AppTech Payments Corp.: Form 10-Q/A for the period ended Sep 30, 2024

The following discussion and analysis of our financial condition and results of operations should be read together with the audited consolidated financial statements and related notes included elsewhere in this report. Certain statements contained in this report, including statements regarding the anticipated development and expansion of our business, our intent, belief or current expectations, primarily with respect to the future operating performance of our company and the products and services we expect to offer and other statements contained herein regarding matters that are not historical facts, are “forward-looking” statements. Our Management’s Discussion and Analysis contains not only statements that are historical facts, but also forward-looking statements which involve risks, uncertainties, and assumptions. Because forward-looking statements are inherently subject to risks and uncertainties, our actual results may differ materially from the results discussed in the forward-looking statements.

Business Overview

The financial services industry is going through a period of intensive growth driven by the advancement of technology and the rapid rise of contactless transactions due to societal changes, in part, as a response to COVID-19. End-users expect ease of use and an enhanced user experience in all their daily financial interactions. In this rapidly evolving digital marketplace, businesses have broad and frequently changing requirements to meet consumer expectations and operational efficiencies to maintain their competitive edge.

To flourish in this environment, businesses need to adopt new technologies to engage, communicate and process payments and manage payouts with their customers from a supplier that widely supports innovation and adaptation as the industry evolves. We believe our technologies will greatly increase the adoption of omni-channel payments and digital banking solutions in sectors that must quickly adapt and migrate to new, secure digital Fintech technologies. By embracing advancements in the payment and banking industries, we are well-positioned to meet the growing needs of existing and prospective clients and intend for our current and future products to be at the forefront of solving these accelerated market needs.

AppTech’s all-in-one Fintech platform, FinZeo™, delivers best-in-class financial technologies and capabilities through an ever-evolving modular cloud/edge-based architecture. The FinZeo platform houses a large array of financial products and services that can be implemented off-the-shelf or customized via modern APIs. Within its FinZeo platform, AppTech offers Payments-as-a-Service (“PaaS”), Banking-as-a-Service (“BaaS”), and the Commerse™ Portal.

FinZeo provides PaaS via integrated solutions for frictionless digital and mobile payment acceptance. These solutions provide advanced payment processing solutions by catering to the unique needs of each merchant. FinZeo’s PaaS solutions include ACH (automatic clearing house), credit & debit cards, eCheck, mobile processing, electronic billing, and text-to-pay. PaaS will also solve for multi-use case, multi-channel, API-driven, account-based issuer processing for card, digital tokens, and payment transfer transactions.

AppTech is positioned to further accelerate digital transformation through BaaS, layered with financial management tools that empower financial institutions to provide businesses, professionals, and individuals with the ability to better manage their finances anywhere, anytime at a fraction of the cost of traditional banking and financial services. BaaS fosters an ecosystem of immersive and scalable digital financial management services, including FinZeo’s groundbreaking automated underwriting portal. By digitizing the underwriting process, Automated Underwriting expedites business onboarding with its intuitive digital application and e-signature capabilities. This portal offers customizable pricing, risk models, and access to multiple processors, ensuring tailored solutions for diverse needs.

The Commerse Portal empowers Independent Sales Organizations (ISOs) and Independent Software Vendors (ISVs) to seamlessly integrate their businesses, facilitating swift technology adoption. By leveraging the Commerse portal, ISOs/ISVs can streamline operations and foster growth, meeting the economic demands of their merchants. Through personalized portals, ISOs/ISVs have the flexibility to select and integrate FinZeo payments and banking services, thereby enhancing their offerings to clients.

FinZeo has a flexible architecture and can be fully white labeled to allow for rich, personalized payment and banking experiences. This cloud-based platform packages together elements of AppTech’s intellectual property, BaaS, PaaS and Commerse™ Portal to create a one-hub connection point of multi tenant portals giving the merchant, ISO/ISV, and each customer a well-defined user experience.

AppTech was reincorporated in Delaware on December 23, 2021. During this time, the business name was changed to AppTech Payments Corp. AppTech’s executive offices are located at 5876 Owens Avenue, Suite 100, Carlsbad, California 92008. The Company’s phone number is (760) 707-5959. The Company’s website address is www.apptechcorp.com (http://www.apptechcorp.com). AppTech does not incorporate the information on or accessible through our website into this report. The Company has included our website address in this report solely as an inactive textual reference.

