BNB Standard Corp: Form 10-Q for the period ended Mar 31, 2025

The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report, which include additional information about our accounting policies, practices, and the transactions underlying our financial results, as well as with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2024, as filed with the SEC. In addition to historical information, the following discussion and other parts of this Quarterly Report contain forward-looking information that involves risks and uncertainties. Our actual results could differ materially from those anticipated by such forward-looking information due to the factors discussed under “Cautionary Statements” appearing elsewhere herein and the risks and uncertainties described or identified in “Item 1A – Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2024, as updated from time to time in the Company’s filings with the SEC, and Part II, Item 1A of this Quarterly Report entitled “Risk Factors.”

Non-GAAP Financial Measures

To supplement our financial results on U.S. generally accepted accounting principles (“GAAP”) basis, we use non-GAAP measures including net bookings, backlog, as well as adjusted net income (loss) which reflects adjustments for certain non-cash expenses such as stock-based compensation, certain debt-related items and depreciation expense. We believe these non-GAAP measures are helpful in understanding our past performance and are intended to aid in evaluating our potential future results. The presentation of these non-GAAP measures should be considered in addition to our GAAP results and are not intended to be considered in isolation or as a substitute for financial information prepared or presented in accordance with GAAP. We believe these non-GAAP financial measures reflect an additional way to view aspects of our operations that, when viewed with our GAAP results, provide a more complete understanding of factors and trends affecting our business. For purposes of this Quarterly Report, (i) “adjusted net income (loss)” and “adjusted operating income (loss)” mean GAAP net income (loss) and operating income (loss), respectively, after adjustment for non-cash equity compensation expense, debt-related items and depreciation expense, and (ii) “net bookings” means new sales contracts executed during the quarter for which we received an initial deposit, net of any adjustments including cancellations and change orders during the quarter.

Our backlog, remaining performance obligations and net bookings may not be indicative of future operating results, and our customers may attempt to renegotiate or terminate their contracts for a number of reasons, including delays in or inability to obtain project financing or licensing or abandonment of the project entirely. Accordingly, there can be no assurance that contracts included in the backlog or remaining performance obligations will actually generate revenues or when the actual revenues will be generated.

Overview

CEA Industries, through our subsidiary, Surna Cultivation Technologies LLC, is focused on selling environmental control and other technologies and services to the Controlled Environment Agriculture (“CEA”) industry. The CEA industry aims to optimize the use of horticultural resources such as water, energy, space, capital, and labor, to create an agriculture business that is more efficient and more productive than those that use traditional farming methods. Typically, the CEA industry is focused on indoor agriculture and vertical farming.

Headquartered in Colorado, we aim to provide customers with a variety of value-added technology solutions that help improve their overall crop quality and yield, optimize energy and water efficiency, and satisfy the evolving state and local codes, permitting and regulatory requirements. We do this by offering our customers a variety of service and product offerings that include: (i) air handling equipment and systems, (ii) air sanitation products, (iii) LED lighting, and (iv) benching and racking solutions for indoor cultivation.

CEA growers currently face a challenging business environment that includes high energy costs, water usage and conservation issues, continuously evolving waste removal regulations, inflationary pressures, and labor shortages. In addition to these issues, our cannabis growing customers face increasingly rigorous quality standards and declining cannabis prices in a growing industry whose standards are constantly evolving. The part of the CEA industry focused on by the Company has been food related crops, a segment that is also facing disruption from evolving market demand, competition, and reorganization, including the lack of growth capital and several noteworthy bankruptcies.

Recent Developments – Acquisition of Fat Panda

We have entered into an acquisition agreement to acquire a group of Manitoba corporations that own all the assets used in the business of Fat Panda Ltd. (“Fat Panda”). Fat Panda is engaged in the manufacture, distribution and retail sale of e-cigarettes, vape devices and e-liquids and related products through multiple retail locations in the provinces of Manitoba, Ontario, and Saskatchewan, Canada, as well as through its online e-commerce site.

Fat Panda, we believe, is central Canada’s largest retailer and manufacturer of e-cigarettes, vape devices and e-liquids, with a market share exceeding 50% in the region. Fat Panda operates 33 retail locations, including 29 Fat Panda stores and four Electric Fog vape outlets. Fat Panda also serves a wide range of customers through its online e-commerce platform. Its retail footprint is complemented by a comprehensive portfolio of products, including its own line of premium e-liquids manufactured in-house, along with a robust portfolio of trademarks and intellectual property.

