Hycroft Mining Holding Corp: Form 10-Q for the period ended Jun 30, 2024

The following discussion, which has been prepared based on information available to us as of August 6, 2024, provides information we believe is relevant to an assessment and understanding of our consolidated operating results and financial condition. The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements for the three and six months ended June 30, 2024 (the “Financial Statements”) and the notes thereto (the “Notes”) included in this Quarterly Report on Form 10-Q for the three and six months ended June 30, 2024, as well as our other reports filed with the Securities and Exchange Commission (“SEC”) from time to time, including, but not limited to, our Annual Report on Form 10-K for the year ended December 31, 2023*. Terms not defined herein have the same meaning defined in the Financial Statements and the Notes.*

Introduction to the Company

We are a U.S.-based gold and silver exploration and development company that owns the Hycroft Mine in Nevada, USA. We are focused on exploring the Hycroft Mine’s claims comprising approximately 64,000 acres, and developing the Hycroft Mine in a safe, environmentally responsible, and cost-effective manner. We ceased mining activities in November 2021, and as of December 31, 2022, we completed processing of gold and silver ore previously placed on leach pads. We do not expect to generate significant revenues from gold and silver sales until after completing the technical work and recommencing mining operations.

Health and Safety

We believe safety is a core value and support that belief through our philosophy of safe work performance. Our mandatory mine safety and health programs include employee engagement and ownership of safety performance, accountability, employee and contractor training, risk management, workplace inspection, emergency response, accident investigation, anti-harassment, and program auditing. This integrated approach is essential to ensure that our employees, contractors, and visitors operate safely.

We reported no lost time incidents during the first half of 2024 and continue to operate in excess of one million workhours without a lost time incident. The Hycroft Mine’s total recordable injury frequency rate (“TRIFR”) for the trailing 12 months, which includes other reportable incidents, is one of the metrics we use to assess safety performance, and it is well below industry averages and significantly below pre-2021 historical levels experienced at the Hycroft Mine. During the first six months of 2024, we continued our critical focus on safety, including allocating personnel, resources, workforce time, and communications to operate safely. These actions contributed to maintaining our TRIFR of 0.00 at June 30, 2024 and December 31, 2023. We will continue to evolve our safety efforts as needed to keep our workforce, contractors, and visitors safe.

Executive Summary

During the first six months of 2024, the Company continued its exploration drill program, completed portions of the metallurgical and variability test work, and continued to analyze new drill assay data and information received in the period. The ongoing metallurgical and variability test work continues to follow up on the March 2023 Hycroft Property Initial Assessment Technical Report Summary Humboldt and Pershing Counties, Nevada (“2023 Hycroft TRS”) that was completed utilizing a conventional crushing, grinding, and flotation circuit that generates a concentrate to be fed to a pressure oxidation (“POX”) autoclave facility commonly used for refractory gold ores. The Company is also focused on strengthening its balance sheet primarily by reducing debt and raising cash through its at-the-market (“ATM Program”). Additionally, on May 31, 2024, the Company implemented a new $100.0 million at-the-market public offering program (the “New ATM Program”). The Company voluntarily pre-paid $38.0 million of the senior secured debt with Sprott Resource Lending on January 5, 2024, and through the ATM Program and the New ATM Program has raised $10.4 million aggregate gross proceeds, before commissions and offering expense, during the first six months of 2024.

Recent Developments

2024 exploration drilling

In February 2024, the Company launched its 2024 exploration drill program (the “2024 Drill Program”), to follow up on the high-grade underground silver discovery announced in November 2023. The 2023 drilling reflected significant high-grade silver mineralization that has continuity with historical drilling along trends not previously identified. The objective of the 2024 Drill Program is to define the structural framework of these new trends and identify target areas that have not been drilled to establish continuity of the two high-grade silver trends. The 2024 Drill Program has been expanded to approximately 6,200 meters of core drilling, of which approximately 4,000 meters of drilling have been completed. The current program is targeted to define the structural framework of the two new high-grade silver trends and target those areas that have not been drilled to establish continuity of the two high-grade silver trends. Additionally, the Company completed Induced Polarity (“IP”) geophysical surveys with results expected in the third quarter of 2024. The 2024 Drill Program and geophysical surveys will help with the Company’s understanding of the structural controls observed in the two high-grade silver trends and potentially expand the Hycroft mineralization to the east in a previously unexplored area mostly within the current plan of operation.

