IZEA Worldwide, Inc.: Form 10-Q for the period ended Jun 30, 2024

Cautionary Note Regarding Forward-Looking Information

This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains “forward-looking statements” intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact contained in this report, including those contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations and the notes to our consolidated financial statements, particularly those that utilize terminology such as “may,” “will,” “would,” “can,” “could,” “continue,” “design,” “should,” “expects,” “aims,” “anticipates,” “estimates,” “believes,” “thinks,” “intends,” “likely,” “projects,” “plans,” “pursue,” “strategy,” “future,” “forecasts,” “goal,” “hopes,” or the negative of these words or other words or expressions of similar meaning, are forward-looking statements. Such statements are based on currently available operating, financial and competitive information, and are subject to inherent risks, uncertainties, and changes in circumstances that are difficult to predict and many of which are outside of our control. Future events and our actual results and financial condition may differ materially from those reflected in these forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause these differences include, but are not limited to, the following:

• adverse economic or market conditions that may harm our business; including supply-chain issues, labor distribution, business closures, and inflationary pressures;
• a few of our customers accounting for a significant portion of our gross billings and accounts receivable, and the loss of, or reduced purchases from, these or other customers having a material adverse effect on our operating results;
• any erroneous or inaccurate estimates or judgments relating to our critical accounting policies;
• our ability to raise the additional funding needed to fund our business operation in the future;
• our ability to satisfy the requirements for continued listing of our common stock on the Nasdaq Capital Market;
• our ability to maintain effective internal control over financial reporting and effective disclosure controls and procedures;
• our ability to protect our intellectual property and other proprietary rights;
• our ability to maintain and grow our business;
• results of any future litigation and costs incurred in connection with any such litigation;
• competition in the industry;
• variability of operating results;
• our ability to maintain and enhance our brand;
• accuracy of tracking the number of user accounts;
• any security breaches or other disruptions compromising our proprietary information and exposing us to liability;
• our development and introduction of new products and services;
• our reliance on, and compliance with, open-source software;
• the successful integration of acquired companies, technologies, and assets into our portfolio of software and services;
• marketing and other business development initiatives;
• general government regulation;
• dependence on key personnel;
• the ability to attract, hire, and retain personnel who possess the technical skills and experience necessary to meet the service requirements of our customers;
• the potential liability concerning actions taken by our existing and past employees;
• any losses or issues we may encounter as a consequence of accepting or holding digital assets;
• impacts of the situation in the Middle East and the military conflict between Russia and Ukraine, and the global responses to them;
• risks associated with doing business internationally;
• shareholder activism could cause us to incur significant expense, disrupt our business, result in a proxy contest or litigation and impact our stock price; and
• the other risks and uncertainties described in the Risk Factors section of this Quarterly Report and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, as filed with the SEC on April 1, 2024.

All forward-looking statements in this document are based on current expectations, intentions, and beliefs using information available to us as of the date of this Quarterly Report; we assume no obligation to update any forward-looking statements, except as required by law. Forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause the actual results to differ materially from any future results, performance, or achievements expressed or implied by such forward-looking statements.

Company Overview

IZEA Worldwide, Inc. (“IZEA”, “Company,” “we”, “us” or “our”) is a leading innovator in the creator economy, specializing in providing advanced software solutions and professional services that connect brands with a broad spectrum of social influencers and content creators. The Company’s mission is to champion the creators, empowering individuals to monetize their creativity, content, and influence. IZEA made a significant mark in the industry by launching the first influencer marketplace, PayPerPost, in 2006, setting a precedent for the evolution of digital marketing platforms. Today, the Company caters to a diverse range of clients, including independent creators and Fortune 10 brands, offering services in influencer marketing, customer-generated content, and custom content creation. IZEA operates through managed services and self-service software tools, accommodating the varying needs of its clientele and ensuring mutually beneficial collaborations within its ecosystem.

On IZEA.com the Company offers a dynamic environment where creators can showcase their work to marketers, and marketers can directly engage and hire influencers, simplifying the collaboration process. This platform, alongside the innovative use of generative AI tools in FormAI, underscores IZEA's commitment to facilitating content creation and enhancing the efficiency of digital marketing strategies.

IZEA Flex is the Company’s flagship enterprise solution for influencer marketing, designed to meet the industry's evolving demands and users’ feedback for more flexibility and customization. IZEA Flex, which has succeeded IZEAx, empowers marketers to conduct influencer collaborations across any platform with enhanced operational organization and data tracking capabilities. The platform boasts a suite of core modules, including Discover, ContentMine, and ShareMonitor, which together provide a comprehensive toolkit for optimizing influencer marketing campaigns. Flex is distinguished by its ability to quantify the ROI of marketing efforts at scale, complemented by the introduction of AI-powered tools that streamline content customization and creative campaign ideation.

In December 2023, IZEA acquired Zuberance, Inc. (“Zuberance”) and Hoozu Holdings Pty Ltd (“Hoozu), further enhancing its suite of software offerings. Zuberance offers specialized advocate marketing tools, enabling brands to cultivate communities of loyal customers and influencers. The addition of Zuberance’s advocacy marketing solutions enriches IZEA's suite of services, providing clients with tools to amplify brand affinity, generate influential reviews, and gather valuable customer feedback. Hoozu is a leading influencer marketing company in Australia, service a roster of the region’s most innovative brands. With a strategic focus on offering cost-effective, scalable solutions, IZEA continues to set industry standards, ensuring that it remains at the cutting edge of technology and marketing practices while fostering growth in the creator economy.

Key Components of Results of Operations

Overall consolidated results of operations are evaluated based on Revenue, Cost of Revenue, Sales and Marketing expenses, General and Administrative expenses, Depreciation and Amortization, and Other Income (Expense), net.

Revenue

We generate revenue from four primary sources: (1) revenue from our managed services when a marketer (typically a brand, agency, or partner) pays us to provide custom content, influencer marketing, amplification, or other campaign management services (“Managed Services”); (2) revenue from fees charged to software customers on their marketplace spend within our platforms (“Marketplace Spend Fees”); (3) revenue from license and subscription fees charged to access our software platforms (“License Fees”); and (4) revenue derived from other fees such as fees charged to users of our platforms (“Other Fees”).

As discussed in more detail within “Revenue Recognition” under “Note 1. Company and Summary of Significant Accounting Policies,” under Part I, Item 1 herein, revenue from Marketplace Spend Fees is reported on a net basis. Revenue from all other sources, including Managed Services, License Fees, and Other Fees are reported on a gross basis. We further categorize these sources into two primary groups: (1) Managed Services and (2) SaaS Services, which includes revenue from Marketplace Spend Fees, License Fees, and Other Fees.

Cost of Revenue

Our cost of revenue consists of direct costs paid to our third-party creators who provide the custom content, influencer marketing, or amplification services for our Managed Service customers, where we report revenue on a gross basis. It also includes internal costs related to our campaign fulfillment and SaaS support departments. These costs include salaries, bonuses, commissions, stock-based compensation, employee benefit costs, and miscellaneous departmental costs related to the personnel responsible for supporting our customers and ultimately fulfilling our obligations under our contracts with customers.

Sales and Marketing

Our sales and marketing expenses consist primarily of salaries, bonuses, commissions, stock-based compensation, employee benefit costs, travel, and miscellaneous departmental costs for our marketing, sales, and sales support personnel. They also include marketing expenses such as brand marketing, public relations events, trade shows, marketing materials, and travel expenses.

General and Administrative

Our general and administrative (“G&A”) expense consists primarily of salaries, bonuses, commissions, stock-based compensation, employee benefit costs, and miscellaneous departmental costs related to our executive, finance, legal, human resources, and other administrative personnel. It also includes travel, public company, investor relations expenses, accounting, legal professional services fees, leasehold facilities, and other corporate-related expenses.

Within G&A, we incorporate technology and development costs, consisting primarily of our payroll costs for our internal engineers and contractors responsible for developing, maintaining, and improving our technology, as well as hosting and software subscription costs. These costs are expensed as incurred, except to the extent that they are associated with internal-use software that qualifies for capitalization, which is then recorded as software development costs in the consolidated balance sheet. When major software components are developed, we capitalize these as intangible assets. Depreciation and amortization related to these costs are separately stated under depreciation and amortization in our consolidated statements of operations and comprehensive loss.

G&A expense also includes current period gains and losses on our acquisition costs payable and gains and losses from the sale of fixed assets. When impairments occur on fixed assets, intangible assets, and goodwill, they are included as part of G&A expense presented separately in our consolidated statements of operations and comprehensive loss when deemed material.

Depreciation and Amortization

Depreciation and amortization expense consists primarily of amortization of our internal-use software and acquired intangible assets from our business acquisitions. To a lesser extent, we also have depreciation and amortization on equipment used by our personnel. Costs are amortized or depreciated over the estimated useful lives of the associated assets.

Other Income (Expense)

Interest Expense. Interest expense is primarily related to the payment plans for the purchase of computer equipment.

Other Income. Other income consists primarily of interest income for interest earned on investments, or changes in the value of our foreign assets and liabilities and foreign currency exchange gains and losses on foreign currency transactions, primarily related to the Canadian and Australian Dollar.

Results of Operations for the Three Months Ended June 30, 2024 and 2023

The following table sets forth a summary of our consolidated statements of operations and the change between the periods:

Revenue

The following table illustrates our revenue by type, the percentage of total revenue by type, and the change between the periods:

Managed Services revenue during the three months ended June 30, 2024 decreased by $1.8 million, or 17% from the same period in 2023. Approximately $3.3 million of the Managed Services revenue during the three months ended June 30, 2023 came from one large customer (the ‘non-recurring customer’) that we parted ways with in 2023. For the quarter ending June 30, 2024, Managed Services revenue from our recurring customer base was $8.9 million. This amount reflects a $1.6 million, or 22%, increase compared to the same period in 2023, when excluding revenues from our non-recurring customer.

SaaS Services revenue is generated by the self-service use of our technology platforms by marketers to manage their own content workflow and influencer marketing campaigns. SaaS Service revenue increased to $243,353 during the three months ended June 30, 2024, compared to $70,678 in the same period of 2023. The increase is primarily due to a growing number of licensees but at a lower cost per license.

Cost of Revenue

The cost of revenue for the three months ended June 30, 2024 decreased by $1.1 million, or approximately 17%, compared to the same period in 2023. The decrease is primarily due to the elimination of costs relating to our non-recurring customer, which totaled $3.6 million in the quarter ended June 30, 2023. This was partially offset by increased costs associated with higher revenues from our recurring customer base in the current quarter.

Sales and Marketing

Sales and marketing expense for the three months ended June 30, 2024 increased by $375,030, or approximately 13%, compared to the same period in 2023. This increase is related to increased spend on brand awareness and advertising to drive revenue growth.

General and Administrative

General and administrative expense for the three months ended June 30, 2024 increased by $204,856, or approximately 6%, compared to the same period in 2023. General and administrative expense for the three months ended June 30, 2024 increased primarily due to overall increases in human capital costs, professional fees, and contractor fees.

Depreciation and Amortization

Depreciation and amortization expense for the three months ended June 30, 2024 increased by $115,316, or approximately 104%, compared to the same period in 2023.

Depreciation expense on property and equipment was $26,701 and $27,160 for the three months ended June 30, 2024 and 2023, respectively. Depreciation expense decreased slightly due to the disposal of equipment.

Amortization expense was $199,047 and $83,272 for the three months ended June 30, 2024 and 2023, respectively. Amortization expense related to internal use software developments costs was $124,381 and $83,272 for the three months ended June 30, 2024, and 2023, respectively, due to cumulative adjustments made in the quarter for year-to-date activity. Amortization expense related to intangible assets acquired in the Zuberance and Hoozu acquisitions was $75,709 and $0 for the three months ended June 30, 2024 and 2023, respectively.

Other Income (Expense)

Other income, net, totaled $634,226 during the three months ended June 30, 2024, an decrease of $11,283 compared to the same period in 2023, primarily due to a decrease in the value of digital assets, offset by deferred tax benefit.

Net Loss

Net loss for the three months ended June 30, 2024 was $2.2 million, compared to the net loss of $1.0 million for the same period in 2023. The increase in net loss was a result of the changes discussed above.

Results of Operations for the Six Months Ended June 30, 2024 and 2023

The following table sets forth a summary of our consolidated statements of operations and the change between the periods:

Revenue

The following table illustrates our revenue by type, the percentage of total revenue by type, and the change between the periods:

Managed Services revenue during the six months ended June 30, 2024, decreased by $3.6 million, or 19% from the same period in 2023. Approximately $6.8 million of the Managed Services revenue during the six months ended June 30, 2023 came from the non-recurring customer. Managed Services revenue from our ongoing customer base, which totaled $15.5 million during the six months ended June 30, 2024, increased on the strength of improving demand by $3.3 million, or 26%, from the same period in 2023.

SaaS Services revenue is generated by the self-service use of our technology platforms by marketers to manager their own content workflow and influencer marketing campaigns. SaaS Service revenue increased to $499,694 during the six months ended June 30, 2024, compared to $305,646 in the same period of 2023. The increase is primarily due to a growing number of licensees but at a lower cost per license.

Cost of Revenue

Cost of revenue for the six months ended June 30, 2024 decreased by $3.1 million, or approximately 25%, compared to the same period in 2023. The decrease is primarily due to the elimination of costs relating to our non-recurring customer, which totaled $4.9 million in the six months ended June 30, 2023. This was partially offset by increased costs associated with higher revenues from our recurring customer base in the current period.

Sales and Marketing

Sales and marketing expense for the six months ended June 30, 2024, increased by $1.0 million, or approximately 20%, compared to the same period in 2023. Advertising expense increased over the prior year, with continued efforts to improve customer acquisition, satisfaction, and retention along with brand awareness.

General and Administrative

General and administrative expense for the six months ended June 30, 2024, increased by $0.6 million, or approximately 9%, compared to the same period in 2023. The increase in general and administrative expense was primarily due to increased costs of human capital and higher spend on professional services related to acquisition activities.

Depreciation and Amortization

Depreciation and amortization expense for the six months ended June 30, 2024, decreased by $26.8 thousand, or approximately 6%, compared to the same period in 2023.

Depreciation expense on property and equipment was approximately$53.3 thousand and $45.9 thousand for the six months ended June 30, 2024, and 2023. Depreciation expense increased slightly due to the purchase of additional equipment.

Amortization expense was approximately $0.4 million and $0.4 million for the six months ended June 30, 2024 and 2023, respectively. Amortization expense related to internal-use software development costs was $0.3 million and $0.4 million for the six months ended June 30, 2024 and 2023, respectively. Amortization on our internal software costs will continue due to the development of Flex and Marketplace in 2024.

Other Income (Expense)

Interest expense totaled $4.0 thousand during the six months ended June 30, 2024, related to fewer acquisitions of laptop computers in 2024, compared to $4.7 thousand in the prior year period.

Other income, net totaled $1.3 million in investment portfolio interest income for the six months ended June 30, 2024, compared to $1.2 million in the prior year period, reflecting interest earned on portfolio investments that began in May 2022.

Net Loss from Operations

Net loss from operations for the six months ended June 30, 2024 was $5.5 million, a $1.6 million increase from the net loss of 3.8 million for the same period in 2023. The increase in net loss was the result of lower revenues and increased operating costs in the current year period.

Key Metrics

We review the information provided by our key financial metrics, Managed Services Bookings, and gross billings, to assess the progress of our business and make decisions on where to allocate our resources. As our business evolves, we may change the key financial metrics in future periods.

Managed Services Bookings

Managed Services Bookings is a measure of all sales orders received during a time period, less any cancellations received, or refunds given during the same time period. Sales order contracts vary in complexity with each customer and range from custom content delivery to integrated marketing services; our contracts generally run from several months for smaller contracts up to twelve months for larger contracts. We recognize revenue from our Managed Services contracts on a percentage of completion basis as we deliver the content or services over time, which can vary greatly. Historically, bookings have converted to revenues over a 6-month period on average. However, since late 2020, we have received increasingly larger and more complex sales orders, which, in turn, has lengthened the average revenue period to approximately 9-months, with the largest contracts taking longer to complete. During the latter half of 2023, the time between bookings and revenue improved to an average of 7.5 months. For this reason, Managed Services Bookings, while an overall indicator of the health of our business, may not be used to predict quarterly revenues and could be subject to future adjustments. Managed Services Bookings is useful information as it reflects the number of orders received in one period, even though revenue from those orders may be reflected over varying amounts of time. We use the Managed Services Bookings metric to plan operational staffing, to identify key customer group trends to enlighten go-to-market activities, and to inform its product development efforts. Managed Services Bookings for the three months ended June 30, 2024 and 2023 was $10.3 million and $7.3 million, respectively. Managed Services Bookings for the six months ended June 30, 2024 and 2023 was $19.6 million and $13.4 million, respectively.

Gross Billings by Revenue Type

Company management evaluates our operations and makes strategic decisions based, in part, on our key metric of gross billings from our two primary types of revenue, Managed Services, and SaaS Services. We define gross billings as the total dollar value of the amounts charged to our customers for the services we perform, and the amounts billed to our SaaS customers for their self-service purchase of goods and services on our platforms. The amounts billed to our SaaS customers are on a cost-plus basis. Gross billings are therefore the amounts of our reported revenue plus the cost of payments we made to third-party creators providing the content or sponsorship services, which are netted against revenue for generally accepted accounting principles in the U.S. (“GAAP”) reporting purposes.

Managed Services gross billings include the total dollar value of the amounts billed to our customers for the services we perform. Gross billings for Managed Services are the same as Managed Services Revenue reported for those services in our consolidated statements of operations and comprehensive loss in accordance with GAAP.

SaaS Service gross billings include license and other fees together with the total amounts billed to our SaaS customers for their self-service purchase of goods and services on our platforms, termed ‘Marketplace Spend Fees.’ Our SaaS customers’ marketplace spend is billed on a cost-plus basis. SaaS Services Revenue includes the total of License and Other Fees gross billings, plus the Marketplace Spend Fees gross billings (which includes our third-party creator costs on those billings that are netted against revenue for GAAP reporting purposes).

We consider gross billings to be an important indicator of our potential performance as it measures the total dollar volume of transactions generated through our marketplaces. Tracking gross billings allows us to monitor the percentage of gross billings that we retain after payments to our creators. Additionally, tracking gross billings is critical as it pertains to our credit risk and cash flows. We invoice our customers based on our services performed or based on their self-service transactions plus our fee. Then we remit the agreed-upon transaction price to the creators. If we do not collect the money from our customers prior to paying our creators, we could experience large swings in our cash flows. Additionally, we incur the credit risk to collect amounts owed from our customers for all services performed by us or by the creators. Finally, gross billings allow us to evaluate our transaction totals on an equal basis to see our contribution margins by revenue stream so that we can better understand where we should be allocating our resources.

The following tables set forth our gross billings by revenue type, the percentage of total gross billings by type, and the change between the periods:

Non-GAAP Financial Measure

Adjusted EBITDA

Adjusted EBITDA is a “non-GAAP financial measure” under the rules of the Securities and Exchange Commission (the “SEC”). We define Adjusted EBITDA as earnings or loss before interest, taxes, depreciation and amortization, non-cash stock-based compensation, gain or loss on asset disposals or impairment, and certain other unusual or non-cash income and expense items such as gains or losses on settlement of liabilities and exchanges, and changes in the fair value of derivatives, if applicable.

We use Adjusted EBITDA as a measure of operating performance, for planning purposes, to allocate resources to enhance the financial performance of our business and in communications with our Board of Directors regarding our financial performance. We believe that Adjusted EBITDA also provides valuable information to investors as it excludes non-cash transactions, and it provides consistency to facilitate period-to-period comparisons.

You should not consider Adjusted EBITDA in isolation or as a substitute for an analysis of our results of operations as under GAAP. All companies do not calculate Adjusted EBITDA in the same manner, limiting its usefulness as a comparative measure. Moreover, Adjusted EBITDA has limitations as an analytical tool, including that Adjusted EBITDA:

• does not include stock-based compensation expense, which is a non-cash expense, but has been, and will continue to be for the foreseeable future, a significant recurring expense for our business and an essential part of our compensation strategy;
• does not include stock issued for payment of services, which is a non-cash expense, but has been, and is expected to be for the foreseeable future, an important means for us to compensate our directors, vendors, and other parties who provide us with services;
• does not include depreciation and intangible assets amortization expense, impairment charges and gains or losses on disposal of equipment, which is not always a current period cash expense, but the assets being depreciated and amortized may have to be replaced in the future; and
• does not include interest expense and other gains, losses, and expenses that we believe are not indicative of our ongoing core operating results, but these items may represent a reduction or increase in cash available to us.

Because of these limitations, Adjusted EBITDA should not be considered a measure of discretionary cash available to us to invest in the operation and growth of our business or as a measure of cash that will be available to us to meet our obligations. You should compensate for these limitations by relying primarily on our GAAP results and using these non-GAAP financial measures as supplements. In evaluating this non-GAAP financial measure, you should be aware that in the future, we may incur expenses similar to those for which adjustments are made in calculating Adjusted EBITDA. Our presentation of this non-GAAP financial measure should also not be construed to infer that our future results will be unaffected by unusual or non-recurring items.

The following table sets forth a reconciliation from the GAAP measurement of net loss to our non-GAAP financial measure of Adjusted EBITDA for the three and six months ended June 30, 2024 and 2023:

Liquidity and Capital Resources

Near-Term and Long-Term Liquidity; Capital Resources

The Company’s primary cash needs have historically been funding the development and integration of our technology platforms used in its business, marketing expenses, and general and administrative (“G&A”) expenses including salaries, bonuses, and commissions. The Company has incurred losses and negative cash flow from operations for most periods since inception, primarily the result of costs associated with third-party creators, salaries, bonuses and stock-based compensation, and other G&A expenses, including technology and development costs, which has resulted in a total accumulated deficit of $90.9 million as of June 30, 2024. While we have not achieved profitability, we believe we have sufficient resources to fund operations and planned investments for at least the next twelve months.

We had cash and cash equivalents of $44.3 million as of June 30, 2024, as compared to $37.4 million as of December 31, 2023. This increase of $6.9 million is the result of the maturing of certain investments, offset by cash used to fund operating activities.

Net cash used for operating activities was $7.3 million during the six months ended June 30, 2024, primarily due to the continued use to cover operating losses. Net cash provided by investing activities was $14.2 million during the six months ended June 30, 2024, primarily due to the maturity of marketable securities and acquisitions. Net cash used for financing activities during the six months ended June 30, 2024 was $116,508, which consisted of payments on shares withheld for taxes.

We anticipate that our operating expenses will increase in the foreseeable future as we continue to pursue the expansion of our business. We currently believe that we have adequate cash and long-term investments to fund our business growth for the next twelve months; however, should additional capital become necessary, we expect these funds would be financed predominately through proceeds from future equity, equity-based, or debt offerings, unless and until our operations are profitable and sustain our ongoing capital needs. As a result, our business success could depend, to a significant extent, upon our ability to obtain the funding necessary to support our operations.

Financial Condition and Outlook

Since 2020, supply-chain issues, labor disruption, business closures, and, recently, inflationary pressures have impacted our business operations and results. Additionally, the cautious economic outlook of many customers may be affecting marketing budgets as evidenced by the softness in bookings the Company experienced during 2023. We announced in January 2023 that we had begun the process of parting ways with a single large customer that, while having a significant impact on Managed Services revenue growth, carried significantly lower gross margins than our core business. Our business with this customer was completed during the fourth quarter of 2023, including contract liabilities and payment of accounts receivable. While our 2023 quarterly bookings did not reflected the opportunity pipeline growth we’ve experienced, we saw our 2024 first quarter bookings for Managed Services reach a seven-quarter high and our second quarter bookings reach an eight-quarter high, bearing fruit of the evidence of continued demand for influencer marketing services in our pipeline. Despite these bookings taking seven and a half months on average to be fully recognized as revenue, we believe that our core business remains strong. However, these matters, taken together, could have a material adverse impact on our business, results of operations, and financial position in future periods.

Off-Balance Sheet Arrangements

The Company did not engage in any “off-balance sheet arrangements” (as that term is defined in Item 303(a)(4)(ii) of Regulation S-K) as of June 30, 2024.

Critical Accounting Policies and Use of Estimates

There have been no material changes to our critical accounting policies as set forth in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our Annual Report on Form 10-K for the year ended December 31, 2023. For a summary of our significant accounting policies, please refer to Note 1 — Company and Summary of Significant Accounting Policies included in Item 1 of this Quarterly Report.

Recent Accounting Pronouncements

See “Note 1. Company and Summary of Significant Accounting Policies,” under Part I, Item 1 of this Quarterly Report for information on additional recent pronouncements.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that the Company files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, and reported within the 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 us in the reports that the Company files under the Exchange Act is accumulated and communicated to management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosures.

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Furthermore, controls and procedures could be circumvented by the individual acts of some

persons, by collusion of two or more people, or by management override of the control. Misstatements due to error or fraud may occur and not be detected on a timely basis.

Evaluation of Disclosure Controls and Procedures

In connection with the preparation of this Quarterly Report on Form 10-Q for the period ended June 30, 2024, an

evaluation was performed under the supervision and with the participation of our management including our principal executive

officer and principal financial officer to determine 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 June 30, 2024. Based on this evaluation, our management concluded that, as of June 30, 2024, our disclosure controls and procedures were effective as designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosures.

Changes in Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining effective internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Internal control over financial reporting is a process designed by, or under the supervision of, our principal executive officer and principal financial officer and effected by our Board of Directors, management, and other personnel, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Internal control over financial reporting includes policies and procedures that:

(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the Company’s transactions;

(ii) provide reasonable assurance that transactions are recorded as necessary for the preparation of our financial statements in accordance with GAAP, and that receipts and expenditures are made only in accordance with authorizations of our management and directors; and

(iii) provide reasonable assurance regarding prevention or timely detection of any unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect financial statement misstatements. Also, projections of any evaluation of internal control effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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

You should carefully consider the factors discussed under Item 1A of Part I to our Annual Report on Form 10-K for the year ended December 31, 2023 regarding the numerous and varied risks, known and unknown, that may prevent us from achieving our goals. If any of these risks occur, our business, financial condition, or results of operation may be materially and adversely affected. In such a case, the trading price of our common stock could decline, and investors could lose all or part of their investment. These risk factors may not identify all risks that we face, and our operations could also be affected by factors that are not presently known to us or that we currently consider to be immaterial to our operations. There have been no material changes to the risk factors described under “Risk Factors,” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.