UPEXI, INC. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition, results of operations and cash flows should be read in conjunction with the consolidated financial statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K. The last day of our fiscal year is June 30. Our fiscal quarters end on September 30, December 31, March 31 and June 30. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” or in other parts of this Annual Report on Form 10-K. See also “Cautionary Note Regarding Forward-Looking Statements” above. Overview The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The consolidated financial statements include the accounts of all subsidiaries in which the Company holds a controlling financial interest as of the financial statement date. For the year ended June 30, 2024, the consolidated financial statements of Upexi, Inc. include all of the subsidiary accounts included in the consolidated financial statements for the year ended June 30, 2023, and include the subsidiaries in which the Company holds a controlling financial interest as of June 30, 2024 and 2023. Infusionz LLC, a Colorado limited liability company, along with select CBD asset; Interactive Offers, LLC a Delaware limited liability corporation; VitaMedica, a Nevada corporation; and E-Core Technology, Inc. d/b/a New England Technology, Inc. have been classified as discontinued operations for the years ended June 30, 2024 and 2023, respectively and the assets and liabilities have been classified as current assets, and liabilities of discontinued operations and assets held for sale on the balance sheets for June 30, 2024 and 2023. All intercompany accounts and transactions have been eliminated as a result of the consolidation. Key Factors Affecting Operating Results Cyclicality and Seasonality Our business is typically unaffected by seasonality. 23 Table of Contents Operating Segments The Company’s financial reporting is organized into a single segment that includes production, sales and distribution of branded products, following the sale of E-Core, Technology Inc. and its subsidiaries. Other sources of revenue and related costs are aggregated and viewed by management as immaterial or have similar economic characteristics, products, production, distribution processes and regulatory environment as the other product sales or directly support the Company’s single segment. Results of Operations Year Ended June 30, 2024, as compared to June 30, 2023: The following summary of our results of operations should be read in conjunction with our consolidated financial statements for the years ended June 30, 2024, and 2023, which are included herein. June, 2024 2023 Change Revenue $ 26,000,652 $ 36,441,695 $ (10,441,043 ) Cost of revenue $ 13,176,073 $ 15,421,715 $ (2,245,642 ) Sales and marketing expenses $ 5,989,727 $ 6,067,392 $ (77,665 ) Distribution costs $ 8,611,702 $ 9,465,149 $ (853,447 ) General and administrative expenses $ 6,771,937 $ 6,875,575 $ (103,638 ) Other operating expenses $ 4,848,629 $ 7,146,286 $ (2,297,657 ) Other (expense) $ (3,141,166 ) $ (4,676,160 ) $ 1,534,994 Loss attributable to non-controlling interest $ - $ (559,967 ) $ 559,967 Impairment of intangible assets and goodwill $ 7,869,425 3,746,301 4,123,124 Lease impairment $ 289,969 - 289,969 (Loss) on the sale of assets and businesses $ (456,747 ) (2,212,542 ) 1,755,795 Discontinued operations $ (1,164,184 ) $ (1,370,124 ) $ 2,534,308 Net loss attributable to Upexi, Inc. $ (23,658,438 ) $ (16,930,289 ) $ (6,728,149 ) Revenues decreased by $10,441,043 or 29% for the fiscal year ended June 30, 2024, compared with the fiscal year ended June 30, 2023. The product sales were down approximately $15,400,000 or 42% compared to the prior year, with the most significant decline being the sales of products through third party sales channels, such as Amazon, with the largest decline coming from the products where we do not own the brand. The decline in sales was partially offset by approximately $5,000,000 in manufacturing sales. Management has augmented the overall strategy of the Company to focus on product sales, including the development, production and distribution of branded products. In addition, sales were affected by the manufacturing consolidation to Florida, which was completed by August 1, 2024, with manufacturing returning to full production. Cost of revenue decreased by $2,245,642 or 15% compared with the fiscal year ended June 30, 2023. The gross profit decreased by $8,195,401 or 39% compared with the prior year and gross margin declined by 8.36% to 49.32% compared to 57.68%. The majority of the decline in gross profit was the $10,441,043 decrease in year over year sales, however the gross margin decline was primarily related to the $3,020,062 inventory write off and increase in the inventory reserves compared to only $92,378 expense in the year ended June 30, 2023. This additional $2,927,684, non-cash expense recognized during the year ended June 30, 2024, reduced the gross margin by 11.26%. The inventory write off was caused by both the strategic consolidation of operations to Florida and the change in overall strategy with the elimination of the recommerce strategy. Management expects the gross margin to improve with the change in strategic focus and the completed consolidation of operations. Sales and marketing expenses decreased by $77,665 or 1% compared with the same period last year. The expenditures for both years was similar in total. We anticipate our advertising expenses will remain consistent with an overall decrease in sales and marketing as a percentage of total sales as we have impended our overall brand marketing strategy and we will be able to increase sales significantly without large increases in the expenses. 