Recent Developments

Private Placement Offering of Warrants for Armistice Capital Master Fund Ltd.

On February 2, 2023, AppTech sold to Armistice Capital Master Fund Ltd. (“Armistice”) in a private placement, certain warrants to purchase up to 1,666,667 shares of the Company’s common stock at an exercise price of $4.64 per share (the “February 2023”). The February 2023 Warrants are exercisable six months following the issue date and will expire five and one-half years from the issue date. The February 2023 Warrants were issued pursuant to an exemption from the registration requirements of the Securities Act provided in Section 4(a)(2) of the Securities Act and/or Rule 506(b) of Regulation D promulgated thereunder.

In October 2023, AppTech sold to Armistice certain warrants to purchase up to 1,666,667 shares of the Company’s common stock at an exercise price of $2.74 per share (the “October 2023 Warrants”). The October 2023 Warrants are exercisable from October 24, 2023 until October 24, 2028 (five years from the initial exercise date). The issuance of the shares of common stock issuable upon exercise of the October 2023 Warrants is registered pursuant to an effective registration statement on Form S-3 (File No. 333-265526).

On August 28, 2024, AppTech entered into a definitive agreement with Armistice for the exercise of the October 2023 Warrants at a reduced exercise price of $0.70 per share (the “Warrant Inducement Agreement”). Pursuant to the Warrant Inducement Agreement, in consideration for the immediate exercise of the October 2023 Warrants for cash, on August 30, 2024, AppTech issued the New Warrants to Armistice to purchase up to an aggregate of 3,333,334 shares of common stock (the “New Warrant Shares”) at an exercise price of $0.70 per share (the “Inducement Transaction”). The New Warrants will be exercisable six months following the date of issuance and have a term of five and one-half years from the date of issuance. Pursuant to the Warrant Inducement Agreement, AppTech is prohibited from entering into subsequent equity sales, subject to certain exceptions, for a 45-day period commencing on the closing date of the Inducement Transaction. Furthermore, AppTech is prohibited from entering into any agreement to issue common stock or common stock equivalents involving a Variable Rate Transaction (as defined in the Warrant Inducement Agreement), subject to certain exceptions, for a six-month period commencing on the closing date of the Inducement Transaction.

In connection with the Inducement Transaction, AppTech also entered into a certain Warrant Amendment Agreement (the “Warrant Amendment Agreement”) with Armistice, to amend the February 2023 Warrants to purchase up to 1,666,667 shares of common stock, such that the February 2023 Warrants will have a reduced exercise price of $0.70 per share and will expire five and one-half years from August 30, 2024.

The October 2023 Warrant Shares and the New Warrant Shares were later registered under the Securities Act pursuant to the registration statement on Form S-1 (File No. 333- 282388), which was declared effective by the SEC on October 11, 2024.

Private Placement Offering of Common Stock, Debenture and Warrants

On July 11, 2024, AppTech closed a private placement offering (the “Private Placement”) of $1,100,000 in principal amount of its 6% convertible debenture (“Debenture”) to Peak One Investments, LLC and a warrant (the “Peak One Warrant”) to purchase up to 750,000 shares of its common stock to Peak One Investments, LLC. Pursuant to a certain Securities Purchase Agreement, dated as of July 10, 2024 (“Securities Purchase Agreement”), the Debenture was sold to Peak One Opportunity Fund, L.P. for a purchase price of $1,000,000 (the “Purchase Price”), representing an original issue discount of ten percent (10%).

The Peak One Warrant expires five years from its date of issuance. The Peak One Warrant is exercisable, at the option of the holder, at any time, for up to 750,000 shares of the Company’s common stock (the “Peak One Warrant Shares”) at an exercise price equal to $1.16 (the “Exercise Price”), subject to adjustment for any stock splits, stock dividends, recapitalizations and similar events and in the event AppTech, at any time while the Peak One Warrant is outstanding, issues, sells or grants any option to purchase, or sells or grants any right to reprice, or otherwise disposes of, or issues common stock or other securities convertible into, exercisable for, or otherwise entitle any person the right to acquire, shares of common stock, at an effective price per share that is lower than the then Exercise Price. In the event of any such anti-dilutive event, the Exercise Price will be reduced at the option of the holder to such lower effective price of the dilutive event.

