What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-04-11 compared with 2023-03-09 · 669 added, 572 removed, 70 unchanged (95% of the section changed)

1 unchanged sentence

Condition and Results of Operations.

The following discussion and analysis of our

financial condition and results of operations should be read in conjunction with our financial statements and the related notes to those

statements included elsewhere in this Annual Report on Form 10-K.

In addition to historical financial information, the following discussion

and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions.

Some of the numbers included herein

have been rounded for the convenience of presentation.

Our actual results may differ materially from those anticipated in these forward-looking

statements as a result of many factors, including those discussed under Part I.

Risk Factors” and elsewhere in this

Annual Report on Form 10-K.

We are a biotechnology company focused on the

research and development of transformational vaccines to prevent infectious diseases worldwide.

We hold exclusive, global rights to novel

technology licensed from renowned research institutions around the world, including St.

Jude Children’s Research Hospital, the University

of Oxford, Cincinnati Children’s Hospital Medical Center, and the University of Texas Health at San Antonio.

Currently, we are developing

novel vaccine candidates against Streptococcus pneumoniae -induced acute otitis media and pneumonia, influenza, norovirus, rotavirus,

malaria, monkeypox, and Chlamydia.

We believe that our pipeline and vaccine platform are synergistic for developing next generation preventive

vaccines to improve both health outcomes and quality of life globally.

Since our inception in October 2018, we have devoted

substantially all of our resources to performing research and development, undertaking preclinical studies and enabling manufacturing

activities in support of our product development efforts, hiring personnel, acquiring and developing our technology and vaccine candidates,

organizing and staffing our company, performing business planning, establishing our intellectual property portfolio and raising capital

to support and expand such activities.

We do not have any products approved for sale and have not generated any revenue from product sales.

To date, we have financed our operations primarily with proceeds from our sale of preferred securities to seed investors, the close of

our initial public offering, and the close of our private placements.

We will continue to require additional capital to develop our vaccine

candidates and fund operations in the long-term.

Accordingly, until such time as we can generate significant revenue from sales of our

vaccine candidates, if ever, we expect to finance our cash needs through public or private equity or debt financings, third-party (including

government) funding and marketing and distribution arrangements, as well as other collaborations, strategic alliances and licensing arrangements,

or any combination of these approaches.

We have incurred net losses since inception and

expect to continue to incur net losses in the foreseeable future.

Our net losses may fluctuate significantly from quarter-to-quarter and

year-to-year, depending in large part on the timing of our preclinical studies, clinical trials and manufacturing activities, and our

expenditures on other research and development activities.

As of December 31, 2022, the Company had working capital of approximately $22.3

million and an accumulated deficit of approximately $19.4 million.

We will need to raise additional capital to sustain operations and

meet our long-term operating requirements beyond the one-year period following the issuance of the accompanying financial statements.

While we believe that we can raise additional capital

to fund our planned operations, until we generate revenue sufficient to support self-sustaining cash flows, if ever, we will need to raise

additional capital to fund our continued operations to execute our long-term business plan, including our product development and commercialization

activities related to our current and future products.

There can be no assurance that additional capital will be available to us on acceptable

terms, or at all, or that we will ever generate revenue sufficient to provide for self-sustaining cash flows.

We do not expect to generate any revenue from commercial

product sales unless and until we successfully complete development and obtain regulatory approval for one or more of our vaccine candidates,

which we expect will take a number of years.

We expect our expenses will increase substantially in connection with our ongoing activities,

advance vaccine candidates through preclinical studies and clinical trials;

require the manufacture of supplies for our preclinical studies and clinical trials;

pursue regulatory approval of vaccine candidates;

The following discussion

and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements

and the related notes to those statements included elsewhere in this Annual Report on Form 10-K.

In addition to historical financial information,

the following discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions.

the numbers included herein have been rounded for the convenience of presentation.

Our actual results may differ materially from those

anticipated in these forward-looking statements as a result of many factors, including those discussed under Part I.

Factors” and elsewhere in this Annual Report on Form 10-K.

We are a commercial stage biotechnology

company focused on the research, development, and commercialization of innovative solutions for men’s health and oncology.

our recent acquisition of Proteomedix, we own Proclarix, an in vitro diagnostic test for prostate cancer approved for sale in the European

Union under the In Vitro Diagnostic Regulation (“IVDR”), which is planned to be marketed in the U.S.

as a lab developed test.

We also own ENTADFI, an FDA-approved, once daily pill that combines finasteride and tadalafil for the treatment of BPH, a disorder of

the prostate.

is an easy-to-use next generation protein-based blood test that can be done with the same sample as a patient’s regular

Prostate-Specific Antigen (“PSA”) test.

The PSA test is a well-established prostate specific marker that measures

the concentration of PSA molecules in a blood sample.

A high level of PSA can be a sign of prostate cancer.

However, PSA levels can also

be elevated for many other reasons including infections, prostate stimulation, vigorous exercise or even certain medications.

can be confusing for many patients and even physicians.

It is estimated over 50% of biopsies with elevated PSA are negative or clinically

insignificant resulting in an overdiagnosis and overtreatment that impacts the physician’s routine, our healthcare system, and

the quality of patients’ lives.

Proclarix helps doctors and patients with unclear PSA test results through the use of our proprietary

Proclarix Risk Score which delivers clear and immediate diagnostic support for further treatment decisions.

No additional intervention

is required, and results are available quickly.

Local diagnostic laboratories can integrate this multiparametric test into their current

workflow because Proclarix assays use the enzyme-linked immunosorbent assay (ELISA) standard, which most diagnostic laboratories are

already equipped to process.

ENTADFI allows men

to receive treatment for their symptoms of BPH without the negative sexual side effects typically seen in patients on finasteride alone.

Following a recent business strategy shift towards the fields of men’s health and oncology and deprioritization of preclinical vaccine

programs, we are building additional assets in therapeutics, diagnostics, and clinician services for men’s health and oncology.

our inception in October 2018 until April 2023, when we acquired ENTADFI, we devoted substantially all of our resources to performing

research and development, undertaking preclinical studies and enabling manufacturing activities in support of our product development

efforts, hiring personnel, acquiring and developing our technology and now deprioritized vaccine candidates, organizing and staffing our

company, performing business planning, establishing our intellectual property portfolio and raising capital to support and expand such

acquisition of ENTADFI, we managed one distinct business segment, which was research and development.

Beginning in the second

quarter of 2023, as a result of the acquisition of ENTADFI, for which we are working towards commercial launch, we operated in two

business segments:

research and development and commercial.

During the third quarter of 2023, we deprioritized our vaccine discovery

and development programs, and accordingly, we now operate in one segment:

Our acquisition during the fourth quarter of

2023 of Proteomedix and its diagnostic product Proclarix was determined to be within our commercial segment.

and development segment was our historical business, and was dedicated to the research and development of various vaccines to

prevent infectious diseases.

The commercial segment was new in the second quarter of 2023 and is dedicated to the commercialization

of our products approved for sale, namely ENTADFI in the U.S.

and Proclarix in Europe.

has not generated any revenue from product sales, and Proclarix has generated only minimal amounts of development revenue since its acquisition.

In light of (i) the time

and resources needed to continue pursuing commercialization of ENTADFI, and (ii) the Company’s cash runway and indebtedness, the

Company has determined to temporarily pause its commercialization of ENTADFI, as it considers strategic alternatives.

The Company expects

to appoint a new Chief Executive Officer in early April 2024, after which the new CEO and the Board will reassess its ENTADFI program

in light of the foregoing and other relevant factors.

We are currently focusing

our efforts on commercializing Proclarix.

Given Proclarix is CE-marked for sale in the European Union, we expect to generate revenue from sales of Proclarix by 2025.

Although we anticipate these sales to offset some expenses relating to commercial scale up and development,

we expect our expenses will increase substantially in connection with our ongoing activities, as we:

● commercialize Proclarix and ENTADFI (if we decide to resume its commercialization),

and other commercial-stage products

● hire additional personnel;

operate as a public company;

acquire, discover, validate and develop additional vaccine candidates;

obtain, maintain, expand and protect our intellectual property portfolio.

We rely and will continue to rely on third parties

in the conduct of our preclinical studies and clinical trials and for manufacturing and supply of our vaccine candidates.

We have no internal

manufacturing capabilities, and we will continue to rely on third parties, of which the main suppliers are single-source suppliers, for

our preclinical and clinical trial materials.

Given our stage of development, we do not yet have a marketing or sales organization or

commercial infrastructure.

Accordingly, if we obtain regulatory approval for any of our vaccine candidates, we also expect to incur significant

commercialization expenses related to product sales, marketing, manufacturing and distribution.

Because of the numerous risks and uncertainties

associated with vaccine development, we are unable to predict the timing or amount of increased expenses or when or if we will be able

to achieve or maintain profitability.

Even if we are able to generate revenue from the sale of our vaccines, we may not become profitable.

If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations

at planned levels and may be forced to reduce our operations.

● obtain, maintain, expand, and protect our intellectual property

To the extent that we resume

the commercialization of ENTADFI, we also expect to incur significant commercialization expenses related to marketing, manufacturing and

distribution for ENTADFI.

We rely and will continue to rely on third parties for the manufacturing of ENTADFI and Proclarix.

internal manufacturing capabilities, and we will continue to rely on third parties, of which the main suppliers are single-source suppliers,

for commercial products.

