Kaival Brands Innovations Group, Inc. 10-K

Item 8. Financial Statements and Supplementary Data. KAIVAL BRANDS INNOVATIONS GROUP, INC. CONSOLIDATED FINANCIAL STATEMENTS INDEX TO FINANCIAL STATEMENTS Pages Report of Independent Registered Public Accounting Firm (PCAOB ID: 206 ) F-2 Consolidated Balance Sheets F-3 Consolidated Statements of Operations F-4 Consolidated Statements of Changes in Stockholders’ Equity F-5 Consolidated Statements of Cash Flows F-6 Notes to Consolidated Financial Statements F-7 F- 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Directors of Kaival Brands Innovations Group, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet s of Kaival Brands Innovations Group, Inc. and its subsidiaries (collectively, the “Company”) as of October 31, 2023 and 2022, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of October 31, 2023 and 2022, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Going Concern Matter The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has suffered recurring losses and negative cash flows from operations which raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ MaloneBailey, LLP www.malonebailey.com We have served as the Company’s auditor since 2018. Houston, Texas February 13, 2024 F- 2 Kaival Brands Innovations Group, Inc. Consolidated Balance Sheets October 31, 2023 October 31, 2022 ASSETS CURRENT ASSETS: Cash $ 533,659 $ 3,685,893 Accounts receivable 1,869,276 574,606 Other receivable - related party - short term — 1,539,486 Inventories, net 4,071,824 1,239,725 Prepaid expenses 430,668 426,407 Income tax receivable — 1,607,302 Total current assets 6,905,427 9,073,419 Fixed assets, net 2,842 — Intangible assets, net 11,468,309 — Other receivable - related party - net of current portion — 2,164,646 Right of use asset - operating lease 1,008,428 1,198,969 TOTAL ASSETS $ 19,385,006 $ 12,437,034 LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable $ 374,332 $ 40,023 Accounts payable - related party 2,474,817 — Loans payable, net 799,471 — Accrued expenses 736,194 1,099,157 Customer deposits — 44,973 Customer refund due 392,406 — Deferred revenue — 235,274 Operating lease obligation - short term 184,568 166,051 Total current liabilities 4,961,788 1,585,478 LONG TERM LIABILITIES: Operating lease obligation, net of current portion 866,207 1,050,776 TOTAL LIABILITIES 5,827,995 2,636,254 STOCKHOLDERS’ EQUITY: Preferred stock; 5,000,000  shares authorized Series A Convertible Preferred stock ($ 0.001  par value,  3,000,000  shares authorized,  none issued and outstanding as of October 31, 2023 and October 31, 2022, respectively) — — Series B Convertible Preferred stock ($ 0.001  par value,  900,000  shares authorized,  900,000 and none issued and outstanding as of October 31, 2023 and October 31, 2022, respectively) 900 — Common stock ($ 0.001 par value, 1,000,000,000 shares authorized , 2,793,386 and 2,674,718 shares issued and outstanding as of October 31, 2023 and October 31, 2022, respectively) 2,793 2,675 Additional paid-in capital 44,317,266 29,429,281 Accumulated deficit ( 30,763,948 ) ( 19,631,176 ) Total Stockholders’ Equity 13,557,011 9,800,780 TOTAL LIABILITIES & EQUITY $ 19,385,006 $ 12,437,034 The accompanying notes are an integral part of these consolidated financial statements. F- 3 Kaival Brands Innovations Group, Inc. Consolidated Statements of Operations For the Years Ended October 31, 2023 2022 Revenues Revenues, net $ 12,395,134 $ 12,701,539 Revenues - related party 10,828 68,139 Royalty revenue 780,929 117,292 Excise tax on products ( 99,873 ) ( 125,513 ) Total revenues, net 13,087,018 12,761,457 Cost of revenues Cost of revenue - related party 10,512,423 11,345,912 Cost of revenue - other — 174,520 Total cost of revenue 10,512,423 11,520,432 Gross profit 2,574,595 1,241,025 Operating expenses Advertising and promotion 2,450,721 2,679,308 General and administrative expenses 10,787,775 12,950,373 Total operating expenses 13,238,496 15,629,681 Other income (expense) Interest expense, net ( 466,523 ) 4 Total other income (expense) ( 466,523 ) 4 Loss before income taxes provision ( 11,130,424 ) ( 14,388,652 ) Provision for (benefit from) income taxes 2,348 ( 18,317 ) Net loss ( 11,132,772 ) ( 14,370,335 ) Preferred stock dividend ( 112,500 ) — Net loss attributable to common shareholders $ ( 11,245,272 ) $ ( 14,370,335 ) Net loss per common share - basic and diluted $ ( 4.13 ) $ ( 7.60 ) Weighted average number of common shares outstanding - basic and diluted 2,721,080 1,890,971 The accompanying notes are an integral part of these consolidated financial statements. F- 4 Kaival Brands Innovations Group, Inc. Consolidated Statements of Changes in Stockholders’ Equity For the years ended October 31, 2023, and 2022 Convertible Preferred Shares Par Value Convertible Preferred Shares Convertible Preferred Shares Par Value Convertible Preferred Shares Common Shares Par Value Common Shares Additional Paid-in Capital Accumulated Deficit Total (Series A) (Series A) (Series B) (Series B) Balances, October 31, 2021 3,000,000 $ 3,000 — $ — 1,437,869 $ 1,438 $ 21,580,716 $ ( 5,260,841 ) $ 16,324,313 Stock Issued for Services - RSUs — — — — 5,870 6 172,373 — 172,379 Common shares settled and cancelled — — — — ( 2,130 ) ( 2 ) ( 59,860 ) — ( 59,862 ) Common stock issued for compensation — — — — 1,888 2 65,321 — 65,323 Exercise of common stock warrants — — — — 40,744 41 1,625,609 — 1,625,650 Converted Series A Convertible Preferred Stock ( 3,000,000 ) ( 3,000 ) — — 1,190,477 1,190 1,810 — — Stock option expense — — — — — — 6,043,312 — 6,043,312 Net loss — — — — — — — ( 14,370,335 ) ( 14,370,335 ) Balances, October 31, 2022 — $ — — $ — 2,674,718 $ 2,675 $ 29,429,281 $ ( 19,631,176 ) $ 9,800,780 Common shares issued for purchase of intangible assets — — — — 95,239 95 1,119,705 — 1,119,800 Preferred series B shares issued for purchase of intangible assets — — 900,000 900 — — 9,047,080 — 9,047,980 Stock warrants issued for purchase of intangible assets — — — — — — 1,264,396 — 1,264,396 Common shares issued for services — — — — 4,381 4 51,506 — 51,510 Common shares issued for loan — — — — 19,048 19 130,459 130,478 Stock option expense — — — — — — 3,168,430 — 3,168,430 Stock warrant expense — — — — — — 218,909 — 218,909 Preferred stock dividend — — — — — — ( 112,500 ) ( 112,500 ) Net loss — — — — — — — ( 11,132,772 ) ( 11,132,772 ) Balances, October 31, 2023 — $ — 900,000 $ 900 2,793,386 $ 2,793 $ 44,317,266 $ ( 30,763,948 ) 13,557,011 The accompanying notes are an integral part of these consolidated financial statements. F- 5 Kaival Brands Innovations Group, Inc. Consolidated Statements of Cash Flows For the Year Ended For the Year Ended October 31, 2023 October 31, 2022 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ ( 11,132,772 ) $ ( 14,370,335 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock based compensation — 237,702 Stock options expense 3,168,430 6,043,312 Stock warrants expense 218,909 — Depreciation and amortization 328,304 — Amortization of debt discount 463,160 — Bad debt expense 47,727 — ROU operating lease expense 190,541 132,890 Inventory reserve 381,512 — Write-off of inventory 105,057 259,563 Changes in current assets and liabilities: Accounts receivable ( 1,342,397 ) 1,410,580 Other receivable - related party 3,704,132 ( 3,704,132 ) Prepaid expenses 325,739 ( 106,876 ) Inventory ( 3,318,668 ) 13,827,082 Inventory deposit - related party — 2,925,000 Income tax receivable 1,607,302 146,292 Accounts payable 334,309 ( 202,806 ) Accounts payable - related party 2,474,817 ( 12,667,769 ) Accrued expenses ( 475,463 ) 519,553 Deferred revenue ( 235,274 ) 235,274 Customer deposits ( 44,973 ) 44,973 Customer refunds due 392,406 ( 316,800 ) Right of use liabilities - operating lease ( 166,052 ) ( 118,633 ) Net cash used in operating activities ( 2,973,254 ) ( 5,705,130 ) CASH FLOWS FROM INVESTING ACTIVITIES Cash paid for equipment ( 3,480 ) — Transaction acquisition costs ( 312,289 ) — Net cash used in investing activities ( 315,769 ) — CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from the exercise of warrants — 1,625,650 Settled RSU shares with cash — ( 59,862 ) Proceeds from loans payable 1,272,980 — Payments on loans payable ( 1,136,191 ) — Net cash provided by financing activities 136,789 1,565,788 Net change in cash $ ( 3,152,234 ) $ ( 4,139,342 ) Beginning cash balance 3,685,893 7,825,235 Ending cash balance $ 533,659 $ 3,685,893 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Interest paid $ 3,363 $ — Income taxes paid $ — $ — NON-CASH TRANSACTIONS Common shares issued for acquisition of intangible assets $ 1,119,800 $ — Common shares issued for services-transaction cost $ 51,510 $ — Series B preferred stock shares issued for acquisition of intangible assets $ 9,047,980 $ — Stock warrants issued for acquisition of intangible assets $ 1,264,396 $ — Preferred stock dividend $ 112,500 $ — Insurance financed by third party $ 330,000 $ — Common stock issued for note payable financing $ 130,478 $ — Conversion of Series A Preferred Stock Shares to Common Stock Shares $ — $ 25,000 New ROU leased asset recognized $ — $ 1,276,255 The accompanying notes are an integral part of these consolidated financial statements. F- 6 KAIVAL BRANDS INNOVATIONS GROUP, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 1 – Organization and Description of Business Kaival Brands Innovations Group, Inc. (the “Company,” the “Registrant,” “we,” “us,” or “our”), formerly known as Quick Start Holdings, Inc., was incorporated on September 4, 2018, in the State of Delaware. Current Description of Business The Company is focused on growing and incubating innovative and profitable products into mature, dominant brands. On March 9, 2020, the Company entered into an exclusive distribution agreement (the “Distribution Agreement”) of certain electronic nicotine delivery systems (“ENDS”) and related components (the “Products”) with Bidi Vapor, LLC, a Florida limited liability company (“Bidi”), a related party company that is also owned by Nirajkumar Patel, the Chief Science and Regulatory Officer and director of the Company. The Distribution Agreement was amended and restated on May 21, 2020, again on April 20, 2021, again on June 10, 2022 , and again on November 17, 2022 (collectively the “A&R Distribution Agreement”), in order to clarify some of the provisions and memorialize the Company’s current business relationship with Bidi. Pursuant to the A&R Distribution Agreement, Bidi granted the Company an exclusive worldwide right to distribute the Products for sale and resale to non-retail level customers. Currently, the Products consist primarily of the “Bidi Stick.” The Company ceased all direct-to-consumer sales in February 2021. On August 31, 2020, the Company formed Kaival Labs, Inc., a Delaware corporation (herein referred to as “Kaival Labs”), as a wholly owned subsidiary of the Company, for the purpose of developing Company-branded and white-label products and services. The Company has not yet launched any Kaival-branded product, nor has it begun to provide white label wholesale solutions for other product manufacturers. On March 11, 2022, the Company formed Kaival Brands International, LLC, a Delaware limited liability company (herein referred to as “KBI”), as a wholly owned subsidiary of the Company, for the purpose of entering into an international licensing agreement with Philip Morris Products S.A. (“PMPSA”), a wholly owned affiliate of Philip Morris International Inc. (“PMI”). F- 7 On June 13, 2022, the Company’s wholly owned subsidiary, KBI, entered into the PMI License Agreement with PMPSA, a wholly owned affiliate of PMI, for the development and distribution of ENDS products in certain markets outside of the United States, subject to market (or regulatory) assessment. The PMI License Agreement grants to PMPSA a license of certain intellectual property rights relating to Bidi’s ENDS device, known as the BIDI® Stick in the United States, as well as potentially newly developed devices, to permit PMPSA to manufacture, promote, sell, and distribute such ENDS device and newly developed devices, in international markets, outside of the United States. Current Product Offerings Pursuant to the A&R Distribution Agreement, The Company sells and resells electronic nicotine delivery systems, which it may refer to herein as “ENDS Products”, or “e-cigarettes”, to non-retail level customers. The sole Product the Company resells is the “BIDI ® Stick,” a disposable, tamper-resistant ENDS product that comes in a variety of flavor options for adult cigarette smokers. The Company does not manufacture any of the Products it resells. The BIDI ® Stick is manufactured by Bidi. Pursuant to the terms of the A&R Distribution Agreement, Bidi provides the Company with all branding, logos, and marketing materials to be utilized by the Company in connection with its marketing and promotion of the Products. COVID-19 In January 2020, the World Health Organization (the “WHO”) announced a global health emergency because of a new strain of coronavirus (“COVID-19”) originating in Wuhan, China and the risks to the international community as the virus spread globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic based on the rapid increase in global exposure. The Company was indirectly impacted by supply chain issues and regulatory oversight. The Company believes that many retailers and distributers relaxed their compliance standards as an indirect result of COVID-19 for two reasons: (i) government enforcement of regulations was very limited due to imposed social restrictions, resulting in less in-person monitor enforcement by government officials and (ii) retail stores experienced light foot traffic from customers due to COVID-19 restrictions and fears, which resulted in relaxed compliance in an effort to generate additional revenue. Impact of FDA PMTA Determinations and August 2022 11 th Circuit Decision In September 2021, in connection with the PMTA process, the FDA effectively “banned” flavored ENDS by denying nearly all then-pending PMTAs for such products. Following the issuance of Marketing Denial Orders (“MDO”), manufacturers