In connection with the Private Placement, we paid a placement fee of $70,000, a non-accountable fee of $20,000, and certain legal fees. We also agreed to issue an aggregate of 100,000 shares of restricted common stock (the “Commitment Shares”) on the closing date as follows: 50,000 of the Commitment Shares to Peak One and 50,000 of the Commitment Shares to Peak One Investments.

In connection with the Private Placement, AppTech entered into a Registration Rights Agreement, dated July 10, 2024, with Peak One Opportunity Fund, L.P. where AppTech agreed to file a registration statement within 30 days of the date of the Securities Purchase Agreement to register the Commitment Shares, the shares of the Company’s common stock issuable under the Debenture and the Peak One Warrant, and shares of common stock issued to Peak One Opportunity Fund, L.P. and Peak One Investments, LLC as a result of any stock split, stock dividend, recapitalization, exchange or similar event or otherwise, without regard to any limitation on beneficial ownership in the Debenture or Peak One Warrant, with the Securities and Exchange Commission.

The Securities Purchase Agreement and the Registration Rights Agreement contain customary representations, warranties, agreements and conditions to completing future sale transactions, indemnification rights and obligations of the parties. The securities were sold in reliance upon an exemption from registration contained in Section 4(a)(2) of the Securities Act and Regulation D promulgated thereunder.

The Peak One Warrant Shares, the Commitment Shares and the shares of the Company’s common stock issuable under the Debenture were later registered under the Securities Act pursuant to the registration statement on Form S-1 (File No. 333-281409), which was declared effective by the SEC on August 22, 2024. In connection with the Inducement Transaction between AppTech and Armistice Capital Master Fund Ltd., the exercise price of the Peak One Warrant was reduced to $0.70 per share. Effective as of August 29, 2024, the Peak One Warrant was exercised cashless pursuant to the terms of the Peak One Warrant, resulting in the issuance of 521,739 freely tradeable shares of the Company’s common stock.

Failure to Satisfy a Continued Listing Rule

On May 9, 2024, AppTech received a deficiency notification from Nasdaq due to the Company’s common stock trading below the minimum bid price of $1.00 for thirty consecutive business days, as required by Nasdaq. While the notice does not currently affect the Company’s listing, AppTech Payments Corp. has until November 5, 2024, to regain compliance.

On August 21, 2024, AppTech received another deficiency letter (the “August Deficiency Letter”) from the Staff of Nasdaq notifying AppTech that, AppTech is not in compliance with Nasdaq Listing Rule 5550(b)(1) (the “Listing Rule”), which requires AppTech to maintain a minimum of $2,500,000 in stockholders’ equity for continued listing, and AppTech also does not meet the alternatives of market value of listed securities or net income from continuing operations. The August Deficiency Letter has no immediate effect on the listing of the Company’s securities, and the Company’s common stock and warrants will continue to trade on The Nasdaq Capital Market under the symbols “APCX” and “APCXW”, respectively, at this time.

The Notice states that AppTech has 45 calendar days, or until October 7, 2024, to submit a plan to regain compliance. The Company submitted an updated compliance plan to Nasdaq on October 25, 2024, detailing steps to regain and maintain compliance. If Nasdaq accepts the Company’s plan, Nasdaq may grant the Company an extension of up to 180 calendar days from the date of the Notice, to evidence compliance with the Listing Rule. If Nasdaq does not accept the Company’s plan, the Company will have the opportunity to appeal the decision to a Nasdaq Hearings Panel. There can be no assurance that the Company will be able to regain or maintain compliance with Nasdaq listing criteria.

AppTech intends to monitor the closing bid price of its common stock and may, if appropriate, consider available options to regain compliance with the Minimum Bid Price Requirement, including initiating a reverse stock split. However, there can be no assurance that the Company will be able to regain compliance with the Minimum Bid Price Requirement or will otherwise be in compliance with other Nasdaq Listing Rules.