We do not have any products approved

for sale, aside from Proclarix, from which we have generated only minimal amounts of development revenue since its acquisition, and ENTADFI,

from which we have not generated any revenue from product sales, and for which we have determined to temporarily pause commercialization

To date, we have financed our operations primarily with proceeds from our sale of preferred securities to seed investors,

the close of the IPO, the close of the 2022 Private Placements, the proceeds received from a warrant exercise in August 2023, and

the proceeds received from the issuance of debt in January 2024.

We will continue to require significant additional capital to commercialize

Proclarix and ENTADFI (if we decide to resume its commercialization), and to fund operations for the foreseeable future.

until such time as we can generate significant revenue, if ever, we expect to finance our cash needs through public or private equity

or debt financings, third-party (including government) funding and to rely on third-party resources for marketing and distribution

arrangements, as well as other collaborations, strategic alliances and licensing arrangements, or any combination of these approaches,

to support our operations.

We have incurred net losses

since inception and expect to continue to incur net losses in the foreseeable future.

Our net losses may fluctuate significantly from

quarter-to-quarter and year-to-year, depending in large part on timing and success of commercialization activities, the timing of clinical

trials and manufacturing activities, and our expenditures on other research and development activities.

As of December 31, 2023, the Company

had a working capital deficit of approximately $11.4 million and an accumulated deficit of approximately $56.8 million.

We will need to

raise additional capital to sustain operations and meet our contractual commitments and obligations within the one-year period following

the issuance of the accompanying consolidated financial statements.

Until we generate revenue

sufficient to support self-sustaining cash flows, if ever, we will need to continue to raise additional capital to fund our continued

operations, including our product development and commercialization activities related to our current and future products.

no assurance that additional capital will be available to us on acceptable terms, or at all, or that we will ever generate revenue sufficient

to provide for self-sustaining cash flows.

These circumstances raise substantial doubt about our ability to continue as a going concern.

The consolidated financial statements incorporated by reference in this Report do not include any adjustment that might be necessary if

the Company is unable to continue as a going concern.

Because of the numerous risks

and uncertainties associated with our business, we are unable to predict the timing or amount of increased expenses or when or if we will

be able to achieve or maintain profitability.

Additionally, even if we are able to generate revenue from Proclarix, or ENTADFI, we may

not become profitable.

If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable

to continue our operations at planned levels andf10.

may be forced to reduce our operations.

Certain Significant Relationships

We have entered into grant, license and collaboration

arrangements with various third parties as summarized below.

For further details regarding these and other agreements, see the section

titled “Business — Intellectual Property” and Notes 5 and 7 to our financial statements included elsewhere in this Report.

Ology Agreement

In July 2019, we entered into a development and

manufacturing master services agreement with Ology Bioservices (which was later acquired by National Resilience, Inc.) (“Ology”),

as amended, which we refer to as the Ology Agreement, pursuant to which Ology is obligated to perform manufacturing process development

and clinical manufacture and supply of components.

Under the Ology Agreement, we will pay Ology agreed

upon fees for Ology’s performance of manufacturing services and regulatory support, and we will reimburse Ology for its out-of-pocket

costs associated with purchasing raw materials, plus a customary handling fee.

The Company entered into an initial Project Addendum

on October 18, 2019 and the Company was required to pay Ology an aggregate of approximately $4 million.

Due to unforeseen delays associated

with COVID-19, the Company and Ology entered into a letter agreement dated January 9, 2020 to stop work on the project, at which point,

the Company had paid Ology $100,000 for services.

The second Project Addendum was executed May 21, 2021 and the Company is obligated to

pay Ology an aggregate amount of approximately $2.8 million, plus reimbursement for materials and outsourced testing, which will be billed

at cost plus 15%.

During 2022, the Company entered into three amendments

to the Ology Agreement, to adjust the scope of work defined in the second Project Addendum.

The amendments resulted in a net increase

to the Company’s obligations under the second Project Addendum of $154,000.

For additional details regarding our relationship

with Ology, see the section entitled “Business — Manufacturing and Supply” and Note 5 to our financial statements included

elsewhere in this Report.

We have entered into grant,

license and collaboration arrangements with various third parties as summarized below.

For further details regarding these and other agreements,

see the section titled “Business - Intellectual Property” and Note 6 to our consolidated financial statements included elsewhere

in this Report.

March 23, 2023, Proteomedix entered into a license agreement with Labcorp pursuant to which Labcorp has the exclusive right to develop

and commercialize Proclarix and other products developed by Labcorp using Proteomedix’s intellectual property covered by the license,

in the United States (“Licensed Products”).

In consideration for granting Labcorp an exclusive license, Proteomedix received

an initial license fee in the mid-six figures upon signing of the contract.

Additionally, Proteomedix is entitled to royalty payments

on the net sales recognized by Labcorp of any Licensed Products plus milestone payments as follows:

the first sale of Proclarix as a laboratory developed test, Labcorp will pay an amount in the mid-six figures;

Labcorp achieves a certain amount in the low seven figures in net sales of the Licensed Products, Labcorp will pay Proteomedix an

amount in the low seven figures;

a certain amount in the mid-seven figures in net sales of Licensed Products, Labcorp will pay Proteomedix an amount in the low seven

is wholly responsible for the cost, if any, of research, development and commercialization of Licensed Products in the United States

but has the right to offset a portion of those costs against future royalty and milestone payments.

Additionally, Labcorp may deduct

royalties or other payments made to third parties related to the manufacture or sale of Licensed Products up to a maximum amount of any

royalty payments due to Proteomedix.

Ology Agreement (which

was later acquired by National Resilience, Inc.)

The Company entered into

a Master Services Agreement (“Ology MSA”), dated July 19, 2019, with Ology, Inc.

(“Ology”) to provide services

from time to time, including but not limited to technology transfer, process development, analytical method optimization, cGMP manufacture,

regulatory affairs, and stability studies of biologic products.

Pursuant to the Ology MSA, the Company and Ology shall enter into a Project

Addendum for each project to be governed by the terms and conditions of the Ology MSA.

The Company entered into two

Project Addendums as of December 31, 2023.

The initial Project Addendum was executed on October 18, 2019, and the Company was required

to pay Ology an aggregate of approximately $4 million.

Due to unforeseen delays associated with COVID-19, the Company and Ology entered

into a letter agreement dated January 9, 2020 to stop work on the project, at which point the Company had paid Ology $100,000 for services

to be provided.

The second Project Addendum was executed on May 21, 2021, and the Company is obligated to pay Ology an aggregate amount

of approximately $2.8 million, plus reimbursement for materials and outsourced testing, which will be billed at cost plus 15%.

2023 and 2022, the Company and Ology entered into contract amendments that resulted in a net decrease in the Company’s obligations

of approximately $137,000.

For additional details regarding

our relationship with Ology, see the section entitled “Business - Manufacturing and Supply” and Note 6 to our consolidated

financial statements included elsewhere in this Report.

Cincinnati Children’s Hospital Medical

Center Agreement

On June 1, 2021, we entered into an exclusive, worldwide

license agreement with Children’s Hospital Medical Center, d/b/a Cincinnati Children’s Hospital Medical Center, or CHMC, which

we refer to as the CHMC Agreement, pursuant to which we obtained the right to develop and commercialize certain CHMC patents and related

technology directed at a virus-like particle (VLP) vaccine platform that utilizes nanoparticle delivery technology, which may have potential

broad application to develop vaccines for multiple infectious diseases.

Under the CHMC Agreement, we agreed to pay CHMC

certain license fees, deferred license fees, development milestone fees, and running royalties beginning on the first net sale (among

For additional details regarding our relationship with CHMC, see the section entitled “Business — Intellectual Property

— Exclusive License Agreement with Children’s Hospital Medical Center, d/b/a Cincinnati Children’s Hospital Medical

Center” and Notes 5 and 7 to our financial statements included elsewhere in this Report.

The CHMC license includes the following

On June 1, 2021, we entered

into an exclusive, worldwide license agreement with Children’s Hospital Medical Center, d/b/a Cincinnati Children’s Hospital

Medical Center, or CHMC, which we refer to as the CHMC Agreement, pursuant to which we obtained the right to develop and commercialize

certain CHMC patents and related technology directed at a virus-like particle (VLP) vaccine platform that utilizes nanoparticle delivery

technology, which may have potential broad application to develop vaccines for multiple infectious diseases.

However, as Onconetix has

now deprioritized its infectious disease vaccine programs based on a change in clinical focus, we are exploring ways in which CHMC’s

VLP platform can be used in therapeutic and diagnostic applications in oncology.

Under the CHMC Agreement,

we agreed to pay CHMC certain license fees, deferred license fees, development milestone fees, and running royalties beginning on the

first net sale (among others).

For additional details regarding our relationship with CHMC, see the section entitled “Business -

Intellectual Property - Exclusive License Agreement with Children’s Hospital Medical Center, d/b/a Cincinnati Children’s Hospital

Medical Center” and Notes 6 and 10 to our consolidated financial statements included elsewhere in this Report.

The CHMC license

includes the following patents:

Application No.

5 unchanged sentences

in Canada, China,

EU, Hong Kong and Japan

EU, Hong Kong and

(filed 2/16/2021)

2 unchanged sentences

[March 2042] #

Projected expiration if patent issues:

* Projected expiration if patent

20 years from earliest non-provisional application filing date.

Non-provisional application not yet filed.

# Non-provisional application

not yet filed.

Expiration projected 21 years from provisional application filing date.

Dependent on timely conversion to non-provisional application and issuance of patent.

Dependent on timely conversion to non-provisional

application and issuance of patent.

This is a pending application.