Metallurgical and variability test work

During the six months ended June 30, 2024, the Company advanced with metallurgical test and design work necessary for designing a sulfide milling operation. The Company has been actively testing composite samples from around the ore body that represents the various material characteristics in the sulfide ore. Crushing, grinding, and flotation work has identified significant improvements in gold and silver recoveries compared to the current technical report that increase the economic benefits to the project. Roasting, leaching, sulfuric acid generation, and power co-generation work progressed during the quarter ended June 30, 2024. Process plant flow sheets, equipment selection, plant layout, tailing storage facility designs, and other designs continued to be developed. With the roasting option, there is a significant quantity of sulfuric acid generated and the Company engaged a third-party specialist to complete a focused market study and to assist in identifying local and regional markets with specific current and emerging consumers. The Company is still conducting trade-off studies to determine if utilizing roasting technology instead of pressure oxidation technology could further deliver superior economics for the Hycroft Mine.

2024 Outlook

The Company’s current plan is to operate safely as it continues exploration drilling and data analyses, completing technical studies, conducting trade-off studies and alternatives analyses for determining the optimal process flow sheet for processing sulfide ores and recovering gold and silver, maintaining the Hycroft Mine and strengthening its balance sheet.

The 2024 Drill Program is designed to test the lateral and at depth extensions of the newly discovered high-grade silver trends at Brimstone and Vortex. This new system remains open in all directions and at depth having the potential to expand and be developed as an underground mine. Additionally, geophysical surveys and structural geology reviews in the first half of 2024 have identified anomalous opportunities in and around the primary resource area indicative of high-grade mineralization. The anomalies have created a target area two kilometers north to south and extending one kilometer east of the current resource pit, which is mostly within the current plan of operation. The Company is in the process of refining drill targets for these areas.

The Company continues to evaluate various process alternatives to economically improve gold and silver recoveries while developing potential additional, meaningful by-product revenue streams. The trade-off studies and alternatives analyses include different grinding methods, various flotation cell configurations, sulfide conversion through pressure oxidation and roasting, and process flow sheet development. This additional work is expected to be completed over the coming months and as a result, the Company will provide updates on the anticipated timing of the process flow sheet and the associated technical report as information becomes available.

Results of Operations

Projects, exploration, and development

During the three and six months ended June 30, 2024, Projects, exploration, and development costs totaled $5.1 million and $10.0 million, respectively, compared to $5.3 million and $8.8 million, respectively, for the same periods of 2023. Projects, exploration, and development costs were related to: (i) completing technical studies; (ii) conducting geological studies; (iii) oversight and project management; and (iv) exploration drilling, engineering, and metallurgical activities. The increase of $1.2 million during the six months ended June 30, 2024 was the result of ongoing assay results and analysis from Phase 2 of the Company’s 2022-2023 Exploration Program and expanding the 2024 Drilling Program that was initiated in February 2024.

General and administrative

During the three and six months ended June 30, 2024, General and administrative expenses totaled $3.9 million and $6.8 million, respectively, compared to $3.7 million and $7.0 million, respectively, during the same periods of 2023.

Mine site period costs

During the three and six months ended June 30, 2024, Mine site period costs totaled $2.5 million and $5.1 million, respectively, compared to $2.8 million and $6.6 million, respectively, for the same periods of 2023. The decrease in spending was primarily due to reduced activities year over year associated with the mine site. Mine site period costs include costs related to maintaining the Hycroft Mine, including environmental, maintenance and administration costs. Effective January 1, 2023, the Company began reporting amounts for Mine site period costs as Operating expenses as this presentation aligns with how the business will be viewed and managed until such time that the Company further develops the Hycroft Mine and recommences mining operations.

Asset retirement obligation adjustment

During the three and six months ended June 30, 2024, the Company recognized a change in estimate to reflect updated reclamation regulations and a revised engineering design change for impervious cover placement on the Crofoot Heap Leach Pad, and a change in timing to begin and complete this stage of reclamation work at this facility. In accordance with the change in estimate, Asset retirement obligation increased $2.0 million and $4.0 million during the three and six months ended June 30, 2024, respectively, as the Company does not have mineral reserves, and accordingly, all costs are expensed until such time that it declares mineral reserves.