The acquisition will include all the assets of Fat Panda, including among other things, the leases for the retail outlets, intellectual property, inventory, government licenses and permits, franchise agreements, manufacturing facilities and supply agreements, which are necessary for the ongoing manufacturing and retail operations of Fat Panda. The acquisition will continue the employment of the current management and of the production and retail staff, for the uninterrupted, continuous operations of the business. The sellers will enter into non-competition agreements at closing. Certain of the senior management persons will enter into employment agreements for their continued employment after the closing of the acquisition.

The purchase price is CAD$18,000,000 (approximately, US$12,600,000), payable in cash, securities and seller loans. The Company also expects to borrow part of the cash portion of the purchase price, in an amount yet to be determined, which will be secured by the assets of Fat Panda. The purchase price includes an initial cash payment of CAD$13,900,000, issuance of 39,000 shares of the common stock of the Company with an agreed aggregate value of CAD$700,000 (approximately CAD$18.00 per share), and issuance of notes to the sellers in the aggregate principal amount of CAD$2,060,000, and release of a CAD$100,000 due diligence deposit. The Company is also agreeing to pay certain financial statement audit expenses of the selling parties. Of the notes to be issued by Fat Panda to the selling parties, one of the notes in the principal amount of CAD$1,030,000, is convertible into the common stock of the Company at a conversion rate of USD$19.00 per share. At closing the following will occur: first, a portion of the cash purchase price in the amount of CAD$1,375,000 will be held in a joint escrow account for 120 days after closing as a working capital adjustment escrow; second, the sum of CAD$1,240,000, will be paid into escrow for possible indemnity claims to be held for 18 months; and third, the purchase price will be reduced by CAD$112,500 and the sum of CAD$112,500 will be paid into escrow to be held for 18 months, both in relation to employee obligation claims under Canadian employment law.

Completion of the acquisition is subject to a number of conditions, which include the preparation and delivery of the Fat Panda companies audited consolidated financial statements and unaudited interim consolidated financial statements, satisfaction of the financial condition of Fat Panda, completion of due diligence by the Company, receipt of all necessary government approvals and licenses, and continuation and reformation of the various retail location leases. Completion is also subject to the Company obtaining financing for a portion of the cash purchase price. The acquisition agreement also provides for the selling persons to make representations and warranties and undertake certain covenants about many aspects of the business of Fat Panda that shall be true and correct and performed at or prior to closing. The representations, warranties and covenants are those that are typical in relation to the acquisition of an operating business. The Company has also made certain representations, warranties and covenants, the principal one of which is to obtain financing for a part of the purchase price, which if not obtained will permit the Company to terminate the purchase agreement.

CEA Industries Inc. (“Company”) has received preliminary unaudited financial information about Fat Panda Ltd. (“Fat Panda”) that is a condition to the completion of its acquisition of Fat Panda. Based on preliminary, unaudited financial data, in its fiscal year ended April 30, 2024 Fat Panda generated CAD $38.5 million (USD $28.5 million) in revenue with 39% gross margins and CAD $8.4 million (USD $6.2 million) in adjusted EBITDA. Both revenue and adjusted EBITDA grew over 10% from fiscal year ended April 30, 2023, while gross margin declined by 15% from fiscal year 2023. The Company continues to expect to complete the acquisition in the first half of 2025, subject to fulfillment of customary closing conditions which includes completion of the audit of Fat Panda’s financial statements.

The Company continues to expect to complete the acquisition in the first half of 2025, subject to fulfillment of customary closing conditions.

Changes to United States tariff and import/export regulations may have a material adverse effect on our business, financial condition and results of operations.

The United States has recently enacted and proposed to enact significant new tariffs. Additionally, President Trump has directed various federal agencies to further evaluate key aspects of U.S. trade policy and there has been ongoing discussion and commentary regarding potential significant changes to U.S. trade policies, treaties and tariffs. There continues to exist significant uncertainty about the future relationship between the U.S. and other countries with respect to such trade policies, treaties and tariffs. These developments, or the perception that any of them could occur, may have a material adverse effect on global economic conditions and the stability of global financial markets, and may significantly reduce global trade and, in particular, trade between the impacted nations and the U.S. Any of these factors could depress economic activity and restrict our access to suppliers or customers and have a material adverse effect on our business, financial condition and results of operations. As the Peoples Republic of China (“PRC”) is a particular focus of the tariffs and trade policies, and the Company uses products from the PRC in its product offerings, we expect that there will be disruption in that aspect of our business. We are in the process of searching for alternative suppliers, but there is no assurance that we will be able to find other suppliers at a price that will be reasonable.

