Quarterly Report for Quarter Ending June 30, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial 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 consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q. Our consolidated financial statements have been prepared in accordance with U.S. GAAP. In addition, our consolidated financial statements and the financial data included in this Quarterly Report on Form 10-Q reflect our reorganization and have been prepared as if our current corporate structure had been in place throughout the relevant periods. Actual results could differ materially from those projected in the forward-looking statements. For additional information regarding these and other risks and uncertainties, please see the items listed above under the section captioned "Risk Factors", as well as any other cautionary language contained in this Quarterly Report on Form 10-Q. Except as may be required by law, we undertake no obligation to update any forward-looking statements to reflect events after the date of this Quarterly Report on Form 10-Q.

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains certain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These forward-looking statements represent our expectations, beliefs, intentions, or strategies concerning future events, including, but not limited to, any statements regarding our assumptions about financial performance; the continuation of historical trends; growth strategies; the sufficiency of our cash balances for future liquidity and capital resource needs; the expected impact of changes in accounting policies on our results of operations, financial condition or cash flows; anticipated problems and our plans for future operations; our future financing plans and anticipated needs for working capital; and the economy in general or the future of the food production industry, all of which were subject to various risks and uncertainties. Such statements, when used in this Annual Report on Form 10-K and other reports, statements, and information we have filed with the Securities and Exchange Commission ("SEC"), in our press releases, presentations to securities analysts or investors, in oral statements made by or with the approval of an executive officer, are generally identifiable by use of the words "may," "will," "should," "expect," "anticipate," "continue," "estimate," "believe," "intend," or "project" or the negative of these words or other variations on these words or comparable terminology. However, any statements contained in this Annual Report on Form 10-K that are not statements of historical fact may be deemed to be forward-looking statements. These statements are expressed in good faith and based upon a reasonable basis when made, but there can be no assurance that these expectations will be achieved or accomplished.

This information may involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from the future results, performance, or achievements expressed or implied by any forward-looking statements. These statements may be found under Part I Item 1 "Business" and Part II Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations," as well as in other parts of this Quarterly Report on Form 10-Q. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors as described in this Quarterly Report on Form 10-Q generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this Quarterly Report on Form 10-Q will in fact occur. In addition to the information expressly required to be included in this filing, we will provide such further material information, if any, as may be necessary to ensure that the required statements, in light of the circumstances under which they are made, are not misleading.

Although forward-looking statements in this Quarterly Report on Form 10-Q reflect the good faith judgment of our management, forward-looking statements are inherently subject to known and unknown risks, business, economic and other risks and uncertainties that may cause actual results to be materially different from those discussed in these forward-looking statements. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. We assume no obligation to update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this Quarterly Report on Form 10-Q, other than as may be required by applicable law or regulation. Readers are urged to carefully review and consider the various disclosures made by us in our reports filed with the Securities and Exchange Commission ("SEC") which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operation and cash flows. If one or more of these risks or uncertainties materialize, or if the underlying assumptions prove incorrect, our actual results may vary materially from those expected or projected.

This Quarterly Report on Form 10-Q also contains estimates, projections, and other information concerning our industry, our business, and particular markets, including data regarding the estimated size of those markets. Information that is based on estimates, forecasts, projections, market research, or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market, and other data from reports, research surveys, studies, and similar data prepared by market research firms and other third parties, industry, general publications, government data, and similar sources.

Overview

Vocodia Holdings Corp ("VHC") was incorporated in the State of Wyoming on April 27, 2021, and is a conversational AI technology provider. Vocodia's technology is designed to drive better sales and services for its customers. Clients turn to Vocodia for their product and service needs.

Business Summary

We are an AI software company that builds practical AI functions and makes them easily obtainable for businesses on cloud-based platform solutions at low costs and scalable to multiagent vast enterprise solutions.

Our operations include our wholly owned subsidiary, Click Fish Media, Inc. ("CFM"), which was incorporated in the State of Florida on November 26, 2019, and is an IT services provider. CFM was formerly owned by James Sposato, who is an officer and director of the Company. CFM was acquired by us from Mr. Sposato in accordance with the Contribution Agreement, dated August 1, 2022. In the Contribution Agreement, Mr. Sposato ("Contributor"), has contributed, assigned, transferred and delivered to us, the outstanding capital stock of CFM and we have accepted the contributed shares from the Contributor. As full consideration for the contribution, we have paid the Contributor consideration in the amount of $10.

