HWH International Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. References to the “Company,” “HWH International Inc.,” “our,” “us” or “we” refer to HWH International Inc. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited interim financial statements and the notes thereto contained elsewhere in this report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties. Cautionary Note Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those described in our other SEC filings. Overview Our newly acquired business started in South Korea with a single-level membership marketing model with limited products for sale. We registered the business on April 1, 2019, and we started selling founders package on July 1, 2019. While we had been profitable and growing, the COVID-19 pandemic had a material adverse effect on such growth and profits. Due to the decline in membership and revenue starting in 2020, we reorganized our internal staff by adding a broader team in each of the United States, Hong Kong and Singapore with direct selling and business development experience to head up and expand our operations across various geographies and revised our business plan to a tiered membership model in 2022, with more products and services to be made available to our members. We created a new corporate structure, with subsidiaries in the U.S., Hong Kong and Singapore, that would allow for quick geographical expansion and turned our focus to the Hapi Café development. We have 9,811 individuals with founding member status. This is a privileged class that will be able to enjoy continuous membership benefits in time to come given that they have trusted the Company and joined at an early stage. Such benefits include the ability to purchase new memberships, in the model described below, at a favorable rate to be determined by the Company. They will also continue to be able to earn affiliate commissions as they sell our products in the marketplace and enjoy discounted rates when visiting Hapi Cafés until further notice. The total number of founding members was capped at 10,000. The Company is in the midst of implementing a new membership model that operates on a yearly subscription basis. While we are not currently selling memberships, we intend to resume membership sales under this new model. Members will get exclusive discounts on HWH Marketplace products, priority invites to product launch events and other parties, and can earn passive income when a member’s referral signs up for membership or makes an initial purchase through the HWH Marketplace products through them. Our operations include: HWH Marketplace, which offers certain products manufactured by our affiliate companies, at a discounted price to our members. It is substantially in the development stage, as we have been in discussions regarding the import and export of these products internationally. The various aspects of the HWH Marketplace will be launched in phases across the various regions, each with their own timeline, depending on the completion of the establishment of the logistical aspects for implementation (i.e., payment gateway systems, business licenses, banking set up, import licenses, managerial resources, etc.) This will be an on-going process as we expand our product and service offering range. There are, however, certain limited products currently for sale at our Hapi Cafés, including spaghetti, a gig-economy business book and certain skincare products. 25 Hapi Cafés, which are, and will be, in-person, location-based social experiences, offer members the opportunity to build a sense of community with like-minded customers who share a potential interest in our products. The cafes expose our members to and educate them about the products and services of our affiliates, providing us with the chance to significantly increase our membership base as well as increase the amounts spent by our members on our affiliates’ products and services. Each of our cafés is a “Hapi Café.” We opened proof-of-concept Hapi Café locations in Seoul, the Republic of Korea and Singapore in May and July 2022, respectively, one more opened in Seoul, the Republic of Korea in May 2024, and plan to open additional Hapi Cafés as we beta test and further improve our business concept. We intend to grow our memberships as we grow the number of Hapi Cafés around the world. Hapi Cafe is positioned to be an integral part of HWH’s business model. In June 2024, the Company decision to close the café under F&BPLQ was driven by the unsustainable revenue it generated. We believe it is more strategic to refocus our efforts and resources on other business ventures that have greater growth potential. Our travel business is in the planning stage as we are working with our affiliates to determine the market-by-market services. Through our travel business, we plan to offer exclusive access to unpublished rates and discounts on air travel, cruises, car rentals, hotels, and resorts for members. Hapi Wealth Builder is in the