orphan rare form of liver disease with no known cure in which more than 70% of patients suffer from debilitating chronic pruritis, and with respect to TH103, we intend to develop the product candidate and potentially file an IND.

We are also developing an early-stage pipeline of novel therapeutic candidates targeting validated high value immuno-oncology (“IO”) targets including human epidermal growth factor (“EGF”) receptor 2 (“HER2”), human EGF receptor 3 (“HER3”) and programmed cell death protein 1 (“PD-1”). We are developing antibodies including bispecific antibodies, antibody drug conjugates (“ADCs”) and small molecular weight bovine-derived Picobodies™ or antibody “knob” domains which have the potential to target and bind more tightly to “undruggable” epitopes better than full sized antibodies. We are advancing TH3215, a bispecific against both HER2 and HER3 antibody which targets a novel “bridging epitope” encompassing multiple domains of the HER2 extracellular domain (“ECD”) as well as ligand-dependent and independent blocking of the ECD of HER3 into IND-enabling studies in 2024. In addition, we anticipate that TH0059, a HER2/HER3 bispecific ADC (“bsADC”), and TH1940, a PD-1 Picobody, will progress to enter IND-enabling studies in 2024.

We have deprioritized our previous preclinical candidate, HSB-1216, due to a strategic reprioritization of our vision to focus on therapeutics in high unmet need cancers focused on novel epitopes of certain antitumor drug targets.

Minotaur Research and Collaboration Agreement and Taurus License Agreement

On November 21, 2022, we entered into a research collaboration and product license agreement with Minotaur Therapeutics, Inc. (“Minotaur”) and a commercial license agreement with Taurus Biosciences, LLC (“Taurus”) for use of certain technology, including OmniAb antibodies, to advance Picobodies against novel, unreachable, and undruggable epitopes in high-value validated targets starting with PD-1. The research and collaboration agreement and product license agreement are for the development of proprietary targeted biologics including TH 1940, against PD-1. It is anticipated that we will collaborate with Minotaur under the license from Taurus to discover, develop and advance biotherapeutics against high-value validated IO targets starting with PD-1. We extended this agreement in July of 2023 with an additional target (HER3) and an oncology target.

Applied Biomedical Research Institute Research and Development Collaboration and License Agreement

On July 5, 2023 (the “ABSI Effective Date”), we entered into a Research and Development Collaboration and License Agreement (the “ABSI Agreement”) with Applied Biomedical Science Institute (“ABSI”) pursuant to which ABSI granted us an exclusive royalty-bearing, sublicensable license to the ABSI Patents (as defined in the ABSI Agreement) and a non-exclusive, royalty-bearing, sublicensable license to the ABSI Know-How (as defined in the ABSI Agreement) to Exploit (as defined in the ABSI Agreement) the ABSI Products (as defined in the ABSI Agreement) for the treatment, diagnosis, prediction, detection or prevention of disease in humans and animals worldwide (the “Territory”). Pursuant to the ABSI Agreement, the parties shall form a committee to manage the preclinical, investigational new drug enabling studies and such other activities as shall lead to the initiation of a Phase 1 clinical trial of the ABSI Product. The parties will collaborate on a Target-by-Target basis to identify and evaluate ABSI Products directed against such Target with a view to identifying or generating suitable Products (as defined in the ABSI Agreement) for our Company to Exploit. “Target” means ErB2 (Her2) and ErbB3. Upon completion of the Discovery Timeline (as defined in the ABSI Agreement) for a Target, subject to the terms and conditions of ABSI Agreement, we shall exclusively own any ABSI Products against such Target. In the event the committee determines that the discovery activities are unsuccessful with respect to a Target, we may propose an additional target, which, upon approval by ABSI, shall replace a failed Target.

As part of the ABSI Agreement, on the effective date of the agreement, we issued $250,000 of our common stock to ABSI. On the effective date of July 26, 2023, we issued 627,667 shares of our common stock with a per share value of $0.398 and a total value of $250,000 as compensation expense.