An illustration of our organizational structure is provided below:

We aim to offer corporate clients scalable enterprise AI sales and customer service solutions intended to rapidly increase sales and service, while lowering employment costs.

We seek to enhance rapport and relationship building for customers, which is a necessary component of sales. We believe that there is a positive correlation between AI which sounds similar to a human voice over the phone and better customer rapport and customer service benefits. With our advanced AI, we believe that it will be difficult for customers to distinguish between speaking to a human sales representative and to an AI bot. We believe we can increase customer satisfaction and maximize potential service efficiency for our clients. Our goal is to provide quick training and deployment, potentially unlimited scalability, easy integration with existing corporate platforms and other benefits to our customers from AI's efficiency. We strive to help our customers manage budgets and perform better than the high costs of existing sales and service personnel.

On February 26, 2024, we completed our initial public offering (the "IPO") of 1,400,000 units, each consisting of one share of common stock, par value $0.0001 ("Common Stock"), one Series A Warrant to purchase one share of Common Stock at $4.25 (the "Series A Warrant"), and one Series B Warrant to purchase one share of Common Stock at $8.50 (the "Series B Warrant"), at a price to the public of $4.25 per Unit.

The gross proceeds from the IPO, before underwriting discounts and commissions and estimated offering expenses payable by us, were approximately $5,950,000. On February 22, 2024, our Common Stock, Series A Warrants and Series B Warrants began trading on the BZX Exchange, a division of Cboe Global Markets, under the ticker symbols "VHAI," "VHAI+A" and "VHAI+B", respectively.

On June 14, 2024, Vocodia Holdings Corp. (the "Company") received a letter (the "Letter") from the Listing Qualifications Department of The Cboe BZX Exchange, Inc. ("Cboe") notifying the Company that Cboe had decided to exercise its discretionary authority pursuant to Exchange Rule 14.2 to delist the Company and suspend trading of the Company's Common Stock (VHAI), Series A Warrants (VHAI+A) and Series B Warrants (VHAI+B) on June 24, 2024. The Letter cited that the basis for this decision is that the Company is currently not in compliance with (i) Exchange Rule 14.9(e)(1)(B) because its Common Stock did not maintain a minimum bid price of $1.00 over 30 consecutive business days and (ii) Exchange Rule 14.9(e)(2) because the Company has failed to me at least one of the following requirements: (A) stockholders' equity of at least $2.5 million; (B) market value of listed securities of at least $35 million; or (C) net income from continuing operations of $500,000 in the most recently completed fiscal year or in two of the three most recently complete fiscal years.

Pursuant to Exchange Rule 14.12(h) the Company appealed the staff's decision, and an appeal hearing was held on August 8, 2024, before a two-member Panel (the "Panel"). On September 6, 2024, the Company received notice that the Panel rejected the Company's appeal and determined to delist the Company's securities. The receipt of the Panel's decision will result in the immediate delisting of the Company's Common Stock and Warrants on the Cboe, under the symbols "VHAI," "VHAI+A," and "VHAI+B", and a Form 25-NSE will be filed with the Commission, which will remove the Company's securities from listing and registration on Cboe. The Company did not appeal the Panel's decision. Therefore, the trading of the Company's Common Stock and Warrants was suspended at the close of business on September 10, 2024, and delisted from Cboe, as indicated in the Panel's letter.

The Company's common stock began trading under the trading symbols "VHAI," "VHAI+A," and VHAI+B" on the OTC Pink Market operated on the OTC Markets system effective with the open of the markets on September 11, 2024. The Company intends to apply to have its common stock quoted on the OTCQB Venture Market on the OTC Markets; however, there can be no assurances that its common stock and warrants will be approved, or will continue, to be traded on such market.

Results of Operations

Comparison of the three months ended June 30, 2025 to the three months ended June 30, 2024.