are required to stop selling non-tobacco flavored ENDS products. Bidi, along with nearly every other company in the ENDS industry, received a MDO for its non-tobacco flavored ENDS products. With respect to Bidi, the MDO covered all non-tobacco flavored BIDI® Sticks, including its Arctic (menthol) BIDI® Stick. As a result, beginning in September 2021, Bidi challenged the MDO. First, on September 21, 2021, separate from the judicial appeal of the MDO in its entirety, Bidi filed a 21 C.F.R. §10.75 internal the FDA review request specifically of the decision to include the Arctic (menthol) BIDI® Stick in the MDO. In May 2022, the FDA issued a determination that it views the Arctic BIDI® Stick as a flavored ENDS product, and not strictly a menthol flavored product. F- 8 On September 29, 2021, Bidi petitioned the U.S. Court of Appeals for the Eleventh Circuit (the “11 th Circuit”) to review the FDA’s denial of the PMTAs for its non-tobacco flavored BIDI® Stick ENDS, arguing that it was arbitrary and capricious under the Administrative Procedure Act (“APA”), as well as ultra vires, for the FDA not to conduct any scientific review of Bidi’s comprehensive applications, as required by the Tobacco Control Act (“TCA”), to determine whether the BIDI® Sticks are “appropriate for the protection of the public health”. Bidi further argued that the FDA violated due process and the APA by failing to provide fair notice of the FDA’s new requirement for ENDS companies to conduct long-term comparative smoking cessation studies for their flavored products, and that the FDA should have gone through the notice and comment rulemaking process for this requirement. On October 14, 2021, Bidi requested that the FDA re-review the MDO and reconsider its position that Bidi did not include certain scientific data in its applications sufficient to allow the PMTAs to proceed to scientific review. In light of this request, on October 22, 2021, pursuant to 21 C.F.R. § 10.35(a), the FDA issued an administrative stay of Bidi’s MDO pending its re-review. Subsequently, the FDA decided not to rescind the MDO and lifted its administrative stay on December 17, 2021. Following the lifting of the FDA’s administrative stay, Bidi filed a renewed motion to stay the MDO with the 11th Circuit. On February 1, 2022, the appellate court granted Bidi’s motion to stay (i.e., put on hold) the MDO, pending the litigation on the merits. Oral arguments in the merits-based proceeding were held on May 17, 2022. On August 23, 2022, the U.S. Court of Appeals for the Eleventh Circuit set aside the MDO issued to the non-tobacco flavored BIDI® Sticks and remanded Bidi’s Premarket Tobacco Product Application (“PMTA”) back to the FDA for further review. Specifically, the Court held that the MDO was “arbitrary and capricious” in violation of the Administrative Procedure Act (“APA”) because the FDA failed to consider the relevant evidence before it, specifically Bidi’s aggressive and comprehensive marketing and sales-access-restrictions plans designed to prevent youth appeal and access. The opinion further indicated that the FDA did not properly review the data and evidence that it has long made clear are critical to the appropriate for the protection of the public health (“APPH”) standard for PMTAs set forth in the Tobacco Control Act including, in Bidi’s case, “product information, scientific safety testing, literature reviews, consumer insight surveys, and details about the company’s youth access prevention measures, distribution channels, and adult-focused marketing practices,” which “target only existing adult vapor product users, including current adult smokers,” as well as the Company’s retailer monitoring program and state-of-the-art anti-counterfeit authentication system. Because a MDO must be based on a consideration of the relevant factors, such as the marketing and sales-access-restrictions plans, the denial order was deemed arbitrary and capricious, and vacated by the FDA. The FDA did not appeal the 11th Circuit’s decision. The Agency had until October 7, 2022 (45 days from the August 23, 2022 decision) to either request a panel rehearing or a rehearing “en banc” (a review by the entire 11 th Circuit, not just the 3-judge panel that issued the decision), and until November 21, 2022 (90 days after the decision) to seek review of the decision by the U.S. Supreme Court. No request for a rehearing was filed, and no petition for a writ of certiorari was made to the Supreme Court. In the meantime, the Company anticipates continued ability to market and sell the non-tobacco flavored BIDI® Sticks, subject to the FDA’s enforcement discretion, for the duration of the PMTA scientific review. Separately, on or about May 13, 2022, the FDA placed the tobacco-flavored Classic BIDI® Stick into the final Phase III scientific review. In March 2023, FDA issued a deficiency letter regarding the Classic BIDI® Stick PMTA, to which Bidi submitted in June 2023. Subsequently, on January 22, 2024, FDA issued a MDO for the Classic BIDI® Stick. On January 26, 2024, Bidi filed a petition for review of the MDO with the 11 th Circuit Court of Appeals, followed by a motion to stay the MDO. Bidi is arguing, among other things, that the MDO was arbitrary and capricious in violation of the Administrative Procedure Act. The Company cannot provide any assurances as to the timing or outcome. F- 9 Risks and Uncertainties The FDA has indicated that it is prioritizing enforcement of unauthorized ENDS against companies (1) that never submitted PMTAs, (2) whose PMTAs have been refused acceptance or filing by the FDA, (3) whose PMTAs remain subject to MDOs, and (4) that are continuing to market unauthorized synthetic nicotine products after the July 13, 2022, cutoff. Subject to FDA’s enforcement discretion, until the scientific review process is complete on each of Bidi’s PMTA’s, the Company views the risk of FDA enforcement against Bidi as low. The Company anticipates FDA will move forward with a review of Bidi’s PMTA on remand, as directed by the Court; however, the Company cannot provide any assurances as to the timing or outcome. Note 2 – Basis of Presentation and Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the financial statements of the Company’s wholly-owned subsidiaries, Kaival Labs and Kaival Brands International. Intercompany transactions are eliminated. Basis of Presentation This summary of significant accounting policies is presented to assist in understanding the Company’s consolidated financial statements. These accounting policies conform to accounting principles, generally accepted in the United States of America (“GAAP”) and have been consistently applied in the preparation of the consolidated financial statements. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. In the opinion of management, all adjustments necessary in order to make the financial statements not misleading have been included. Actual results could differ from those estimates. Cash The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. There were no cash equivalents as of October 31, 2023, and October 31, 2022. The Federal Deposit Insurance Corporation (“FDIC”) insures deposits according to the ownership category in which the funds are insured and how the accounts are titled. The standard deposit insurance coverage limit is $ 250,000 per depositor, per FDIC-insured bank, per ownership category. The Company had uninsured cash of $ 252,586 and $ 2,912,793 as of October 31, 2023, and October 31, 2022, respectively. Advertising and Promotion All advertising, promotion and marketing expenses, including commissions, are expensed when incurred. F- 10 Accounts Receivable and Allowance for Doubtful Accounts Receivables are stated at cost, net of an allowance for doubtful accounts. The Company establishes an allowance for doubtful accounts based on the management’s assessment of the collectability of accounts receivable. A considerable amount of judgment is required in assessing the amount of the allowance and the Company considers the historical level of credit losses and collection history and applies percentages to aged receivable categories. The Company makes judgments about the creditworthiness of debtors based on ongoing credit evaluations and monitors current economic trends that might impact the level of credit losses in the future. If the financial condition of the debtors were to deteriorate, resulting in their inability to make payments, a larger allowance may be required. As of October 31, 2023, based upon management’s assessment of the accounts receivable aging and the customers’ payment history, the Company has determined that no allowance for doubtful accounts is required. The Company also had no allowance for doubtful accounts as of October 31, 2022. On January 22, 2024, the FDA issued an MDO on Bidi Vapor’s “Classic” BIDI ® Stick PMTA. The Company evaluated the impact of this MDO to the financial statements and recorded an estimated accrual for potential customer returns of the “Classic” products of $ 113,243 as of October 31, 2023 which is included in accrued expenses in the consolidated balance sheets in order to comply with ASC 855 Subsequent Events. See Note 12. Inventories All product inventory is purchased from a related party, Bidi. Inventories are stated at the lower of cost and net realizable value. Cost includes all costs of purchase and other costs incurred in bringing the inventories to their present location and condition. The Company determines cost based on the first-in, first-out (“FIFO”) method. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. As of October 31, 2023, the inventories only consisted of finished goods and were located in three locations; the Kaival main warehouse and two customer warehouses whose service agreements are on a consignment basis with Kaival. During fiscal year 2023, the Company had a write-off of $ 105,057 related to short-coded Bidi sticks that were no longer able to be sold. Based upon fiscal year 2023 inventory management procedures and their results, the Company has determined that no allowance for inventory is required as of October 31, 2022. On January 22, 2024, the FDA issued an MDO on Bidi Vapor’s “Classic” BIDI ® Stick PMTA. The Company evaluated the impact of this MDO to the financial statements and recognized a full reserve for all remaining “Classic” products on hand amounting to $381,512 as of October 31, 2023 in order to comply with ASC 855 Subsequent Events. See Note 12. Revenue Recognition The Company adopted ASC 606, Revenue from Contracts with Customers (Topic 606) (“ASC 606”), in the second quarter of fiscal year 2020, as this was the first quarter that the Company generated revenues. Under ASC 606, the Company recognizes revenue when a customer obtains control of promised goods, in an amount that reflects the consideration that the Company expects to receive in exchange for the goods. To determine revenue recognition for arrangements within the scope of ASC 606, the Company performs the following five steps: (1) identify the contracts with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when or as the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods it transfers to the customer. Under ASC 606, disaggregated revenue from contracts with customers depicts the nature, amount, timing, and uncertainty of revenue and cash flows affected by economic factors. Deferred Revenue The Company accepts partial payments for orders from wholesale customers, which it holds as deposits or deferred revenue, until the Company has received full payment and orders are shipped to the customer. Revenue for these orders is recognized at the time of shipment to the customer. As of October 31, 2023, and October 31, 2022, the Company has $ 0 and $ 44,973 in deposits from customers, respectively, which is included with the Company’s current liabilities. As of October 31, 2023, and October 31, 2022, the Company has $ 0 and $ 235,274 in deferred income from PMI guaranteed royalty revenue prepayments, respectively, which is included with the Company’s current liabilities. Customer Refunds In the normal course of business, the Company issues credits for product returns and certain customer incentives related to rebates, discounts and promotions. When such credits exceed amounts receivable from customers, the Company recognizes such excess amounts as customer refunds which will be applied against future product purchases. As of October 31, 2023, and October 31, 2022, the Company had $ 392,406 and $ 0 refunds due to various customers, respectively. F- 11 Products Revenue The Company generates products revenue from the sale of the Products (as defined above) to non-retail customers. The Company recognizes revenue at a point in time based on management’s evaluation of when performance obligations under the terms of a contract with the customer are satisfied and control of the Products has been transferred to the customer. In most situations, transfer of control is considered complete when the products have been shipped to the customer. The Company determined that a customer obtains control of the Product upon shipment when title of such product and risk of loss transfer to the customer. The Company’s shipping and handling costs are fulfillment costs, and such amounts are classified as part of cost of sales. The Company offers credit sales arrangements to non-retail (or wholesale) customers and monitors the collectability of each credit sale routinely. Revenue is measured by the transaction price, which is defined as the amount of consideration expected to be received in exchange for providing goods to customers. The transaction price is adjusted for estimates of known or expected variable consideration, which includes refunds and returns as well as incentive offers and promotional discounts on current orders. Estimates for sales returns are based on, among other things, an assessment of historical trends, information from customers, and anticipated returns related to current sales activity. These estimates are established in the period of sale and reduce revenue in the period of the sale. Variable consideration related to