planning stage as we are exploring the options of providing services to our members through financial educational materials aimed at various types of investing opportunities. The team has been diligently producing digital content for Hapi Wealth Builder and working to collaborate with the right partners to launch the program and make it available to members. We have been establishing Hapi Cafés as venues and destinations that help build the credibility and reputation of the Company and its Hapi Wealth Builder business, which we intend to launch later in 2024. Our Revenue Model Our total revenue for the three months ended June 30, 2024 and 2023 was $334,882 and $195,198, respectively. Our total revenue for the six months ended June 30, 2024 and 2023 was $620,992 and $395,760, respectively. Our net loss for the three months ended June 30, 2024 and 2023 was $403,641 and $62,935, respectively. Our net loss for the six months ended June 30, 2024 was $1,740,160 and net income for the six months ended June 30, 2023 was $108,914. We currently recognize revenue from food and beverage sales, sale of products, and memberships to customers. Sales of food and beverage accounted for approximately 100% and 100% of revenue in the three months ended June 30, 2024, and 2023, respectively. Sales of food and beverage accounted for approximately 100% and 97% of revenue in the six months ended June 30, 2024, and 2023, respectively. Sales of memberships accounted for approximately 0% of revenue in the three months ended June 30, 2024, and 2023. Sales of memberships accounted for approximately 0% of revenue in the six months ended June 30, 2024, and 3% of revenue in the six months ended June 30, 2023. From a geographical perspective, we recognized 6% and 94% of our total revenue in the three months ended on June 30, 2024, in South Korea and Singapore, respectively, and 6% and 94% in the three months ended June 30, 2023, in South Korea and Singapore, respectively. From a geographical perspective, we recognized 5% and 95% of our total revenue in the six months ended on June 30, 2024, in South Korea and Singapore, respectively, and 10% and 90% in the six months ended June 30, 2023, in South Korea and Singapore, respectively. Matters that May or Are Currently Affecting Our Business In addition to the matters described above, the primary challenges and trends that could affect or are affecting our financial results include: ● Our ability to improve our revenue through cross-selling and revenue-sharing arrangements among our group of companies; ● Our ability to identify complementary businesses for acquisition, obtain additional financing for these acquisitions, if and when needed, and profitably integrate them into our existing operation; ● Our ability to attract competent, skilled technical and sales personnel for each of our businesses at acceptable compensation levels to manage our overhead; and ● Our ability to control our operating expenses as we expand each of our businesses and product and service offerings. 26 Summary of Significant Accounting Policies Basis of Presentation and Principles of Consolidation The Company’s consolidated financial statements and related notes include all the accounts of the Company and its wholly owned subsidiaries. They have been prepared in accordance with the accounting principles generally accepted in the United States of America (“U.S. GAAP”). All intercompany transactions have been eliminated in consolidation. Use of Estimates and Critical Accounting Estimates and Assumptions The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates made by management include, but are not limited to, allowance for credit losses, recoverability and useful lives of property, plant and equipment, the valuation allowance of deferred taxes, contingencies, and equity compensation. Actual results could differ from those estimates. Revenue Recognition and Cost of Sales Product Sales: The Company’s performance obligation is to transfer ownership of its products to its members. The Company generally recognizes revenue when a product is delivered to its member. Revenue is recorded net of applicable taxes, allowances, refund or returns. The Company receives the net sales price in cash or through credit card payments at the point of sale. If any member returns a product to the Company on a timely basis, they may obtain a replacement product from the Company for such returned product. Allowances for product and membership returns are provided at the time the sale is recorded. This accrual is based upon historical return rates for each country and the relevant return pattern, which reflects anticipated returns to be received over a period of up to 12 months following the original sale. Product and membership returns for the three months ended June 30, 2024, and 2023 were approximately $0 and $0, respectively. Product and membership returns for the six months ended June 30, 2024, and 2023 were approximately $0 and $1,142, respectively. Membership Fee: The Company collects an annual membership fee from its members. The fee is fixed, paid in full at the time of joining the membership and is not refundable. The Company’s performance obligation is to provide its members with the right to (a) purchase products from the Company, (b) access to certain back-office services, (c) receive commissions and (d) attend corporate events. The associated performance obligation is satisfied over time, generally over the term of the membership agreement, which is for a one-year period. The Company recognizes revenue from membership fee over the one-year period of membership. Food and Beverage: The revenue received from Food and Beverage business in the three months ended June 30, 2024, and 2023 was $334,882 and $195,192, respectively. The revenue received from Food and Beverage business in the six months ended June 30, 2024, and 2023 was $620,992 and $382,968, respectively. Cost of Revenue: Cost of revenue consists of cost of procuring finished goods from suppliers and related shipping and handling fees. Results of Operations Summary of Statements of Operations for the Three and Six Months Ended June 30, 2024 and 2023 Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Revenue $ 334,882 $ 195,198 $ 620,992 $ 395,760 Cost of revenue 169,969 73,620 292,782 151,389 Operating expenses 654,740 582,466 2,150,123 1,318,857 Other income (expense) 86,186 552,660 81,753 1,513,280 Provision for income taxes - 154,707 - 329,880 Net (loss) income $ (403,641 ) $ (62,935 ) $ (1,740,160 ) $ 108,914 27 Revenue Revenue was $334,882 and $195,198 for the three months ended June 30, 2024 and 2023, respectively. Revenue was $620,992 and $395,760 for the six months ended June 30, 2024 and 2023, respectively. Word of mouth, a social media presence, and the availability of meeting spaces are significant drivers of our revenue and revenue potential. Our revenue increased in 2024 due to the increased revenue from F&B business in Singapore. Please see the following table below, which illustrates revenues received from memberships: For 2024 For 2023 Variance Number of memberships sold - 16 (16 ) Cash received from membership $ - $ 12,583 $ (12,583 ) For the three and six months ended June 30, 2024 and 2023, our revenue was generated as per the following: Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Membership Fee $ - $ - $ - $ 12,583 Product Sales - 6 - 209 Food and Beverage 334,882 195,192 620,992 382,968 Total $ 334,882 $ 195,198 $ 620,992 $ 395,760 Cost of revenue Cost of revenues increased from $73,620 in the three months ended June 30, 2023 to $169,969 in the three months ended June 30, 2024. Cost of revenues increased from $151,389 in the six months ended June 30, 2023 to $292,782 in the six months ended June 30, 2024. The increase is a result of the increase in sales of F&B business. Sales commissions decreased from $822 to ($74) in the three months ended June 30, 2023 and 2024, respectively, due to decrease in sale of memberships. Sales commissions decreased from $12,690 to ($308) in the six months ended June 30, 2023 and 2024, respectively, due to decrease in sale of memberships. The gross margin increased from $121,578 to $164,913 in the three months ended June 30, 2023 and 2024, respectively. The gross margin increased from $244,371 to $328,210 in the six months ended June 30, 2023 and 2024, respectively. The increase of gross margin was caused by the increase in F&B revenue. Operating expenses Operating expenses increased from $582,466 to $654,740 in the three months ended June 30, 2023 and 2024, respectively, due to general and administrative expenses increased from $582,466 to $654,740 in the three months ended June 30, 2023 and 2024, respectively. Operating expenses increased from $1,318,857 to $2,150,123 in the six months ended June 30, 2023 and 2024, respectively, due to general and administrative expenses increased from $1,318,857 to $1,783,931 in the six months ended June 30, 2023 and 2024, respectively. The increase of general and administrative expenses in 2024 compared with 2023 was mostly caused by the increase in the operating expenses for the food and beverage business in Korea and Singapore and the professional fees due to the 10-Q and S-4 filings. Other income (expense) In the three months ended June 30, 2024, the Company had other income of $86,186 compared to $552,660 in the three months ended June 30, 2023. In the six months ended June 30, 2024, the Company had other income of $81,753 compared to $1,513,280 in the six months ended June 30, 2023. The decrease is due to decline in interest income from $1,476,202 to $33,567 in the six months ended June 30, 2023 and 2024, respectively. Net loss In the three months ended June 30, 2024 the Company had net loss of $403,641 compared to $62,935 in the three months ended June 30, 2023. In the six months ended June 30, 2024 the Company had net loss of $1,740,160 compared to net income of $108,914 in the six months ended June 30, 2023. 