The following tables set forth selected consolidated statements of operations data and such data as a percentage of total revenues for each of the periods indicated:

		Three Months Ended
		June 30,
		2025				2024				Change				%
Revenues		$	15,136			$	75				15,061				20,081	%
Cost of revenue			38,810				23,369				15,441				66	%
Gross profit (loss)			(23,674	)			(23,294	)			(380	)			2	%
Operating costs and expenses:
Operating expense			548,488				1,609,883				(1,061,395	)			-66	%
Other income (expenses)			(2,297,809	)			74,185				(2,371,994	)			-3,197	%
Net loss		$	(2,869,971	)		$	(1,558,992	)			(1,310,979	)			84	%

Revenues increased by $15,061, or 22,081%, to $15,136 for the three months ended June 30, 2025 from $75 for the three months ended June 30, 2024. Beginning in January 2024, we suspended sales of our DISA product in order to update its functionality so it could scale to the needs of our customers. Beginning in the first half of 2025 we began engaging new customers with our DISA product.

Cost of Revenue

Cost of revenue increased by $15,441, or 66%, to $ 38,810 for the three months ended June 30, 2025 from $23,369 for the three months ended June 30, 2024, primarily due to increased cost of our cloud hosting platform.

Gross Loss

The increase in our gross loss of $380 to a gross loss of $23,674 for the three months ended June 30, 2025 from a gross loss of $23,294 for the three months ended June 30, 2024 is primarily attributable to the increased costs of our cloud server expenses.

Operating Expenses

		Three Months Ended
		June 30,
		2025				2024				Change				%
Operating Expenses
General and administrative expenses		$	459,538			$	834,244				(374,706	)			-45	%
Salaries and wages			-				446,924				(446,924	)			-100	%
Research and development and other service providers			53,450				328,715				(275,265	)			-84	%
Consulting expense - related party			35,500				-				35,500				100	%
Total Operating Expenses		$	548,488			$	1,609,883				(1,061,395	)			-66	%

Operating expense decreased by $1,058,729 or 66% to $551,154 for the three months ended June 30, 2025 from $1,609,883 for the three months ended June 30, 2024 primarily due to the reduction in general and administrative expenses related to going public in early 2024, a reduction in software development costs related to our DISA products and a reduction in salaries and wages and stock based compensation expenses paid to employees and service providers.

General and Administrative Expenses decreased by $374,706 or 45% to $459,538 during the three months ended June 30, 2025 from $834,244 during the three months ended June 30, 2024. The decrease is primarily a result of a reduction of costs incurred that were related to going public during the first quarter of 2024 such as insurance, professional fees, and investor relations.

Salaries and wages decreased by $446,924, or 100%, to $0 for the three months ended June 30, 2025 from $446,924 for the three months ended June 30, 2024, due to a reduction in staff in 2024 and a reduction in stock based compensation paid.

Research and development and other service providers expense decreased by $275,265, or 84%, to $53,450 for the three months ended June 30, 2025 from $328,715 for the three months ended June 30, 2024, primarily related to a decrease in software development costs related to our DISA products.

Related party consulting expenses increased by $35,500, or 100%, to $35,500 for the three months ended June 30, 2025 from $0 for the three months ended June 30, 2024. The expenses are due to consulting services provided by a company owned by our CEO.

Total other income (expense)

During the three months ended June 30, 2025, we had other expenses of $2,297,809, which consisted of the loss on issuance of the May 2025 convertible note and warrants of $756,621, interest expense of $289,160, the change in fair value of the warrant liability of $32,330, derivative expense and the change in fair value of the derivative liability of $1,177,526, the loss on settlement of debts of $134,320, and losses on digital assets of $15,404, offset by the change in fair value of the May 2025 convertible note of $28,052, and the gain on forgiveness of payables of $79,500.