Claim type will be determined after

Claim type will

be determined after U.S.

prosecution is complete.

The claim type sought includes compositions of the vaccine and vaccine platform.

CHMC Sponsored Research Agreement

In addition to the CHMC Agreement, the Company also

entered into a sponsored research agreement dated June 30, 2022 with CHMC for research related to the CHMC Agreement (the “CHMC

Pursuant to this research agreement, the Company is obligated to pay CHMC an aggregate amount not-to-exceed $247,705.

CHMC SRA has a term of one year, and is cancelable upon 60 days written notice by either party for convenience.

In addition, either party

may terminate the CHMC SRA in the event the other party (a) files or has filed against it a petition under the Bankruptcy Act (among other

things) or (b) fails to perform or otherwise breaches its obligations under the agreement, and has not cured such failure or breach within

30 days of notice of material breach.

Oxford University Innovation Limited Agreement

On July 16, 2019, we entered into an exclusive,

worldwide license agreement with Oxford University Innovation Limited, which we refer to as the OUI Agreement, pursuant to which we obtained

the right to develop and commercialize certain licensed technology entitled “Immunogenic Composition.”

Under the OUI Agreement, we agreed to fund three

years’ worth of salaries for Dr.

Craig Thompson in the University’ Department of Zoology through a sponsored research agreement

with Oxford University, as well as royalties on all net sales of licensed products, along with certain development and milestone payments

(among others).

For additional details regarding our relationship with OUI, see the section entitled “Business — Intellectual

Property — License Agreement Between Oxford University Innovation Limited and Blue Water Vaccines Inc.” and Notes 5 and 7

to our financial statements included elsewhere in this Report.

The OUI license includes:

Application No.

Granted Claim Type

Compositions and method of treatment

Pending applications in Australia, Canada, China, EU and Japan

Projected expiration if patent issues:

20 years from earliest non-provisional application filing date.

is a pending application.

Claim type will be determined after U.S.

prosecution is complete.

The claim type sought includes compositions

of the compositions and method of treatment.

Jude Children’s Research Hospital, Inc.

On January 27, 2020, we entered into an exclusive,

worldwide license agreement with St.

Jude Children’s Research Hospital, Inc., as amended, which we refer to as the St.

Jude Agreement,

pursuant to which we acquired the right to develop certain licensed products and produce vaccines for use in humans.

Under the St.

Jude Agreement, we agreed to pay an

initial license fee, an annual maintenance fee, milestone payments, patent reimbursement, and running royalties based on the net sales

of licensed products.

On May 11, 2022, the Company and St.

Jude entered into a first amendment to the St.

Jude Agreement (the “St.

Jude Amendment”).

Jude Amendment provides for a revised development milestone timeline, a one-time license fee of $5,000,

and an increase to the royalty rate from 4% to 5%.

Jude Amendment also provides for an increase to the contingent milestone payments,

from $1.0 million to $1.9 million in the aggregate;

specifically, development milestones of $0.3 million, regulatory milestones of $0.6

million, and commercial milestones of $1.0 million.

For additional details regarding our relationship with St.

Jude, see the section entitled

“Business — Intellectual Property — Exclusive License Agreement between St.

Jude Children’s Research Hospital,

& Blue Water Vaccines” and Notes 5 and 7 to our financial statements included elsewhere in this Report.

Application No.

Granted Claim Type

Compositions and method of treatment

Pending Applications in:

Australia, Brazil, Canada, China, Europe, Hong Kong, Japan and Korea

Projected expiration if patent issues:

20 years from earliest non-provisional application filing date.

National stage entry of WO 2020/183420 (PCT/IB2020/052250).

This is a pending application.

Claim type will be determined after U.S.

prosecution is complete.

The claim type sought includes compositions of the compositions and method of treatment.

Jude Children’s Sponsored Research Agreement

In addition to the St.

Jude Agreement, the Company

also entered into a sponsored research agreement dated May 3, 2021 with St.

Jude for research related to the St.

Jude Agreement (the “St.

Pursuant to the St.

Jude SRA, the Company is obligated to pay St.

Jude an aggregate amount of $73,073.

This sponsored

research project began during 2021.

The Company entered into a second sponsored research

agreement with St.

Jude, dated August 29, 2022, pursuant to which the Company is obligated to pay St.

Jude an amount of $75,603 which

is due within 30 days of the effective date of the agreement.

University of Texas Health Science Center at San Antonio

The Company entered into a patent and technology

license agreement, dated November 18, 2022, with UT Health.

Under the terms of the UT Health Agreement, the Company holds an exclusive,

worldwide license (other than the excluded field of vectors) to certain specified patent rights relating to the development of a live

attenuated, oral Chlamydia vaccine candidate.

An initial non-refundable license fee of $100,000 was due upon execution of the agreement

and then subsequent annual license fees of $20,000 per year for each of the four years ending on December 31, 2026;

$40,000 per year for

each of the two years ending on December 31, 2028, and then $60,000 per year for the year ending December 31, 2029 and each year thereafter.

In addition, the Company is obligated to pay certain milestone and royalty payments in the future, as the related contingent events occur.

For additional details regarding our relationship with UT Health, see the section entitled “Business — Intellectual Property

— Exclusive License Agreement between the University of Texas Health Science Center at San Antonio & Blue Water Vaccines Inc.”

and Notes 5 and 7 to our financial statements included elsewhere in this Report.

The UT Health license includes:

Application No.

Granted Claim Type

Compositions and method of treatment

‌[11/2/2042]*

Projected expiration if patent issues:

20 years from earliest non-provisional application filing date.

This is a pending application.

Claim type will be determined after U.S.

prosecution is complete.

The claim type sought includes compositions of the compositions and method of treatment.

AbVacc Co-Development Agreement

1, 2023, the Company entered into a co-development agreement with AbVacc, Inc., for the purpose of conducting research aimed at co-development

of specific vaccine candidates, including monkeypox and Marburg virus disease with the potential to expand to others using the Norovirus

nanoparticle platform (“Co-Development Project”), and to govern the sharing of materials and information, as defined in the

agreement, for the Co-Development Project.

Under the agreement, AbVacc and the Company will collaborate, through a joint development committee,

to establish and implement a development plan or statement of work for each Co-Development Project targeted product.

AbVacc Co-Development

On February 1, 2023, the

Company entered into a co-development agreement with AbVacc, Inc., for the purpose of conducting research aimed at co-development of specific

vaccine candidates, including monkeypox and Marburg virus disease with the potential to expand to others using the Norovirus nanoparticle

platform (“Co-Development Project”), and to govern the sharing of materials and information, as defined in the agreement,

for the Co-Development Project.

Under the agreement, AbVacc and the Company will collaborate, through a joint development committee, to

establish and implement a development plan or statement of work for each Co-Development Project targeted product.

Under the co-development

4 unchanged sentences

either party, in accordance with the agreement.

Butantan Letter of Intent

On May 19, 2022, the Company and Instituto Butantan

(“Butantan”) entered into a letter of intent, pursuant to which the Company and Butantan intend to establish a future technological

collaboration in order to improve Butantan’s platform and develop the universal influenza vaccine candidate in collaboration with

COVID-19 Impacts

Our business, results of operations and financial

condition have been and may continue to be impacted by the COVID-19 pandemic and could be further impacted by supply chain interruptions,

extended “shelter-in-place” orders or advisories, facility closures or other reasons related to the pandemic.

As of the date

of this Report, the extent to which COVID-19 could materially impact our financial conditions, liquidity or results of operations is uncertain.

To the extent COVID-19 disruptions continue to adversely

impact our business, results of operations and financial condition, it may also have the effect of heightening risks relating to our ability

to successfully commercialize newly developed or acquired products, consolidation in the healthcare industry, and maintenance of our contractual

relationships.

However, as Onconetix has now deprioritized its infectious disease vaccine programs, this

agreement will have little strategic significance going forward.

Services Agreement

On July 21, 2023, the Company,

entered into a Licensing and Services Master Agreement (“Master Services Agreement”) and a related statement of work with

a vendor, pursuant to which the vendor was to provide to the Company commercialization services for the Company’s products, including

recruiting, managing, supervising and evaluating sales personnel and providing sales-related services for such products, for fees totaling

up to $29.1 million over the term of the statement of work.

The statement of work had a term through September 6, 2026, unless earlier

terminated in accordance with the Master Services Agreement and the statement of work.

On July 29, 2023, a second statement of work was

entered into with the same vendor for certain subscription services providing prescription market data access to the Company.

under the second statement of work totaled approximately $800,000, and the term was through July 14, 2025.

On October 12, 2023, the Company

terminated the Master Services Agreement and the statements of work.

The Company recorded approximately $3.1 million in expense related

to this contract during the year ended December 31, 2023, which is included in selling, general and administrative expense in the accompanying

consolidated statements of operations and comprehensive loss.

The Company had approximately $1.8 million recorded in related accounts

payable as of December 31, 2023, which includes amounts due for early termination of the contract.

See Note 6 to our consolidated financial

statements included elsewhere in this Report.

Components of Results of Operations

Selling, General and Administrative Expenses

Selling, general and administrative

expenses consist principally of commercialization activities , payroll, and personnel expenses,

including salaries and bonuses, benefits and stock-based compensation expenses, professional fees for legal, consulting, accounting and

tax services, information technology costs, costs incurred with respect to acquisitions and potential acquisitions, and other general

operating expenses.

We anticipate that our selling,

general and administrative expenses will continue to increase when compared to historical levels as a result of our dedication to commercialization

of our products approved for sale, which includes.