During the three and six months ended June 30, 2024 and June 30, 2023, the Company did not incur additional reclamation obligations associated with additional disturbances, other regulatory requirements, or changes in estimates.

Depreciation and amortization

Depreciation and amortization was $0.6 million and $1.2 million, respectively, for the three and six months ended June 30, 2024, compared to $0.7 million and $1.4 million, respectively, during the same periods of 2023.

Accretion

The Company recorded $0.3 million and $0.5 million of Accretion for the three and six months ended June 30, 2024, respectively, and $0.2 million and $0.4 million for the same periods of 2023, respectively. These expenses are related to the Company’s Asset retirement obligation and future reclamation costs. See Note 12 – Asset Retirement Obligation (“ARO”) to the Notes to the Financial Statements for further detail.

Interest expense

As detailed in Note 9 – Debt, Net in the Notes to the Financial Statements, Interest expense totaled $3.2 million and $13.3 million for the three and six months ended June 30, 2024, respectively, compared to $4.6 million and $9.0 million, for the same periods in 2023. Included in Interest expense for the first half of 2024 was $6.9 million of accelerated amortization of original issue discount and issuance costs. On January 5, 2024, the Company voluntarily prepaid $38.0 million of its first lien debt. The original issue discount and issuance costs were expensed on a prorated basis in line with the prepaid amount of the debt.

The decrease of $1.4 million for the three months ended June 30, 2024 compared to the same period in 2023 was primarily due to the January 2024 voluntary prepayments the Company made on the first lien debt. The increase of $4.3 million for the six months ended June 30, 2024 compared to the same period in 2023 was primarily due to the $6.9 million of accelerated amortization of original issue discount and issuance costs related to the voluntary prepayments.

Interest income

Interest income totaled $1.1 million and $2.4 million for the three and six months ended June 30, 2024, respectively, compared to $2.1 million and $4.1 million, respectively, for the same periods in 2023. In July 2022, the Company began investing the majority of its cash balances in AAAm rated U.S. Government Money Market Funds that are readily convertible to cash. These investments earned the Company $0.8 million and $1.8 million in interest during the three and six months ended June 30, 2024, respectively, and $1.7 million and $3.4 million, respectively, for the same periods in 2023. In addition, the Company earned $0.3 million and $0.6 million on its Restricted cash during the three and six months ended June 30, 2024, respectively, as compared with $0.4 million and $0.7 million, respectively, for the same periods in 2023.

Other income, net

For the three and six months ended June 30, 2024, the Company recognized Other income of $3.3 million and $4.6 million, respectively, compared to $0.1 million and $0.3 million, respectively, for the same periods in 2023. The increase of $4.3 million for the six months ended June 30, 2024 included a $3.6 million gain on the sale of patents and a $1.6 million gain on a non-refundable deposit, partially offset by an unrealized loss on securities of $0.5 million and a loss of $0.1 million on the sale of equipment.

Income taxes

The Company incurred Nil net income tax expense or benefit for both the six months ended June 30, 2024 and June 30, 2023. See Note 16 – Income Taxes.

Liquidity and Capital Resources

General

The Company’s Cash and cash equivalents at June 30, 2024, were $58.5 million, as compared with $106.2 million at December 31, 2023. As discussed in Note 14 – Stockholders’ Equity in the Notes to the Financial Statements, the Company raised cash through its ATM Program as follows:

• On June 2, 2023, the Company filed a prospectus supplement reactivating the ATM Program and as of December 31, 2023, there was common stock available for issuance under the ATM Program with an aggregate offering sales price of up to $360.3 million. On March 19, 2024, the Company filed a prospectus supplement subject to Instruction I.B.6. to Form S-3, which is referred to as the baby shelf rule. For so long as the Company’s public float is less than $75.0 million, it may not sell more than the equivalent of one-third of its public float during any 12 consecutive months pursuant to the baby shelf rules. The prospectus supplement updated the remaining number of shares that the Company may sell through the ATM Program to an aggregate offering price of up to $15.3 million. On April 11, 2024, the Company’s public float exceeded the $75.0 million baby shelf threshold and on May 15, 2024, the Company filed a prospectus supplement subject to Instruction I.B.6 to Form S-3 updating the remaining number of shares that the Company may sell through the ATM Program to an aggregate offering price of up to $100.0 million.
• On May 15, 2024, the Company filed a new $350.0 million prospectus subject to Instruction I.B.6 to Form S-3, referred to as a universal shelf registration statement, that included the New ATM Program. The universal shelf registration statement became effective on May 31, 2024, at 4:00 p.m. Eastern Daylight Time, which replaced the prior universal shelf registration statement that was originally filed June 30, 2021.
• For the six months ended June 30, 2024, the Company sold 2,992,547 shares of common stock for aggregate gross proceeds, before commissions and offering expenses, of $10.4 million. The Company sold 2,474,859 shares of common stock for aggregate gross proceeds, before commissions and offering expenses, of $9.2 million during the second quarter of 2024 and the Company sold 517,688 shares of common stock for aggregate gross proceeds, before commissions and offering expenses, of $1.2 million in the first quarter of 2024.
• There were no sales of common stock under the New ATM Program during June 2024, accordingly up to $100.0 million of common stock was available for issuance under the New ATM Program at June 30, 2024.

As the Company completed recovering gold and silver ounces previously placed on the leach pad in 2022, the Company does not expect to generate net positive cash for the foreseeable future. Accordingly, the Company will be dependent on its unrestricted cash and other sources of cash to fund the business. Historically, the Company has been dependent on various forms of debt and equity financing to fund its business. While the Company has been successful in the past raising funds through equity and debt financings, no assurance can be given that additional financing will be available to it in amounts sufficient to meet the Company’s needs or on terms acceptable to the Company. If funds are unavailable, the Company may be required to materially change its business plan.

The Company’s future liquidity and capital resources management strategy entails a disciplined approach to monitor the timing and extent of any drilling, metallurgical and mineralogical studies while attempting to remain in a position that allows the Company to respond to changes in the business environment, such as a decrease in metal prices or lower than forecasted future cash flows, and changes in other factors beyond the Company’s control. The Company has undertaken efforts aimed at managing its liquidity and preserving its capital resources by, among other things: (i) monitoring metal prices and the impacts (near-term and future) they have on the business; (ii) ceasing open pit mining operations to reduce net cash outflows; (iii) reducing the size of the workforce to reflect the cessation of mining operations; (iv) controlling working capital and managing discretionary spending; (v) reviewing contractor usage and rental agreements for more economic options, including termination of certain agreements in accordance with their terms; (vi) decreasing Restricted cash balances that collateralize bonds, as available; (vii) planning the timing and amounts of capital expenditures and costs for drilling, metallurgical and technical studies costs at the Hycroft Mine; and (viii) deferring such items that are not expected to benefit our near term operating plans. The Company has undertaken and continues to undertake additional efforts including: (i) monetizing non-core equipment and excess supplies inventories; (ii) selling uninstalled mills that are not expected to be needed for a future milling operation; and (iii) working with existing debt holders to adjust debt service requirements.

In addition, the Company will continue to evaluate alternatives to raise additional capital necessary to fund the future development of the Hycroft Mine and will continue to explore other strategic initiatives to enhance stockholder value.

Cash and liquidity

The Company has placed substantially all its unrestricted cash in operating and investing accounts with well-capitalized financial institutions, thereby ensuring balances remain readily available. The Company uses AAAm rated U.S. Government Money Market Funds for its unrestricted cash investments. Due to the nature of its operations and the composition of current assets, Cash and cash equivalents, Income tax receivable, and Assets held-for-sale represent substantially all the liquid assets on hand.

The following table summarizes projected sources of future liquidity, as recorded within the Financial Statements (in thousands):

(1) In May 2024, the Company entered into an Equipment Purchase Agreement to sell two substation transformers for consideration of $2.0 million. As of June 30, 2024, the Company has received $0.3 million in non-refundable deposit payments.