Comparison of the six months ended June 30, 2025, to the six months ended June 30, 2024

The following tables set forth selected consolidated statements of operations data and such data as a percentage of total revenues for each of the periods indicated:

		Six Months Ended
		June 30,
		2025				2024				Change				%
Revenues		$	15,136			$	75				15,061				20,081	%
Cost of revenue			85,939				56,259				29,680				53	%
Gross profit (loss)			(70,803	)			(56,184	)			(14,619	)			26	%
Operating costs and expenses:
Operating expense			812,282				4,399,453				3,587,171				-82	%
Other income (expenses)			(3,159,700	)			(4,048,726	)			889,025				-22	%
Net loss		$	(4,042,785	)		$	(8,504,363	)			4,461,577				-52	%

Revenues increased by $15,061, or 22,081%, to $15,136 for the six months ended June 30, 2025 from $75 for the six months ended June 30, 2024. Beginning in January 2024, we suspended sales of our DISA product in order to update its functionality so it could scale to the needs of our customers. Beginning in the first half of 2025 we began engaging new customers with our DISA product.

Cost of Revenue

Cost of revenue increased by $29,680, or 53%, to $85,939 for the six months ended June 30, 2025, from $56,259 for the six months ended June 30, 2024, primarily due to increased cost of our cloud hosting platform.

Gross Loss

The increase in our gross loss of $14,619 to a gross loss of $70,803 for the six months ended June 30, 2025, from a gross loss of $56,184 for the six months ended June 2024, is primarily attributable to the increased costs of our cloud server expenses.

Operating Expenses

		Six Months Ended
		June 30,
		2025				2024				Change				%
Operating Expenses
General and administrative expenses		$	662,429			$	2,367,339				(1,704,910	)			-72	%
Salaries and wages			-				829,307				(829,307	)			-100	%
Research and development and other service providers			81,076				1,121,890				(1,040,814	)			-93	%
Consulting expense - related party			68,777				80,917				(12,140	)			-15	%
Total Operating Expenses		$	812,282			$	4,399,453				(3,587,171	)			-82	%

Operating expense decreased by $3,587,171 or 82% to $812,282 for the six months ended June 30, 2025 from $4,399,453 for the six months ended June 30, 2024 primarily due to the reduction in general and administrative expenses related to going public in early 2024, a reduction in software development costs related to our DISA products and a reduction in salaries and wages and stock based compensation expenses paid to employees and service providers.

General and Administrative Expenses decreased by $1,704,910 or 72% to $662,429 during the six months ended June 30, 2025, from $2,367,339 during the six months ended June 30, 2024. The decrease is primarily a result of a reduction of the Company's costs related to going public during the first quarter of 2024 such as insurance, professional fees, and investor relations.

Salaries and wages decreased by $829,307, or 100%, to $0 for the six months ended June 30, 2025, from $829,307 for the six months ended June 30, 2024, due to a reduction in staff in 2024 and a reduction in stock-based compensation paid.

Research and development and other service providers expense decreased by $1,040,814, or 93%, to $81,076 for the six months ended June 30, 2025, from $1,121,890 for the six months ended June 30, 2024, primarily related to a decrease in software development costs related to our DISA products.

Related party consulting expenses decreased by $12,140, or 15%, to $68,777 for the three months ended June 30, 2025 from $80,917 for the three months ended June 30, 2024. The expenses are due to consulting services provided by a company owned by our CEO.

Total other income (expense)

During the six months ended June 30, 2025, we had other expenses of $3,159,700, which consisted of derivative expense the change in the fair value of the derivative liability of $1,128,710, the loss on issuance of the May 2025 convertible note of $756,621, liquidated damages of $710,375, interest expense of $405,982, the loss on settlement of debts of $167,830, bad debt expense of $50,000, the change in fair value of warrant liability of $32,330, and the losses on digital assets of $15,404, offset by the gain from forgiveness of payables of $79,500, and the change in fair value of the May 2025 convertible note of $28,052.

Liquidity and Capital Resources

The following table provides selected financial data about us as of June 30, 2025 and December 31, 2024

		June 30,				December 31,
		2025				2024				Change				%
Current assets		$	5,130			$	128,357			$	(123,227	)			-96	%
Current liabilities		$	5,948,445			$	2,363,345			$	3,585,100				152	%
Working capital (deficiency)		$	(5,943,315	)		$	(2,234,988	)		$	(3,708,327	)			166	%

Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. As of June 30, 2025, and December 31, 2024 we had cash of $283 and $281, respectively. Current assets decreased by $123,227, or 96%, to $5,130 as of June 30, 2025 from $128,357 as of December 31, 2024. The decrease was primarily attributable to a reduction in prepaid expense of $74,229 and a reduction of accounts receivable of $49,000.