Impact of Ukrainian and Israeli Conflicts

We believe that the conflicts involving Ukraine and Israel do not have any direct impact on our operations, financial condition, or financial reporting. We believe the conflicts will have only a general impact on our operations in the same manner as it is having a general impact on all businesses that have their operations limited to North America resulting from international sanction and embargo regulations, possible shortages of goods and goods incorporating parts that may be supplied from countries involved in the conflicts, supply chain challenges, and the international and US domestic inflation resulting from the conflict and government spending in relation to the conflicts. As our operations are related only to the North American controlled agricultural industry, largely within the cannabis space, we do not believe we will be specifically targeted for cyber-attacks related to the conflicts. We have no operations in the countries directly involved in the conflict or are specifically impacted by any of the sanctions and embargoes specifically related to those conflicts, as we principally operate in the United States and Canada. We do not believe that the conflicts will have any impact on our internal control over financial reporting. Other than general securities market trends, we do not have reason to believe that investors will evaluate the company as having special risks or exposures related to the conflicts.

Our Bookings, Backlog and Revenue

During the three months ended March 31, 2025, we executed new sales contracts with a total contract value of $1,045,000. During this same period, we had positive change orders of $1,000 and cancellations of $4,000. Consequently, our net bookings in the three months ended March 31, 2025 were $1,042,000, representing an increase of $532,000 (or 104%) from net bookings of $510,000 in the fourth quarter of 2024.

Our backlog at March 31, 2025 was $844,000, an increase of $354,000, or 72%, from our backlog of $490,000 at December 31, 2024. The increase in backlog is primarily the result of increased bookings in the first quarter that have not yet been fulfilled. While we expect to recognize all the revenue from the remaining backlog in 2025, there is significant uncertainty regarding the timing of the Company’s recognition of revenue on its remaining performance obligations, and there is no certainty that these will result in actual revenues. Therefore, investors should not view backlog as earned revenue.

The following table sets forth: (i) our beginning backlog (the remaining contract value of outstanding sales contracts for which we have received an initial deposit as of the previous period), (ii) our net bookings for the period (new sales contracts executed during the period for which we received an initial deposit, net of any adjustments including cancellations and change orders during the period), (iii) our recognized revenue for the period, and (iv) our ending backlog for the period (the sum of the beginning backlog and net bookings, less recognized revenue). Based on the current economic climate and our cost cutting measures, there is no assurance that we will be able to continue to obtain the level of bookings that we have had in the past and or fulfill our current backlog, and we may experience contract cancellations, project scope reductions and project delays.

Our recognized revenue for the quarters ended March 31, 2024, June 30, 2024, September 30, 2024, December 31, 2024, and March 31, 2025, in the table below, excludes $31,000, $12,000, $0, $46,000, and $25,000 respectively, in revenue arising from the forfeiture of non-refundable deposits from former customers on previously cancelled contracts. The contracts were removed from the backlog at the time of cancellation.

The completion of a customer’s new build facility project is dependent upon the customer’s ability to secure funding and real estate, obtain a license and then build their cultivation facility so they can take possession of the equipment. Accordingly, the time it takes for these customers to complete a new build project, which corresponds to when we are able to recognize revenue, is driven by numerous factors including: (i) the large number of first-time participants interested in the indoor cannabis cultivation business; (ii) the complexities and uncertainties involved in obtaining state and local licensure and permitting; (iii) local and state government delays in approving licenses and permits due to lack of staff or the large number of pending applications, especially in states where there is no cap on the number of cultivators; (iv) the customer’s need to obtain cultivation facility financing; (v) the time needed, and coordination required, for our customers to acquire real estate and properly design and build the facility (to the stage when climate control systems can be installed); (vi) the large price tag and technical complexities of the climate control and air sanitation systems; (vii) the availability of power; and (viii) delays that are typical in completing any construction project.

As has historically been the case for the Company at each quarter-end, there remains significant uncertainty regarding the timing of revenue recognition of our backlog as of March 31, 2025.

We have provided an estimate in our condensed consolidated financial statements for when we expect to recognize revenue on our remaining performance obligations (i.e., our Q1 2025 backlog), using separate time bands, with respect to engineering only paid contracts and partial equipment paid contracts. There continues to be significant uncertainty regarding the timing of our recognition of revenue on our Q1 2025 backlog. Refer to the Revenue Recognition section of Note 1 in our condensed consolidated financial statements, included as part of this Quarterly Report for additional information on our estimate of future revenue recognition on our remaining performance obligations.

Our backlog, remaining performance obligations, and net bookings may not be indicative of future operating results, and our customers may attempt to renegotiate or terminate their contracts for a number of reasons, including delays in or inability to obtain project financing or licensing or abandonment of the project entirely. Accordingly, there can be no assurance that contracts included in backlog or remaining performance obligations will generate revenues or when the revenues will be generated. Net bookings and backlog are considered non-GAAP financial measures, and therefore, they should be considered in addition to, rather than as a substitute for, our GAAP measures for recognized revenue, deferred revenue, and remaining performance obligations. Further, we can provide no assurance as to the profitability of our contracts reflected in remaining performance obligations, backlog and net bookings.

Results of Operations

Comparison of the Three Months Ended March 31, 2025 and March 31, 2024

Revenues and Cost of Goods Sold

Revenue for the three months ended March 31, 2025 was $713,000, compared to $235,000 for the three months ended March 31, 2024, representing an increase of $478,000, or 203%. The increase was primarily due to higher bookings for the current and previous quarter for each year.

Cost of revenue increased by $285,000 or 73%, from $389,000 for the three months ended March 31, 2024 to $674,000 for the three months ended March 31, 2025. The increase was primarily due to an increase in revenue, along with a decrease in fixed costs, offset by an increase in variable costs, as discussed below.

During the three months ended March 31, 2025, we recognized a gross profit of $39,000 compared to a gross loss of $154,000 for the three months ended March 31, 2024, an increase in profit of $193,000 or 125%. Our gross margin increased by 71 percentage points from a gross loss margin of 66% for the three months ended March 31, 2024 to a gross profit margin of 6% for the three months ended March 31, 2025 primarily due to higher revenue, a decrease in fixed costs as a percent of revenue, offset by higher variable costs as a percent of revenue, as described below. Additionally, total revenue in the three months ended March 31, 2025 and March 31, 2024 included $25,000 and $31,000, respectively, from forfeited, non-refundable deposits from former customers on previously cancelled contracts.

Our fixed costs (which include engineering, service, manufacturing and project management salaries and benefits and manufacturing overhead) totaled $88,000, or 12% of total revenue, for the three months ended March 31, 2025, as compared to $254,000, or 108% of total revenue, for the three months ended March 31, 2024. The decrease of $166,000 was due to a decrease in salaries and benefits of $159,000 and a decrease in fixed overhead of $7,000.

Our variable costs (which include the cost of equipment, outside engineering costs, shipping and handling, travel and warranty costs) totaled $586,000, or 82% of total revenue, during the three months ended March 31, 2025, as compared to $135,000, or 58% of total revenue, in the three months ended March 31, 2024. The decrease in variable costs was primarily due to: (i) an increase in equipment costs of $409,000 driven by higher revenue, (ii) a decrease in the reduction of the warranty accrual of $87,000, (iii) a decrease in excess and obsolete inventory expense of $53,000, (iv) a reduction in outside engineering services $12,000, offset by (v) increased expense for third party site visits of $18,000.

Operating Expenses

Operating expenses increased to $1,113,000 for the three months ended March 31, 2025, from $769,000 for the three months ended March 31, 2024, an increase of $344,000, or 45%. The operating expense increase consisted of: (i) an increase in selling, general and administrative expenses (“SG&A expenses”) of $350,000, offset by (ii) a decrease in advertising and marketing expenses of $6,000. The increase is primarily due to higher professional fees in relation to a potential acquisition.

Our increase in SG&A expenses for the three months ended March 31, 2025, compared to the three months ended March 31, 2024, was primarily due to: (i) and increase of $361,000 for accounting and other fees, (ii) an increase in investor relations costs of $59,000, (iii) an increase in bad debt expense of $35,000 (due to Q1 2024 including collections on previously reserved receivables), (iv) increased insurance expense of $6,000, (v) higher business taxes and licenses of $6,000, and (vi) miscellaneous other expenses of $5,000. The increases were offset by(i) a decrease in salaries and benefits (including stock compensation) of $92,000, (ii) lower losses on asset disposals of $13,000, (iii) a decrease in facilities and office supplies of $11,000, and (iv) a decrease in depreciation of $6,000.

The decrease in advertising and marketing expenses was primarily due to (i) a decrease in advertising and promotion and trade show related expense of $9,000, offset by (ii) an increase of $3,000 for web development.