28 Liquidity and Capital Resources Our cash has decreased from $1,159,201 as of December 31, 2023 to $821,353 as of June 30, 2024. Our liabilities increased from $6,207,178 at December 31, 2023 to $6,567,743 at June 30, 2024. Our total assets have decreased to $3,068,280 as of June 30, 2024 from $23,710,684 as of December 31, 2023. The Company believes that the available cash in the Company’s bank accounts, anticipated cash from operations, and financing availability from related parties are sufficient to fund our operations for at least the next 12 months. The Company’s capital requirements for the planned expansion are based on, among other items, geographical specific property costs, team requirements, and marketing steps needed. Our expansion consists of plans to take over leases of existing Hapi Cafes we currently do not own, as we look to add more Hapi Cafes over the next two (2) years. There is no guarantee that we will be able to execute on our plans as laid out above. On April 24, 2024, the Company entered into a Credit Facility Agreement (the “Agreement”) with Alset Inc., a Texas corporation and the Company’s indirect, majority stockholder, pursuant to which Alset Inc. has provided the Company a line of credit facility (the “Credit Facility”) which provides a maximum, aggregate credit line of up to $1,000,000. Pursuant to the Agreement, the Company may request an advance (each, an “Advance”) on the Credit Facility. Each advance shall bear a simple interest rate of three percent (3%) per annum. Each Advance and all accrued but unpaid interest shall be due and payable at the first (1st) anniversary of the effective date of the Agreement. HWH may at any time during the term of the Agreement prepay a portion or all amounts of its indebtedness without penalty. Each Advance shall not be secured by a lien or other encumbrance on any HWH assets, but shall be solely a general unsecured debt obligation of the Company. The accompanying financial statements have been prepared assuming the Company will continue as a going concern and do not contain any adjustments that might be required should the Company be unable to continue as a going concern. The Company has obtained letters of financial support from Alset International Limited and Alset Inc., a direct and indirect owner of the Company, respectively. Alset International Limited and Alset Inc. committed to provide any additional funding required by the Company and would not demand repayment through twelve months from the issuance of these consolidated financial statements. Summary of Cash Flows for the Six Months Ended June 30, 2024 and 2023 Six Months Ended June 30, 2024 2023 Net cash used in operating activities $ (1,129,040 ) $ (1,379,468 ) Net cash provided by investing activities $ 20,554,734 $ 69,023,066 Net cash used in financing activities $ (19,741,962 ) $ (68,001,990 ) Cash Flows from Operating Activities Net cash used in operating activities was $1,129,040 in the six months ended of June 30, 2024, as compared to net cash used in operating activities of $1,379,468 in the same period of 2023. The decrease of interest income from the trust account led to the decrease of cash used in operating activities in the six months ended June 30, 2024. Cash Flows from Investing Activities Net cash provided by investing activities was $20,554,734 in the first six months of June 30, 2024, as compared to net cash provided by investing activities of $69,023,066 in the same period of 2023. In the six months ended June 30, 2024 we paid $28,024 for purchases of property and equipment and $750,000 for convertible note receivable – related party, $21,102,871 cash withdrawn from trust account for redemptions and $243,897 cash withdrawn from trust account available to the Company. In the six months ended June 30, 2023 we paid $8,069 for purchases of property and equipment, $68,351,348 cash withdrawn from trust account for redemptions and $679,787 cash withdrawn from trust account available to the Company. Cash Flows from Financing Activities Net cash used in financing activities was $19,741,962 in the six months ended June 30, 2024, compared to net cash used in financing activities of $68,001,990 in the same period of 2023. In the six months ended June 30, 2024 we received $1,757,103 from a related party and paid $21,102,871 for repayment of class A common stock. In the six months ended June 30, 2023 we received $166,736 from a related party, and paid $68,351,348 for repayment of class A common stock. 