Proclarix in Europe and ENTADFI in the

U.S (if we decide to resume its commercialization), costs associated with integration of these assets and commercial operations, as well

as expanded infrastructure and higher consulting, legal and accounting services costs associated with complying with the applicable stock

exchange and the SEC requirements, investor relations costs and director and officer insurance premiums associated with being a public

Research and Development Expenses

Substantially all of our research and development

expenses consist of expenses incurred in connection with the development of our product candidates.

These expenses include fees paid to

third parties to conduct certain research and development activities on our behalf, consulting costs, costs for laboratory supplies, product

acquisition and license costs, certain payroll and personnel-related expenses, including salaries and bonuses, employee benefit costs

and stock-based compensation expenses for our research and product development employees and allocated overheads, including information

technology costs and utilities.

Substantially all of our

research and development expenses consist of expenses incurred in connection with the development of our product candidates.

These expenses

historically have included fees paid to third parties to conduct certain research and development activities on our behalf, consulting

costs, costs for laboratory supplies, product acquisition and license costs, certain payroll, and personnel-related expenses, including

salaries and bonuses, employee benefit costs and stock-based compensation expenses for our research and product development employees.

We expense both internal and external research and development expenses as they are incurred.

We do not allocate our costs by product candidate,

as a significant amount of research and development expenses include internal costs, such as payroll and other personnel expenses, laboratory

supplies and allocated overhead, and external costs, such as fees paid to third parties to conduct research and development activities

on our behalf, are not tracked by product candidate.

We expect our research and development expenses

to increase substantially for at least the next few years, as we seek to initiate additional clinical trials for our product candidates,

complete our clinical programs, pursue regulatory approval of our product candidates and prepare for the possible commercialization of

such product candidates.

Predicting the timing or cost to complete our clinical programs or validation of our commercial manufacturing

and supply processes is difficult and delays may occur because of many factors, including factors outside of our control.

if the FDA or other regulatory authorities were to require us to conduct clinical trials beyond those that we currently anticipate, we

could be required to expend significant additional financial resources and time on the completion of clinical development.

we are unable to predict when or if our product candidates will receive regulatory approval with any certainty.

General and Administrative Expenses

General and administrative expenses consist principally

of payroll and personnel expenses, including salaries and bonuses, benefits and stock-based compensation expenses, professional fees for

legal, consulting, accounting and tax services, including information technology costs, and other general operating expenses not otherwise

classified as research and development expenses.

We anticipate that our general and administrative

expenses will continue to increase when compared to historical levels as a result of increased personnel costs, expanded infrastructure

and higher consulting, legal and accounting services costs associated with complying with the applicable stock exchange and the SEC requirements,

investor relations costs and director and officer insurance premiums associated with being a public company.

Other income relates to the change in fair value

of the contingent warrant liability, which relates to the contingent warrant liability from the Private Placements.

We do not allocate our costs

by product candidate, as a significant amount of research and development expenses include internal costs, such as payroll and other personnel

expenses, laboratory supplies, and external costs, such as fees paid to third parties to conduct research and development activities on

our behalf, that are not tracked by product candidate.

expect our research and development expenses to increase once research and development activities are resumed.

Predicting the timing

or cost to complete our clinical programs for future product candidates, or validation of our commercial manufacturing and supply processes

is difficult and delays may occur because of many factors, including factors outside of our control, such as regulatory approvals.

we are unable to predict when or if our future product candidates will receive regulatory approval with any certainty.

Other Income (Expense)

Other income (expense) is

comprised of interest expense on notes payable, the change in fair value of financial instruments that are recorded as liabilities, which

includes the subscription agreement liability, contingent warrant liability, and other financing-related costs.

Results of Operations

Comparison of the Years Ended December 31, 2023 and 2022

The following table summarizes our statements of

operations and comprehensive loss for the periods indicated:

The following table summarizes our statements

of operations and comprehensive loss for the periods indicated:

Cost of revenue

Operating expenses

General and administrative

Selling, general and administrative

Research and development

Impairment of ENTADFI assets

Impairment of deposit on asset purchase agreement

Total operating expenses

2 unchanged sentences

(13,481,240 )

(22,553,355 )

Other income (expense)

Loss on extinguishment of note payable

Interest expense

Change in fair value of subscription agreement liability

Change in fair value of contingent warrant liability

Total other income

Total other income (expense)

Loss before income taxes

(37,422,287 )

1 unchanged sentence

(24,002,457 )

Not meaningful

General and Administrative Expenses

For the year ended December 31, 2022, general and administrative expenses

increased by approximately $7.3 million compared to 2021.

The increase was mainly due to an increase in employee and director compensation

and benefits, including annual bonus compensation and stock-based compensation, of approximately $2.4 million, an increase in professional

services, which is comprised primarily of audit, accounting, and legal services, of approximately $1.2 million, increases in various business

activities related to company growth and development such as entering into a new lease, patent-related expenses, franchise taxes, travel,

and business advisory services totaling approximately $0.9 million, and increases in other business activities related to now being a

public company of approximately $1.1 million.

In addition, during the year ended December 31, 2022, the Company incurred approximately

$1.3 million in expense related to the settlement agreement with Boustead and approximately $0.3 million for a non-recurring termination

fee to the Company’s former underwriter, for early termination of the agreement with that underwriter.

Income tax benefit

$ (37,409,694 )

$ (13,419,830 )

(23,989,864 )

Revenue, Cost of Revenue, and Gross Margin

For the year ended December

31, 2023, the Company had less than $0.1 million of revenue, which was attributable to Proteomedix revenue recorded from the date of acquisition

through December 31, 2023.

Cost of revenue of approximately $1.2 million, and the resulting negative margin, is attributable to costs

incurred on Proteomedix revenue including amortization of the product rights intangible asset of approximately $31,000, and an impairment

of inventory related to ENTADFI of approximately $1.2 million.

The Company did not have any revenue during the year ended December 31,

Selling, General and Administrative Expenses

For the year ended December

31, 2023, selling, general and administrative expenses increased by approximately $5.4 million compared to 2022.

The increase was mainly

due to approximately $4.7 million in expenses incurred related to commercialization activities and

an increase in professional services of approximately $1.7 million, which is comprised primarily of audit, accounting, and legal

services, a significant portion of which were in support of the Company’s acquisition activities.

In addition, the Company incurred

approximately $1.7 million related to the acquisition of Proteomedix, which consists primarily of transaction costs and Proteomedix’s

selling, general and administrative expenses since the acquisition date.

The Company also recorded an impairment of long-lived assets

of $0.3 million during 2023.

These increases were offset by a decrease in employee and director

compensation and benefits of approximately $1.0 million, primarily due to a decrease in stock-based compensation expense.

Also, the Company

recorded approximately $1.3 million of expense in 2022 related to the settlement agreement with Boustead and approximately $0.3 million

for a non-recurring termination fee to the Company’s former underwriter, for early termination of the agreement with that underwriter,

with no related expenses in 2023.

The remaining decrease is due to a decrease in various business activities that occurred during the

last half of the year related to the Company’s change in business strategy, including decreases in business

advisory services, patent costs, travel related expenses, and rent expense, totaling $0.4 million.

Research and Development Expenses

For the year ended December 31, 2022, research and

development expenses increased by approximately $2.8 million compared to 2021.

The increase was primarily attributable to an increase

in employee compensation and benefits, including annual bonus compensation and stock-based compensation, of approximately $1.1 million,

an increase in preclinical development activities of approximately $1.5 million mainly related to BWV-201, and an increase in external

research and development personnel costs of approximately $0.4 million, offset by a decrease in license fees of approximately $0.3 million,

primarily related to the one-time license fees incurred pursuant to the CHMC Agreement during the year ended December 31, 2021.

Other income for the year ended December 31, 2022

relates to the change in fair value of the contingent warrant liability, which was incurred at the close of the Private Placements.

was no other income or expense during the year ended December 31, 2021.

Liquidity and Capital Resources

For the year ended December

31, 2023, research and development expenses decreased by approximately $2.2 million compared to 2022.

was primarily due to the Company’s decision to deprioritize its vaccine programs and focus on commercialization activities, which

occurred during the third quarter of 2023.

This change in business strategy led to a pause on the Company’s clinical and other research

activities, and a resulting decrease of approximately $2.3 million due to decreased costs for related outside services and reduced compensation

This was slightly offset by an increase related to Proteomedix’s research and development activities since the acquisition

date, of approximately $0.1 million.

The Company recorded an impairment

charge of $14.7 million on the assets acquired as part of the ENTADFI acquisition during the fourth quarter of 2023.

In addition, the

Company recorded an impairment charge of $3.5 million on a deposit that was made as part of the WraSer APA.

No such impairments were recorded

Other Income (Expense)

Other expense incurred during

the year ended December 31, 2023 increased by approximately $1.4 million compared to 2022 and relates to the change in fair value of the

subscription agreement liability of approximately $0.1 million, $0.7 million of interest expense, primarily incurred on notes payable

issued in April 2023 related to the acquisition of ENTADFI, a loss on extinguishment of a note payable of $0.5 million in connection with

the Veru APA Amendment, and the change in fair value of the contingent warrant liability of approximately $0.1 million.

recorded during the year ended December 31, 2022, relates to the change in fair value of the contingent warrant liability.

Income Tax Benefit

The Company recorded an income

tax benefit of approximately $13,000 during the year ended December 31, 2023, in connection with the acquisition accounting for the Proteomedix

There was no income tax benefit or expense recorded during the year ended December 31, 2022.