(2) In August 2022, the Company entered into an Equipment Purchase Agreement to sell one ball mill and one SAG mill for consideration of $12.0 million. The agreement was amended in December 2022 to include two substation transformers for an additional amount of $1.6 million for a total amended equipment purchase price of $13.6 million, of which the Company had received payments totaling $1.6 million. As of December 31, 2023, the total deposit payments received was $1.6 million. Effective March 1, 2024, the buyer terminated a portion of the Equipment Purchase Agreement and effective April 5, 2024, the entire Equipment Purchase Agreement was terminated. Because the sale did not materialize, $1.5 million of the nonrefundable deposit payments was recognized as Other income in the first quarter of 2024, and $0.1 million of the nonrefundable deposit payments recognized as Other income in the second quarter of 2024.

Six months ended June 30, 2024 compared to six months ended June 30, 2023

The following table summarizes sources and uses of cash for the following periods (in thousands):

26

Cash used in operating activities

During the six months ended June 30, 2024, the Company used $20.3 million of cash in operating activities primarily attributable to a net loss of $33.9 million, the cash impact of which was $18.9 million. There was a $1.4 million deficit to working capital, including cash used for Other liabilities of $1.8 million. The largest non-cash items included in Net loss for the six months ended June 30, 2024, were Non-cash interest expense of $12.4 million and non-cash Asset retirement obligation adjustments of $4.0 million.

During the six months ended June 30, 2023, the Company used $22.4 million of cash in operating activities primarily attributable to a net loss of $27.8 million, the cash impact of which was $19.9 million. There was a $2.6 million deficit to working capital with the largest non-cash item included in Net loss for the six months ended June 30, 2023 being Non-cash interest expense of $6.0 million.

Cash provided by (used in) investing activities

For the six months ended June 30, 2024, investing activities generated cash of $1.3 million, comprised of Proceeds from the sale of patents of $1.4 million and Proceeds from the sale of equipment of $0.3 million, partially offset by Additions to property, plant, and equipment of $0.4 million.

For the six months ended June 30, 2023, investing activities used cash of $0.6 million primarily attributable to Additions to property, plant, and equipment of $0.7 million, partially offset by Proceeds from the sale of equipment of $0.1 million.

Cash used in financing activities

For the six months ended June 30, 2024, financing activities used cash of $28.0 million that was primarily related to principal payments on debt and notes payable including the $38.0 million voluntary prepayment of the first lien debt and $10.1 million from the Issuance of common stock.

For the six months ended June 30, 2023, financing activities used cash of $1.2 million that was primarily related to Principal payments on debt of $1.1 million and Principal payments on notes payable of $0.1 million.

Future capital and cash requirements

The following table provides the Company’s gross contractual cash obligations as of June 30, 2024, which are grouped in the same manner as they are classified in the Unaudited Condensed Consolidated Statement of Cash Flows in order to provide a better understanding of the nature of the obligations and to provide a basis for comparison to historical information. The Company believes that the following provides the most meaningful presentation of near-term obligations expected to be satisfied using current and available sources of liquidity (in thousands):

(1) The Company is required to pay a perpetual royalty equal to 1.5% of the net smelter returns from the Hycroft Mine (“Sprott Royalty Agreement”), payable monthly that also includes an additional amount for withholding taxes payable by the royalty holder. Amounts presented above incorporate mineral resource estimates as reported in the 2023 Hycroft TRS.

(2) Mining operations are subject to extensive environmental regulations in the jurisdictions in which they are conducted, and we are required, upon cessation of operations, to reclaim and remediate the lands that our operations have disturbed. The estimated undiscounted inflated cash outflows of these remediation and reclamation obligations are reflected here. In the above presentation, no offset has been applied for the $58.3 million of our reclamation bonds or for the $26.9 million of cash collateral for those bonds included in Restricted Cash.

(3) Interest payments consist of monthly payments under the Amended and Restated Credit Agreement (“Sprott Credit Agreement”) (as amended by the March 30, 2022 amended agreement (the “Second A&R Agreement”) at the minimum interest rate of 7.5%, monthly interest payments for other debt, and paid in kind interest associated with the subordinated debt paid at maturity.

(4) The Company is required to pay a 4% net profit royalty (Crofoot Royalty), including advance royalty payments of $0.1 million in any year where mining occurs on the Crofoot claims and an additional $0.1 million if tons mined from the Crofoot claim blocks exceed 5.0 million tons. See Note 22 – Commitments and Contingencies in the Notes to the Financial Statements for additional information. Amounts shown represent the current estimates of cash payment timing using consensus pricing for gold and silver.