incentive offers and promotional programs are recorded as a reduction to revenue based on amounts the Company expects to collect. Estimates are regularly updated, and the impact of any adjustments are recognized in the period the adjustments are identified. In many cases, key sales terms such as pricing and quantities ordered are established at the time an order is placed and incentives have very short-term durations. Amounts billed and due from customers are short term in nature and are classified as receivable since payments are unconditional and only the passage of time related to credit terms is required before payments are due. The Company does not grant payment financing terms greater than one year. Payments received in advance of revenue recognition are recorded as deferred revenue, as noted above. Royalty Revenue On June 13, 2022, KBI entered into the PMI License Agreement with PMPSA, effective as of May 13, 2022 (the “PMI Commencement Date”). Pursuant to the PMI License Agreement, KBI granted PMPSA an exclusive irrevocable license to use its technology, documentation, and intellectual property to make, distribute, and sell disposable nicotine e-cigarettes Products based on the intellectual property in certain international markets set forth in the PMI License Agreement (the “PMI Markets”). The Company has the exclusive international distribution rights to the Products and, in order to allow KBI to fulfill its obligations set forth in the PMI License Agreement, has contributed the international distribution rights for the PMI Markets to KBI as set forth in a Capital Contribution Agreement, dated June 10, 2022. The sublicense granted to PMPSA is exclusive in the PMI Markets and neither KBI nor any of its affiliates can sell, promote, use, or distribute any competing products in the PMI Markets for the duration of the term of the PMI License Agreement and any Sell-Out Period (as defined in the PMI License Agreement). PMSPA will be responsible for any regulatory filings necessary to sell the Products in the PMI Markets. Both KBI and PMPSA agree to work together in the registration and maintenance of the Intellectual Property, but KBI will bear all cost and expense to implement the registration strategy. Finally, PMPSA has agreed to potential future development services with KBI in the PMI Markets and has been granted certain rights with respect to potential future products. The initial term of the PMI License Agreement is five (5) years and automatically renews for an additional five-year period unless PMPSA has failed to meet the agreed upon minimum key performance indicators set forth in the PMI License Agreement, in which case the PMI License Agreement will automatically terminate at the end of the initial license term. In consideration for the grant of the licensed rights, PMPSA agreed to pay to KBI a royalty equal to a percentage of the base price of the first sale of each unit of Product manufactured. In addition, before the launch of the first product in a market and each anniversary of such launch, PMPSA agrees to pre-pay to KBI a guaranteed minimum royalty based on the estimated royalties payable by PMPSA to KBI in relation to all markets in the twelve (12)-month period following the first launch or each successive anniversary of the first launch, subject to an aggregate maximum guaranteed royalty payment for all markets for each applicable twelve (12)-month period. PMPSA may require modification of certain products to be sold under the PMI Licensing Agreement to be modified for a PMI Market. Pursuant to the PMI Licensing Agreement, PMPSA has absolute discretion over sales, marketing, product branding and packaging pertaining to sales in the PMI Markets, as well as the right to select the specific PMI Markets in which to launch commercialization and determine what product types are to be promoted in each market, subject to sales and marketing plans and annual business plans set by PMPSA and certain expansion criteria agreed between PMPSA and KBI. Royalty revenue earned from the PMI License Agreement is recognized in the period the sales of the Product manufactured occurs. As of October 31, 2023, amounts receivable from PMPSA in connection with the PMI License Agreement totaled $ 1,002,196 of which $ 289,672 and $ 712,524 pertain to royalties and reimbursement of certain non-recurring engineering costs, respectively. F- 12 The PMI License Agreement contains customary representations, warranties, covenants, and indemnification provisions; however, KBI’s liability under the PMI License Agreement is capped at the greater of: (i) Ten Million Dollars ($ 10,000,000 ); or (ii) an amount equal to the total of the royalties due to KBI (but not yet paid) plus the royalties (including the guaranteed royalty payment) paid to KBI pursuant to the PMI License Agreement during the immediately preceding twelve (12) consecutive months, provided that such amount shall not exceed Thirty Million Dollars ($ 30,000,000 ). On June 10, 2022, Bidi entered into a License Agreement (the “KBI License Agreement”) with KBI, pursuant to which KBI has the exclusive irrevocable license to use Bidi’s licensed intellectual property to the extent necessary for KBI to fulfill its obligations set forth in the PMI Licensing Agreement. Such irrevocable license includes: (i) the right of KBI to grant sub-licenses to PMPSA under the PMI License Agreement for the express purposes set forth in the PMI License Agreement, but for no other purpose; (ii) the right of KBI to grant to PMPSA the right to grant sub-sub-licenses in the manner set forth in the PMI License Agreement, but for no other purpose; and (iii) certain branding rights to the extent (but only to the extent) necessary to permit KBI to perform its obligations to PMPSA as set forth in the PMI License Agreement. On August 12, 2023, the Company executed and entered into a Deed of Amendment No. 1 (the “PMI License Amendment”) with PMPSA, Bidi and KBI. Pursuant to the PMI License Amendment (which has an effective date of June 30, 2023), the following material changes have been made to the PMI License Agreement: 1. Royalty Rate. The royalty paid by PMPSA to KBI will no longer be based on sales price of the Product being sold, but rather on the volume of liquid contained within Product being sold. The royalty will be on a sliding scale of between $0.08 to $0.16 per sale based on the volume of liquid contained in the Product, increasing to between $0.10 to $0.20 per sale upon meeting certain sales milestones. For purposes of determining aggregate sales threshold, all sales undertaken since commencement of the PMI Licensing Agreement will be counted. 2. Elimination of Certain Potential Royalty Adjustments. Certain potential adjustments to the royalties receivable by KBI as provided for in the PMI License Agreement have been eliminated. 3. Guaranteed Royalty. The guaranteed royalty payment owed to KBI under the PMI License Agreement has been eliminated. Instead, royalties will be paid on a quarterly basis going-forward based on actual sales. Any unpaid guaranteed royalty has been cancelled. 4. Insurance Tail Requirements. KBI’s requirement to keep certain tail insurance after the expiration or termination of the PMI Licensing Agreement was reduced from 6 years to 2 years. 5. Markets. The identification of the PMI Markets that PMI may enter has been expanded to cover certain additional territories. 6. Net Reconciliation Payment to KBI. As a result of the changes to the PMI License Agreement described in paragraphs 1 thought 3 above, the value of such changes was calculated and reconciled as of the date of commencement of the PMI Licensing Agreement through June 30, 2023. On September 8, 2023, the Company received the Net Reconciliation Payment from PMPSA of $ 134,981 pursuant to this provision. The KBI License Agreement provides that KBI shall pay Bidi license fees equivalent to 50% of the adjusted earned royalty payments, after any offsets due to jointly agreed costs such development costs incurred for entry to specific international markets. During the year ended October 31, 2023, the Company paid license fees of approximately $150,000 to Bidi. As of October 31, 2023 and 2022, no additional license fees are owed to Bidi. F- 13 Concentration of Revenues and Accounts Receivable For the fiscal year 2023, (i) approximately 15% or $ 1,986,970 of the revenue from the sale of Products, solely consisting of the BIDI® Stick, was generated from GPM Investments, LLC, (ii) approximately 14% or $ 1,842,511 was generated from H.T. Hackney Co, (iii) approximately 14% or $ 1,817,310 was generated from FAVS Business, LLC, (iv) approximately 13% or $ 1,759,563 was generated from C Store Master, and (v) approximately 11% or $ 1,501,439 was generated from QuikTrip Corporation. For the fiscal year 2022, (i) approximately 30% or $ 3,945,534 of the revenue from the sale of Products, solely consisting of the BIDI ® Stick, was generated from Favs Business, (ii) approximately 15% or $ 1,892,245 of the revenue from the sale of the Products was generated from H.T. Hackney Co., and (iii) approximately 11% or $ 1,472,888 of the revenue from the sale of Products, solely consisting of the BIDI Stick, was generated from GPM. FAVS Business LLC with an outstanding balance of $ 302,400 , C Store Master with an outstanding balance of $ 300,590 , and QuikTrip Corporation with an outstanding balance of $ 164,987 accounted for approximately 35%, 35%, and 19% of the total accounts receivable from customers, respectively, as of October 31, 2023. Favs Business with an outstanding balance of $ 375,425 and QuikTrip Corporation, with an outstanding balance of $ 85,510 , accounted for approximately 65% and 15% of the total accounts receivable from customers, respectively, as of October 31, 2022. Share-Based Compensation The Company measures the cost of services received in exchange for an award of equity instruments (share-based payments, referred to herein as “SBP”) based on the grant-date fair value of the award. That cost is recognized over the period during which a recipient is required to provide service in exchange for the SBP award—the requisite service period (vesting period). For SBP awards subject to performance conditions, compensation is not recognized until the performance condition is probable of occurrence. The grant-date fair value of share options is estimated using the Black-Scholes-Merton option-pricing model based on certain assumptions which include the expected term, expected volatility and discount rate. The expected term of options granted represents the period of time that options granted are expected to be outstanding. The expected volatility is based on the volatility in the trading of the Common Stock over the expected term of the award. The assumed discount rate is the default risk-free ten-year interest rate for U.S. Treasury bills. Net Loss Per Share Basic net income (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period, without consideration of potential common stock equivalents. F- 14 Diluted net income (loss) per share is calculated by dividing net income (loss) available to common stockholders by the weighted average number of common stock outstanding plus common share equivalents from conversion of dilutive stock options and warrants using the treasury method and preferred stock using the as-converted method, except when antidilutive. In the event of a net loss, the effects of all potentially dilutive shares are excluded from the diluted net loss per share calculation as their inclusion would be antidilutive. For the year ended October 31, 2023 the outstanding common stock equivalents excluded from the computation of diluted net loss were 449,106 shares for stock options, 242,548 shares for warrants and 357,120 shares for series B convertible preferred stock. For the year ended, October 31, 2022 the outstanding common stock equivalents excluded from the computation of diluted net loss were 152,489 shares for stock options and 110,396 shares for warrants . Income Tax Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the recorded book basis and the tax basis of assets and liabilities for financial and income tax reporting. Deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes are also recognized for operating losses that are available to offset future taxable income and tax credits that are available to offset future federal income taxes. The Company believes that its income tax filing positions and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material adverse effect on the Company’s financial condition, results of operations, or cash flow. The Company has Federal net operating loss (“NOL”) carryforwards, consisting of total deferred tax assets, totaling approximately $ 23.8 million and state NOL carryforwards, consisting of total deferred tax liabilities, totaling approximately $ 0.2 million. With the changes instituted by the CARES Act, the Federal NOLs have an indefinite life and will not expire. The Company’s federal and state tax returns for the 2020, 2021, and 2022 tax years generally remain subject to examination by U.S. and various state authorities. A valuation allowance is recorded to reduce the deferred tax asset if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized. After consideration of all the evidence, both positive and negative, management has determined that a valuation allowance of $ 7,319,289 for the -year ended on October 31, 2023, and a valuation allowance of $ 4,286,289 for the year ended on October 31, 2022 were necessary to reduce the total net deferred tax asset to the amount that will more likely than not be realized pursuant to ASC 740 for those fiscal years. Fair Value of Financial Instruments The Company’s balance sheet includes certain financial instruments. The carrying amounts of current assets and current liabilities approximate their fair value because of the relatively short period of time between the origination of these instruments and their expected realization. ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below: ● Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. ● Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means. ● Level 3 – Inputs that are both significant to the fair value measurement and unobservable. F- 15 Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of October 31, 2023 and 2022. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments. These financial instruments include cash, restricted cash, accounts receivable, accounts payable and accrued expenses. As of October 31, 2023, and 2022, the Company did not have any financial assets or liabilities measured and recorded at fair value on a recurring basis. Recent Accounting Pronouncements In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470- 20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). ASU 2020-06 simplified the accounting for certain financial instruments with characteristics of liabilities and equity. This ASU (1) simplified the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in ASC 470-20, Debt: Debt with Conversion and Other Options, that required entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock; (2) revised the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required for equity classification; and (3) revised the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings per share (“EPS”) for convertible instruments by using the if-converted method. In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares. ASU 2020-06 was effective for the Company for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption was permitted. The Company has elected to early adopt ASU 2020-06 effective beginning November 1, 2022. There was no impact on the consolidated financial statements as a result of adopting this standard. The Company does not believe that any recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the accompanying financial statements. However, In March 2022, the FASB issued ASU 2022-02, “Financial Instruments-Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures.” ASU 2022-02 addresses areas identified by the FASB as part of its post-implementation review of the credit losses standard (ASU 2016-13) that introduced the current expected credit loss (“CECL”) model. The amendments eliminate the accounting guidance for troubled debt restructurings (“TDRs”) by creditors that have adopted the CECL model and enhance the disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. In addition, the amendments require a public business entity to disclose current-period gross write-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures. The amendments in this ASU should be applied prospectively, except for the transition method related to the recognition and measurement of TDRs, where an entity has the option to apply a modified retrospective transition method resulting in a cumulative-effect adjustment to retained earnings in the period of adoption. This is not effective for the Company until November 1, 2023 Note 3 – Going Concern The accompanying financial statements of the Company are prepared in accordance with U.S. GAAP applicable to a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business within one year after the date the consolidated financial statements are issued. In accordance with Financial Accounting Standards Board (“FASB”), Accounting Standards Update (“ASU”) No. 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40), the Company’s management evaluates whether there are conditions or events, considered in aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the accompanying financial statements are issued. The Company will need significant additional funds to satisfy its outstanding payables, fund its working capital, and fully implement its business plan as the Company seeks to grow its revenues and ultimately achieve positive cash flow and profitability. In addition, the Company’s ability to continue as a going concern is adversely affected by the uncertainty surrounding Bidi’s PMTA process with FDA and outcome of Bidi’s petition with the 11th Circuit Court of Appeals regarding the FDA’s January 2024 MDO relating to Classic Bidi ® Stick as well as the Company’s negative cash flows from operations, significant recurring losses and present need for additional funding. All of these factors raise substantial doubt regarding the Company’s ability to continue as a going concern. Management plans to continue similar operations with increased marketing and enhanced efforts to increase sales, which the Company believes will result in increased revenue and ultimately net income and positive cash flow from operations. However, there is no assurance that the Company’s plans will be able to generate expected or greater amounts of revenues or ever achieve profitability due to the factors listed above as well as the regulation and public perception of ENDS products and the various other risks faced by the Company. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of these or other risks or uncertainties. Note 4 – Acquisition of GoFire Assets On May 30, 2023 (the “Closing Date”), the Company and Kaival Labs entered into an Asset Purchase Agreement (the “GoFire APA”) with GoFire, Inc. (“GoFire”) to purchase certain intellectual property assets of GoFire consisting of various patents concerning electronic vaporizers and related technologies (the “Purchased Assets”) in exchange for equity securities of the Company and certain contingent cash consideration. The Company participated in this transaction with the intent to diversify its product offerings and create both near and long-term revenue opportunities. The Purchased Assets consist of 19 existing and 47 pending patents with novel technologies related to vaporization and inhalation. Pursuant to the terms of the GoFire APA, the Company paid to GoFire, in addition to certain contingent cash consideration described below, consideration in the form of equity securities of the Company consisting of (i) an aggregate of 95,239 shares of Common Stock (the “APA Shares”); (ii) 900,000 shares of newly-designated Series B Convertible Preferred Stock, par value $ 0.001 per share, (the “Series B Preferred Stock” and the shares of Common Stock underlying the Series B Preferred, the “Series B Conversion Shares”), the rights, preferences and terms of which are set forth in a Certificate of Designation of Rights and Preferences of the Series B Preferred Stock (the “Certificate of Designation”), and (iii) a common stock purchase warrant to purchase 95,239 shares of Common Stock (the “Warrant” and the shares of Common Stock underlying the Warrant, the “Warrant Shares”). As additional consideration for the Purchased Assets, any cannabis-specific (meaning cannabis, hemp or cannabinoid) royalties that are generated by Kaival Labs from or due to the Purchased Assets, from the Closing Date until January 1, 2027, will be subject to a contingent cash payment (“CCP”). Prior to the earlier of: (i) the Company achieving less than or equal to $15,000,000 in aggregate gross cannabis-specific royalties from any Kaival Labs licensing agreements, and (ii) F- 16 January 1, 2027, the Company shall pay GoFire a CCP equal to 50% of the aggregate gross cannabis-specific royalties generated by the Purchased Assets. After the earlier of: (i) the Company achieving greater than $15,000,000 in aggregate gross cannabis-specific royalties, and (ii) January 1, 2027, the Company shall pay GoFire a CCP equal to 10% of the aggregate gross cannabis-specific royalties generated by the Purchased Assets until January 1, 2027. Pursuant to the GoFire APA, the Company is required to use commercially reasonable efforts to register the APA Shares and Warrant Shares with the SEC for distribution to GoFire’s stockholders and/or public resale by such stockholders within 180 days of the Closing Date. In addition, if any Series B Preferred Stock remains outstanding nineteen (19) months after the Closing Date, the Company shall use commercially reasonable efforts to file with the SEC a subsequent registration statement registering the distribution to GoFire’s stockholders and/or public resale Series B Conversion Shares by such stockholders. If such subsequent registration statement is required, the Company will use its commercially reasonable efforts to obtain effectiveness of such subsequent registration statement within nineteen (19) months of the Closing Date, and if the Company does not so register the Series B Conversion Shares within nineteen (19) months of the Closing Date, the Company will issue to GoFire or its designee an additional ten percent (10%) of all of the Series B Conversion Shares underlying the then outstanding shares of Series B Preferred Stock. All of the securities issued as consideration for the Purchased Assets are subject to a lock-up agreement that terminates one hundred eighty (180) days from the Closing Date. The Company has determined that the acquisition of the Purchased Assets constitutes an asset acquisition and has recorded the assets under a cost accumulation model. Assets acquired and liabilities assumed are recognized at cost, which is the consideration the acquirer transferred to the seller, as well as direct transaction costs, on the acquisition date. The cost of the acquisition is then allocated to the assets acquired based on their relative fair values. The cost of acquisition does not include any contingent consideration related to contingent cash payments as those obligations are contingent in future amount of royalties and will be recognized when the contingency is resolved, and the consideration is paid or becomes payable. Goodwill is not recognized in asset acquisition. The Purchased Assets have been recorded at a cost of $11,795,975 and are included in Intangible Assets in the consolidated balance sheet. The consideration paid for the GoFire APA was as follows (see Note 5): Schedule of consideration paid Common Stock $ 1,119,800 Series B Preferred Stock 9,047,980 Common Stock Warrants 1,059,523 Transaction Costs 568,672 Total consideration $ 11,795,975 The fair value of the Common Stock is based on the publicly traded share price as of the acquisition date and represents a Level 1 measurement. The fair value of the Series B Preferred Stock and Common Stock Warrants were determined using the Black-Scholes Option Pricing model. The fair value measurements are based on significant unobservable inputs, including management estimates and assumptions, and thus represent Level 3 measurements. Note 5 – Intangible Assets, net The Company’s intangible assets include patents and technology that were acquired pursuant to the GoFire APA. The cost and accumulated amortization of the intangible assets amounted to $ 11,795,975 and $ 327,666 as of October 31, 2023, respectively. Amortizable patents and technology have a useful life of 15 .0 years with a weighted average remaining useful life of 14.6 years. The Company recognized an amortization expense of $327,666 for the year ended October 31, 2023. Amortization expense is included under general and administrative expenses in the consolidated statement of operations. F- 17 Future amortization expense of intangible assets is as follows: Schedule of future amortization expense of intangible assets 2024 $ 786,398 2025 786,398 2026 786,398 2027 786,398 2028 786,398 Thereafter 7,536,319 Total $ 11,468,309 Note 6 – Loans Payable On May 9, 2023, the Company entered into two loan agreements which are collateralized by all assets of the Company until the loans are repaid in full. As illustrated in the following table, under the terms of these agreements, the Company received the disclosed Purchase Price and agreed to repay the disclosed Purchase Amount, which is collected by the lenders at the disclosed weekly payment rate. The Company’s former Chief Executive Officer, Eric Mosser personally guarantees the performance of these loans. The Company has accounted for these agreements as loans under ASC 860 because while we provided rights to current and future receipts, we still had control over the receipts. The difference between the Purchase Amount and the Purchase Price is imputed interest that is recorded as interest expense when paid. The following table shows our loan agreements as of October 31, 2023, and there were none as of October 31, 2022: Schedule of loan agreements Purchase Payment Payment Deferred Inception Date Price Purchased Amount Outstanding Balance frequency Rate Finance Fees May 9, 2023 $ 400,000 $ 580,000 $ 53,709 Weekly 20,714 $ 3,434 May 9, 2023 400,000 580,000 80,467 Weekly 20,714 5,247 $ 800,000 $ 1,160,000 $ 134,176 $ 8,681 On August 9, 2023, the Company entered into a Securities Purchase Agreement (the “SPA”) with AJB Capital Investments, LLC (“AJB”), pursuant to which the Company sold a Promissory Note in the principal amount of $650,000 (the “Note”) to AJB in a private transaction for a purchase price of $585,000 (giving effect to original issue discount of $65,000). The Note matures on February 8, 2024 (the “Maturity Date”) and bears interest at the rate of 10% per annum. Interest shall be payable on a monthly basis beginning on the date that is one month following the date of issuance of the Note. Provided no event of default (as defined in the Note) is in effect as of the Maturity Date, the Company may elect to extend the Maturity Date for a period of six (6) months. Pursuant to the terms of the SPA, the Company paid a commitment fee to AJB in the form of 19,048 shares of Common Stock (the “Commitment Fee Shares”) with a relative fair value of $130,478 which was recognized as discount to the note. The debt discount and issuance costs are amortized over the term of the note. Amortization expense amounted to $122,273 for the year ended October 31, 2023. Under the SPA, the Company has the right to repurchase half of the Commitment Fee Shares if the Note is repaid in full prior to maturity . As of October 31, 2023 the carrying value of the loan and unamortized debt discount and issuance costs were $513,295 and $136,705 respectively On May 20, 2023, the Company obtained a nine month loan from Westfield Bank to finance the annual D&O insurance. The principal amount was $ 342,001 and subject to an effective interest rate of 7.79 %. As of October 31, 2023, the remaining balance was $ 152,000 . F- 18 Note 7 – Leases The Company capitalizes all leased assets pursuant to ASU 2016-02, Leases (Topic 842) (“Topic 842”), which requires lessees to recognize right-of-use (“ROU”) assets and lease liability, initially measured at present value of the lease payments, on its balance sheet for leases with terms longer than 12 months and classified as either financing or operating leases. The Company excludes short-term leases having initial terms of 12 months or less from Topic 842 as an accounting policy election and recognizes rent expense on a straight-line basis over the lease term. The Company does not have financing leases and only one operating lease for office space and inventory storage space with a related party, as of October 31, 2023. Certain of the Company’s leases, have and may in the future, include renewal options, which have been and might be in the future, included in the calculation of the lease liabilities and right of use assets when the Company is reasonably certain to exercise the option. Office and Storage Space On November 1, 2021 the Company entered into a month-to-month lease agreement with Ranger Enterprises, LLC, located in Seymour, Indiana, to store product inventory at this satellite location. The Company made payments on this lease in the amount of $19,959. The lease was terminated in June 2022. On November 11, 2021 the Company entered into a month- to-month lease agreement with FFE Solutions Group, located in Salt Lake City Utah, to store additional product inventory at this satellite location. The Company made payments on this lease in the amount of $19,108. This lease was terminated in April 2022. On June 10, 2022, the Company entered into a Lease Agreement (the “2022 Lease”) with Just Pick for approximately 21,332 rentable square feet combined in the office building and warehouse located at 4460 Old Dixie Highway, Grant-Valkaria, Florida 32949 (the “Premises”), together with all improvements thereon. The Company must pay Just Pick base rent equal to $ 17,777 per month during the first year of the Lease Term with a five-year lease renewal option. Thereafter, the monthly base rent will be increased annually with a monthly base rent of $ 18,666 in the second year, $ 19,554 in the third year, $ 20,443 in the fourth year, $ 22,221 in the fifth year, $ 23,999 in the sixth year, and one twelfth (1/12th) of the market annual rent for the seventh through eleventh years, if applicable. In addition to the base rent, the Company must pay one hundred percent (100%) of operating expenses, insurance costs, and taxes for each calendar year during the Lease term. For both the ROU asset and ROU liability, the lease renewal option was considered in the calculation with an incremental borrowing rate of 4.5 %. The Company had $ 190,541 and $ 118,633 in operating lease expenses for the year ended October 31, 2023, and October 31, 2022, respectively. Cash flow information related to leases was as follows: Schedule of cash flow information related to leases October 31, 2023 October 31, 2022 Other Lease Information Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ ( 190,541 ) $ ( 118,633 ) The following table summarizes the lease-related assets and liabilities recorded in the consolidated balance sheets on October 31, 2023, and 2022: Schedule of condensed balance sheet Lease Position October 31, 2023 October 31, 2022 Operating Leases Operating lease right-of-use assets $ 1,008,428 $ 1,198,969 Right of use liability operating lease, current portion $ 184,568 $ 166,051 Right of use liability operating lease, long term 866,207 1,050,776 Total operating lease liabilities $ 1,050,775 $ 1,216,827 F- 19 The following table provides the future minimum operating lease payments as of October 31, 2023: Schedule of lessee operating lease liability maturity Operating Leases Future minimum operating lease liabilities on October 31, 2023 2024 $ 228,133 2025 238,800 2026 253,614 2027 274,946 2028 and thereafter 175,989 Total future undiscounted lease payments $ 1,171,482 Less: Imputed interest ( 120,707 ) Present value of lease liabilities $ 1,050,775 As of October 31, 2023, the Company had no additional leases which had not yet commenced. Note 8 – Stockholders’ Equity Common Shares During the year ended October 31, 2023, the Company issued 95,239 shares of Common Stock as consideration for the acquisition of the GoFire Purchased Assets. The Company also issued 4,381 shares of Common Stock as compensation for advisory services rendered in connection with the GoFire APA. See Note 4. During the year ended October 31, 2023, the Company issued 19,048 common shares with a value of $ 130,478 as part of a loan issued on August 9, 2023. During the year ended October 31, 2022, the Company issued 1,888 common shares for services rendered with a fair value of $ 65,323 . There were 1,190,477 common shares issued for the conversion of Series A Convertible Preferred Stock to Common Stock, see preferred shares converted below. The Company issued 40,744 for $ 1,625,650 proceeds for the exercise of warrants. The Company’s stock-based compensation for Common Stock issued for services for the fiscal years ended October 31, 2023, and October 31, 2022, was $ 0 and $ 237,702 , respectively. Restricted Stock Unit Awards During the year ended October 31, 2022, 5,870 shares of Common Stock were issued to seven employees of the Company pursuant to restricted stock unit (“RSU”) agreements, resulting in $ 172,379 of share-based compensation. Of the shares issued to employees, 2,130 shares were withheld by the Company to satisfy tax withholding obligations equal to $ 59,862 . On March 4, 2022, the Company’s Board approved the termination of the RSU agreements with the consent of the employees. At the time these agreements were terminated, there remained 1,564,166 unvested RSUs with approximately $ 4,457,875 of related unvested compensation. See Common Stock Compensation Transition Plan below for additional details. Series A Convertible Preferred Stock Each share of the Series A Preferred Stock was initially convertible into 100 shares of Common Stock; However, it was affected by a subsequent reverse stock split also, the conversion rate was adjusted such that each share of the Series A Preferred Stock is convertible into approximately 0.3968 shares of Common Stock. On June 24, 2022, all 3,000,000 shares of Series A Preferred Stock were converted into shares of Common Stock by Kaival Holdings. The conversion of 3,000,000 shares of Series A Preferred Stock, at a conversion rate of 0.3968 , equaled 1,190,477 shares of Common Stock. F- 20 Series B Convertible Preferred Stock The Company issued 900,000 shares of the Series B Preferred Stock as consideration for the acquisition of the GoFire Purchased Assets. The Series B Preferred Stock carries no voting rights except: (i) with respect to the ability of the holders of a majority of the then outstanding Series B Preferred Stock (the “Majority Holders”), to nominate a director to the Company’s board of directors, and (ii) that the vote of the Majority Holders is necessary for effecting any amendment to the Company’s Certificate of Incorporation or Certificate of Designation that affects the Series B Preferred Stock. The Series B Preferred Stock is redeemable at the option of the Company at a redemption price of $ 15 per share, subject to potential downward adjustments based on the trading price of the Common Stock. Subject to additional limitations in the GoFire APA, the Series B Preferred Stock holds seniority over the Common Stock and each other class of series of securities now existing or hereafter authorized with respect to dividend rights, the distribution of assets upon liquidation, and dissolution and redemption rights. Upon a liquidation and winding up of the Company, the holders of Series B Preferred Stock are entitled to a liquidation preference of $ 15 per share (the “Liquidation Preference”), though the redemption may be adjusted downward based on the trading price of the Common Stock at the time of liquidation. The holders of Series B Preferred Stock are entitled to receive a dividend equal to 2% of the Liquidation Preference, accruing from the Closing Date and payable on the eighteen-month anniversary of the Closing Date. No preemptive rights are granted to the holders of Series B Preferred Stock. The Majority Holders have the ability to cause a voluntary conversion of the Series B Preferred Stock into Common Stock at a conversion rate of 0.3968 shares of Common Stock per share of Series B Preferred Stock which may only occur on or after the following dates 18 month, 24 month, 36, month, 48 month, and 60 month anniversary of the original issuance date; and only up to 180,000 number of shares of Series B Preferred Stock on each of the these dates. All shares of Series B Preferred Stock will automatically convert to Common Stock upon the occurrence of a Change of Control (as defined in the GoFire APA). Stock Options Summary of stock options information is as follows: Schedule of stock options Aggregate Aggregate Exercise Average Number Exercise Price Price Range Exercise Price Outstanding, October 31, 2021 7,143 $ 3,074,010 $ 191.52 - 602.28 $ 430.17 Granted 148,124 6,708,460 21.63 - 59.85 45.29 Exercised — — — — Cancelled, forfeited, or expired ( 2,778 ) ( 861,041 ) 191.52 - 545.58 309.95 Outstanding, October 31, 2022 152,489 8,921,429 21.63 - 602.28 58.50 Granted 300,188 5,314,460 10.08 - 20.72 17.66 Exercised — — — — Cancelled, forfeited, or expired ( 3,571 ) ( 154,481 ) 43.26 43.26 Outstanding, October 31, 2023 449,106 $ 14,081,408 $ 10.08 - 602.28 31.36 Exercisable, October 31, 2023 185,496 $ 9,194,852 $ 12.81 - 602.28 $ 49.57 F- 21 The fair value of each option granted during the year ended October 31, 2023 and 2022 was estimated on the date of grant using the Black-Scholes option-pricing model with the weighted average assumptions in the following table: Schedule of assumptions 2023 2022 Expected dividend yield 0 % 0 % Expected option term (years) 6.25 - 10 10 Expected volatility 270.98 %- 286.91 % 279.81 %- 288.93 % Risk-free interest rate 3.47 %- 4.34 % 1.74 %- 3.13 % The expected term of options granted represents the period of time that options granted are expected to be outstanding. The expected volatility was based on the volatility in the trading of the Common Stock. The assumed discount rate was the default risk-free ten-year interest rate for US Treasury bills. During the year ended October 31, 2022, the Company recognized stock option expense of $ 6,043,312 related to outstanding stock options. As of October 31, 2022, the Company had $ 1,716,795 of unamortized stock option expense. The weighted average remaining contractual life is approximately 9.52 years for stock options outstanding on October 31, 2022. As of October 31, 2022, the outstanding options have an intrinsic value of $ 50,000 . On February 27, 2022, non-qualified stock options exercisable for up to 9,524 shares of Common Stock were awarded to two consultants of the Company. These stock options have a ten-year term from the grant date, with one-half of the shares vesting on the grant date and the remaining one-half of the shares vesting on the first anniversary of the grant date. The fair value of the options on the grant dates was $ 489,998 using a Black-Scholes option pricing model with the following assumptions: stock price $ 51.45 per share (based on the quoted trading price on the date of grant), a computed volatility of 288.93 %, expected term of 10 years, and a risk-free interest rate of 1.83 %. On April 22, 2022, non-qualified stock options exercisable for up to 3,571 shares of Common Stock were awarded to one consultant of the Company. These stock options have a ten-year term from the grant date, with one-half of the shares vesting on June 30, 2022 and the remaining one-half of the shares vesting on October 31, 2022. The fair value of the options on the grant date was 106,499 using a Black-Scholes option pricing model with the following assumptions: stock price $ 29.82 per share (based on the quoted trading price on the date of grant), a computed volatility of 286.00 %, expected term of 10 years, and a risk-free interest rate of 2.90 %. On May 18, 2022, non-qualified stock options exercisable for up to 23,810 shares of Common Stock were awarded to one consultant of the Company. These stock options have a ten-year term from the grant date, with the shares fully vesting on December 1, 2022. The fair value of the options on the grant date was $ 514,997 using a Black-Scholes option pricing model with the following assumptions: stock price $ 21.63 per share (based on the quoted trading price on the date of grant), a computed volatility of 284.70 %, expected term of 10 years, and a risk-free interest rate of 2.89 %. On August 1, 2022, non-qualified stock options exercisable for up to 1,190 shares of Common Stock were awarded to one employee of the Company. These stock options have a ten-year term from the grant date, with the shares fully vesting on August 1, 2023. The fair value of the options on the grant date was $ 29,000 using a Black-Scholes option pricing model with the following assumptions: stock price $ 24.36 per share (based on the quoted trading price on the date of grant), a computed volatility of 281.14 %, expected term of 10 years, and a risk-free interest rate of 2.60 %. On August 24, 2022, non-qualified stock options exercisable for up to 2,381 shares of Common Stock were awarded to one consultant of the Company. These stock options have a ten-year term from the grant date, with the shares fully vesting on grant date. The fair value of the options on the grant date was $ 65,999 using a Black-Scholes option pricing model with the following assumptions: stock price $ 27.72 per share (based on the quoted trading price on the date of grant), a computed volatility of 279.81 %, expected term of 10 years, and a risk-free interest rate of 3.11 %. On March 4, 2022, options exercisable for up to an aggregate of 65,981 shares of Common Stock were granted from this new stock option program to the executive officers and employees, as a result of the transition. The fair values of the options on the grant dates, as noted above, were approximately $ 3,948,948 using a Black-Scholes option pricing model with the following assumptions: stock price $ 59.85 per share (based on the quoted trading price on the date of grant), volatility of 294.55 %, expected term of 10 years, and a risk-free interest rate range of 1.62 %. The Company is amortizing the expense over the vesting terms of each option. Please reference the Common Stock Compensation Transition Plan below. On June 24, 2022, non-qualified stock options exercisable for up to 41,667 shares of Common Stock were awarded to two officers and three board members of the Company. These stock options have a ten-year term from the grant date, with 17,858 fully vested on June 24, 2022, and 23,809 vest over the next 2 years on June 23, 2023, and June 23, 2024. The fair value of the options on the grant dates was $ 1,504,990 using a Black-Scholes option pricing model with the following assumptions: stock price $ 36.12 per share (based on the quoted trading price on the date of grant), a computed volatility of 283.12 %, expected term of 10 years, and a risk-free interest rate of 3.13 %. F- 22 During the year ended October 31, 2023, the Company recognized stock option expense of $ 3,168,430 related to outstanding stock options. As of October 31, 2023, the Company had $ 3,904,525 of unamortized stock option expense. The weighted average remaining contractual life is approximately 8.99 years for stock options outstanding on October 31, 2023. As of October 31, 2023, the outstanding options have an intrinsic value of $ 0 . On November 9, 2022, non-qualified stock options exercisable for up to 11,905 shares of Common Stock were awarded to one supplier of the Company. These stock options have a ten-year term from the grant date, with the shares fully vested on the issue date. The fair value of the options on the grant date was $ 246,747 using a Black-Scholes option pricing model with the following assumptions: stock price $ 20.72 per share (based on the quoted trading price on the date of grant), a computed volatility of 275.68 %, expected term of 10 years, and a risk-free interest rate of 4.12 %. On November 9, 2022, non-qualified stock options exercisable for up to 142,857 shares of Common Stock were awarded to one supplier of the Company. These stock options have a ten-year term from the grant date, with the shares fully vesting based on the achievement of certain net revenue and profit margin targets up to $ 180,000,000 in total net revenues over a period of 3 years. However, the grant provides that if the Company’s gross profit margin in any year over the 3 year period exceeds 15%, a certain number of options will vest to be calculated based on the Company’s total revenues. The fair value of the options on the grant date was $ 2,960,968 using a Black-Scholes option pricing model with the following assumptions: stock price $ 20.72 per share (based on the quoted trading price on the date of grant), a computed volatility of 275.68 %, expected term of 10 years, and a risk-free interest rate of 4.12 %. Management determined that it is not probable that the performance condition related to the net revenue and profit margin to be met over a period of 3 years will be achieved. However, for the year ended October 31, 2023, total options of 10,387 vested due to the Company’s gross profit margin exceeding 15 % for the current year. On February 6, 2023, non-qualified stock options exercisable for up to 7,141 shares of Common Stock were awarded to five employees of the Company. These stock options have a ten-year term from the grant date, with the shares vesting on 50% on February 6, 2024. The fair value of the options on the grant date was $ 109,499 using a Black-Scholes option pricing model with the following assumptions: stock price $ 15.33 per share (based on the quoted trading price on the date of grant), a computed volatility of 270.98 %, expected term of 10 years, and a risk-free interest rate of 3.63 %. On February 6, 2023, non-qualified stock options exercisable for up to 47,620 shares of Common Stock were awarded to two senior executives of the Company. These stock options have a ten-year term from the grant date, with the shares fully vesting on February 6, 2023 and the remaining 50 % vesting on February 6, 2024. The fair value of the options on the grant date was $ 729,988 using a Black-Scholes option pricing model with the following assumptions: stock price $ 15.33 per share (based on the quoted trading price on the date of grant), a computed volatility of 270.98 %, expected term of 10 years, and a risk-free interest rate of 3.63 %. On February 6, 2023, non-qualified stock options exercisable for up to 17,856 shares of Common Stock were awarded to three independent board members of the Company. These stock options have a ten-year term from the grant date, with the shares fully vesting on February 6, 2024. The fair value of the options on the grant date was $ 273,747 using a Black-Scholes option pricing model with the following assumptions: stock price $ 15.33 per share (based on the quoted trading price on the date of grant), a computed volatility of 270.98 %, expected term of 10 years, and a risk-free interest rate of 3.63 %. On February 6, 2023, non-qualified stock options exercisable for up to 9,524 shares of Common Stock were awarded to one consultant acting as a sales broker for the Company. These stock options have a ten-year term from the grant date, with the shares fully vesting based on the achievement of certain net revenue targets up to $ 100,000,000 in total net revenues over time to be generated from certain customers as listed in the sales broker agreement. The fair value of the options on the grant date was $ 145,998 using a Black-Scholes option pricing model with the following assumptions: stock price $ 15.33 per share (based on the quoted trading price on the date of grant), a computed volatility of 270.98 %, expected term of 10 years, and a risk-free interest rate of 3.63 %. Management determined that it would not be probable that the performance conditions will be met and as such no expense was recognized on this award for the year ended October 31, 2023. On March 3, 2023, non-qualified stock options exercisable for up to 2,381 shares of Common Stock were awarded to one interim senior executive of the Company. These stock options have a ten-year term from the grant date, with the shares fully vesting on June 30, 2023. The fair value $12.87 of the options on the grant date was $ 30,650 using a Black-Scholes option pricing model with the following assumptions: stock price $ 12.817 per share (based on the quoted trading price on the date of grant), a computed volatility of 286.91 %, expected term of 10 years, and a risk-free interest rate of 3.97 %. F- 23 On March 19, 2023, non-qualified stock options exercisable for up to 11,904 shares of Common Stock were awarded to two independent board members of the Company. These stock options have a ten-year term from the grant date, with the shares fully vesting on March 19, 2024. The fair value of the options on the grant date was $ 217,498 using a Black-Scholes option pricing model with the following assumptions: stock price $ 18.27 per share (based on the quoted trading price on the date of grant), a computed volatility of 286.15 %, expected term of 10 years, and a risk-free interest rate of 3.47 %. On July 8, 2023, incentive stock options exercisable for up to 2,381 shares of Common Stock were awarded to one employee of the Company. These stock options have a ten-year term from the grant date, with the shares vesting 25% annually through July 8, 2027. The fair value of the options on the grant date was $ 39,409 using a Black-Scholes option pricing model with the following assumptions: stock price $ 16.56 per share (based on the quoted trading price on the date of grant), a computed volatility of 280.34 %, expected term of 6.25 years, and a risk-free interest rate of 4.01 %. On August 1, 2023, incentive stock options exercisable for up to 39,095 shares of Common Stock were awarded to two senior executives of the Company. These stock options have a ten-year term from the grant date, with the shares vesting as following: 1/4 of options on August 1, 2024 and thereafter 1/36 per month through August 1, 2027. The fair value of the options on the grant date was $ 485,000 using a Black-Scholes option pricing model with the following assumptions: stock price $ 12.41 per share (based on the quoted trading price on the date of grant), a computed volatility of 270.03 %, expected term of 6.25 years, and a risk-free interest rate of 4.05 %. On August 22, 2023, incentive stock options exercisable for up to 7,524 shares of Common Stock were awarded to one senior executive of the Company. These stock options have a ten-year term from the grant date, with the shares vesting as following: 1/4 of options on August 22, 2024 and thereafter 1/36 per month through August 22, 2027. The fair value of the options on the grant date was $ 75,808 using a Black-Scholes option pricing model with the following assumptions: stock price $ 10.08 per share (based on the quoted trading price on the date of grant), a computed volatility of 278.31 %, expected term of 6.25 years, and a risk-free interest rate of 4.34 %. Common Stock Compensation Transition Plan During the second quarter of fiscal year 2021 the Board and executive management began cost reduction discussions, including the reduction of non-cash items such as equity compensation awards. Those discussions stalled primarily due to the focus on other corporate events of significant value. In the first and second fiscal quarters of 2022, the Board resumed discussions, assessments, and evaluations regarding the equity compensation awarded to its officers and employees. The Board ultimately approved a stock option program for equity awards granted to its officers and employees. The Compensation Committee of the Board finalized the program in February 2022 and approved it in March 2022. While evaluating and designing this program, the Compensation Committee did not utilize any aspects of value to the employees or other features. Therefore, the termination of the RSU program and the newly adopted stock option program were developed completely independent of each other and terminated and implemented, respectively, distinctly and simultaneously. Management concluded under ASC 718 these transactions are a cancelation and replacement whereby total compensation cost measured at the date of a cancellation and replacement is the portion of the grant-date fair value of the original award for which the service is expected to be rendered at that date plus the incremental cost resulting from the cancellation and replacement. Incremental cost is measured as the excess of the fair value of the replacement award over the fair value of the cancelled award at the cancellation date in which there was none since the fair value of the replacement award was less than the fair value of the canceled award. The outcomes of this decision and the transition on March 4, 2022, resulting in: (i) the termination of the RSU program for all executive officers and employees, consisting of 1,564,166 unvested RSUs and (ii) the implementation a new stock option program for executive officers and employees. The stock options granted pursuant to the program will have ten-year terms from the grant date, with one-half of the shares vesting on the grant date and the remaining one-half of the shares vesting on the first anniversary of the grant date. Please reference the Stock Options disclosure above. F- 24 Warrants Summary Warrant Shares information is as follows: Schedule of warrant information Aggregate Aggregate Exercise Average Number Exercise Price Price Range Exercise Price Outstanding, October 31, 2021 151,139 $ 6,030,452 $ 39.90 $ 39.90 Granted — Exercised ( 40,743 ) ( 1,625,650 ) 39.90 39.90 Cancelled, forfeited, or expired — — — — Outstanding, October 31, 2022 110,396 4,404,802 39.90 39.90 Granted 132,152 9,544,205 12.39 - 126.00 72.22 Exercised — Cancelled, forfeited, or expired — — — — Outstanding, October 31, 2023 242,548 $ 13,949,006 $ 12.39 - 126.00 $ 57.51 Exercisable, October 31, 2023 242,548 $ 13,949,006 $ 12.39 - 126.00 $ 57.51 The outstanding warrants as of October 31, 2023 and 2022 have a weighted average remaining contractual life of 3.44 years and 3.92 years, respectively, and an intrinsic value of $ 0 for both periods. As part of the Company’s underwritten public offering in September 2021, the Company issued warrants to purchase a total of 193,036 shares of Common Stock at an exercise price of $ 39.90 per share. These warrants expire in 2026. Warrants for 40,743 shares of Common Stock were exercised during the fiscal year ended October 31, 2022, for proceeds of $ 1,625,650 . The Company issued a common stock purchase warrant to purchase an aggregate of 95,240 shares of Common Stock as consideration for the acquisition of the GoFire Purchased Assets. The Warrant is exercisable for a period of four (4) years from the Closing Date. The exercise price for the Warrant Shares is $ 63.00 , $ 84.00 , $ 105.00 and $ 126.00 per share, respectively, for each of four tranches of 23,810 Warrant Shares. The exercise prices of the Warrant are subject to customary stock-based (but not price-based) adjustments upon the occurrence of stock splits and the like involving the Common Stock. The Warrant is exercisable on a cash basis only, except that the Warrant may be exercised on a “cashless basis” if at the time of exercise there is not an effective registration statement under the Securities Act of 1933, as amended covering the public resale of the Warrant Shares. The Company issued a common stock purchase warrant to purchase an aggregate of 17,524 shares of Common Stock as compensation for advisory services rendered directly related to the GoFire APA. The warrant is exercisable for a period of five ( 5 ) years from the Closing Date. The exercise price for the warrant shares is $ 14.70 per share. The warrant is non-exercisable or transferrable for six months after the date of the closing of APA other than as permitted by FINRA Rule 5110. The warrant may be exercised as to all or a lesser number of shares of Common Stock for a period of five (5) years after the Closing Date. The Company determined the fair value of the warrant as of the acquisition date and included it as part of the asset acquisition cost (see Note 4). F- 25 The Company entered into a financial advisor and placement agent agreement in April 2023 with an advisor. As part of the consideration for the advisor’s services, the Company will issue warrants to purchase an aggregate of 17,143 shares of Common Stock at an exercise price of $ 15.33 per share and a term of 5 years. During the twelve (12) month engagement period, the Company will grant the advisor warrants to purchase 1,429 shares of Common Stock each month. The Company issued the first six (6) months of warrants to purchase 8,572 shares of Common Stock upon the execution of the agreement and will issue monthly warrants each month at a rate of 1,429 warrants per month until 17,143 warrants have been issued in aggregate. For the year ended October 31, 2023, the Company issued warrants to purchase a total of 15,715 shares of Common Stock. For the year ended October 31, 2023, the Company recognized stock warrant expense of $ 218,909 . The Company entered into a financial advisor and placement agent agreement in August 2023 with an advisor. As part of the consideration for the advisor’s services, the Company issued warrants to purchase an aggregate of 3,673 shares of common stock at an exercise price of $ 12.39 per share and a term of 5 years. The Company determined the fair value of the warrants using the Black-Scholes option-pricing model with the following assumptions: Schedule of fair value of the warrants Expected term (years) 5 Expected volatility 243.20 % - 247.90 % Risk-free interest rate 3.81 % - 4.18 % The expected term represents the contractual term of the warrant. The expected volatility was based on the Company’s observed equity volatility over the period matching the term of the warrant. The assumed discount rate was the risk-free rate based on the rate of treasury securities with the same or similar term as warrant. Note 9 – Related-Party Transactions Revenue and Accounts Receivable During the fiscal year ended October 31, 2023, the Company recognized revenue of $ 10,828 from three companies owned by Nirajkumar Patel, the Chief Science Officer and Regulatory Officer and director of the Company, and/or his wife. During the fiscal year ended October 31, 2022, the Company recognized revenue of $ $ 68,139 from five companies owned by Nirajkumar Patel, the Chief Science and Regulatory Officer and director of the Company, and/or his wife. Purchases and Accounts Payable During the fiscal year ended October 31, 2023, the Company purchased Products equal to $ 12,747,006 from Bidi, a related party company that is also owned by Nirajkumar Patel, the Company’s Chief Science and Regulatory Officer and director. As of October 31, 2023, the Company had an accounts payable balance of $ 1,521,491 to Bidi. During the fiscal year ended October 31, 2022, the Company purchased Products equal to $ 1,505,390 from Bidi, a related party company that is also owned by Nirajkumar Patel, the Company’s Chief Science and Regulatory Officer and director. As of October 31, 2022, the Company did no t have an accounts payable balance to Bidi. The KBI License agreement provides that KBI shall pay Bidi license fees equivalent to 50 % of the adjusted earned royalty payments, after any offsets due to jointly agreed costs such development costs incurred for entry to specific international markets. During the year ended October 31, 2023, the Company paid license fees of approximately $150,000 to Bidi. As of October 31, 2023 and 2022, no additional license fees are owed to Bidi. As of October 31, 2023, the Company has a payable to Bidi of $ 712,524 for certain non-recurring engineering costs related to the PMI License Agreement which were fully paid in November 2023, and $240,802 for reimbursement of insurance expense. F- 26 Office Space and Other Leases On June 10, 2022, the Company entered into a Lease Agreement (the “2022 Lease”) with Just Pick, LLC for approximately 21,332 rentable square feet combined in the office building and warehouse located at 4460 Old Dixie Highway, Grant-Valkaria, Florida 32949 (the “Premises”), together with all improvements thereon. Just Pick, LLC is considered a related party to the Company because the Company’s Chief Science Officer and director, Mr. Nirajkumar Patel, owns and controls Just Pick, LLC. See also Note 7. We believe our office space is sufficient to meet our current needs. During the fiscal year ended October 31, 2021, the Company was part of a five-year lease agreement with Just Pick, LLC (a related party), which began on August 1, 2020. The Company was not yet being charged for the leased space under the terms and conditions of the lease between the Company and Just Pick, LLC. Accordingly, no payments were made on the lease during the fiscal year ended October 31, 2022. The lease ended in the same year of signing the previously mentioned lease with Just Pick, LLC on June 10, 2022. Concentration of Purchases and Other Receivable - Related Party For the year ended October 31, 2023, 100% of the inventories of Products, consisting solely of the BIDI® Stick, were purchased from Bidi, a related party company that is owned by Nirajkumar Patel, our Chief Science and Regulatory Officer and director, in the amount of $ 12,747,006 , as compared to $ 1,505,390 for the year ended October 31, 2022. On April 29, 2022, the Company and Bidi agreed to cancel the $2,295,000 inventory order paid in advance in fiscal year 2021 and this was a credit against the accounts payable due to Bidi. Inventory quality control expenses were paid by the Company on behalf of Bidi during the year ended October 31, 2022, in the amount of approximately $723,000, and were offset as a credit against the accounts payable balance-related party. A credit of $2,924,655 was applied on August 1, 2022, resulting in a related-party receivable balance due from Bidi of $ 2,134,413 , to be applied on future product orders. On October 31, 2022, the Company and Bidi agreed to a return for short-coded or expiring inventory. An additional credit of $ 1,543,545 and $108,841 for recycling cost was applied on October 31, 2022, to the related-party receivable balance due from Bidi. As of October 31, 2022, the Company has a related-party receivable balance due from Bidi of $3,704,132, in which $1,539,486 of the receivable is classified as current and $2,164,646 is classified as non-current. The receivable balance will be realized though Bidi applying 5% credits on all future orders of product until the entire balance is extinguished. On October 31, 2023, the remaining related-party receivable balance from Bidi of $2,954,470 was applied against our related party accounts payable balance . After this was applied, we had no related party receivable balance. As of October 31, 2023, the related party accounts payable balance related to purchase of inventories was $1,521,491. There was no related party accounts payable balance as of October 31, 2022. Note 10 – Income Tax The Company is subject to federal income taxes and state income tax in the U.S. Significant judgment is required in determining the provision for income taxes and income tax assets and liabilities, including evaluating uncertainties in the application of accounting principles and complex tax laws. The Tax Cuts and Jobs Act (the “Tax Act”) was enacted on December 22, 2017 and reduced the U.S. federal corporate tax rate from 35 % to 21 %, eliminated corporate Alternative Minimum Tax, modified rules for expensing capital investment, and limited the deduction of interest expense for certain companies. The Company fulfilled and shipped all the Products from Florida and, thus, it is subject to the state corporate income tax of Florida with a tax rate of 4.458 %. There is no difference between the income tax computed at the combined federal and state statutory rate to the income tax effective rate. Significant components of the tax expense (benefit) recognized in the accompanying statements of operations for the years ended October 31, 2023, and October 31, 2022, are as follows: Schedule of components of income tax expense October 31, 2023 2022 Current Tax Expense: Federal $ — $ — State 2,348 ( 18,317 ) Total Current Tax Expense 2,348 ( 18,317 ) Deferred Tax Expense: Federal — — State — — Total Deferred Tax Expense — — Tax provision: Federal — — State 2,348 ( 18,317 ) Total 2,348 ( 18,317 ) F- 27 Total net deferred taxes are comprised of the following on October 31, 2022, and October 31, 2023: Schedule of deferred tax assets and liabilities October 31, 2023 2022 Deferred Tax Assets: Stock Compensation Expense – NQSO $ 2,069,641 $ 1,694,324 Other 499,203 362,170 Net Operating Loss Carryforwards 4,998,800 2,582,061 Total Deferred Tax Asset 7,567,644 4,638,555 Deferred Tax Liabilities: Prepaid Expenses ( 27,497 ) ( 92,420 ) Right of Use Asset ( 220,859 ) ( 259,866 ) Total Deferred Tax Liabilities ( 248,356 ) ( 352,286 ) Less: Valuation Allowance ( 7,319,288 ) ( 4,286,269 ) Net Deferred Tax Asset — — The Company has Federal NOL carryforwards of approximately $23.8 million and state NOL carryforwards of approximately $186,000. With the changes instituted by the CARES Act, the Federal NOLs have an indefinite life and will not expire. The Company’s federal and state tax returns for the 2022 and 2021 tax years generally remain subject to examination by U.S. and various state authorities. A valuation allowance is recorded to reduce the deferred tax asset if, based on the weight of the evidence, it is more likely than not that some portion or all the deferred tax assets will not be realized. After consideration of all the evidence, both positive and negative, management has determined that a valuation allowance of $ 7,319,288 for the year ended on October 31, 2023, it is necessary to reduce the deferred tax asset to the amount that will more likely than not be realized. Note 11 – Commitments and Contingencies The Company follows ASC 450-20, Los s Contingencies, to report accounting for contingencies. Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated. There were no commitments or contingencies as of October 31, 2023, and October 31, 2022, other than the below: Consulting Agreements On March 17, 2021, the Company entered into a consulting agreement with Russell Quick, pursuant to which the Company granted stock options exercisable for up to 1,985 shares of Common Stock in exchange for consulting services. The shares underlying the stock options fully vested on December 1, 2021. The exercise price per share was $ 602.28 . The Company recognized approximately $ 190,000 in expense to account for the stock options during the fiscal year ended October 31,2022. Russell Quick is the Chief Executive Officer of QuikfillRx. F- 28 On December 1, 2021, the Company and Russell Quick agreed to renew his consulting agreement for one year, pursuant to which on May 18, 2022, the Company granted non-qualified stock options exercisable for up to 23,810 shares of the Common Stock in exchange for on-going consulting services. The shares underlying the stock options fully vest on December 1, 2022. They have a 10 -year expiration. The exercise price per share is $ 21.63 . The Company recognized approximately $434,000 in expense to account for the stock options in the fiscal year ended October 31, 2022. The Company accrued approximately $ 33,871 for a quarterly bonus payable to QuikfillRx, based on the Applicable Gross Quarterly Sales results of the three months ended October 31, 2022. As of the date of these financial statements, Mr. Quick has not exercised any of his fully vested stock options. On February 4, 2022, the Company entered into a Consulting Agreement with Oakhill Europe Ltd (“Oakhill Europe”), pursuant to which the Company engaged Oakhill Europe to provide strategic advising and negotiation assistance for potential international distribution agreements (collectively, the “Oakhill Services”), in exchange for a $15,000 monthly retainer, incentive compensation bonuses of up to $175,000, and an incentive compensation bonus value of $75,000 paid in fully-vested non-qualified stock options, upon the achievement of certain events . On April 24, 2022, the Company approved amending the Consulting Agreement for Oakhill Europe, in order to modify the previously granted stock option award from “ an incentive compensation bonus value of $ 75,000 paid in fully-vested non-qualified stock options, upon the achievement of certain events” to the following amended terms; “Non-Qualified Stock Options exercisable for up to 3,572 shares of Common Stock of the Client with an exercise price equal to the market closing price upon the Effective Date of the Amendment, with a vesting schedule as follows: (a) 1,786 shares of the Common Stock underlying the granted stock options will vest upon the earlier of either: (i) June 30, 2022 or (ii) the occurrence of the achievement of certain events; and b. 1,786 shares of Common Stock underlying the granted stock options will vest upon the earlier of either: (i) October 31, 2022 or (ii) the achievement of certain events.” The option shares are exercisable at a price of $ 29.82 per share, which equaled the closing price of the Common Stock as of the date immediately prior to the grant date. The option has a ten-year term. The issuances were exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof as a transaction not involving a public offering. The option shares issued to Oakhill Europe were cancelled on February 1, 2023. On August 1, 2022, the Company approved the grant of a stock option award to an employee, to acquire up to 1,191 shares of Common Stock under the Company’s Amended 2020 Stock and Incentive Compensation Plan. The option shares vest on August 1, 2023 and are exercisable at a price of $ 24.36 per share, which equaled the closing price of the Common Stock as of the date immediately prior to the grant date. The option has a ten-year term. The issuances were exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof as a transaction not involving a public offering. On August 24, 2022, Company approved amending the Consulting Agreement for Mark Thoenes, the Company’s then Interim Chief Financial Officer, in order to extend its term, modify the vesting terms of the previously granted stock option award, and approved the grant of a stock option award to acquire up to 2,381 shares of Common Stock under the Company’s Amended 2020 Stock and Incentive Compensation Plan. The option shares vest on August 24, 2022 and are exercisable at a price of $ 27.72 per share, which equaled the closing price of the Common Stock as of the date immediately prior to the grant date. The option has a ten-year term. The issuances were exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof as a transaction not involving a public offering. On October 28, 2022, The Company entered into a settlement agreement with a customer in the amount of $ 150,000 . The full settlement released and discharged both parties from future claims and damages, neither party has any further obligations to the other party arising out of or relating to the customer agreement. F- 29 Executive Compensation On May 28, 2020, the Board approved cash bonus awards to each of Nirajkumar Patel, the Company’s then Chief Executive Officer, and Eric Mosser, the Company’s then Chief Operating Officer. With respect to the Chief Executive Officer, the Board approved a cash bonus award equal to $30,000 for every $25 million in gross revenues generated by the Company. With respect to the Chief Operating Officer, the Board approved a cash bonus award equal to $20,000 for every $25 million in gross revenues generated by the Company. On May 28, 2020, the Board also approved an equity bonus award for each of the Chief Executive Officer and the Chief Operating Officer. With respect to the Chief Executive Officer, the Board approved an award of 358 restricted shares of the Common Stock for every $50 million in accumulated gross revenues generated by the Company. With respect to the Chief Operating Officer, the Board approved an award of 298 restricted shares of the Common Stock for every $50 million in accumulated gross revenues generated by the Company. The Company’s accumulated gross revenues will be evaluated on a quarterly basis, beginning with the second quarter of fiscal year 2020. On October 31, 2020, the Company determined that the fair value of the equity bonus shares, or $165,000, should be accrued as it was deemed likely that the $50 million revenue target would be met. The Company issued these shares to the Chief Executive Officer and Chief Operating Officer on January 1, 2021. During the quarter ended April 30, 2021, the $75 million and $100 million accumulated revenue targets were both achieved, and the Company determined that the fair market value of the 655 shares, or approximately $70,785, and the cash bonuses totaling $100,000 were accrued at April 30, 2021. During the quarter ended April 30, 2022, the $ 125 million accumulated revenue targets were achieved, and the Company determined that cash bonuses totaling $ 50,000 were accrued on April 30, 2022. On March 4, 2022, the Board terminated all future cash and equity bonus awards for the Company’s Chief Executive Officer and its Chief Operating Officer. On March 5, 2022, the Company granted a stock option award to Nirajkumar Patel, then the Company’s Chief Executive Officer, to acquire up to 28,572 shares of Common Stock under the Company’s 2020 Stock and Incentive Compensation Plan, as partial compensation for Mr. Patel’s services as Chief Executive Officer. The option shares are exercisable at a price of $59.85 per share, which equaled the closing price of the Common Stock as of the date immediately prior to the grant date. The issuances were exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof as a transaction not involving a public offering. On March 5, 2022, the Company granted stock option awards to Eric Mosser, the Company’s then Chief Operating Officer, to acquire up to 23,810 shares of Common Stock under the Company’s 2020 Stock and Incentive Compensation Plan, as partial compensation for Mr. Mosser’s services as Chief Operating Officer. The option shares are exercisable at a price of $59.85 per share, which equaled the closing price of the Common Stock as of the date immediately prior to the grant date. The issuances were exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof as a transaction not involving a public offering. On June 24, 2022, the Company granted a stock option award to Nirajkumar Patel, Chief Science and Regulatory Officer, to acquire up to 11,905 shares of Common Stock under the Company’s 2020 Stock and Incentive Compensation Plan, as partial compensation for Mr. Patel’s services as Chief Science and Regulatory Officer. The option shares are exercisable at a price of $ 36.12 per share, which equaled the closing price of the Common Stock as of the date immediately prior to the grant date. The issuances were exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof as a transaction not involving a public offering. On June 24, 2022, the Company granted stock option awards to Eric Mosser, the Company’s then President and Chief Operating Officer, to acquire up to 11,905 shares of Common Stock under the Company’s 2020 Stock and Incentive Compensation Plan, as partial compensation for Mr. Mosser’s services as President and Chief Operating Officer. The option shares are exercisable at a price of $ 36.12 per share, which equaled the closing price of the Common Stock as of the date immediately prior to the grant date. The issuances were exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof as a transaction not involving a public offering. QuikfillRx Service Agreement On March 31, 2020, the Company entered into a service agreement (the “Service Agreement”) with QuikfillRx LLC, a Florida limited liability company (“QuikfillRx”), whereby QuikfillRx provides the Company with certain services and support relating to sales management, website development and design, graphics, content, public communication, social media, management and analytics, and market and other research (collectively, the “Services”). The Services are provided by QuikfillRx as requested from time to time by the Company. F- 30 On June 2, 2020, the Company entered into the First Amendment to the Service Agreement (the “First Amendment”) with QuikfillRx. Effective as of March 16, 2021, the Company entered into the Second Amendment to Service Agreement (the “Second Amendment”) with QuikfillRx. Effective as of September 17, 2021, the Company entered into the Third Amendment to the Service Agreement (the “Third Agreement”) with QuikfillRx. Effective as of June 24, 2022, the Company entered into the Fourth Amendment to the Service Agreement (the “Fourth Agreement” and, collectively with the First Amendment, Second Amendment, Third Amendment, and the Service Agreement, the “Amended Service Agreement”) with QuikfillRx. Pursuant to the terms of the Amended Service Agreement, the parties agreed to the following “General Compensation” payments: (i) for the Services provided in March 2020, the Company paid QuikfillRx an amount equal to $86,000; (ii) for the Services provided in April 2020, the Company paid QuikfillRx an amount equal to $100,000; (iii) each calendar month commencing May 2020 through October 2020, the Company paid QuikfillRx an amount equal to $100,000 per month for the Services to be performed during such calendar month; (iv) for each calendar month between November 1, 2020 and October 31, 2021, the Company paid QuikfillRx $125,000 per month for the Services to be performed during such calendar month; (iv) for the period between November 1, 2021 and June 30, 2022, the Company paid QuikfillRx $150,000 per month for the Services to be performed during such calendar month; (v) for the period between July 1, 2022 and October 31, 2024, the Company will pay QuikfillRx $125,000 per month for the Services to be performed during such calendar month; and (vi) parties acknowledged that as a result of extensions to the term of the Service Agreement , such term of the Original Agreement will end on October 31, 2023. The parties have agreed to extend such term for an additional one year until October 31, 2024. In addition, the Company will pay the following quarterly bonuses: ● An amount equal to 0.9% of the Applicable Gross Quarterly Sales (as defined in the Amended Service Agreement), which amount shall, at the Company’s option be paid in (a) cash or (b) shares of the Company’s Common Stock, or (c) a combination of cash and Common Stock. ● An amount equal to 0.27% of the Applicable Gross Quarterly Sales, which amount must be paid in cash. During fiscal year 2023, the Company accrued approximately $ 81,300 for two quarterly bonuses payable to QuikfillRx based on our applicable gross quarterly sales for the six months ended October 31, 2023. The Company accrued $33,871 for a quarterly bonus payable to QuikfillRx, based on the Applicable Gross Quarterly Sales results of the three months ended October 31, 2022. F- 31 Note 12 – Subsequent Events Reverse Stock Split On January 22, 2024, the Company filed a Certificate of Amendment to the Company’s Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware to affect a 1-for-21 reverse stock split (the “2024 Reverse Stock Split”) of the shares of the Common Stock. The 2024 Reverse Stock Split was effective on January 25, 2024 on the Nasdaq Stock Market. No fractional shares were issued in connection with the 2024 Reverse Stock Split. Any fractional shares of our Common Stock that would have otherwise resulted from the 2024 Reverse Stock Split were rounded up to the nearest whole number. In connection with the 2024 Reverse Stock Split, the Board approved appropriate and proportional adjustments to all outstanding securities or other rights convertible or exercisable into shares of the Common Stock, including, without limitation, all preferred stock, warrants, options, and other equity compensation rights. All historical share and per-share amounts reflected throughout the accompanying consolidated financial statements and other financial information in this Report have been retroactively adjusted to reflect the 2024 Reverse Stock Split as if the split occurred as of the earliest period presented. The par value per share of the Common Stock was not affected by the 2024 Reverse Stock Split. Repayment of AJB Note On December 1, 2023, the Company repaid all amounts due and owing under the Note to AJB in full, in an aggregate amount, including accrued interest, equal to $ 650,181 . In connection with the repayment of the Note, the Company agreed that AJB would be permitted to retain all of the Commitment Fee Shares. Receivables Purchase Transactions On November 29, 2023, the Company entered into two receivables purchase transactions pursuant to: (i) a Future Receivables Sale and Purchase Agreement, dated November 29, 2023, between Clearview Funding Solutions LLC (“Clearview”) and the Company (the “Clearview Agreement”), and (ii) a Future Receivables Sale and Purchase Agreement, dated November 29, 2023, between Mr. Advance LLC (“Advance”) and the Company (the “Advance Agreement”). Pursuant to the Clearview Agreement, the Company sold future receivables in the principal amount of $ 864,000 (the “Clearview Future Receivables”) to Clearview in a private transaction for a purchase price of $ 600,000 (giving effect to original issue discount of $ 264,000 ). In connection with the sale of the Clearview Future Receivables, the Company also paid an origination fee to Clearview for underwriting and application costs of $ 36,520 , resulting in net proceeds to the Company of $ 563,480 (gross of advisory fees). The Company’s obligations under the Clearview Agreement are personally guaranteed by Eric Mosser, the Company’s former Chief Executive Officer and President. Pursuant to the Advance Agreement, the Company sold future receivables in the principal amount of $ 864,000 (the “Advance Future Receivables”) to Advance in a private transaction for a purchase price of $ 600,000 (giving effect to original issue discount of $ 264,000 ). In connection with the sale of the Advance Future Receivables, the Company also paid an origination fee to Advance for underwriting and related expenses of $ 36,035 , resulting in net proceeds to the Company of $ 563,965 (gross of advisory fees). The Company’s obligations under the Advance Agreement are also personally guaranteed by Mr. Mosser. Common Stock Transaction On December 15, 2023 the Company issued 16,667 shares of common stock to a FINRA member broker-dealer in connection with the termination of its relationship with such broker dealer. Stock Options Transactions On February 8, 2024 (the "Grant Date"), Barry M. Hopkins received a 10-year incentive stock option grantto purchase 63,881 shares of Common Stock in partial consideration of his employment services to the Company. The exercise price of such grant option is $5.25 per share, equal to the fair market value of the Issuer's cCommon sStock on November 9, 2023, which is the effective date of the Reporting Person's Mr. Hopkins’ employment agreement with the IssuerCompany. The option shall vest over four years. One-quarter of the option shall vest on the first anniversary of the Ggrant Ddate and afterward shall vest monthly at the rate of 1/36 per month until fully vested. In connection with his appointment to the Company’s board of directors, on May 30, 2023, James P. Cassidy received a 10-year non-qualified stock option to purchase 5,953 shares of Common Stock with an exercise price of $11.76 per share, the fair market value of the Common Stock on May 30, 2023. In connection with Mr. Cassidy’s resignation from the board of directors on January 25, 2024, he agreed that such option should be terminated and cancelled. F- 32 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.