Current liabilities increased by $3,546,765, or 150%, to $5,910,110 as of June 30, 2025 from $2,363,345 as of December 31, 2024. The increase was primarily attributable to an increase in the derivative liability of $1,178,710, an increase in the warrant liability of $755,618, an increase in accounts payable and accrued liabilities of $679,602, an increase in liquidated damages payable of $396,886, an increase in the liability from the May 2025 convertible note of $305,281, and an increase in convertible notes payable of $221,520.

We believe we will not have sufficient cash on hand to support our operations for at least 12 months. As of June 30, 2025, we had a working capital deficiency of $5,904,980. As discussed below, this condition and other factors raise substantial doubt regarding our ability to continue as a going concern.

We intend to generally rely on cash from operations and equity and debt offerings to the extent necessary and available, to satisfy our liquidity needs. There are several factors that could result in the need to raise additional funds, including a failure to generate revenue in the short term, a lack of anticipated sales growth and increased costs. Our efforts are directed toward generating positive cash flow and, ultimately, profitability. As our efforts during our fiscal 2024 and the six months ended June 30, 2025 have not generated positive cash flows, we will need to raise additional capital. Should capital not be available to us at reasonable terms, other actions will become necessary, including implementing cost control measures and additional efforts to increase sales. We may also be required to take more strategic actions such as exploring strategic options for the sale of our company, the creation of joint ventures or strategic alliances under which we will pursue business opportunities, or other alternatives.

Cash Flow

		Six months ended March 31,
		2025				2024				Change
Cash used in operating activities		$	(357,158	)		$	(4,557,406	)		$	4,200,249
Cash used in investing activities		$	(154,177	)		$	(2,131	)		$	(152,046	)
Cash provided by financing activities		$	511,337			$	5,187,384			$	(4,676,047	)

Cash Flow from Operating Activities

Six months ended June 30, 2025 and 2024

We did not generate positive cash flows from operating activities during the six months ended June 30, 2025 and 2024.

Cash flows used in operating activities for the six months ended June 30, 2025 was comprised of a net loss of $4,042,785, reduced by non-cash expenses of $2,894,980. Non-cash expenses were primarily composed of the derivative expense and change in fair value of derivative liability, the amortization of debt issuance costs, liquidated damages from warrants, the loss on issuance of the May 2025 convertible note and warrants, loss on settlement of debt and bad debt expense, offset primarily by the gain on settlement of accounts payable. Cash flows of $790,647 were also produced by the changes in the levels of operating assets and liabilities, primarily related to an increase in accounts payable and accrued expenses, and a decrease in prepaid expense and other assets.

Cash flows used in operating activities for the six months ended June 30, 2024 was comprised of a net loss of $8,504,362, reduced by non-cash expenses of $4,115,874. Non-cash expenses were primarily composed of the loss on settlement of debt of $3,824,936, the amortization of debt issuance costs, stock-based compensation, and a convertible note default penalty, offset primarily by the change in fair value of the derivative liability and the gain on settlement of accounts payable. Cash flows of $168,918 were also used by the changes in the levels of operating assets and liabilities, primarily related to an increase in prepaid expenses and other assets, offset by primarily by an increase in accounts payable and accrued expenses.

Cash Flows from Investing Activities

During the six months ended June 30, 2025 cash flows from investing activities were composed of $170,057 used to purchase digital assets, offset by the proceeds from the sale of digital assets of $15,880.

During the six months ended June 30, 2024 cash flows from investing activities were composed of $2,131 used to purchase property and equipment.

Cash Flows from Financing Activities

During the six months ended June 30, 2025, cash provided by financing activities of $511,337 included $260,000 from the proceeds from convertible notes payable, $275,000 of proceeds from the May 2025 convertible note and $25,000 of issuance costs from the May 2025 convertible note, offset by $48,663 used to repay convertible notes payable.