Liquidity and Capital Resources

Since inception, we have devoted substantially all

of our efforts to research and development, undertaking preclinical studies and enabling manufacturing activities in support of our product

development efforts, hiring personnel, acquiring and developing our technology and vaccine candidates, organizing and staffing our company,

performing business planning, establishing our intellectual property portfolio and raising capital to support and expand such activities.

We do not have any products approved for sale and have not generated any revenue from product sales.

We have incurred net losses in each

year since inception and expect to continue to incur net losses in the foreseeable future.

Our net loss was $13.4 million for the year

ended December 31, 2022.

As of December 31, 2022, we had an accumulated deficit of $19.4 million.

We also generated negative operating

cash flows of $8.7 million for the year ended December 31, 2022.

On February 23, 2022, we completed our IPO in which

we received approximately $17.1 million in net proceeds, after deducting the underwriting discount, and offering expenses.

on April 19, 2022, we completed the April Private Placement in which we received approximately $6.9 million in net cash proceeds, after

deducting placement agent fees and other offering expenses.

Further, on August 11, 2022, the Company completed the August Private Placement

in which it received approximately $8.7 million in net proceeds, after deducting placement agent fees and other offering expenses.

The Company believes the existing cash at December

31, 2022, will be sufficient to continue operations, satisfy its obligations and fund the future expenditures that will be required to

conduct the clinical and regulatory work to develop its product candidates for at least one year after the date that the accompanying

financial statements were issued.

However, we will require significant amounts of

additional capital to continue to fund our operations in the long term and complete our research and development activities.

We will continue

seeking additional financing sources to meet our working capital requirements, make continued investment in research and development and

make capital expenditures needed for us to maintain and expand our business.

We may not be able to obtain additional financing on terms

favorable to us, if at all.

If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it,

or if we expend capital on projects that are not successful, our ability to continue to support our business growth and to respond to

business challenges could be significantly limited, or we may even have to cease our operations.

If we raise additional funds through

further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity

securities we issue could have rights, preferences and privileges superior to those of holders of our common stock.

The Company’s operating

activities to date have been primarily devoted to seeking licenses, engaging in research and development activities, potential asset and

business acquisitions, and expenditures associated with the commercial launch of ENTADFI.

The Company has financed its operations since

inception primarily using proceeds received from seed investors and proceeds received from its IPO and subsequent debt and equity offerings.

During the year ended December 31, 2022, the Company received an aggregate of approximately $33.1 million in net cash proceeds from its

IPO and two private placements, and during the year ended December 31, 2023, the Company received net proceeds of approximately $2.3 million

in connection with the exercise by an investor of preferred investment options (see Note 9).

In addition, on January 23, 2024, the Company

received net cash proceeds of $4.6 million in exchange for the issuance of a debenture.

The debenture is repayable in full upon the earlier

of (i) the closing of a subscription agreement, which was entered into in connection with the acquisition of Proteomedix, and (ii) June

30, 2024 (see Note 13).

The Company has incurred

substantial operating losses since inception and expects to continue to incur significant operating losses for the foreseeable future.

As of December 31, 2023, the Company had cash of approximately $4.6 million, a working capital deficit of approximately $11.4 million

and an accumulated deficit of approximately $56.8 million.

These factors, along with the

Company’s forecasted future cash flows, indicate that the Company will be unable to meet its contractual commitments and obligations

as they come due in the ordinary course of business, within one year following the issuance of these consolidated financial statements.

The Company will require significant additional capital in the short-term to fund its continuing operations, satisfy existing and future

obligations and liabilities, including the remaining payments due for the acquisition of the ENTADFI assets, payment due on the Debenture,

in addition to funds needed to support the Company’s working capital needs and business activities.

These business activities include

the commercialization of Proclarix and ENTADFI (if we decide to resume its commercialization), and the development and commercialization

of the Company’s future product candidates.

In addition, as discussed more fully in Note 5, if stockholder approval is not obtained

by January 1, 2025 with respect to the Series B Convertible Redeemable Preferred Stock issued in connection with the acquisition of Proteomedix,

these shares become redeemable for cash, and the Company currently does not have sufficient cash to redeem such shares.

Based on the closing

price of $0.166 for the Company’s stock as of April 5, 2024, the Series B Preferred Stock would be redeemable for approximately

$44.8 million.

Management’s plans

for funding the Company’s operations include generating product revenue from sales of Proclarix, which may still be subject to

further successful commercialization activities within certain jurisdictions, and ENTADFI, which is subject to further successful commercialization

activities which we have temporarily paused as discussed above.

Certain of the commercialization activities are outside of the Company’s

control, including but not limited to, securing contracts with wholesalers and third-party payers, securing contracts with third-party

logistics providers, and obtaining required licensure in various jurisdictions, as well as attempting to secure additional required funding

through equity or debt financings if available.

However, there are currently no commitments in place for further financing nor is there

any assurance that such financing will be available to the Company on favorable terms, if at all.

This creates significant uncertainty

that the Company will have the funds available to be able to successfully launch ENTADFI and expand commercialization of Proclarix.

the Company is unable to secure additional capital, it may be required to curtail any future clinical trials, development and/or commercialization

of products and product candidates, and it may take additional measures to reduce expenses in order to conserve its cash in amounts sufficient

to sustain operations and meet its obligations.

Because of historical and

expected operating losses and net operating cash flow deficits, there is substantial doubt about the Company’s ability to continue

as a going concern for one year from the issuance of the consolidated financial statements, which is not alleviated by management’s

The consolidated financial statements have been prepared assuming the Company will continue as a going concern.

These consolidated

financial statements do not include any adjustments that might be necessary from the outcome of this uncertainty.

Future Funding Requirements

Our primary uses of cash are to fund our operations,

which consist primarily of research and development expenditures related to our programs and general and administrative expenditures.

We anticipate that we will continue to incur significant expenses for the foreseeable future as we continue to advance our vaccine candidates,

expand our corporate infrastructure, including the costs associated with being a public company and further our research and development

initiatives for our vaccine candidates.

We are subject to all of the risks typically related to the development of new drug candidates,

and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our

We anticipate that we will need substantial additional funding in connection with our continuing operations in order to execute

our long term business plan.

We estimate that, based on our existing cash as

of December 31, 2022, we have cash on hand sufficient to fund our operations for at least the next 12 months.

We will need to raise additional

capital prior to commencing additional pivotal trials for certain of our vaccine candidates.

Until we can generate a sufficient amount

of revenue from the commercialization of our vaccine candidates or from collaboration agreements with third parties, if ever, we expect

to finance our future cash needs through public or private equity or debt financings, third-party (including government) funding and marketing

and distribution arrangements, as well as other collaborations, strategic alliances and licensing arrangements, or any combination of

these approaches.

The future sale of equity or convertible debt securities may result in dilution to our stockholders and, in the case

of preferred equity securities or convertible debt, those securities could provide for rights, preferences or privileges senior to those

of our common stock.

Debt financings may subject us to covenant limitations or restrictions on our ability to take specific actions, such

as incurring additional debt, making capital expenditures or declaring dividends.

Our ability to raise additional funds may be adversely

impacted by deteriorating global economic conditions and the recent disruptions to and volatility in the credit and financial markets

in the United States and worldwide resulting from the ongoing COVID-19 pandemic.

There can be no assurance that we will be successful

in acquiring additional funding at levels sufficient to fund our operations or on terms favorable or acceptable to us.

If we are unable

to obtain adequate financing when needed or on terms favorable or acceptable to us, we may be forced to delay, reduce the scope of or

eliminate one or more of our research and development programs.

Our future capital requirements will depend on many

factors, including:

the timing, scope, progress, results and costs of research and development, testing, screening, manufacturing, preclinical and non-clinical studies and clinical trials, including any impacts related to the COVID-19 pandemic;

the outcome, timing and cost of seeking and obtaining regulatory approvals from the FDA and comparable foreign regulatory authorities, including the potential for such authorities to require that we perform field efficacy studies for our vaccine candidates, require more studies than those that we currently expect or change their requirements regarding the data required to support a marketing application;

the cost of building a sales force in anticipation of any product commercialization;

the costs of future commercialization activities, including product manufacturing, marketing, sales, royalties and distribution, for any of our vaccine candidates for which we receive marketing approval;

Our primary uses of cash

to date have been to fund our operations, which consist primarily of research and development expenditures related to our programs, costs

related to acquisitions and potential acquisitions, commercializing ENTADFI and other selling, general and administrative expenditures.

We anticipate that we will continue to incur significant expenses for the foreseeable future as we continue to commercialize Proclarix

and ENTADFI, if we proceed with its commercialization, and expand our corporate infrastructure, including the costs associated with being

a public company.

We are subject to all of the risks typically related to the development of new drug candidates, and we may encounter

unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business.

We will require significant amounts

of additional capital in the short-term, to continue to fund our continuing operations, satisfy existing and future obligations and liabilities,

including the remaining payments due under the Veru APA and other contracts entered into in support of the Company’s commercialization

plans, in addition to funds needed to support our working capital needs and business activities, including the commercialization of Proclarix

and ENTADFI (if we decide to resume its commercialization), and the development and commercialization of our future product candidates.

Until we can generate a sufficient amount of revenue from sales of Proclarix or ENTADFI, we expect to finance our future cash needs through

public or private equity or debt financings, third-party (including government) funding and marketing and distribution arrangements, as

well as other collaborations, strategic alliances and licensing arrangements, or any combination of these approaches.