Operating Loss

We recognized an operating loss of $1,074,000 for the three months ended March 31, 2025, as compared to an operating loss of $924,000 for the three months ended March 31, 2024, an increase of $150,000 or 16%. The operating loss for the three months ended March 31, 2025 included $78,000 of non-cash, stock-based compensation and $1,000 in depreciation, compared to $77,000 in non-cash stock-based compensation and $6,000 of depreciation expense for the three months ended March 31, 2024. Excluding these non-cash items, our operating loss increased by $155,000.

Other Income (Expense)

We recognized other income of $5,000 for the three months ended March 31, 2025, compared to other income of $7,000 for the three months ended March 31, 2024. Other income for both periods consisted of interest income from a money market account.

Net Loss

Overall, we recognized a net loss of $1,069,000 for the three months ended March 31, 2025, as compared to a net loss of $917,000 for the three months ended March 31, 2024, an increase of $152,000 or 17%. The net loss for the three months ended March 31, 2025 included $78,000 of non-cash stock-related compensation and $1,000 in depreciation, compared to $77,000 in non-cash stock-related compensation and $6,000 of depreciation expense for the three months ended March 31, 2024. Excluding these non-cash items, our net loss increased by $157,000.

Financial Condition, Liquidity and Capital Resources

Cash, Cash Equivalents

As of March 31, 2025, we had cash and cash equivalents of $8,707,000, compared to cash and cash equivalents of $9,453,000 as of December 31, 2024. The $745,000 decrease in cash and cash equivalents during the three months ended March 31, 2025, was the result of cash used in operations. Our cash is held in bank depository accounts in a financial institution. During the three months ended March 31, 2025, we held deposits in this financial institution that exceeded the federally insured amount.

As of March 31, 2025, we had accounts receivable (net of allowance for doubtful accounts) of $57,000, contract assets (net of allowance for doubtful accounts) of $234,000, inventory (net of excess and obsolete allowance) of $20,000, and prepaid expenses and other assets of $179,000. While we typically require advance payment before we commence engineering services or ship equipment to our customers, we have made exceptions requiring us to record accounts receivable, which carry a risk of non-collectability especially since most of our customers are funded on an as-needed basis to complete facility construction.

As of March 31, 2025 we had total accounts payable and accrued expenses of $515,000, deferred revenue of $475,000, and the current portion of operating lease liability of $138,000. As of March 31, 2025, we had working capital of $8,071,000, compared to working capital of $9,064,000 as of December 31, 2024. The decrease in our working capital was primarily related to (i) a decrease in cash of $745,000, (ii) a decrease in prepaid and other expenses of $187,000, (iii) an increase in deferred revenue of $131,000, and (iv) a decrease in the current portion of our right-of-use asset of $28,000, (v) an increase in accounts receivable (net) of $44,000, and (vi) a decrease in accounts payable and accrued liabilities of $36,000.

We currently intend to retain all available funds and any future earnings for use in the operation of our business. We have never declared or paid any cash dividends on our common stock and do not anticipate paying any cash dividends in the foreseeable future.

Because of the challenges to the CEA industry economy and the specific challenges of our business, we cannot predict the continuing level of working capital that we will have in the future. As mentioned elsewhere, we have taken steps to conserve our cash resources by reducing staff and taking other cost-cutting measures and we will continue to evaluate further such measures in the future.

Summary of Cash Flows

The following summarizes our approximate cash flows for the three months ended March 31, 2025 and March 31, 2024:

Operating Activities

We incurred a net loss for the three months ended March 31, 2025 of $1,069,000 and have an accumulated deficit of $41,405,000 as of March 31, 2025.

Cash used in operations for the three months ended March 31, 2025 was $745,000 compared to cash used in operating activities of $909,000 for the three months ended March 31, 2024, a decrease of $164,000.

The decrease in cash used in operating activities during the three months ended March 31, 2025, as compared to the three months ended March 31, 2024, was primarily attributable to: (i) a decrease in cash used to fund working capital of $351,000, (ii) an increase in net loss of $152,000, and (iii) a decrease in non-cash operating charges of $35,000.

The decrease in our working capital was primarily related to (i) a decrease in cash of $745,000, (ii) a decrease in prepaid and other expenses of $186,000, (iii) an increase in deferred revenue of $131,000, and (iv) a decrease in the current portion of our right-of-use asset of $28,000, (v) an increase in accounts receivable (net) of $44,000, and (vi) a decrease in accounts payable and accrued liabilities of $36,000.

Investing Activities

There were no cash flows from investing activities during the three months ended March 31, 2025 or the three months ended March 31, 2024.

Financing Activities

There were no cash flows from financing activities during the three months ended March 31, 2025 and March 31, 2024.

Inflation

Our operations are being influenced by the inflation in the larger economy and in the industries related to building renovations, retrofitting and new build CEA facilities in which we operate. We believe that we will continue to face inflationary increases in the cost of products and our operations, which will adversely affect our margins and financial results and the pricing of our service and product supply contracts. Inflation is reflected in higher wages, increased pricing of equipment, delivery and transportation costs, and general operational expenses. As we move forward, we plan to continuously monitor our various contract terms and may decide to add clauses that will permit us to adjust pricing if inflation and price increase pressures on us will impact our ability to perform our contracts and maintain our margins.

Contractual Payment Obligations

As of March 31, 2025, our contractual payment obligations consisted of a building lease. Refer to Note 2 – Leases of the notes to the condensed consolidated financial statements, included as part of this Quarterly Report for a discussion of our building lease.

Commitments and Contingencies

Refer to Note 6 – Commitments and Contingencies of the notes to the condensed consolidated financial statements, included as part of this Quarterly Report for a discussion of commitments and contingencies.

Off-Balance Sheet Arrangements

We are required to disclose any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that are material to investors. As of March 31, 2025, we had no off-balance sheet arrangements. During the three months ended March 31, 2024, we did not engage in any off-balance sheet financing activities other than those included in the “Contractual Payment Obligations” discussed above and those reflected in Note 6 of our condensed consolidated financial statements.

Critical Accounting Estimates

This discussion and analysis of our financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America. Certain accounting policies are particularly important to the understanding of our financial position and results of operations and require the application of significant judgment by our management or can be materially affected by changes from period to period in economic factors or conditions that are outside of our control. As a result, they are subject to an inherent degree of uncertainty. In applying these policies, management uses their judgment to determine the appropriate assumptions to be used in the determination of certain estimates. Those estimates are based on our historical operations, our future business plans and projected financial results, the terms of existing contracts, observance of trends in the industry, information provided by our customers, and information available from other outside sources, as appropriate. Actual results could materially differ from those estimates. Key estimates include: allocation of transaction prices to performance obligations under contracts with customers, standalone selling prices, timing of expected revenue recognition on remaining performance obligations under contracts with customers, valuation of intangible assets, valuation of equity-based compensation, valuation of deferred tax assets and liabilities, warranty accruals, accounts receivable and inventory allowances, and legal contingencies.

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

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Principal Financial and Accounting Officer, both of which positions are held by the same person, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and Principal Financial and Accounting Officer concluded that as a result of material weaknesses in our internal control over financial reporting as described in Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC, our disclosure controls and procedures were not effective as of March 31, 2025.

We did not maintain effective controls over certain aspects of the financial reporting process because: (i) we lack a sufficient complement of personnel with a level of accounting expertise and an adequate supervisory review structure that is commensurate with our financial reporting requirements, (ii) there is inadequate segregation of duties due to our limited number of accounting personnel, and (iii) we have insufficient controls and processes in place to adequately verify the accuracy and completeness of spreadsheets that we use for a variety of purposes including revenue, taxes, stock-based compensation and other areas, and place significant reliance on, for our financial reporting.

We intend to take appropriate and reasonable steps to make the necessary improvements to remediate these deficiencies in the future when our financial assets and our operations would support the requirements of additional personnel. We are committed to continuing to improve our financial organization, when we are able, including, without limitation, expanding our accounting staff and improving our systems and controls to reduce our reliance on the manual nature of our existing systems. However, due to our size and our financial resources, remediating the several identified weaknesses has not been possible and may not be economically feasible now or in the future.

Changes in Internal Control over Financial Reporting

There were no changes identified in connection with our internal control over financial reporting during the three months ended March 31, 2025, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

In addition to the information set forth in this Form 10-Q, you should also carefully review and consider the risk factors contained in our other reports and periodic filings with the SEC, including, without limitation, the risk factors and uncertainties contained under the caption “Item 1A—Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2024, that could materially and adversely affect our business, financial condition, and results of operations. The risk factors discussed in that Form 10-K do not identify all risks that we face because our business operations could also be affected by additional factors that are not known to us or that we currently consider to be immaterial to our operations.