29 Underwriting Agreement On February 3, 2022, the Company paid a cash underwriting discount of $0.20 per Unit, or $1,725,000. In addition, the underwriters were entitled to a deferred fee of $0.35 per Unit, or $3,018,750 in the aggregate, however, on December 18, 2023, the Company entered into a Satisfaction and Discharge of Indebtedness Agreement in connection with the Underwriting Agreement, under which in lieu of the Company tendering the full amount, the underwriters accepted a combination of $325,000 in cash paid upon the closing of the Business Combination, 149,443 shares of the Company’s common stock and a $1,184,375 promissory note as full satisfaction. This agreement was effective at the closing of Business Combination on January 9, 2024. Additionally, the Company has granted EF Hutton an irrevocable right of first refusal (the “ROFR”) to act as the sole investment banker, sole book-runner, and/or sole placement agent, at EF Hutton’s sole discretion, for each and every future public and private equity and debt offering, including all equity linked financing for a period commencing on the date of the satisfaction and ending twenty-four (24) months after the closing of the Business Combination. Merger Agreement As previously disclosed, on August 1, 2023, the Company held the Special Meeting, at which the Company’s stockholders considered and adopted, among other matters, a proposal to approve the Business Combination. On the Closing Date, the parties consummated the Business Combination pursuant to the terms of that certain Agreement and Plan of Merger, dated September 9, 2022 (the “Merger Agreement”), by and among Alset, Merger Sub, a Nevada corporation, and HWH International Inc., a Nevada corporation. Pursuant to the terms of the Merger Agreement, (and upon all other conditions pursuant to the Merger Agreement being satisfied or waived), on the Closing Date, (i) the Merger Agreement provides for the combination of HWH and Merger Sub under the Company, with HWH surviving as the Surviving Corporation (collectively, the “Merger”). At the consummation of the Merger, HWH will survive as a direct, wholly-owned subsidiary of the Company; and (ii) the Company will change its name to “HWH International Inc.” The transaction has closed, as all closing conditions as referenced in the Merger Agreement have either been met or waived by the parties. Certain closing conditions that have been waived by the parties, pursuant to the Merger Agreement include Section 8.1(i), which states “the aggregate cash available to the Company at the Closing from the Trust Account (after giving effect to the redemption of any shares of the Company’s Class A Common Stock in connection with the Company’s Proposals, but before giving effect to (i) the payment of the Outstanding Alset Transaction Expenses, and (ii) the payment of the Outstanding Company Transaction Expenses), shall equal or exceed Thirty Million dollars ($30,000,000); and 8.1(j), which states “upon the closing, the Company shall not have redeemed shares of the Company’s Class A Common Stock in the Offer in an amount that would cause the Company to have less than $5,000,001 of net tangible assets (as determined in accordance with Rule 3a51-1(g)(1) under the Exchange Act).” Registration Rights Agreement On January 31, 2022 the Company, the Sponsor, and certain persons and entities holding securities of the Company entered into a Registration Rights Agreement (the “Registration Rights Agreement”). Pursuant to the Registration Rights Agreement, the Company is obligated to register certain securities, including (i) all of the shares of the Company’s common stock and warrants held by the Sponsor, and the Company’s common stock issuable upon exercise of such warrants, and (ii) the shares of the Company’s common stock and the Company’s common stock underlying warrants that were issued in the Private Placement on January 31, 2022. The Company is obligated to (a) file a resale registration statement to register such securities within 15 business days after the closing of the Business Combination, and (b) use reasonable best efforts to cause such registration statement to be declared effective by the SEC within 60 business days after the closing of the Business Combination. 30 Lock-Up Agreements In connection with the execution of the Merger Agreement, at the closing, each of the HWH Holders holding more than 5% of the HWH Common Stock and certain members of HWH’s management team will enter into a Lock-Up Agreement with the Company in substantially the form attached to the letter Agreement dated January 31, 2022 (the “Letter Agreement”) (each, a “Lock-Up Agreement”). Under the Lock-Up Agreement, each such holder will agree not to, during the period commencing from the Closing and with respect to the shares of the Company’s Common Stock to be received as part of the Merger Consideration by the HWH Holder (together with any securities paid as dividends or distributions with respect to such securities or into which such securities are exchanged or converted, the “Restricted Securities”), (A) ending on the earlier of six months after the date of the Closing, the date on which the closing sale price of shares of the Company’s Common Stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30 trading day period commencing at least 150 days after the Closing or (y) the date after the Closing on which the Company consummates a liquidation, merger, share exchange or other similar transaction with an unaffiliated third party that results in all of the Company’s stockholders having the right to exchange their equity holdings in the Company for cash, securities or other property. Termination of Subscription Agreement On July 30, 2023, the Company entered into a Subscription Agreement (the “Subscription Agreement”) with Meteora Special Opportunity Fund I, LP (“MSOF”), Meteora Capital Partners, LP (“MCP”), Meteora Select Trading Opportunities Master, LP (“MSTO”) and Meteora Strategic Capital, LLC, (“MSC”, and together with MSOF, MCP and MSTO, are referred to herein collectively as “Meteora”). The Subscription Agreement was subsequently terminated. The Company and Meteora entered into a Settlement Agreement as of April 11, 2024 (the “Settlement Agreement”). Pursuant to the Settlement Agreement, the Company paid Meteora $200,000, and agreed that Meteora could retain $100,000 already paid to Meteora. Impact of Inflation We believe that inflation has not had a material impact on our results of operations for the six months ended June 30, 2024 or the year ended December 31, 2023. We cannot assure you that future inflation will not have an adverse impact on our operating results and financial condition. Impact of Foreign Exchange Rates The effect of foreign exchange rate changes on the intercompany loans (under ASC 830), which mostly consist of loans from Singapore to South Korea and which were approximately $2.7 million and $2.1 million on June 30, 2024 and December 31, 2023, respectively, the fluctuation of foreign currency transaction gain or loss was included in the Consolidated Statements of Operations and Other Comprehensive Income. Because the intercompany loan balances between Singapore and South Korea will remain at approximately $2.7 million over the next year, we expect this fluctuation of foreign exchange rates to still impact the results of operations in 2024, especially given that the foreign exchange rate may and is expected to be volatile. If the amount of intercompany loan is lowered in the future, the effect will also be reduced. However, at this moment, we do not expect to repay the intercompany loans in the short term. Emerging Growth Company Status We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.” Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of these exemptions until we are no longer an emerging growth company or until we affirmatively and irrevocably opt out of this exemption. 31 Controls and Procedures We are not currently required to maintain an effective system of internal controls as defined by Section 404 of the Sarbanes-Oxley Act. Only in the event that we are deemed to be a large accelerated filer or an accelerated filer would we be required to comply with the independent registered public accounting firm attestation requirement. Further, for as long as we remain an emerging growth company as defined in the JOBS Act, we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirement. Management is responsible for the preparation and fair presentation of the financial statements included in this prospectus. The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and reflect management’s judgment and estimates concerning effects of events and transactions that are accounted for or disclosed. Management is also responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting includes those policies and procedures that pertain to our ability to record, process, summarize and report reliable data. Management recognizes that there are inherent limitations in the effectiveness of any internal control over financial reporting, including the possibility of human error and the circumvention or overriding of internal control. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement presentation. Further, because of changes in conditions, the effectiveness of internal control over financial reporting may vary over time. In order to ensure that our internal control over financial reporting is effective, management regularly assesses controls and did so most recently for its financial reporting as of December 31, 2023. This assessment was based on criteria for effective internal control over financial reporting described in the Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission. In connection with management’s evaluation of the effectiveness of our company’s internal control over financial reporting as of December 31, 2023, management determined that our company did not maintain effective controls over financial reporting due to having a limited staff with U.S. GAAP and SEC reporting experience. Management determined that the ineffective controls over financial reporting constitute a material weakness. To remediate such weaknesses, we plan to appoint additional qualified personnel with financial accounting, GAAP and SEC experience. This prospectus does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this prospectus. Item 3. Quantitative and Qualitative Disclosures About Market Risk. We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.