The future sale

of equity or convertible debt securities may result in dilution to our stockholders, and, in the case of preferred equity securities or

convertible debt, those securities could provide for rights, preferences or privileges senior to those of our common stock.

Debt financing

may subject us to covenant limitations or restrictions on our ability to take specific actions, such as incurring additional debt, making

capital expenditures, or declaring dividends.

There can be no assurance that we will be successful in acquiring additional funding at

levels sufficient to fund our operations or on terms favorable or acceptable to us.

If we are unable to obtain adequate financing when

needed or on terms favorable or acceptable to us, we may be forced to delay, reduce the scope of our business activities.

Our future capital requirements will depend on

many factors, including:

the costs of future commercialization activities, including product manufacturing, marketing, sales, royalties, and distribution, for Proclarix and ENTADFI (if we decide to resume its commercialization), and other products for which we may receive marketing approval;

the timing, scope, progress, results and costs of research and development, testing, screening, manufacturing, preclinical and non-clinical studies and clinical trials;

the outcome, timing and cost of seeking and obtaining regulatory approvals from the FDA and comparable foreign regulatory authorities, including the potential for such authorities to require that we perform field efficacy studies, require more studies than those that we currently expect or change their requirements regarding the data required to support a marketing application;

our ability to maintain existing, and establish new, strategic collaborations, licensing or other arrangements and the financial terms of any such agreements, including the timing and amount of any future milestone, royalty or other payments due under any such agreement;

1 unchanged sentence

the expenses needed to attract, hire and retain skilled personnel;

the revenue, if any, received from commercial sales, or sales to foreign governments, of our vaccine candidates for which we may receive marketing approval;

the revenue, if any, received from commercial sales of Proclarix or ENTADFI (if we decide to resume its commercialization), or other products for which we may have received or will receive marketing approval;

the costs to establish, maintain, expand, enforce and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with licensing, preparing, filing, prosecuting, defending and enforcing our patents or other intellectual property rights;

expenses needed to attract, hire and retain skilled personnel;

the costs of operating as a public company.

the impact of the COVID-19 pandemic, which may exacerbate the magnitude of the factors discussed above.

A change in the outcome of any of these or other

variables could significantly change the costs and timing associated with the development of our vaccine candidates.

Furthermore, our

operating plans may change in the future, and we may need additional funds to meet operational needs and capital requirements associated

with such change.

The following table summarizes our cash flows for

the periods indicated:

The following table summarizes our cash flows

for the periods indicated:

Net cash used in operating activities

2 unchanged sentences

Net cash used in investing activities

Net cash provided by (used in) financing activities

Net cash provided by financing activities

Effect of exchange rate changes on cash

Net increase (decrease) in cash

1 unchanged sentence

Cash Flows from Operating Activities

Net cash used in operating activities for the year

ended December 31, 2022 was $8.7 million, which primarily resulted from a net loss of $13.4 million, and was partially offset by noncash

stock-based compensation of approximately $2.0 million, the fair value of restricted common stock that was issued of approximately $0.3

million, and a net change in our operating assets and liabilities of $2.5 million.

Net cash used in operating activities for the year

ended December 31, 2021 was $2.0 million, which primarily resulted from a net loss of $3.4 million, which was partially offset by a net

change in our operating assets and liabilities of $1.2 million and stock-based compensation of $0.1 million.

Net cash used in operating

activities for the year ended December 31, 2023 was $13.6 million, which primarily resulted from a net loss of $37.4 million.

offset by impairment losses of $19.3 million related to the ENTADFI assets and the WraSer APA, the fair value of the subscription liability

agreement of $0.7 million, non-cash interest expense of $0.7 million, a loss on the extinguishment of a note payable of $0.5 million,

noncash stock-based compensation expense of $0.3 million, a $0.3 million loss on impairment of long-lived assets, other non-cash items

of $0.4 million, and a net change in our operating assets and liabilities of $1.6 million.

Net cash used in operating

activities for the year ended December 31, 2022, was $8.7 million, which primarily resulted from a net loss of $13.4 million, which was

partially offset by noncash stock-based compensation of approximately $2.0 million, the fair value of restricted common stock that was

issued of approximately $0.3 million, and a net change in our operating assets and liabilities of $2.4 million.

Cash Flows from Investing Activities

Net cash used in investing activities for the years

ended December 31, 2022 and 2021 was $9,000 and $2,000, respectively, which resulted from purchases of property and equipment.

Net cash used in investing activities

for the year ended December 31, 2023 was approximately $8.6 million, of which approximately $6.1 million was used for the acquisition

of ENTADFI, $3.5 million was used for the deposit in connection with the potential WraSer APA, and $0.1 million is the net change in the

receivable from related parties and purchases of long-lived assets.

This was offset by approximately $1.1 million in cash acquired in

connection with the acquisition of Proteomedix.

Net cash used in investing

activities for the year ended December 31, 2022, was approximately $33,000, which resulted from purchases of property and equipment

and the net change in the receivable from related parties.

Cash Flows from Financing Activities

Net cash provided by financing activities for the

year ended December 31, 2022 was approximately $32.5 million, and resulted primarily from the close of our IPO and the Private Placements,

which resulted in net proceeds of approximately $33.1 million, offset by approximately $0.6 million in treasury share repurchases.

cash used in financing activities for the year ended December 31, 2021 was $0.3 million related to payments of deferred offering costs.

cash provided by financing activities for the year ended December 31, 2023 was approximately $1.0 million, and resulted from net proceeds

from the exercise of preferred investment options in connection with the warrant inducement transaction of $2.3 million offset by $1.0

million in principal payments on a note payable, $59,000 in purchases of treasury shares, and $205,000 of payment in deferred offering

Net cash provided by financing

activities for the year ended December 31, 2022, was approximately $32.5 million, and resulted primarily from the close of our IPO and

the Private Placements, which resulted in net proceeds of approximately $33.1 million, offset by approximately $0.6 million in treasury

share repurchases.

Legal Contingencies

From time to time, we may become involved in legal

proceedings arising from the ordinary course of business.

We record a liability for such matters when it is probable that future losses

will be incurred and that such losses can be reasonably estimated.

From time to time, we may

become involved in legal proceedings arising from the ordinary course of business.

We record a liability for such matters when it is probable

that future losses will be incurred and that such losses can be reasonably estimated.

Off-Balance Sheet Arrangements

During the periods presented we did not have, nor

do we currently have, any off-balance sheet arrangements as defined in the rules and regulations of the SEC.

During the periods presented

we did not have, nor do we currently have, any off-balance sheet arrangements as defined in the rules and regulations of the SEC.

Recent Accounting Pronouncements Not Yet Adopted

See Note 3 to our financial statements included

elsewhere in this Report for more information.

See Note 3 to our consolidated

financial statements included elsewhere in this Report for more information.

Critical Accounting Policies and Estimates

Our financial statements have been prepared in accordance with U.S.

Our consolidated financial

statements have been prepared in accordance with U.S.

generally accepted accounting principles (“U.S.

The preparation of these financial statements requires us to make

estimates and judgments that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent assets

and liabilities in our financial statements.

On an ongoing basis, we evaluate our estimates and judgments, including those related to

accrued research and development expenses, the fair value of common stock, and stock-based compensation.

We base our estimates on historical

experience, known trends and events and various other factors that are believed to be reasonable under the circumstances, the results

of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other

Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described

in more detail in Note 3 to our financial statements included elsewhere in this Report, we believe the following accounting policies and

estimates to be most critical to the judgments and estimates used in the preparation of our financial statements.

The preparation

of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities,

and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements.

On an ongoing basis, we

evaluate our estimates and judgments.

We base our estimates on historical experience, known trends and events and various other factors

that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying

values of assets and liabilities that are not readily apparent from other sources.

Actual results may differ from these estimates under

different assumptions or conditions.

While our significant accounting

policies are described in more detail in Note 3 to our consolidated financial statements included elsewhere in this Report, we believe

the following accounting policies and estimates to be most critical to the judgments and estimates used in the preparation of our consolidated

financial statements.

The Company evaluates acquisitions to

first determine whether a set of assets acquired constitutes a business and should be accounted for as a business combination.

assets acquired are not a business, the transaction is accounted as an asset acquisition in accordance with Accounting Standards Codification

(“ASC”) 805-50, Asset Acquisitions (“ASC 805-50”), which requires the acquiring entity to recognize

assets acquired and liabilities assumed based on the cost to the acquiring entity on a relative fair value basis, except for non-qualifying assets including

financial assets such as inventory.

Further, the cost of the acquisition includes the fair value of consideration transferred and direct

transaction costs attributable to the acquisition.

Goodwill is not recognized in an asset acquisition and any excess consideration transferred

over the fair value of the net assets acquired is allocated to the identifiable assets based on relative fair values.

Contingent consideration

payments in asset acquisitions are recognized when the contingency is determined to be probable and reasonably estimable.

If the assets

acquired are a business, the Company accounts for the transaction as a business combination.

Business combinations are accounted for by

using the acquisition method of accounting.

Under the acquisition method, assets acquired, and liabilities assumed are recorded at their

respective fair values.

The excess of the fair value of consideration transferred over the fair value of the net assets acquired is recorded

Acquisition related expenses are expensed as incurred, and are included in selling, general and administrative expenses in

the consolidated statements of operations and comprehensive loss.

Goodwill and Other Intangible Assets

Goodwill represents

the excess of the cost of a business combination over the fair value of the net assets acquired.

Goodwill and intangible

assets deemed to have indefinite lives are not amortized but are subject to impairment tests on an annual basis, and whenever events

or changes in circumstances indicate that the carrying value may not be recoverable.