On November 6, 2024, Nasdaq issued a Staff Determination Letter, notifying the Company that its securities are subject to delisting from The Nasdaq Capital Market. The Company has until November 13, 2024, to appeal this determination by requesting a hearing with a Nasdaq Hearings Panel. The Company formally requested a Hearing on November 12, 2024, to appeal this determination with a Nasdaq Hearings Panel. The Company is waiting for a Hearing date, which is expected to be 40-60 days from the request. When the Company appealed and requested the hearing, the delisting action was stayed pending the Hearing Panel's decision. Otherwise, trading in the Company's securities would have been suspended at the opening of business on November 15, 2024, and Nasdaq would have filed a Form 25-NSE with the SEC to formally delist the securities.

Financial Operations Overview

The following discussion sets forth certain components of our statements of operations as well as factors that impact those items (in thousands, except per share data).

Revenues

Our Revenues. We derive our revenue by providing financial processing services to businesses.

Expenses

Cost of Revenue. Cost of revenue includes costs directly attributable to processing and other services the company provides. These also include related costs such as residual payments to our business development partners, which are based on a percentage of the net revenue generated from client referrals.

General and administrative. General and administrative expenses include professional services, rent and utilities, and other operating costs.

Research and development. Research and development costs include costs of acquiring patents and other unproven technologies, contractor fees and other costs associated with the development of the SMS short code texting platform, contract and outside services.

Interest expense, net. Our interest expense consists of interest on our outstanding indebtedness and amortization of debt issuance costs.

Results of Operations

This section includes a summary of our historical results of operations, followed by detailed comparisons of our results for the three and nine months ended September 30, 2024 and 2023, respectively.

Revenue

Revenue was approximately $43 thousand and $140 thousand for the three months ended September 30, 2024 and 2023, representing a decrease of 69%. The decrease was principally driven by $34 thousand lower merchant processing revenue and $62 thousand lower licensing fee.

Revenue was approximately $224 thousand and $363 thousand for the nine months ended September 30, 2024 and 2023, representing a decrease of 38%. The decrease was principally driven by $161 thousand lower merchant processing revenue and offset by $21 thousand higher licensing fee.

Cost of Revenue

Cost of revenue was approximately $24 thousand and $44 thousand for the three months ended September 30, 2024 and 2023, respectively, representing a decrease of 45%, driven primarily by a decrease in residual payouts.

Cost of revenue was approximately $49 thousand and $159 thousand for the nine months ended September 30, 2024 and 2023, representing a decrease of 69%, driven primarily by a decrease in residual payouts.

General and Administrative Expenses

General and administrative expenses were approximately $1.9 million and $2.2 million for the three months ended September 30, 2024 and 2023, respectively, representing a decrease of 16%. The decrease was primarily driven by lower stock based compensation.

General and administrative expenses were approximately $6.7 million and $7.1 million for the nine months ended September 30, 2024 and 2023, respectively, representing a decrease of 6%. The decrease was primarily driven by lower stock based compensation.

Research and Development Expenses

Research and development expenses were approximately $0.0 million and $0.8 million for the three months ended September 30, 2024 and 2023, respectively. The decrease was primarily due to the reclassification of $557 thousand in expenses as capitalized software development costs.

Research and development expenses were approximately $1.3 million and $2.8 million for the nine months ended September 30, 2024 and 2023, respectively. The decrease was primarily due to lower stock based compensation approximately $0.8 million, and the reclassification of $557 thousand in expenses as capitalized software development costs.

Impairment of Intangible Assets

Impairment of intangible assets were approximately $0 and $6.1 million for the nine months ended September 30, 2024 and 2023. On May 4, 2023, the Company notified Infinios of its intent to terminate its relationship. Infinios turned off all its services in June 2023 and the Company wrote-off the $6.1 million capitalized asset as it was deemed to be impaired. See Note 3 Intangible Assets - Capitalized Development Cost and Prepaid Licenses, and Note 7 - Commitments and Contingencies.

Interest Expense, net

Interest expense, net was approximately $18 thousand for the three months ended September 30, 2024, compared to interest expense, net at $4 thousand for the three months ended September 30, 2023. The increase in interest expense was primarily due to the Company’s interest on a new convertible note in July 2024.

Interest expenses, net was approximately $53 thousand and $48 thousand for the nine months ended September 30, 2024 and 2023, respectively. The increase was primarily due to a new convertible note in July 2024.