24 Table of Contents Distribution costs decreased $853,447 or 9% compared with the same period last year. The decrease was related to the decreased sales and the consolidation of facilities. Management has implemented a strategy to change promotions, increase shipping prices and adjust packaging for whole sales verses direct to consumer shipments to lower the overall percentage of distribution costs to sales. The consolidation strategy and other distribution cost reduction strategies are expected to be fully realized in the coming year. General and administrative expenses decreased by $103,638 or 2% compared with the same period last year. General and administrative expenses were similar to the prior year. Since the consolidation to Florida and other changes in the business, management has actively been reducing general and administrative costs. Management expects that general and administrative expenses will decline for the period July 1, 2024 to September 30, 2024, with the most significant declines being realized in periods ending after December 31, 2024. Other operating expenses decreased by $2,297,657 or 32% compared with the same period last year. These expenses are primarily non-cash expense for amortization of stock compensation, amortization of acquired intangible assets and depreciation. The decrease in the amortization of stock compensation was $2,494,695 as older grants are fully amortized and there have only been limited grants in the past year. This decline was offset by slightly higher depreciation expense during the year. Other expense decreased by $1,534,994 or 33%, which related to the significant amount of interest expensed in the prior year when the Company entered into a letter of agreement to repay all amounts owed and terminate all security interests the lender held, including the Form S-3 registration statement. The Company also had non-cash interest related to the amortization of the consideration discount of $1,112,676 and $969,098 for the years ended June 30, 2024, and June 30, 2023, respectively. There was a loss of $559,967 attributable to non-controlling interest in 2023 compared to none in 2024 as the Company purchased the remaining non-controlling interest in the current year. There was an impairment of intangible assets and goodwill of $7,869,425 in the year ended June 30, 2024. $6,844,745 of the impairment was from the acquisition of Cygnet and related to the Company exiting the recommerce business. The remaining $974,680 impairment was related to the LuckyTail acquisition and the significant decline in direct to consumer business as LuckyTail primarily sells through Amazon. There was an impairment of intangible assets and goodwill of $3,746,301 in the year ended June 30, 2023, and related to the valuation of the Interactive Offers and the subsequent sale of the business. The Company recognized an impairment $289,969 on the Delray Beach warehouse during 2024 as part of closing the warehouse and the Company exiting the recommerce business. No such items for 2023. The Company recognized a valuation allowance on its deferred tax asset of $6,100,000 during the year ended June 30, 2024. This was done as management estimated the probable future usage of the Company’s net operating loss carry forward. The loss on the sale of assets and businesses of $456,747 was related to a loss on the sale of E-Core of $1,737,326, the loss on the sale or abandonment of assets not necessary for operations at the new Florida facility and an impairment on the largo facility that was sold on July 8, 2024. This loss was offset by a $1,948,538 gain on the sale of VitaMedica and a gain on the sale of Infusionz and CBD related assets, which was recorded as a $2,212,542 loss in the prior year. The income and loss on discontinued operations was as follows: June 30, 2024 June 30, 2023 Interactive Offers $ (187,003 ) $ (1,729,636 ) Infusionz 71,976 (338,418 ) E-Core 1,065,575 1,080,379 VitaMedica 213,636 (382,449 ) $ 1,164,184 $ (1,370,124 ) 25 Table of Contents The Company had a net loss of $21,396,857 compared to a net loss of $16,930,289 in the prior year. The increase in the net losses primarily related to the above-mentioned changes. Liquidity and Capital Resources Working Capital As of June 30, 2024 As of June 30, 2023 Current assets $ 11,419,918 $ 30,012,984 Current liabilities $ 12,655,152 $ 22,391,587 Working capital $ (1,235,234 ) $ 7,621,397 Cash Flows Years Ended June 30, 2024 2023 Cash flows (used in) operating activities – continuing operations $ (4,894,751 ) $ (7,421,529 ) Cash flows provided by (used in) investing activities – continuing operations 831,112 (23,271 ) Cash flows (used in) provided by financing activities – continuing operations (353,789 ) 6,032,901 Cash flows provided by operating activities – discontinued operations 4,793,374 7,624,206 Cash flows used by investing activities – discontinued operations (4,206,823 ) (2,551,587 ) Cash flows used by financing activities – discontinued operations - (6,318,234 ) Net decrease in cash during the period $ (3,830,877 ) $ (2,657,514 ) On June 30, 2024, the Company had cash of $661,415 or a decrease of $3,830,877 from June 30, 2023. The decrease in cash was primarily the net loss from operations and the significant change in continuing operations with the recent sale of businesses and the change of the Company’s overall strategy. The net cash used by continuing operating activities was $4,894,751 and offset by cash provided by discontinued operations of $4,793,374. The loss of $23,658,438 was offset by the non-cash expenses of $3,948,084 depreciation and amortization, $7,869,425 impairment of goodwill and identifiable intangible assets, $1,112,676 amortization of stock compensation and $1,812,319 write of inventory. The sale of business and the impairment recognized on the warehouse were minimal at a total of $112,448 used. The change in deferred tax asset was $344,802 with a valuation reserve of $6,100,000. The change in operating assets and liabilities provided cash of $2,907,978. Cash provided by discontinued operating activities was $4,793,374 and primarily related to decreases in E-core’s inventory and accounts receivable. Net cash provided by investing activities for the years ended June 30, 2024 and 2023 was $831,112 and use of $23,271, respectively. For the year ended June 30, 2024, cash of $539,348 was used for the acquisition of the remaining 45% of Cygnet and $932,565 for the acquisition of property and equipment. Cash was provided during the year ended June 30, 2024 of $2,100,000 and $203,025 from the sale of VitaMedica and Interactive offers, respectively. In addition, the Company used $4,206,823 for discontinued investing activities related to the payments in the acquisition of E-core. In the prior year, the net cash used was $23,271. The proceeds from the sale of Infusionz and selected assets was $5,492,532 and offset by $3,528,239 and $1,050,000 for the purchase of LuckyTail and Cygnet, respectively. $937,564 was used in the acquisition of property and equipment. The $2,511,587 used in discontinued investing activities was $500,000 for the acquisition of VitaMedica and $2,051,587, net of cash acquired, for the acquisition of E-core. 26 Table of Contents Net cash flows used in financing activities for the year ended June 30, 2024 was $353,789 compared to $285,333 used during the year ended June 30, 2023. During the year ended June 30, 2024 cash was used for the payment of debt related to the acquisition of Cygnet and the payment of the loan on the building. This was offset during the year by a $100,000 advance to the Company by Allan Marshall, the CEO, which was repaid in July 2024. During the year ended June 30, 2023, the Company had net proceeds of $6,127,893 from the issuance of stock and $7,120,000 in proceeds from the issuance of notes payable, including $1,470,000 of proceeds from a related party note payable, $3,000,000 of proceeds related to a note payable with a security interest in our building in Clearwater and $2,650,000 of unsecured debt. The newly issued debt was primarily used to repay the senior convertible note payable and the line of credit. On October 19, 2022, the Company and its indirect wholly owned subsidiary, Upexi 17129 Florida, LLC entered into a loan agreement with Professional Bank, a Florida state-chartered bank, providing for a mortgage on the Company’s principal office in N. Clearwater, Florida. The Company received $3,000,000 in connection with the transaction. The principal is to be paid back to Professional Bank over a term of ten years. The proceeds of the loan were utilized by the Company to pay down its loan facility with Acorn Capital, LLC, in the amount of $2,780,200, net of fees and other expenses. On October 31, 2022, the “Company, paid $4,275,071 in principal, $613,466 in accrued interest, $250,000 for settlement of a put option and $7,900 in miscellaneous fees for a total of $5,146,437 to the holders of the $15 million senior secured convertible notes entered into on June 28, 2022. The payment terminated the agreement with the noteholders. The Company also terminated the registration statement covering the senior secured notes payable. On April 1, 2024, the Company entered into a lease agreement with MFA 2510 Merchant LLC. The lease is for approximately 10,000 square feet of warehouse and office space, located in Odessa, Florida for $20,060 per month on a triple net basis. The initial term is five years. The estimated cost of this facility is a reduction of overall facility costs of approximately $240,000 in rent and approximately $138,000 per year in utilities, repairs and maintenance. Management also expects to have additional savings in labor and administrative costs, which is expected to add additional cash flow for fiscal year 2025. On May 28, 2024, the Company entered into an agreement to sell its Clearwater warehouse for a sale price of $4,300,000. The sale of the building was completed on July 8, 2024 and provided $1,370,978 of working capital. On June 13, 2024, the Company sold all of the issued and outstanding equity of VitaMedica, Inc. to three investors. One of the minority Interest Buyers is Allan Marshall, the Company’s Chief Executive Officers. The purchase price for the stock was Six Million Dollars ($6,000,000), subject to certain customary post-closing adjustments. The net cash provided from the sale was $2,100,000, reduced liabilities of $1,900,000 and will provide an additional $2,000,000 in cash flow next year. On August 1, 2024, the Company sold all of outstanding stock of E-Core Technology, Inc., a Florida corporation (d/b/a New England Technology, Inc.) (“E-core”), to E-Core Holdings, LLC, a Florida limited liability company pursuant to the terms of an Agreement to Unwind Securities Purchase Agreement dated July 31, 2024 and effective June 30, 2024. The principals of the Buyer are the three individuals from whom the Company acquired E-core in October 2022. The purchase price in the transaction was $2,000,000 paid by the Buyer to the Company at closing and will be used for working capital. The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management intends to finance operating costs over the next twelve months from the date of the issuance of these consolidated financial statements with existing cash on hand, cash flow from operations, proceeds from the sale of VitaMedica not yet received and additional short term debt financings, if necessary. 27 Table of Contents We estimate that we will have sufficient working capital to fund our operations over the twelve months following the date of the issuance of these condensed consolidated financial statements and meet all our debt obligations. Off-Balance Sheet Arrangements The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders. Critical Accounting Policies The discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate these estimates, including those related to bad debts, intangible assets, and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of certain assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. We have identified below the accounting policies, related to what we believe are most critical to our business operations and are discussed throughout Management’s Discussion and Analysis of Financial Condition or Plan of Operation where such policies affect our reported and expected financial results. Use of Estimates - The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates underlying the Company’s reported financial position and results of operations include the allowance for doubtful accounts, useful lives of property and equipment, impairment of long-lived assets, inventory valuation, fair value of stock-based compensation and valuation allowance on deferred tax assets. Business Combinations - The Company accounts for its business combinations using the acquisition method of accounting. The cost of an acquisition is measured as the aggregate of the acquisition date fair values of the assets transferred and liabilities assumed by the Company to the seller’s cash consideration and equity instruments issued. Transaction costs directly attributable to the acquisition are expensed as incurred. The excess of (i) the total costs of acquisition over (ii) the fair value of the identifiable net assets of the acquiree is recorded as identifiable intangible assets and goodwill. Goodwill - The Company evaluates its goodwill for possible impairment, simplifying the test for goodwill impairment at least annually and when one or more triggering events or circumstances indicate that the goodwill might be impaired. Under this guidance, annual or interim goodwill impairment testing is performed by comparing the estimated fair value of a reporting unit with its carrying amount. An impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the carrying value of goodwill. The Company performed its annual test as of June 30, 2024 and 2023, respectively. It was determined by management that the goodwill related to Cygnet was completely impaired at June 30, 2024 based on the strategic decision to exit the recommerce business. An impairment of goodwill in the amount of $3,594,745 was recorded at June 30, 2024 eliminating all of the goodwill related to Cygnet. It was determined by management that the goodwill related to Interactive Offers was completely impaired at June 30, 2023 based on the sale of the business at September 1, 2023. An impairment of goodwill in the amount of $2,889,158 was recorded at June 30, 2023 eliminating all of the goodwill related to Interactive Offers. 28 Table of Contents Revenue Recognition - In accordance with ASC No. 606, Revenue from Contracts with Customers, the Company recognizes revenue when we satisfy performance obligations as evidenced by the transfer of control of our products or services to customers. In general, the Company generates revenue from product sales, either directly to customers or to distributors. In determining whether a contract exists, we evaluate the terms of the agreement, the relationship with the customer or distributor and their ability to pay. The Company recognizes revenue from sales of our products, including sales to our distributors, at a point in time, generally upon shipment or delivery to the customer or distributor, depending upon the terms of the sales order. Control is considered transferred when title and risk of loss pass, when the customer becomes obligated to pay and, where applicable, when the customer has accepted the products or upon expiration of the acceptance period. For sales to distributors, payment is due on our standard commercial terms and is not contingent upon the distributors’ resale of the products. Shipping and handling fees billed to customers are included in revenue. Shipping and handling fees associated with inbound freight, are generally included in cost of revenue. Our business is subject to contingencies related to customer orders, including: Right of Return: A large portion of our revenue comes from the sale of consumable products, which are sold in high-volume and low quantities, and are generally maintained at stock levels of less than ninety days in our facility. Customer returns have historically represented a very small percentage of sales on an annual basis. Other product sales relate to some pet products, including small mechanical devices. Warranties: The Company does not accept sales returns from wholesale customers, as the products are pre-approved prior to production and shipment. E-Commerce product returns must be completed within 45 days of the date of purchase. The Company accrues an allowance for refunds, returned deposits and discounts given by customer services post shipment of the product based on historical experience and management’s estimate of future expenses, including replacement, freight charges and other fulfilment expenses. Conditions of Acceptance: Sales of our consumable products and pet products, generally do not have customer acceptance terms. Contract Assets A contract asset is the Company’s right to consideration in exchange for goods or services that the Company has transferred to a customer. ASC 606, Revenue from Contracts with Customers, distinguishes between a contract asset and a receivable based on whether receipt of the consideration is conditional on something other than the passage of time. When the Company transfers control of goods or services to a customer before the customer pays consideration, the Company records either a contract asset or a receivable depending on the nature of the Company’s right to consideration for its performance. The point at which a contract asset becomes an account receivable may be earlier than the point at which an invoice is issued. The Company assesses a contract asset for impairment in accordance with ASC 310, Receivables. The following table discloses the deferred revenue: June 30, 2024 June 30, 2023 Deferred revenue $ 235,255 $ - 29 Table of Contents The deferred revenue or also referred to as funded backlog was $235,255 and $0 at June 30,2024 and June 30, 2023, respectively. We expect to recognize approximately 100% of the deferred revenue as revenue in the year ended June 30, 2025. There was no opening liability balance at June 30, 2023 or June 30, 2022 to be recognized in the years ended June 30, 2024 or June 30, 2023, respectively. Impairment of Long-lived Assets - Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the book value of the asset may not be recoverable. The Company periodically evaluates whether events and circumstances have occurred that indicate possible impairment. When impairment indicators exist, the Company estimates the future undiscounted net cash flows of the related asset or asset group over the remaining life in measuring whether or not the asset values are recoverable. The Company recognized an impairment on its building of $336,434 during the year ended June 30, 2024, based on the fair market value of the buildings pending sale, completed on July 8, 2024. The Company recognized $569,195 loss on the sale of assets that were either liquidated or abandoned in the move of its manufacturing facility from Nevada to Florida. In addition, the Company recognized an impairment of intangible assets of $4,274,680 for the year ended June 30, 2024. $974,680 of the impairment is related to LuckyTail’s rapid decline of direct-to-consumer sales and $3,300,000 of the impairment is related to the unamortized vendor list of Cygnet, as the Company no longer purchases products from the majority of the original vendors Cygnet was using when the Company purchased Cygnet. The Company recognized an impairment on its long-lived assets during the year ended June 30, 2023, of $857,143 on the assets held for sale, related to Interactive Offers, leaving $716,944 of Interactive’s original intangible assets classified as assets available for sale. Stock Based Compensation - The Company recognizes all share-based payments to employees, including grants of employee stock options, as compensation expense in the consolidated financial statements based on their fair values. That expense will be recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period) or immediately if the share-based payments vest immediately. Inventory - The Company reviews the inventory level of all products and raw materials quarterly. For most products that have been in the market for one year or more, we consider inventory levels of greater than one year’s sales to be excess or other items that show slower than projected sales. Due to limited market penetration for our products, we have decided to write down 50% of the cost against certain raw materials and finished products. Products that are no longer part of the current product offering are considered obsolete. The potential for re-sale of slow-moving and obsolete inventories is based upon our assumptions about future demand and market conditions. The recorded cost of obsolete inventories is then reduced to zero and the slow-moving and obsolete inventory is written off and are recorded as charges to cost of goods sold. All adjustments for obsolete inventory establish a new cost basis for that inventory as we believe such reductions are permanent declines in the market price of our products. Generally, obsolete inventory is sold to companies that specialize in liquidation, while we continue to market slow-moving inventories until they are sold or become obsolete. As obsolete or slow-moving inventory is sold or disposed of, we write it off. Inventory consists of raw materials and finished goods and is stated at the lower of cost or net realizable value, cost is determined by the weighted average moving cost inventory method. Net realizable value is determined, with appropriate consideration given to obsolescence, excessive levels, deterioration, and other factors. On June 30, 2024, the Company had $465,535 of raw materials and $966,021 of finished goods inventory. On June 30, 2023, the Company had no raw material inventory and $4,804,299 of finished goods inventory. The Company had inventory reserves at June 30, 2024 and 2023 of $605,470 and $154,400, respectively. Reverse Stock Split On September 18, 2024, we filed a Certificate of Change with the Nevada Secretary of State to effect a reverse stock split of our common stock at a rate of 1-for-20 (the "Reverse Stock Split"), which became effective as of October 3, 2024 (the "Effective Date"). The Reverse Stock Split was approved by the board of directors in accordance with Nevada law. The Reverse Stock Split did not have any impact on the par value of common stock. 30 Table of Contents On the Effective Date, every twenty shares of Common Stock issued and outstanding were automatically combined into one share of Common Stock, without any change in the par value per share. As the per-share par value did not change, we reclassified $19,860 from Common Stock to Additional Paid-in-Capital on the Effective Date. The exercise prices and the number of shares issuable upon exercise of outstanding stock options, equity awards and warrants, and the number of shares available for future issuance under the equity incentive plans were adjusted in accordance with their respective terms. The Reverse Stock Split affected all stockholders uniformly and did not alter any stockholder’s percentage interest in our Common Stock. We did not issue any fractional shares in connection with the Reverse Stock Split. Instead, fractional shares were initially rounded up to the next largest whole number, resulting in the issuance of 8 shares on October 3, 2024 the Effective Date and an additional issuance of 38 shares on October 8, 2024. On October 10, 2024, the transfer agent received additional requests to issue a total of 202,183 shares of common stock for round up of fractional shares. These shares were issued on October 23, 2024 and on October 30, 2024 we were notified that the shares were returned to the Company’s transfer agent. Although the Company did receive the common stock back after issuance, the potential dilution remains a risk, and is the subject of a complaint filed by the Company in the United States District Court for the District of Nevada with the purpose of eliminating any said risk. The Reverse Stock Split did not modify the relative rights or preferences of the Common Stock. Unless otherwise indicated, all issued and outstanding shares of common stock and all outstanding securities entitling their holders to purchase shares of our common stock or acquire shares of our common stock, including stock options, restricted stock units, and warrants per share data, share prices and exercise prices, as required by the terms of those securities, have been adjusted retroactively to reflect the Reverse Stock Split. On October 17, 2024, Company received written notice (the “Compliance Notice”) from The Nasdaq Stock Market LLC (“Nasdaq”) informing the Company that it has regained compliance with Nasdaq Listing Rule 5550(a)(2), which requires that companies listed on the Nasdaq Stock Market maintain a minimum bid price of $1.00 per share. Nasdaq notified the Company in the Compliance Notice that, from October 3, 2024 to October 16, 2024, the closing bid price of the Company’s common stock had been $1.00 per share or greater and, accordingly, the Company had regained compliance with Nasdaq Listing Rule 5550(a)(2) and that the matter was now closed.