During the six months ended June 30, 2024, cash provided by financing activities of $5,187,384 included $5,372,787 of proceeds from the sales of common stock units, proceeds of $605,000 from the sale of Series B Preferred shares, proceeds of $61,073 from the exercise of warrants and $30,000 from the issuance of note payable, offset by the repayment of convertible notes payable of $802,984, the repayment of notes payable of $55,000, and deferred offering costs of $24,375.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements or relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities.

Going Concern

Our accompanying consolidated financial statements are prepared in accordance with Generally Accepted Accounting Principles ("GAAP") of the United States including the assumption of a going concern basis, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, as shown in the accompanying consolidated financial statements, during the six months ended June 30, 2025, we had a net loss of approximately $4.0 million. As of June 30, 2025, we had an accumulated deficit of $104.7 million and negative working capital of $5.9 million. During the six months ended June 30, 2025, we used cash in operations of approximately $0.4 million. We expect to continue to incur significant expenditures to develop our technology. As such, there is substantial doubt about the Company's ability to continue as a going concern.

Critical Accounting Policies

Our accounting policies are more fully described in our unaudited financial statements. The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Although these estimates are based on our best knowledge of current and anticipated events, actual results could differ from the estimates.

We have identified the following accounting policies as those that require significant judgments, assumptions and estimates and that have a significant impact on our financial condition and results of operations. These policies are considered critical because they may result in fluctuations in our reported results from period to period, due to the significant judgments, estimates and assumptions about complex and inherently uncertain matters and because the use of different judgments, assumptions or estimates could have a material impact on our financial condition or results of operations. We evaluate our critical accounting estimates and judgments required by our policies on an ongoing basis and update them as appropriate based on changing conditions.

Fair Value of Financial Instruments

The Company accounts for financial instruments under Financial Accounting Standards Board ("FASB") ASC 820, Fair Value Measurements. ASC 820 provides a framework for measuring fair value and requires disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, based on the Company's principal or, in absence of a principal, most advantageous market for the specific asset or liability.

The Company uses a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement. The hierarchy requires the Company to use observable inputs when available, and to minimize the use of unobservable inputs, when determining fair value.

The three tiers are defined as follows:

	●	Level 1 - Observable inputs that reflect quoted market prices (unadjusted) for identical assets or liabilities in active markets;
	●	Level 2 - Observable inputs other than quoted prices in active markets that are observable either directly or indirectly in the marketplace for identical or similar assets and liabilities; and
	●	Level 3 - Unobservable inputs that are supported by little or no market data, which require the Company to develop its own assumptions.

The determination of fair value and the assessment of a measurement's placement within the hierarchy requires judgment. Level 3 valuations often involve a higher degree of judgment and complexity. Level 3 valuations may require the use of various cost, market, or income valuation methodologies applied to unobservable management estimates and assumptions. Management's assumptions could vary depending on the asset or liability valued and the valuation method used. Such assumptions could include estimates of prices, earnings, costs, actions of market participants, market factors, or the weighting of various valuation methods. The Company may also engage external advisors to assist us in determining fair value, as appropriate.

Derivative Financial Instruments

The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks. We evaluate all of our financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For our derivative financial instruments, the Company used either a Black Scholes valuation model or a Monte Carlo valuation model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within twelve (12) months of the balance sheet date.

Warrants

The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant's specific terms and applicable authoritative guidance in FASB ASC 480, Distinguishing Liabilities from Equity ("ASC 480") and ASC 815, Derivatives and Hedging ("ASC 815"). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company's own ordinary shares and whether the warrant holders could potentially require "net cash settlement" in a circumstance outside of the Company's control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.

For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations. The fair value of the warrants was estimated using a Monte Carlo pricing model.

May 2025 Convertible Note

As permitted under ASC 825 Financial Instruments ("ASC 825"), the Company elects to account for the May 2025 Convertible Note, which meets the required criteria, at fair value at inception and at each subsequent reporting date. Subsequent changes in fair value are recorded as a component of non-operating loss in the consolidated statements of operations. This election is made on an instrument-by-instrument basis as permitted under ASC 825. The portion of total changes in fair value of the convertible promissory note attributable to changes in instrument-specific credit risk are determined through specific measurement of periodic changes in the discount rate assumption exclusive of base market changes and are presented as a component of comprehensive income in the accompanying Consolidated Statements of Operation. As a result of electing the fair value option, direct costs and fees related to the May 2025 Convertible Note are expensed as incurred.