Change in Fair Value of Derivative Liability

Change in fair value of derivative liability was approximately $0 and $0 for the three months ended September 30, 2024 and 2023.

Change in fair value of derivative liability was approximately $0 and $27 thousand for the nine months ended September 30, 2024 and 2023, respectively. The decrease was primarily due to the Company’s settlement of derivative liabilities in April 2023.

Other income (expenses)

Other expense was approximately $6 thousand and $5 thousand for the three months ended September 30, 2024 and 2023.

Other expense was approximately $8 thousand for the nine months ended September 30, 2024, and other income was $711 thousand for the nine months ended September 2023. The decrease was primarily driven by $430 thousand gain from cancellation of stock repurchase liabilities during the three months ended March 31, 2023, and, the Company’s repayment of derivative liabilities in April 2023.

Liquidity and Capital Resources

As of September 30, 2024, we had cash and cash equivalents of approximately $104 thousand, working capital of negative $4.8 million, and stockholders’ equity of approximately $1.4 million.

During the nine months ended September 30, 2024, we met our immediate cash requirements through existing cash balances, public offerings, “at-the-market” offerings (ATM), and debt financing.

Additionally, we used equity and equity-linked instruments to pay for services and compensation.

See Note 8 – Stockholders’ Equity.

Management’s Plan to Address Going Concern Considerations

The Company has experienced recurring operating losses, primarily due to limited revenues. The Company’s current financial conditions and recurring losses raise substantial doubt about its ability to continue as a going concern.

Management is actively pursuing additional funding options and is confident that it will begin generating revenue during the following twelve months from the issuance date of these financial statements, although no assurances can be made.

Management undertook cost cutting measures to lower its expenses and it intends to maintain adequate working capital and adhere to prudent financial forecasting.

Cash Flows

The following table presents a summary of cash flows from operating, investing and financing activities for the following comparative periods (in thousands).

Nine Months Ended September 30, 2024 and 2023

Cash Flow from Operating Activities

Net cash used in operating activities during the nine months ended September 30, 2024, was approximately $5.0 million, which is comprised of (i) our net loss of approximately $8.0 million, adjusted for non-cash expenses totaling $2.6 million (which includes adjustments for equity-based compensation, depreciation and amortization), and (ii) changes in operating assets and liabilities of approximately $449 thousand.

Net cash used in operating activities during the nine months ended September 30, 2023 was approximately $6.5 million, which is comprised of (i) our net loss of $15.1 million, adjusted for non-cash expenses totaling $9.1 million (which includes adjustments for equity-based compensation, depreciation and amortization), and (ii) decreased by changes in operating assets and liabilities of approximately $0.5 million.

Cash Flow from Investing Activities

There was $567 thousand and $50 thousand cash used in investing activities during the nine months ended September 30, 2024 and 2023, respectively.

Cash Flow from Financing Activities

During the nine months ended September 30, 2024, net cash provided by financing activities was approximately $4.4 million. This amount primarily consists of $1.8 million in net proceeds from the issuance of common shares in our public offering, $0.7 million from the At-The-Market (ATM) offering, $910 thousand proceeds from convertible note payable, and $1.0 million proceeds from exercise of warrants.

Net cash provided by financing activities during the nine months ended September 30, 2023 was approximately $3.4 million, which principally consists of net proceeds of $5.2 million through the issuance of common shares and warrants in our public offering, offset by repayments of the Loan forbearance Agreements in full.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Significant estimates include those related to the valuation of goodwill impairment and intangible assets, and equity-based compensation. These estimates are based on historical experience and assumptions believed to be reasonable under current conditions. It’s important to note that actual results could differ from these estimates.

Critical accounting policies are those that we consider the most critical to understanding our financial condition and results of operations. The accounting policies we believe to be most critical to understanding our financial condition and results of operations are discussed below. As of September 30, 2024, there have been no significant changes to our critical accounting estimates nor to our recently issued accounting pronouncements, except as described in Note 2 to our consolidated financial statements.