(5) Repayments of principal on debt consists of amounts due under the Sprott Credit Agreement (as amended by the Second A&R Agreement), the amendment to the 10% Senior Secured Notes and Note Exchange Agreement (“Subordinated Notes”), and notes payable for equipment purchases. Included in the repayment of the Sprott Credit Agreement is the $3.3 million fee that was capitalized as payable in-kind in connection with the Second A&R Agreement. Included in the repayment of the Subordinated Notes principal is interest that is payable in-kind and capitalized on a quarterly basis. See Note 9 – Debt, Net in the Notes to the Financial Statements for additional information.

Debt covenants

The Company’s debt agreements contain representations and warranties, events of default, restrictions and limitations, reporting requirements, and covenants that are customary for agreements of these types.

The Sprott Credit Agreement (as amended by the Second A&R Agreement and the Second Amendment to the Second A&R Agreement) contains covenants that, among other things, restrict or limit the ability of the Company to enter into encumbrances (other than Permitted Encumbrances), incur indebtedness (other than Permitted Indebtedness), dispose of its assets (other than Permitted Disposals), pay dividends, and purchase or redeem shares, as such terms are defined in the Sprott Credit Agreement (as amended by the Second A&R Agreement and the Second Amendment to the Second A&R Agreement). The Sprott Credit Agreement (as amended by the Second A&R Agreement and the Second Amendment to the Second A&R Agreement) requires the Company to ensure that, at all times, both its Working Capital and Unrestricted Cash are at least $15.0 million, as such terms are defined in the Sprott Credit Agreement (as amended by the Second A&R Agreement and the Second Amendment to the Second A&R Agreement), and that at least every six months the Company demonstrates its ability to repay and meet all present and future obligations as they become due with a financial model that uses consensus gold prices discounted by 5.0%. The Subordinated Notes include customary events of default, including those relating to a failure to pay principal or interest, a breach of a covenant, representation or warranty, a cross-default to other indebtedness, and non-compliance with security documents. As of June 30, 2024, the Company was in compliance with all covenants under its debt agreements.

On March 9, 2023, the Company entered into a letter agreement (the “Waiver and Amendment”), by and between the Company, the (“Lender”), and Sprott Private Resource Lending II (Co) Inc. (“SPRL II” and together with the Lender, the “Sprott Parties”). Pursuant to the terms of the Sprott Credit Agreement, the Company agreed that while any indebtedness is outstanding under the Sprott Credit Agreement or while the credit facility under the Sprott Credit Agreement remains available to the Company, the Company and guarantors under the Sprott Credit Agreement would not undertake certain corporate actions without the Lender’s prior written consent.

On May 24, 2023, the Company’s stockholders approved a proposed amendment of the Company’s second amended and restated certificate of incorporation (the “Certificate of Incorporation”) to effectuate a reverse stock split of the Company’s outstanding shares of Class A common stock, par value $0.0001 per share, at a ratio of no less than 1-for-10 and no more than 1-for-25, with such ratio to be determined at the sole discretion of the Board (the “Reverse Stock Split”). Pursuant to the terms of the Waiver and Amendment, Lender agreed to waive certain provisions of the Sprott Credit Agreement so that the Company may effectuate the proposed Reverse Stock Split of the Company’s common stock, including amendment of the Certificate of Incorporation necessary to effectuate the Reverse Stock Split. The Company notified the Nasdaq Stock Market LLC on October 26, 2023, that the Board of Directors approved filing the amendment to the Certificate of Incorporation in order that the Reverse Stock Split will be effective on November 14, 2023, at a ratio of 1-for-10. Except as set forth in the Waiver and Amendment, the Sprott Credit Agreement remains in full force and effect.

On January 5, 2024, the Company voluntarily pre-paid $34.7 million of the first lien loan, along with $3.3 million for the additional interest balance, totaling $38.0 million with a remaining outstanding balance of $15.0 million. As a result of this payment, the applicable margin was reduced by 100 basis points through the final payment.

Off-balance sheet arrangements

As of June 30, 2024, the Company’s off-balance sheet arrangements consisted of a net profit royalty arrangement and a net smelter royalty arrangement (see Note 22 – Commitments and Contingencies in the Notes to the Financial Statements).