Recent Developments

On November 3, 2023 (the “Avior Effective Date”), we entered into the Avior Patent License Agreement with Avior pursuant to which we received an exclusive sublicensable right and license to Licensed Patent Rights and Licensed Technology to, among other things, Develop, have Developed, make, have made, use, sell, import, export and commercialize TH104 and TH103 and to practice the Licensed Technology in connection with the foregoing, throughout the world. Pursuant to the Avior Patent License Agreement, we shall pay Avior a mid six digit up front license fee within ten days of the Avior Effective Date and an additional mid six digit license fee which shall be paid in four equal installments within ten days of the end of each fiscal quarter following the Avior Effective Date. In addition, we shall pay Avior a high single digit percentage of any upfront payments received by us as a result of the grant of any sublicenses with respect to TH104. We shall also pay Avior milestone payments in the aggregate amount of $24,250,000 upon the occurrence of various development milestones (the “Development Milestone Payments”). Furthermore, we shall pay Avior certain fees based upon sales milestones. The payments for such sales milestones range from the low seven digits to the low eight digits with higher sales being subject to higher fees. Finally, we shall pay Avior royalties based on net sales. Such royalties range from low single digit percentages to mid single digit percentages with higher sales being subject to lower percentages. The Avior Patent License Agreement shall expire upon the expiration of the final payment obligation due to Avior as set forth in such agreement. Upon the expiration of the Avior Patent License Agreement, we shall have a fully paid-up, irrevocable, freely transferable and sublicensable worldwide license to the Licensed Patent Rights and Licensed Technology to Develop, have Developed, make, have made, use, have used sell, offer for sale, have sold, import, have imported, export, have exported, commercialize or have commercialized any and all Licensed Products and to practice the Licensed Technology worldwide. Pursuant to the Avior Patent License Agreement, we may terminate the agreement at any time without cause, upon 30 days’ prior written notice to Avior along with payment of the next unpaid Development Milestone Payment, if any. Furthermore, either we or Avior may terminate the Avior Patent License Agreement (i) on written notice to the other party if the other party materially breaches any provision of the Avior Patent License Agreement and fails to cure such breach within 30 days after the breaching party receives written notice thereof or (ii) on written notice in the event that either party (A) becomes insolvent or admits its inability to pay its debts generally as they become due; (B) becomes subject, voluntarily or involuntarily, to any proceeding under any domestic or foreign bankruptcy or insolvency law, which is not fully dismissed or vacated within 60 days; (C) is dissolved or liquidated or takes any corporate action for such purpose; (D) makes a general assignment for the benefit of creditors; or (E) has a receiver, trustee, custodian or similar agent appointed by order of any court of competent jurisdiction to take charge of or sell any material portion of its property or business. Upon termination of the Avior Patent License Agreement, the license granted pursuant to such agreement shall terminate and all rights in the Licensed Patent Rights and Licensed Products shall revert back to Avior.

Components of Results of Operations

Revenue

We did not recognize revenues for the three and nine months ended September 30, 2023 and 2022.

Research and Development Expenses

Research and development expenses include personnel costs associated with research and development activities, including third-party contractors to perform research, conduct clinical trials, and manufacture drug supplies and materials as well as stock-based compensation. Research and development expenses are charged to operations as incurred.

We accrue costs incurred by external service providers, including contract research organizations and clinical investigators, based on estimates of service performed and costs incurred. These estimates include the level of services performed by third parties, patient enrollment in clinical trials, administrative costs incurred by third parties, and other indicators of the services completed. Based on the timing of amounts invoiced by service providers, we may also record payments made to those providers as prepaid expenses that will be recognized as expense in future periods as the related services are rendered.

We have incurred research and development expenses related to the development of HSB-1216, which has been deprioritized. We expect that our research and development expenses will increase as we plan for and commence our clinical trials of TH3215 and TH1940.

We cannot determine with certainty the duration and costs of future clinical trials of our product candidates, TH3215 and TH1940, or any other product candidates we may develop or if, when or to what extent we will generate revenue from the commercialization and sale of any of our product candidates for which we obtain marketing approval. We may never succeed in obtaining marketing approval for any of our product candidates. The duration, costs and timing of clinical trials and development of our current and future product candidates will depend on a variety of factors, including:

• the scope, rate of progress, expense and results of clinical trials of our current product candidates, as well as of any future clinical trials of our future product candidates and other research and development activities that we may conduct;
• uncertainties in clinical trial design and patient enrollment rates;
• the actual probability of success for our product candidates, including their safety and efficacy, early clinical data, competition, manufacturing capability and commercial viability;
• significant and changing government regulations and regulatory guidance; and
• the timing and receipt of any marketing approvals.

A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we anticipate will be required for the completion of clinical development of a product candidate, or if we experience significant delays in our clinical trials due to slower than expected patient enrollment or other reasons, we would be required to expend significant additional financial resources and time on the completion of clinical development.

General and Administrative Expenses

General and administrative expenses consist primarily of compensation and consulting related expenses, including stock-based compensation. General and administrative expenses also include professional fees and other corporate expenses, including legal fees relating to corporate matters; professional fees for accounting, auditing, tax, and consulting services; insurance costs; travel expenses and other operating costs that are not specifically attributable to research activities.

We expect that our general and administrative expenses will increase in the future as we increase our personnel headcount to support our continued research activities and development of our product candidates. We also incur expenses associated with being a public company, including expenses related to compliance with the rules and regulations of the SEC and Nasdaq, director and officer insurance expenses, corporate governance expenses, investor relations activities and other administrative and professional services.

Interest Income

Interest income consists of interest income from funds held in our cash accounts.

Results of Operations

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

Research and Development Expenses

Research and development expenses decreased by $343,667, or 41.3%, to $488,177 for the three months ended September 30, 2023 from $831,844 for the three months ended September 30, 2022. The decrease was the result of a decrease in expenses for pre-clinical activities of $198,484 and consulting expenses of $139,420 related to research and development team members as well as a decrease in stock based compensation expense of $5,763. The decrease for the three months ended September 30, 2023 was primarily the result of placing our now deprioritized product candidate, HSB-1216, on hold during the quarter.

General and Administrative Expenses

General and administrative expenses increased by $61,251, or 4.7%, to $1,356,893 for the three months ended September 30, 2023 from $1,295,642 for the three months ended September 30, 2022. The change in general and administrative expenses was primarily due to an increase of $176,572 in investor relations expenses and $108,011 in legal expenses. These increases were offset by a decrease of $248,132 in financial consulting expenses. The overall increase in general and administrative expenses during the three months ended September 30, 2023 was due to increased licensing agreements, increased investor relations costs, and increased salaries related to individuals that took a pay reduction in 2022.

Interest Expense

Interest expense increased by $3,496, or 100.0%, to $3,496 for the three months ended September 30, 2023 from $0 for the three months ended September 30, 2022. The increase in interest expense was primarily related to insurance premium financing liability.

Interest Income

Interest income increased by $28,451, or 100.0%, to $28,451 for the three months ended September 30, 2023 from $0 for the three months ended September 30, 2022. The increase in interest income was primarily from the funds held in our cash accounts.

Net Loss

Net loss decreased by $307,371, or 14.4%, to $1,820,115 for the three months ended September 30, 2023 from $2,127,486 for the three months ended September 30, 2022. The change in net loss was primarily related to the decrease in research and development expenses described above.

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

8

Research and Development Expenses

Research and development expenses increased by $971,691, or 60.9%, to $2,566,910 for the nine months ended September 30, 2023 from $1,595,219 for the nine months ended September 30, 2022. The increase was primarily the result of an increase in expenses for pre-clinical activities of $903,561 and stock based compensation expense of $72,114 related to research and development team members. The increase during the nine months ended September 30, 2023 was due to pre-clinical costs, which includes regulatory review of our now deprioritized product candidate, HSB-1216, associated subject studies, scale-up manufacturing costs, and costs under research and development collaboration agreements.

General and Administrative Expenses

General and administrative expenses increased by $836,873, or 23.8%, to $4,357,154 for the nine months ended September 30, 2023 from $3,520,281 for the nine months ended September 30, 2022. The increase in general and administrative expenses was primarily due to an increase of $958,988 in investor relations expenses, $191,960 in legal expenses, $87,920 in accounting expenses, and $80,226 in corporate taxes. These increases were offset by decreases of $193,201 in insurance expense, $87,660 in remuneration paid to our directors, and $204,450 in financial consulting expenses. The overall increase in general and administrative expenses during the nine months ended September 30, 2023 was due to increased licensing agreements, increased investor relations costs, and increased accounting fees.

Interest Expense

Interest expense decreased by $1,575,093, or 99.0%, to $16,151 for the nine months ended September 30, 2023 from $1,591,244 for the nine months ended September 30, 2022. The decrease in interest expense was primarily related to the unamortized debt discount charged to interest expense on the date of the closing of our IPO. See Note 3 to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Interest Income

Interest income increased by $94,898, or 100.0%, to $94,898 for the nine months ended September 30, 2023 from $0 for the nine months ended September 30, 2022. The increase in interest income was primarily from the funds held in our cash accounts.

Net Loss

Net loss increased by $138,573, or 2.1%, to $6,845,317 for the nine months ended September 30, 2023 from $6,706,744 for the nine months ended September 30, 2022. The change in net loss was primarily related to the increases in research and development and general and administrative expenses as described above.

Liquidity and Capital Resources

The accompanying condensed consolidated financial statements have been prepared on the basis that we are a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business. For the nine months ended September 30, 2023, we incurred operating losses in the amount of approximately $6.9 million, expended approximately $5.9 million in cash in operating activities, and had an accumulated deficit of approximately $22.2 million as of September 30, 2023. We financed our working capital requirements through September 30, 2023 primarily through the issuance of common stock in our IPO which closed on January 14, 2022. Net proceeds to us from the IPO were approximately $13.0 million. In addition, we closed a public offering of shares of our common stock on May 2, 2023. Net proceeds to us from such offering were approximately $2.1 million.

Based on our limited operating history, recurring negative cash flows from operations, current plans and available resources, we will need substantial additional funding to support future operating activities. We have concluded that the prevailing conditions and ongoing liquidity risks faced by us raise substantial doubt about our ability to continue as a going concern for at least one year following the date the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q are issued. The accompanying condensed consolidated financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern.

We may seek to raise additional funding through the sale of additional equity or debt securities, enter into strategic partnerships, grants or other arrangements or a combination of the foregoing to support our future operations; however, there can be no assurance that we will be able to obtain additional capital on terms acceptable to us, on a timely basis, or at all. The failure to obtain sufficient additional funding could adversely affect our ability to achieve our business objectives and product development timelines and may result in delaying or terminating clinical trial activities which could have a material adverse effect on our results of operations.

Cash Flow Activities for the Nine Months Ended September 30, 2023 and 2022

The following table sets forth a summary of our cash flows for the periods presented.

Cash Flows from Operating Activities

Cash used in operating activities for the nine months ended September 30, 2023 was $5,884,679 which consisted of net loss of $6,845,317, partially offset by $911,419 in non-cash charges and other adjustments to reconcile net loss to net cash used in operating activities and a $49,219 in net increase in operating accounts. The non-cash charges consist of stock based compensation of $661,419 and $250,000 of stock issuance pursuant to a services agreement. The net increase in operating activities was primarily due to an increase of $134,796 in prepaid expenses and other current assets offset by an increase of $184,190 in accounts payable.

Cash used in operating activities for the nine months ended September 30, 2022 was $5,665,274 which consisted of net loss of $6,706,744, partially offset by $2,282,342 in non-cash charges and other adjustments to reconcile net loss to net cash used in operating activities and $1,240,872 in net decrease in operating accounts. The non-cash charges consist of amortization of debt discount of $1,569,003, stock issuance pursuant to services agreement of $100,000, stock based compensation of $598,694, and interest and original issuance discount on promissory notes of $14,645. The net decrease in operating activities was primarily due to a decrease of $558,837 in accounts payable, a decrease in due to founder of $200,000, a decrease in accrued expenses of $138,352, an increase of $350,920 in prepaid expenses and other current assets offset by an increase of $7,237 in accrued interest.

Cash Flows from Financing Activities

Cash provided by financing activities for the nine months ended September 30, 2023 was $2,063,206. The net increase in financing activities was from net cash proceeds of $2,263,826 from the issuance of our common stock in connection with a public offering and $716,775 in proceeds received from insurance premium financing liability offset by deferred offering costs of $281,660 and $635,735 in repayments of insurance premium financing liability.

Cash provided by financing activities for the nine months ended September 30, 2022 was $13,257,585. The net increase in financing activities was from net cash proceeds of $13,645,643 from the issuance of our common stock in connection with our IPO, $917,472 in proceeds received from insurance premium financing liability, $125,000 from issuance of promissory notes, and $24,389 from exercise of stock options offset by deferred offering costs of $521,294, $731,833 in repayments of insurance premium financing liability, $139,645 repayments on promissory notes, and purchases of treasury stock at cost of $62,147.

Critical Accounting Policies and Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Management bases its estimates on historical experience and on assumptions believed to be reasonable under the circumstances. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes, and management must select an amount that falls within that range of reasonable estimates. Estimates are used in the following areas, among others: research and development expense recognition, valuation of common shares and stock options, allowances of deferred tax assets, valuation of debt related instruments, and cash flow assumptions regarding going concern considerations. Although management believes the estimates that have been used are reasonable, actual results could vary from the estimates that were used.

Critical Accounting Policies

Research and development

Research and development costs are expensed as incurred. Research and development expenses include personnel costs associated with research and development activities, including third party contractors to perform research, conduct clinical trials and manufacture drug supplies and materials. We accrue for costs incurred by external service providers, including contract research organizations and clinical investigators, based on our estimates of service performed and costs incurred. These estimates include the level of services performed by third parties, patient enrollment in clinical trials, administrative costs incurred by third parties, and other indicators of the services completed.

Stock based compensation

Stock based compensation represents the cost related to stock based awards granted to our employees, directors and consultants, and our affiliates. We measure stock based compensation costs at the grant date, based on the estimated fair value of the award and recognize the cost over the requisite service period.

We recognize compensation costs resulting from the issuance of stock based awards to employees, non-employees and directors as an expense in the condensed consolidated statements of operations over the requisite service period based on a measurement of fair value for each stock based award. The fair value of each option grant to employees, non-employees and directors is estimated as of the date of grant using the Black-Scholes option-pricing model, net of actual forfeitures. The fair value is amortized as compensation cost on a straight-line basis over the requisite service period of the awards, which is generally the vesting period.

The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. Prior to January 12, 2022, we were a private company and our common stock has only been publicly traded since that date. As a result, we lacked company-specific historical and implied volatility information. Therefore, we have estimated our expected stock volatility based on the historical data regarding the volatility of a publicly traded set of peer companies. The expected term of stock options granted was between five and seven years. The risk-free interest rate was determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award.

Recently Issued and Adopted Accounting Standards

See Note 2 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

JOBS Act

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

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

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

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

Our principal executive officer and principal financial officer evaluated the effectiveness of our “disclosure controls and procedures” as of September 30, 2023, the end of the period covered by this Quarterly Report on Form 10-Q. 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 under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is accumulated and communicated to a company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. Based on the evaluation of our disclosure controls and procedures as of September 30, 2023, our Chief Executive Officer and our Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were not effective. The material weaknesses that have been identified relate to (i) the design and implementation of appropriate segregation of duties to separate the roles of authorizing, initiating, and recording transactions or reviewing transactions for the completeness and accuracy of contracts with financial reporting implications and (ii) the Company lacking sufficient appropriate accounting and reporting knowledge to effectively perform review controls surrounding technical accounting matters. Effective internal control contemplates an appropriate level of review to ensure timely preparation and completeness and accuracy of the financial statements and disclosures.

Remediation Plans

We continue to work to strengthen internal control over financial reporting and management is committed to ensuring that such controls are designed and operating effectively. We are implementing processing and control improvements to address the above material weaknesses as follows:

• we have initiated a procedure to remediate the material weakness by reviewing the material contracts on a quarterly basis with the accounting department and supporting staff; and
• we will use third party experts to review the accounting treatment for significant transactions and provide management with guidance on the treatment of the transactions.

Changes in Internal Control

Except as set forth above, there were no changes in our internal control over financial reporting that occurred during the three months ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Risk factors that affect our business and financial results are discussed in Part I, Item 1A “Risk Factors,” in our Annual Report on Form 10-K/A for the year ended December 31, 2022 as filed with the SEC on May 22, 2023 (“Annual Report”), as supplemented by our Quarterly Report on Form 10-Q for the quarter ended June 30, 2023 as filed with the SEC on August 11, 2023 (the “Quarterly Report” and together with the Annual Report, the “Periodic Reports”). There have been no material changes in our risk factors from those previously disclosed in our Periodic Reports. You should carefully consider the risks described in our Periodic Reports, which could materially affect our business, financial condition or future results. The risks described in our Periodic Reports are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and/or operating results. If any of the risks actually occur, our business, financial condition, and/or results of operations could be negatively affected.