The Company estimates the fair value of the May 2025 Convertible Note using a Monte Carlo simulation model, which uses as inputs the fair value of our common stock and estimates for the equity volatility and volume volatility of our common stock, the time to expiration of the convertible promissory note, the risk-free interest rate for a period that approximates the time to expiration, and probability of default. Therefore, we estimate our expected future volatility based on the actual volatility of our common stock and historical volatility of our common stock utilizing a lookback period consistent with the time to expiration. The time to expiration is based on the contractual maturity date, giving consideration to the voluntary, mandatory and potential accelerated redemption scenarios. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of measurement for time periods approximately equal to the time to expiration. Probability of default is estimated using Bloomberg's Default Risk function which uses our financial information to calculate a default risk specific to the Company.

Research and Development

The Company accounts for research and development costs in accordance with ASC subtopic 730-10, Research and Development ("ASC 730-10").

Under ASC 730-10, all research and development costs must be expensed as incurred. Accordingly, internal research and development costs are expensed as incurred. Third-party research and development costs are expensed when the contracted work has been performed or as milestone results have been achieved as defined under the applicable agreement. Company-sponsored research and development costs related to both present and future products are expensed in the period incurred.

Stock-based Compensation. The Company accounts for our stock-based compensation under ASC 718 "Compensation - Stock Compensation" using the fair value-based method. Under this method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. This guidance establishes standards for the accounting for transactions in which an entity exchanges equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity's equity instruments or that may be settled by the issuance of those equity instruments.

The Company uses the fair value method for equity instruments granted to non-employees and uses the Black-Scholes model for measuring the fair value of options.

The fair value of stock-based compensation is determined as of the date of the grant or the date at which the performance of the services is completed (measurement date) and is recognized over the vesting periods.

When determining fair value, the Company considers the following assumptions in the Black-Scholes model:

	●	Exercise price,
	●	Expected dividends,
	●	Expected volatility,
	●	Risk-free interest rate; and
	●	Expected life of option

Recent Accounting Standards. Changes to accounting principles are established by the FASB in the form of Accounting Standards Updates ("ASU's") to the FASB's Codification. We consider the applicability and impact of all ASU's on our financial position, results of operations, stockholders' deficit, cash flows, or presentation thereof. Management has evaluated all recent accounting pronouncements as issued by the FASB in the form of Accounting Standards Updates ("ASU") through the date these financial statements were available to be issued and found the following recent accounting pronouncements issued, but not yet effective accounting pronouncements, are not expected to have a material impact on the financial statements of the Company.

In August 2020, FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity; Own Equity ("ASU 2020-06"), as part of its overall simplification initiative to reduce costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements. Among other changes, the new guidance removes from GAAP separation models for convertible debt that require the convertible debt to be separated into a debt and equity component, unless the conversion feature is required to be bifurcated and accounted for as a derivative or the debt is issued at a substantial premium. As a result, after adopting the guidance, entities will no longer separately present such embedded conversion features in equity and will instead account for the convertible debt wholly as debt. The new guidance also requires use of the "if-converted" method when calculating the dilutive impact of convertible debt on earnings per share, which is consistent with the Company's current accounting treatment under the current guidance. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years, with early adoption permitted, but only at the beginning of the fiscal year.

We do not expect the adoption of this pronouncement to have a material effect on our financial statements.

Recent Accounting Pronouncements

See Note 2 to our unaudited condensed consolidated financial statements included herein and Note 2 to our audited annual financial statements for the year ended December 31, 2024 included in the 2024 Form 10-K for information about recent accounting pronouncements, the timing of their adoption, and our assessment, to the extent we have made one, of their potential impact on our financial condition and results of operations.

JOBS Act Accounting Election

We are an "emerging growth company," as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies.

We have elected to use this extended transition period to enable us to comply with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.