Equity-Based Compensation: We estimate the fair value of stock options granted using the Black-Scholes option pricing model, which requires input of subjective assumptions. The model inputs include expected stock price volatility, expected term, risk-free interest rate, and dividend yield. The assumptions about future stock price volatility and the option’s expected term involve significant judgments based on historical data and future expectations. The reported equity-based compensation expense is sensitive to changes in the volatility assumption. An increase in expected volatility could materially impact the amount of compensation expense recognized.

Intangible Assets: Identifiable intangible assets, distinguishable either by separability from the acquired entity or through contractual or other legal rights, are valued and reported independently from goodwill. These assets include, but are not limited to, trademarks, customer relationships, proprietary technology, and patents. The fair value of these intangible assets is determined at the time of acquisition and is subject to subsequent impairment tests.

The fair value of identifiable intangible assets is estimated using income, market, or cost approach methods. The income approach, often applied through the discounted cash flow (DCF) method, involves projecting future cash flows attributable to the asset and discounting them to present value using a discount rate that reflects the risk associated with those cash flows. The estimation of fair value is inherently uncertain due to the assumptions and judgments involved in projecting future cash flows, determining appropriate discount rates, and estimating the useful life of each asset.

Over the reporting period, changes in market conditions, technological advancements, or strategic shifts in the business may necessitate revisions to the assumptions used in the valuation of identifiable intangible assets. Management closely monitors these factors and will adjust the valuation of intangible assets as appropriate, reflecting the impact of any such changes in our financial statements.

Goodwill Impairment

Goodwill Impairment Testing: The process requires an annual test for impairment of goodwill, and more frequent testing if certain indicators suggest that the goodwill might be impaired. This assessment involves comparing the carrying amount of a reporting unit, including goodwill, to its fair value. Key estimates in determining fair value include: a) Cash Flow Projections: Utilizing the DCF method, management estimates future cash flows based on current performance, business plans, and expected market growth, introducing judgment due to forecasting uncertainties. b) Discount Rate: The discount rate, reflecting the WACC and adjusted for unit-specific risks, is crucial for present value calculations, with changes significantly affecting fair value estimations; c) Long-term Growth Rates: Assumptions on sustainable growth rates impact the terminal value in the DCF model, thus influencing the overall fair value of the reporting unit.

Impairment Loss Calculation: The impairment loss, representing the excess of the carrying amount of goodwill over its implied fair value, is highly sensitive to the estimates and assumptions used in the fair value calculation. Small changes in cash flow projections, discount rates, or long-term growth rates can result in significant adjustments to the impairment loss recognized in the income statement. Given the dynamic nature of business conditions, technological advancements, and market competition, estimates used in goodwill impairment testing may change from one period to another. Management is tasked with regularly reviewing and updating these estimates to reflect the latest available information and market conditions.

Once an impairment loss is recognized, it is not reversible in subsequent periods. This finality places additional importance on the accuracy and reasonableness of the underlying estimates and assumptions.

Impairment of Long-Lived Assets

Our company evaluates long-lived assets, including capitalized software, for impairment when there are indicators that the carrying amount may not be recoverable. This process involves comparing the carrying amount to the expected future undiscounted cash flows from the asset. If the carrying amount exceeds the expected cash flows, an impairment charge is recognized to reduce the asset’s carrying amount to its fair value.

Indicators of impairment include significant underperformance against projections, market or economic downturns, and technological obsolescence. The fair value is determined using market data or discounted cash flow models. An impairment loss is recorded as an expense immediately.

Recent Accounting Pronouncements

As of September 30, 2024, there have been no significant changes to our recently issued accounting pronouncements, except as described in Note 2 to our consolidated financial statements.

Off-Balance Sheet Arrangements

We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, that would have been established to facilitate off-balance sheet arrangements (as that term is defined in Item 303(a)(4)(ii) of Regulation S-K) or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in those types of relationships. We enter into guarantees in the ordinary course of business related to the guarantee of our own performance.

Because we are allowed to comply with the disclosure obligations applicable to a “smaller reporting company,” as defined by Rule 12b-2 of the Exchange Act, with respect to this Form 10-Q, we are not required to provide the information required by this item.

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including the Chief Executive Officer and the Chief Financial Officer, we evaluated the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of September 30, 2024.

Changes in Internal Control over Financial Reporting

There have not been any changes in our internal control over financial reporting during the nine months ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

As a smaller reporting company, as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information required by this Item.