Critical Accounting Estimates

This Management’s Discussion and Analysis is based on the Financial Statements, which have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The preparation of these statements requires the Company to make assumptions, estimates, and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses. For information on the most critical accounting estimates used to prepare the Financial Statements, see the Critical Accounting Estimates section included in Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

Cautionary Statement Regarding Forward-Looking Statements

In addition to historical information, this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995 (the “PSLRA”) or in releases made by the SEC, all as may be amended from time to time. All statements, other than statements of historical fact, included herein or incorporated by reference, that address activities, events, or developments that we expect or anticipate will or may occur in the future, are forward-looking statements, including but not limited to such things as:

The words “estimate”, “plan”, “anticipate”, “expect”, “intend”, “believe”, “project”, “target”, “budget”, “may”, “can”, “will”, “would”, “could”, “should”, “seeks”, or “scheduled to”, or other similar words, or negatives of these terms or other variations of these terms or comparable language or any discussion of strategy or intentions identify forward-looking statements. These cautionary statements are being made pursuant to the Securities Act, the Exchange Act and the PSLRA with the intention of obtaining the benefit of the “safe harbor” provisions of such laws. These statements involve known and unknown risks, uncertainties, assumptions, and other factors that may cause our actual results, performance or achievements to be materially different from any results, performance, or achievements expressed or implied by such forward-looking statements. Forward-looking statements are based on current expectations.

Although we have attempted to identify important factors that could cause actual results to differ materially from those described in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. Although we base these forward-looking statements on assumptions that we believe are reasonable when made, we caution you that forward-looking statements are not guarantees of future performance and that our actual results, performance or achievements may differ materially from those made in or suggested by the forward-looking statements contained in this Quarterly Report on Form 10-Q. In addition, even if our results, performance, or achievements are consistent with the forward-looking statements contained in this Quarterly Report on Form 10-Q, those results, performance or achievements may not be indicative of results, performance or achievements in subsequent periods.

Given these risks and uncertainties, you are cautioned not to place undue reliance on these forward-looking statements. Any forward-looking statements that we make in this Quarterly Report on Form 10-Q speak only as of the date of those statements, and we undertake no obligation to update those statements or to publicly announce the results of any revisions to any of those statements to reflect future events or developments. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data.

See Risk Factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2023, as the same may be updated from time to time, and other SEC filings, for more information about these and other risks.

As the Company qualifies as a smaller reporting company under Item 10(f) of Regulation S-K, quantitative and qualitative disclosures about market risk are not required, and such are omitted from this filing.

Evaluation of Disclosure Controls and Procedures

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Our internal control over financial reporting is designed to provide reasonable assurance to our management and Board of Directors regarding the preparation and fair presentation of published Financial Statements. Internal control over financial reporting is promulgated under the Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our Board of Directors, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of Financial Statements for external purposes in accordance with GAAP. Internal control over financial reporting, no matter how well designed, has inherent limitations and may not prevent or detect misstatements. Therefore, even effective internal control over financial reporting can only provide reasonable assurance with respect to the financial statement preparation and presentation.

The Company’s management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures, as required by Rules 13a-15(b) and 15d-15(b) under the Exchange Act as of June 30, 2024.

Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of June 30, 2024 to provide such reasonable assurance that information required to be disclosed by us, including our consolidated subsidiaries, in reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding disclosure and is recorded, processed, summarized, and reported within the time periods specified in SEC’s rules and forms.

Our management, including our Chief Executive Officer and Chief Financial Officer, believes that any disclosure controls and procedures or internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must consider the benefits of controls relative to their costs. Inherent limitations within a control system include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by unauthorized override of the control. While the design of any system of controls is to provide reasonable assurance of the effectiveness of disclosure controls, such design is also based in part upon certain assumptions about the likelihood of future events, and such assumptions, while reasonable, may not take into account all potential future conditions. Accordingly, because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be prevented or detected.

Changes in Internal Control Over Financial Reporting

There were no significant changes in our internal control over financial reporting during the quarter ended June 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

As the Company qualifies as a smaller reporting company under Item 10(f) of Regulation S-K, risk factors are not required to be included in a Quarterly Report and, therefore, are omitted from this filing.