Goodwill is allocated to the reporting

unit from which it was created.

A reporting unit is an operating segment or sub-segment to which goodwill is assigned when initially

The Company tests indefinite lived intangible assets for impairment, on an annual basis in the fourth quarter, or more frequently

if an event occurs or circumstances indicate that the indefinite lived assets may be impaired.

The Company may perform a qualitative assessment

to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount.

If the Company

determines this is the case, the Company then performs further quantitative analysis to identify and measure the amount of goodwill impairment

loss to be recognized, if any.

To perform its quantitative test, the Company compares the fair value of the reporting unit to its carrying

If the fair value of the reporting unit exceeds the carrying value of its net assets, goodwill is not impaired, and no

further testing is required.

If the fair value of the reporting unit is less than the carrying value, the Company measures the amount

of impairment loss, if any, as the excess of the carrying value over the fair value of the reporting unit.

The Company did not test

its goodwill or indefinite lived assets for impairment during the year ended December 31, 2023, given that the acquisition date occurred after the annual testing date,

and given that there were no impairment indicators from the date of acquisition through the end of the reporting period.

The Company has

determined that no impairment of its goodwill or indefinite lived intangible assets occurred as of December 31, 2023.

Intangible assets with finite

lives are reported at cost, less accumulated amortization, and are amortized over their estimated useful lives, starting when sales for

the related product begin.

Amortization is calculated using the straight-line method, and recorded within selling, general, and administrative

expenses, or cost of revenue, depending on the nature and use of the asset.

During the ordinary course

of business, the Company has entered into certain license and asset purchase agreements.

Potential milestone payments for development,

regulatory, and commercial milestones are recorded when the milestone is probable of achievement.

Upon a milestone being achieved, the

associated milestone payment is capitalized and amortized over the remaining useful life for approved products, or expensed as research

and development expense for milestones relating to products whose FDA approval has not yet been obtained.

Impairment of Long-Lived Assets

The Company reviews long-lived

assets, including intangible assets with finite useful lives, for impairment whenever events or changes in business circumstances indicate

that the carrying amount of the assets may not be fully recoverable (a “triggering event”).

Factors that the Company considers

in deciding when to perform an impairment review include significant underperformance of the long-lived asset in relation to expectations,

significant negative industry or economic trends, and significant changes or planned changes in the use of the assets.

If an impairment

review is performed to evaluate a long-lived asset for recoverability, the Company compares forecasts of undiscounted cash flows expected

to result from the use and eventual disposition of the long-lived asset to its carrying value.

An impairment loss would be recognized

when estimated undiscounted future cash flows expected to result from the use of an asset are less than its carrying amount.

The impairment

loss would be based on the excess of the carrying value of the impaired asset over its fair value.

During the fourth quarter of 2023,

the Company determined that there were certain triggering events that indicated that the carrying amount of the assets recorded in connection

with the ENTADFI acquisition may not be fully recoverable.

A related impairment loss of $14.7 million was recorded during the year ended

December 31, 2023.

The Company also recorded an impairment loss of approximately $267,000 during the year ended December 31, 2023, related

to implementation costs incurred under cloud computing hosting arrangements that were capitalized during the year.

There were no other

impairment losses on long-lived assets for the years ended December 31, 2023 and 2022.

Accrued Research and Development Expenses

We have entered into various agreements with contract

manufacturing organizations, or CMOs, and may enter into contracts with clinical research organizations, or CROs, in the future.

of the process of preparing our financial statements, we are required to estimate our accrued research and development expenses as of

each balance sheet date.

This process involves reviewing open contracts and purchase orders, communicating with our personnel and third

parties to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost

incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost.

We make estimates of our accrued

research and development expenses as of each balance sheet date based on facts and circumstances known to us at that time.

We periodically

confirm the accuracy of our estimates with the service providers and make adjustments, if necessary.

The significant estimates in our

accrued research and development expenses include the costs incurred for services performed by our vendors in connection with research

and development activities for which we have not yet been invoiced.

We accrue for costs related to research and development activities

based on our estimates of the services received and efforts expended pursuant to quotes and contracts with vendors, including CMOs, that

conduct research and development on our behalf.

The financial terms of these agreements are subject to negotiation, vary from contract

to contract and may result in uneven payment flows.

There may be instances in which payments made to our vendors will exceed the level

of services provided and result in a prepayment of the research and development expense.

Advance payments for goods and services that

will be used in future research and development activities are expensed when the activity has been performed or when the goods have been

We make significant judgments and estimates in determining accrued research and development liabilities as of each reporting

period based on the estimated time period over which services will be performed and the level of effort to be expended.

If the actual

timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepaid expense accordingly.

Although we do not expect our estimates to be materially

different from amounts actually incurred, if our estimates of the status and timing of services performed differ from the actual status

and timing of services performed, it could result in us reporting amounts that are too high or too low in any particular period.

there have been no material differences between our estimates of such expenses and the amounts actually incurred.

The Company determines the accounting classification

of warrants that are issued, as either liability or equity, by first assessing whether the warrants meet liability classification in accordance

with ASC 480-10, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, (“ASC 480-10”),

and then in accordance with ASC 815-40, Derivatives and Hedging - Contracts in Entity’s Own Equity (“ASC 815-40”).

ASC 480-10, warrants are considered liability-classified if the warrants are mandatorily redeemable, obligate the issuer to settle the

warrants or the underlying shares by paying cash or other assets, or must or may require settlement by issuing variable number of shares.

If the warrants do not meet liability classification

under ASC 480-10, the Company assesses the requirements under ASC 815-40, which states that contracts that require or may require the

issuer to settle the contract for cash are liabilities recorded at fair value, irrespective of the likelihood of the transaction occurring

that triggers the net cash settlement feature.

If the warrants do not require liability classification under ASC 815-40, in order to conclude

equity classification, the Company assesses whether the warrants are indexed to its common stock and whether the warrants are classified

as equity under ASC 815-40 or other applicable GAAP.

After all relevant assessments are made, the Company concludes whether the warrants

are classified as liability or equity.

Liability-classified warrants are required to be accounted for at fair value both on the date of

issuance and on subsequent accounting period ending dates, with all changes in fair value after the issuance date recorded as a component

of other income (expense), net in the statements of operations.

Equity-classified warrants are accounted for at fair value on the issuance

date with no changes in fair value recognized after the issuance date.

We have entered into various

agreements with CMOs and may enter into contracts with CROs in the future.

As part of the process of preparing our financial statements,

we are required to estimate our accrued research and development expenses as of each balance sheet date.

This process involves reviewing

open contracts and purchase orders, communicating with our personnel and third parties to identify services that have been performed on

our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced

or otherwise notified of the actual cost.

We make estimates of our accrued research and development expenses as of each balance sheet

date based on facts and circumstances known to us at that time.

We periodically confirm the accuracy of our estimates with the service

providers and make adjustments, if necessary.

The significant estimates in our accrued research and development expenses include the costs

incurred for services performed by our vendors in connection with research and development activities for which we have not yet been invoiced.

We accrue for costs related

to research and development activities based on our estimates of the services received and efforts expended pursuant to quotes and contracts

with vendors, including CMOs, that conduct research and development on our behalf.

The financial terms of these agreements are subject

to negotiation, vary from contract to contract and may result in uneven payment flows.

There may be instances in which payments made to

our vendors will exceed the level of services provided and result in a prepayment of the research and development expense.

Advance payments

for goods and services that will be used in future research and development activities are expensed when the activity has been performed

or when the goods have been received.

We make significant judgments and estimates in determining accrued research and development liabilities

as of each reporting period based on the estimated time period over which services will be performed and the level of effort to be expended.

If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepaid

expense accordingly.

Although we do not expect

our estimates to be materially different from amounts actually incurred, if our estimates of the status and timing of services performed

differ from the actual status and timing of services performed, it could result in us reporting amounts that are too high or too low in

any particular period.

To date, there have been no material differences between our estimates of such expenses and the amounts actually

Financial instruments

The Company determines the

accounting classification of financial instruments that are issued, including its warrants and a subscription agreement, as either liability

or equity, by first assessing whether the financial instruments are freestanding financial instruments, and if they meet liability classification

in accordance with ASC 480, Distinguishing Liabilities from Equity , (“ASC 480”), and then in accordance with ASC 815-40,

Derivatives and Hedging – Contracts in Entity’s Own Equity (“ASC 815-40”).

Under ASC 480-10, financial

instruments are considered liability-classified if the instruments are mandatorily redeemable, obligate the issuer to settle the instruments

or the underlying shares by paying cash or other assets, or must or may require settlement by issuing a variable number of shares.

If the instruments do not

meet liability classification under ASC 480, the Company assesses the requirements under ASC 815-40, which states that contracts that

require or may require the issuer to settle the contract for cash are liabilities recorded at fair value, irrespective of the likelihood

of the transaction occurring that triggers the net cash settlement feature.

If the financial instruments do not require liability classification

under ASC 815-40, in order to conclude equity classification, the Company assesses whether the instruments are indexed to the Company’s

common stock and whether the instruments are classified as equity under ASC 815-40 or other applicable GAAP.

After all relevant assessments

are made, the Company concludes whether the instruments are classified as liability or equity.

Liability-classified instruments are required

to be accounted for at fair value both on the date of issuance and on subsequent accounting period ending dates, with all changes in fair

value after the issuance date recorded as a component of other income (expense), net in the consolidated statements of operations and

comprehensive loss.

