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

- Company: [Nakamoto Inc.](/companies/naka.md) (CIK 1946573)
- Form: 10-Q
- Filed: 2024-11-12
- Accepted by EDGAR: Nov 12, 2024, 17:26 ET
- Period: 2024-09-30
- Accession: 0001493152-24-044866
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1946573/000149315224044866/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1946573/000149315224044866/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-07-01 to 2024-09-30 | $647.9k | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2024-01-01 to 2024-09-30 | $2.1m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Operating income | 3 months, 2024-07-01 to 2024-09-30 | −$1.0m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2024-01-01 to 2024-09-30 | −$2.3m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-07-01 to 2024-09-30 | $9.7k | us-gaap:InterestExpenseNonoperating |
| Interest expense | 9 months, 2024-01-01 to 2024-09-30 | $385.3k | us-gaap:InterestExpenseNonoperating |
| Net income | 3 months, 2024-07-01 to 2024-09-30 | −$1.0m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2024-01-01 to 2024-09-30 | −$2.6m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-07-01 to 2024-09-30 | −$0.17 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2024-01-01 to 2024-09-30 | −$0.50 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-07-01 to 2024-09-30 | −$0.17 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2024-01-01 to 2024-09-30 | −$0.50 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-07-01 to 2024-09-30 | 5,944,590 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2024-01-01 to 2024-09-30 | 5,193,533 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2024-01-01 to 2024-09-30 | −$2.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2024-01-01 to 2024-09-30 | $13.3k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2024-09-30 | $3.6m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-09-30 | $3.9m | us-gaap:AssetsCurrent |
| Total assets | at 2024-09-30 | $4.3m | us-gaap:Assets |
| Current liabilities | at 2024-09-30 | $725.9k | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-09-30 | $840.1k | us-gaap:Liabilities |
| Long-term debt | at 2024-09-30 | $205.6k | us-gaap:LongTermDebt |
| Shareholders' equity | at 2024-09-30 | $3.5m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 29,179 characters.

*The following management’s discussion and analysis of financial condition and results of operations provides information that management believes is relevant to an assessment and understanding of our plans and financial condition. The following financial information is derived from our financial statements and should be read in conjunction with such financial statements and notes thereto set forth elsewhere herein.*

### Cautionary Note Regarding Forward Looking Statements

*This report contains forward-looking statements that involve risks and uncertainties. All statements other than statements of historical facts contained in this report are forward-looking statements. The forward-looking statements in this report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. In some cases, you can identify these forward-looking statements by terms such as “anticipate,” “believe,” “continue,” “could,” “depends,” “estimate,” “expects,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” or the negative of those terms or other similar expressions, although not all forward-looking statements contain those words. We have based these forward-looking statements on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, strategy, short- and long-term business operations and objectives, and financial needs. These forward-looking statements include, but are not limited to, statements concerning the following:*

- our projected financial position and estimated cash burn rate;
- our estimates regarding expenses, future revenues and capital requirements;
- our ability to continue as a going concern;
- our need to raise substantial additional capital to fund our operations;
- our ability to obtain the necessary regulatory approvals to market and commercialize our products and planned future products;
- the ultimate impact of the current coronavirus pandemic, or any other health epidemic, on our business, our customers, our competitors, healthcare systems or the global economy as a whole;
- the results of market research conducted by us or others;
- our ability to obtain and maintain intellectual property protection for our products and any planned future products;
- our reliance on third-party suppliers;
- our ability to expand our organization to accommodate potential growth and our ability to retain and attract key personnel;
- our ability to operate our business effectively and manage patient needs; and
- the successful development of our commercialization capabilities, including sales and marketing capabilities.

These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in “Risk Factors” included in our Registration Statement on Form S-1/A for the year ended December 31, 2023, as filed with the SEC on May 9, 2024. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

Although we believe that the expectations reflected in the forward-looking statements are reasonable and the information included in this report is accurate, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, except as required by law, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report to conform these statements to actual results or to changes in our expectations.

### Overview

Kindly MD is a patient-first healthcare and healthcare data company redefining value-based care and patient-centered medical services. Formed in 2019, Kindly MD leverages data analysis to deliver evidence-based, personalized solutions in order to reduce opioid use, improve health outcomes faster, and provide algorithmic guidance on the use of alternative medicine in healthcare.

We collect and analyze valuable data on alternative treatments as well as biopsychosocial factors to provide better health outcomes faster. This results in valuable data for patients, the company, and the company’s investors as we aim to become a leading source of evidence-based assessment and treatment data in the fight for patients against the opioid epidemic and as we strive to be a leader in redefined value-based care.

Kindly MD’s unique value proposition is to provide a patient-focused healthcare experience that integrates traditional medical evaluation and management with mental health integration and compliant alternative medicine education and inclusion. We focus on creating personalized care plans for each individual that get people back to work and life faster, reduce opioid use, and have high patient satisfaction. Kindly MD believes these methods to be superior in managing the root cause of symptoms and improve health outcomes faster. The company’s competitive advantage lies in its integrated approach to health care services combined with a deep commitment to capturing and utilizing patient data to drive informed, evidence-based care decisions to achieve better health outcomes.

Its specialty outpatient clinical services are reimbursed by Medicare, Medicaid, and commercial insurance contracts as well as offered on a fee-for-service basis. The Company offers outpatient and telemedicine evaluation and management of, but not limited to pain, functional medicine, cognitive behavioral therapy, recovery support services, overdose education efforts, peer support, limited urgent care, preventative medicine, medically managed weight loss, and hormone therapy.

Kindly MD providers are experts in de-prescribing and using alternatives to opioids, such as medical cannabis, Ketamine infusion therapy, and other prescription and non-prescription alternatives.

Kindly MD is most successful when patients report positive health outcomes and high satisfaction as a result of our care.

### Recent Developments

\[Currently no reportable recent developments to report, to update closer to filing\]

### Results of Operations

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

The following table sets forth key components of our results of operations during the three months ended September 30, 2024 and 2023, both in dollars and as a percentage of our revenues:

|  | For the Three Months Ended September 30, 2024 2024 Amount | % of Revenues | 2023 Amount | % of Revenues |
| --- | ---: | ---: | ---: | ---: |
| Revenues | $647,867 | 100.0% | $869,268 | 100.0% |
| Operating Expenses |  |  |  |  |
| Cost of revenues | 7,790 | 1.2% | 20,224 | 2.3% |
| Salaries and wages | 1,138,561 | 175.7% | 995,078 | 114.5% |
| General and administrative | 525,758 | 81.2% | 339,559 | 39.1% |
| Depreciation | 25,576 | 3.9% | 26,004 | 3.0% |
| Total Operating Expenses | 1,697,685 | 262.0% | 1,380,865 | 158.9% |
| Loss from Operations | (1,049,818) | (162.0)% | (511,597) | (58.9)% |
| Other Income (Expense) |  |  |  |  |
| Other income | 45,330 | 7.0% | 9,001 | 1.0% |
| Interest expense | (9,659) | (1.5)% | (12,550) | (1.4)% |
| Total Other Income (Expense) | 35,671 | (5.5)% | (3,549) | (0.4)% |
| Net loss before income taxes | (1,014,147) | (156.5)% | (515,146) | (59.3)% |
| Income tax benefit | - | - | - | - |
| Net Loss | $(1,014,147) | (156.5)% | $(515,146) | (59.3)% |

#### Revenues

The Company earned $106,567 in reimbursements from insurance payers during the three months ended September 30, 2024, representing a 16.4% increase compared to the $91,553 earned during the three months ended June 30, 2024. The Company earned $232,842 in reimbursements from insurance payers during the nine months ended September 30, 2024, and $0 during the three and nine months ended September 30, 2023.

Revenues decreased by $221,401, or 25.5%, to $647,867 for the three months ended September 30, 2024, from $869,268 for the three months ended September 30, 2023. The decrease in revenues is primarily attributed to a decrease in cash-pay patient care services as Kindly MD continues to shift toward insurance billing with commercial and governmental payers including Medicare, Medicaid, Select Health, Blue Cross Blue Shield, Cigna, and other commercial payers compared to the prior period.

#### Operating Expenses

Operating expenses increased by $316,820, or 22.9%, to $1,697,685 for the three months ended September 30, 2024, from $1,380,865 for the three months ended September 30, 2023. The increase in operating expenses is primarily attributable to the following:

1\. Salaries and wages increased by $143,483, or 14.4%, to $1,138,561 for the three months ended September 30, 2024, from $995,078 for the three months ended September 30, 2023. The increase in salaries and wages is primarily attributed to additional staffing labor for Enterprise Data Management infrastructure and increased labor for compliance and billing and coding costs as Kindly MD shifts to insurance billing with commercial and governmental payers.

2\. General and administrative expenses increased by $186,199, or 54.8%, to $525,758 for the three months ended September 30, 2024, from $339,559 for the three months ended September 30, 2023. The increase in general and administrative expenses is primarily attributed to increased professional fees and directors and officers insurance as a publicly traded company.

3\. Cost of revenues decreased by $12,434, or 61.5%, to $7,790 for the three months ended September 30, 2024, from $20,224 for the three months ended September 30, 2023. The decrease in cost of revenues is primarily attributed to the corresponding decline in product revenues and a reduction to the inventory reserve.

#### Other Income (Expense)

Net other income increased by $39,220, or 1,105.1%, to $35,671 for the three months ended September 30, 2024, from net other expense of $3,549 for the three months ended September 30, 2023. The increase in net other income is primarily attributable to the following:

1\. Other income increased by $36,329, or 403.6%, to $45,330 for the three months ended September 30, 2024, from $9,001 for the three months ended September 30, 2023. This increase is primarily attributable to interest income earned during the period.

2\. Interest expense decreased by $2,891, or 23.0%, to $9,659 for the three months ended September 30, 2024 from $12,550 for the three months ended September 30, 2023. This decrease in interest expense is primarily attributed to a reduction of accrued interest of notes payable and amortization of debt discounts.

#### Net Loss

As a result of the cumulative effect of the factors described above, our net loss was $1,014,147 for the three months ended September 30, 2024, compared to a net loss of $515,146 for the three months ended September 30, 2023.

Net loss per share decreased by $0.06, or 54.5%, to $(0.17) for the three months ended September 30, 2024, compared to $(0.11) for the three months ended September 30, 2023. Kindly MD management strives to look for opportunities to optimize revenue by increasing sales, acquiring additional clinics, improving margins, and controlling ongoing operating expenses.

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

The following table sets forth key components of our results of operations during the nine months ended September 30, 2024 and 2023, both in dollars and as a percentage of our revenues:

|  | For the Nine Months Ended September 30, 2024 Amount | % of Revenues | 2023 Amount | % of Revenues |
| --- | ---: | ---: | ---: | ---: |
| Revenues | $2,115,953 | 100.0% | $3,009,151 | 100.0% |
| Operating Expenses |  |  |  |  |
| Cost of revenues | 77,481 | 3.7% | 128,356 | 4.3% |
| Salaries and wages | 2,973,420 | 140.5% | 3,037,938 | 101.0% |
| General and administrative | 1,312,980 | 62.1% | 1,083,278 | 36.0% |
| Depreciation | 76,210 | 3.6% | 77,670 | 2.6% |
| Total Operating Expenses | 4,440,091 | 209.8% | 4,327,242 | 143.8% |
| Loss from Operations | (2,324,138) | (109.8)% | (1,318,091) | (43.8)% |
| Other Income (Expense) |  |  |  |  |
| Other income | 71,198 | 3.4% | 46,302 | 1.5% |
| Interest expense | (385,348) | (18.2)% | (20,744) | (0.7)% |
| Loss on extinguishment of debt | (38,889) | (1.8)% | - | - |
| Gain on change in fair value of derivative liability | 61,051 | 2.9% | - | - |
| Total Other Income (Expense) | (291,988) | (13.8)% | 25,558 | 0.8% |
| Net loss before income taxes | (2,616,126) | (123.6)% | (1,292,533) | (43.0)% |
| Income tax benefit | - | - | - | - |
| Net Loss | $(2,616,126) | (123.6)% | $(1,292,533) | (43.0)% |

#### Revenues

The Company earned $232,842 in reimbursements from insurance payers during the nine months ended September 30, 2024. The Company earned $0 in reimbursements from insurance payers during the nine months ended September 30, 2023

Revenues decreased by $893,198, or 29.7%, to $2,115,953 for the nine months ended September 30, 2024, from $3,009,151 for the nine months ended September 30, 2023. The decrease in revenues is primarily attributed to a decrease in cash-pay patient care services as Kindly MD continues to shift toward insurance billing with commercial and governmental payers including Medicare, Medicaid, and commercial payers compared to the prior period.

#### Operating Expenses

Operating expenses increased by $112,849, or 2.6%, to $4,440,091 for the nine months ended September 30, 2024, from $4,327,242 for the nine months ended September 30, 2023. The increase in operating expenses is primarily attributable to the following:

1\. General and administrative expenses increased by $229,702, or 21.2%, to $1,312,980 for the nine months ended September 30, 2024, from $1,083,278 for the nine months ended September 30, 2023. The increase in general and administrative expenses is primarily attributed to increased professional fees and officers’ insurance as a publicly traded company.

2\. Cost of revenues decreased by $50,875, or 39.6%, to $77,481 for the nine months ended September 30, 2024, from $128,356 for the nine months ended September 30, 2023. The decrease in cost of revenues is primarily attributed to the corresponding decline in product revenues and a reduction in our inventory reserve, which lowered the provisions previously set aside for potential inventory obsolescence.

#### Other Income (Expense)

Net other expenses increased by $317,546, or 1,242.5%, to $291,988 for the nine months ended September 30, 2024, from net other income of $25,558 for the nine months ended September 30, 2023. The increase in net other expenses is primarily attributable to the following:

1\. Other income increased by $24,896, or 53.8%, to $71,198 for the nine months ended September 30, 2024, from $46,302 for the nine months ended September 30, 2023. This increase is primarily attributable to increased interest income earned on our bank accounts and income from affiliate programs and educational partnerships during the period.

2\. Interest expense increased by $364,604, or 1,757.6%, to $385,348 for the nine months ended September 30, 2024, from $20,744 for the nine months ended September 30, 2023. For the nine months ended September 30, 2024, interest expense is primarily attributable to accrued interest of notes payable and amortization of debt discounts of $367,046.

3\. As a result of the repayment and issuance of common shares upon settlement of notes payable in connection with a public offering IPO, during the nine months ended September 30, 2024, the Company recorded a loss on extinguishment of debt of $38,889 and a gain on change in fair value of derivative liability of $61,051.

#### Net Loss

As a result of the cumulative effect of the factors described above, our net loss was $2,616,126 for the nine months ended September 30, 2024, compared to $1,292,533 for the nine months ended September 30, 2023.

Net loss per share increased by $0.21 or 72.4%, to $(0.50) for the nine months ended September 30, 2024, compared to $(0.29) for the nine months ended September 30, 2023. Management continues to look for opportunities to increase sales, acquire additional clinics, improve margins, and control ongoing operating expenses.

### Liquidity and Capital Resources

As of September 30, 2024, we had cash and cash equivalents of $3,642,944 and total working capital of $3,215,466. For the nine months ended September 30, 2024, the Company incurred an operating loss of $2,324,138 and used cash flows in operating activities of $2,172,361.

To date, we have financed our operations primarily through revenues generated from operations and cash proceeds from financing activities. On June 3, 2024, the we completed an IPO through the issuance of common stock and warrants for total net proceeds of $5.86 million. The IPO provided us with adequate liquidity and cash reserves to meet our obligations for at least the 12-month period following the date of this report, and to assist us in implementing our strategic operational business plans to create sustained cash flow generation thereafter.”

#### Summary of Cash Flow

The following table provides detailed information about our net cash flows from operations for the periods indicated:

|  | For the Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: |
| Net cash used in operating activities | $(2,172,361) | $(240,806) |
| Net cash used in investing activities | (13,291) | (14,420) |
| Net cash provided by financing activities | 5,303,096 | 219,553 |
| Net change in cash and cash equivalents | 3,117,444 | (35,673) |
| Cash and cash equivalents at the beginning of period | 525,500 | 186,918 |
| Cash and cash equivalents at the end of period | $3,642,944 | $151,245 |

Net cash used in operating activities was $2,172,361 for the nine months ended September 30, 2024, as compared to $240,806 for the nine months ended September 30, 2023. The increase in net cash used in operating activities was primarily a result of an increased net loss, stock based compensation, and prepaid expenses during the period.

Net cash used in investing activities was $13,291 for the nine months ended September 30, 2024, as compared to $14,420 for the nine months ended September 30, 2023. The decrease in cash used in investing activities is primarily attributed to decreased property and equipment expenditures during the period.

Net cash provided by financing activities was $5,303,096 for the nine months ended September 30, 2024, as compared to $219,553 for the nine months ended September 30, 2023. The increase in net cash provided by financing activities is primarily attributed to the $5.9 million of net proceeds received in the public offering, offset by repayments of notes payable.

As a result of these cash flow activities, our net cash increased by $3,117,444, or 593.2%, from $525,500 as of December 31, 2023, to $3,642,944 as of September 30, 2024.

### Off-Balance Sheet Arrangements

We have no 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, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

### Critical Accounting Policies and Estimates

The preparation of these condensed financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as the disclosure of contingent assets and liabilities, at the date of and during the reported period of the financial statements. Actual results could differ from those estimates. We evaluate our estimates and assumptions on an ongoing basis.

*Use of Estimates.* The preparation of these financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as the disclosure of contingent assets and liabilities, at the date of and during the reported period of the financial statements. Actual results could differ from those estimates. We evaluate our estimates and assumptions on an ongoing basis.

*Revenue Recognition.* The Company records revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, “*Revenue from Contracts with Customers.”* Revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this core principle, the Company applies the following five-step approach: (1) identify the contract with the customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to performance obligations in the contract; and (5) recognize revenue when or as a performance obligation is satisfied.

The Company primarily recognizes revenue from: (i) patient care services related to medical evaluation and treatment and (ii) product retail sales, (iii) service affiliate agreements

Revenue from patient care services, which relates to medical evaluation and treatment, is reported at the amount reflecting the consideration to which the Company expects to be entitled in exchange for providing these services. These amounts are due from patients, third-party payors (including Medicare, Medicaid, and commercial insurance payers), and others. The patient is considered the Company’s customer, and a signed patient treatment consent typically constitutes a written contract between the Company and the patient. Patient care services are considered discrete and are initiated and concluded at the patient’s discretion, which occurs each individual appointment. Generally, the Company satisfies its performance obligations at a point in time, specifically when it has the right to invoice the customer for the work completed, which usually occurs on an interaction basis for the work performed during any given billable interaction. The Company has determined that the underlying nature of the services provided remains consistent across different payor types. Consequently, the Company utilizes a portfolio approach to assess price concessions in its contracts with patients. The Company recognizes revenue for patient care services net of price concessions, which include contractual adjustments provided to third-party payors, discounts offered to uninsured patients in accordance with the Company’s policy, and/or implicit price concessions extended to patients. Implicit price concessions, representing differences between the amount the Company expects to receive from patients and standard billing rates, are accounted for as contractual adjustments or discounts, deducted from gross revenue to calculate net revenues. The Company bases its estimates of contractual adjustments and discounts on contractual agreements, its discount policies, and historical experience.

Revenue from retail sales is recognized when control of the goods is transferred to the customer. This occurs when the customer can direct the use of, and obtain substantially all benefits from, the Company’s products, generally at the time of shipment or customer pickup. Revenue is recorded at the net sales price, which includes estimates of variable consideration such as product returns, rebates, discounts, and other adjustments. Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from revenues.

Revenue from service affiliate agreements is recognized when control of the promised goods or services is transferred to our customers, or when services are rendered to the customer, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. We account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance, and the collectability of consideration is probable. The company recognizes revenue after the service price has been allocated and when it satisfies the performance obligation. Usually, there is only a single performance obligation in the sale and service, and therefore the entire transaction price is allocated to the single performance obligation. This typically occurs at a point in time when products and or services are rendered, delivered, or shipped. The transaction price for contracts is set per the contract language. The transaction price for services is set by the company for the various service options, less current discounts or coupons offered, where those discounts are set and approved by management from time to time.

*Impairment of Long-Lived Assets.* The Company reviews the carrying value of long-lived assets such property and equipment and right-of-use (“ROU”) assets for impairment whenever events or changes in circumstances indicate the carrying amount of the assets might not be recoverable. These events and circumstances may include significant decreases in the market price of an asset or asset group, significant changes in the extent or manner in which an asset or asset group is being used by the Company or in its physical condition, a significant change in legal factors or in the business climate, a history or forecast of future operating or cash flow losses, significant disposal activity, a significant decline in the Company’s share price, a significant decline in revenue or adverse changes in the economic environment. If such facts indicate a potential impairment, the Company would assess the recoverability of an asset group by determining if the carrying value of the asset group exceeds the sum of the projected undiscounted cash flows expected to result from the use and eventual disposition of the assets over the remaining economic life of the primary asset in the asset group. If the recoverability test indicates that the carrying value of the asset group is not recoverable, the Company will estimate the fair value of the asset group using appropriate valuation methodologies, which would typically include an estimate of discounted cash flows. Any impairment would be measured as the difference between the asset group’s carrying amount and its estimated fair value.

*Stock-Based Compensation.* We recognize the fair value compensation cost relating to stock-based payment transactions in accordance with ASC Topic 718, “*Share-Based Payments.”* Under the provisions of ASC 718, stock-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized on a straight-line basis over the employee’s requisite service period, which is generally the vesting period. The fair value of our stock options is estimated using a Black-Scholes option valuation model. Restricted stock awards are valued based on the closing stock price on the date of grant (intrinsic value method). The Company has elected to recognize forfeitures as they occur.

Embedded Derivative Liabilities. The Company evaluates the embedded features in accordance with ASC Topic 480, “*Distinguishing Liabilities from Equity,”* and ASC Topic 815, “*Derivatives and Hedging Activities.”* Certain conversion options and redemption features are required to be bifurcated from their host instrument and accounted for as free-standing derivative financial instruments should certain criteria be met. The Company applies significant judgment to identify and evaluate complex terms and conditions of all of its financial instruments, including notes payable, to determine whether such instruments are derivatives or contain features that qualify as embedded derivatives. Embedded derivatives must be separately measured from the host contract if all the requirements for bifurcation are met. The assessment of the conditions surrounding the bifurcation of embedded derivatives depends on the nature of the host contract and the features of the derivatives. Bifurcated embedded derivatives are recognized at fair value, with changes in fair value recognized in the statement of operations each period.

## Market risk

As filed, 167 characters.

As a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, the Company is not required to provide the information under this item.

## Controls and procedures

As filed, 1,684 characters.

The Company does not currently maintain sufficient controls and procedures designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act are recorded, processed, summarized, and reported within the time periods specified by the Commission’s rules and forms. Disclosure controls and procedures would include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of management, including the Company’s Chief Executive Officer and Chief Financial Officer, the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2024, have been evaluated, and, based upon this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that these controls and procedures are not effective in providing reasonable assurance of compliance.

### Changes in internal control over financial reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the period covered by this report that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 163 characters.

As a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, the Company is not required to provide information under this item.

Filed Nov 12, 2024.
Source: SEC EDGAR, the filing index for accession 0001493152-24-044866. Last ingested by Listed: Oct 29, 2026, 16:11 ET. No prices; not investment advice.