Equity-classified instruments are accounted for at fair value on the issuance date with no changes in fair value recognized

after the issuance date.

Preferred Stock

The Company applies the guidance

enumerated in ASC 480, when determining the classification and measurement of preferred stock.

Preferred stock subject to mandatory redemption,

if any, is classified as a liability and is measured at fair value.

The Company classifies conditionally redeemable preferred stock, which

includes preferred stock that features redemption rights that are either within the control of the holder or subject to redemption upon

the occurrence of uncertain events not solely within the Company’s control, as temporary equity.

At all other times, the

Company classifies its preferred stock in stockholders’ equity.

Stock-Based Compensation

The Company expensed stock-based compensation to

employees and non-employees over the requisite service period based on the estimated grant-date fair value of the awards.

awards to employees with graded-vesting schedules are recognized, using the accelerated attribution method, on a straight-line basis over

the requisite service period for each separately vesting portion of the award.

The Company estimates the fair value of stock option

grants using the Black-Scholes option pricing model and the assumptions used in calculating the fair value of stock-based awards represent

management’s best estimates and involve inherent uncertainties and the application of management’s judgment.

Expected Term — The expected term of options

represents the period that the Company’s stock-based awards are expected to be outstanding based on the simplified method, which

is the half-life from vesting to the end of its contractual term.

Expected Volatility — Volatility is a measure

of the amount by which the Company’s share price has historically fluctuated or is expected to fluctuate (i.e., expected volatility)

during a period.

Due to the lack of an adequate history of a public market for the trading of the Company’s common stock and a lack

of adequate company-specific historical and implied volatility data, the Company computes stock price volatility over expected terms based

on comparable companies’ historical common stock trading prices.

For these analyses, the Company has selected companies with comparable

characteristics, including enterprise value, risk profiles, and position within the industry.

Common Stock Fair Value — Due to the absence

of an active market for the Company’s common stock prior to the IPO, the fair value of the common stock underlying the Company’s

stock options granted prior to the IPO was estimated at each grant date and was determined with the assistance of an independent third-party

valuation expert.

The assumptions underlying these valuations represented management’s best estimates, which involved inherent uncertainties

and the application of significant levels of management judgment.

After the completion of the IPO, the fair value of each share of common

stock is based on the closing price of the Company’s common stock as reported by the Nasdaq Capital Market, on the grant date of

Risk-Free Interest Rate — The Company bases the

risk-free interest rate on the implied yield available on U.S.

Treasury securities with a remaining term commensurate with the estimated

expected term.

Expected Dividend — The Company has never declared

or paid any cash dividends on its shares of common stock and does not plan to pay cash dividends in the foreseeable future, and, therefore,

uses an expected dividend yield of zero in its valuation models.

The Company expenses stock-based

compensation to employees and non-employees over the requisite service period based on the estimated grant-date fair value of the awards.

Stock-based awards to employees with graded-vesting schedules are recognized, using the accelerated attribution method, on a straight-line

basis over the requisite service period for each separately vesting portion of the award.

The Company estimates the

fair value of stock option grants using the Black-Scholes option pricing model and the assumptions used in calculating the fair value

of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s

Expected Term — The expected

term of options represents the period that the Company’s stock-based awards are expected to be outstanding based on the simplified

method, which is the half-life from vesting to the end of its contractual term.

The simplified method is used as the Company has insufficient

historical information to provide a basis for an estimate of the expected term.

Expected Volatility —

Volatility is a measure of the amount by which the Company’s share price has historically fluctuated or is expected to fluctuate

(i.e., expected volatility) during a period.

Due to the lack of an adequate history of a public market for the trading of the Company’s

common stock and a lack of adequate company-specific historical and implied volatility data, the Company computes stock price volatility

over expected terms based on comparable companies’ historical common stock trading prices.

For these analyses, the Company has selected

companies with comparable characteristics, including enterprise value, risk profiles, and position within the industry.

Common Stock Fair Value —

The fair value of the common stock underlying the Company’s stock options is based on the closing price of the Company’s common

stock, as reported by the Nasdaq Capital Market, on the grant date of the award.

Risk-Free Interest Rate —

The Company bases the risk-free interest rate on the implied yield available on U.S.

Treasury securities with a remaining term commensurate

with the estimated expected term.

Expected Dividend — The

Company has never declared or paid any cash dividends on its shares of common stock and does not plan to pay cash dividends in the foreseeable

future, and, therefore, uses an expected dividend yield of zero in its valuation models.

The Company recognizes forfeitures of equity awards

as they occur.

Fair value of common stock

In order to determine the fair value of shares of

common stock of the Company when issuing stock options prior to the IPO, and computing their estimated stock-based compensation expense,

its board of directors considered with input from third party valuations, among other things, contemporaneous valuations of the Company’s

common stock.

Given the absence of a public trading market of the Company’s capital stock prior to the IPO, its board of directors

has exercised reasonable judgment and considered a number of objective and subjective factors to determine the best estimate of the fair

value of our common and preferred stock, including:

the prices, rights, preferences and privileges of our preferred stock relative to our common stock;

our business, financial condition and results of operations, including related industry trends affecting our operations;

the likelihood of achieving a liquidity event, such as an initial public offering, or IPO, or sale of our company, given prevailing market conditions;

the lack of marketability of our common stock;

the market performance of comparable publicly traded companies;

and global economic and capital market conditions and outlook;

Common stock valuation methodology.

In estimating the fair market value of common stock

of the Company, its board of directors first determined the equity value of its business using accepted valuation methods.

The Company engaged a third party valuation specialist

to conduct a valuation, which used its recent preferred stock financing as a starting point and determined the equity value of the company

based on the Backsolve method using an Option Pricing Method (OPM) to calculate the implied value based on a market approach.

The Company’s

equity value was allocated using OPM to estimate the fair market value of the Company’s classes of equity.

After the completion of the IPO, the fair value

of each share of common stock is based on the closing price of the Company’s common stock on the grant date of the award, as reported

by the Nasdaq Capital Market.

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.

Section 107 of the JOBS Act also 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 new or revised accounting standards until those standards would otherwise apply to private companies.

We have elected to avail ourselves

of this extended transition period.

For as long as we remain an “emerging growth

company” under the recently enacted JOBS Act, we will, among other things:

be exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act, which requires that our independent registered public accounting firm provide an attestation report on the effectiveness of our internal control over financial reporting;

be permitted to omit the detailed compensation discussion and analysis from proxy statements and reports filed under the Exchange Act and instead provide a reduced level of disclosure concerning executive compensation;

be exempt from any rules that may be adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotation or a supplement to the auditor’s report on the financial statements.

Although we are still evaluating the JOBS Act, we

currently intend to take advantage of some or all of the reduced regulatory and reporting requirements that will be available to us so

long as we qualify as an “emerging growth company,” including the extension of time to comply with new or revised financial

accounting standards available under Section 102(b) of the JOBS Act.

Among other things, this means that our independent registered public

accounting firm will not be required to provide an attestation report on the effectiveness of our internal control over financial reporting

so long as we qualify as an emerging growth company, which may increase the risk that weaknesses or deficiencies in our internal control

over financial reporting go undetected.

Likewise, so long as we qualify as an emerging growth company, we may elect not to provide you

with certain information, including certain financial information and certain information regarding compensation of our executive officers,

that we would otherwise have been required to provide in filings we make with the SEC, which may make it more difficult for investors

and securities analysts to evaluate our company.

As a result, investor confidence in our company and the market price of our common stock

may be materially and adversely affected.

Quantitative and Qualitative Disclosures About

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.

Section 107 of the JOBS Act

also 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 new or revised accounting standards until those standards would otherwise apply to private companies.

elected to avail ourselves of this extended transition period.

For as long as we remain

an “emerging growth company” under the recently enacted JOBS Act, we will, among other things:

● be exempt from the provisions

of Section 404(b) of the Sarbanes-Oxley Act, which requires that our independent registered public accounting firm provide an attestation

report on the effectiveness of our internal control over financial reporting;

● be permitted to omit the detailed

compensation discussion and analysis from proxy statements and reports filed under the Exchange Act and instead provide a reduced level

of disclosure concerning executive compensation;

● be exempt from any rules that

may be adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotation or a supplement to the auditor’s

report on the financial statements.

Although we are still evaluating

the JOBS Act, we currently intend to take advantage of some or all of the reduced regulatory and reporting requirements that will be available

to us so long as we qualify as an “emerging growth company,” including the extension of time to comply with new or revised

financial accounting standards available under Section 102(b) of the JOBS Act.

Among other things, this means that our independent registered

public accounting firm will not be required to provide an attestation report on the effectiveness of our internal control over financial

reporting so long as we qualify as an emerging growth company, which may increase the risk that weaknesses or deficiencies in our internal

control over financial reporting go undetected.

Likewise, so long as we qualify as an emerging growth company, we may elect not to provide

you with certain information, including certain financial information and certain information regarding compensation of our executive

officers, that we would otherwise have been required to provide in filings we make with the SEC, which may make it more difficult for

investors and securities analysts to evaluate our company.

As a result, investor confidence in our company and the market price of our

common stock may be materially and adversely affected.

Quantitative and Qualitative Disclosures About Market Risk

As a smaller reporting company, we are not required to provide the

information required by this item.

Financial Statements and Supplementary Data.

Reference is made to pages F-1 through F-33 comprising a portion of

this report, which are incorporated herein by reference.

Changes in and Disagreements With Accountants

on Accounting and Financial Disclosure.

As a smaller reporting company, we are not required to provide

the information required by this item.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis