# Inno Holdings Inc.: Form 10-Q for the period ended Jun 30, 2024

- Company: [Inno Holdings Inc.](/companies/inhd.md) (CIK 1961847)
- Form: 10-Q
- Filed: 2024-08-12
- Accepted by EDGAR: Aug 12, 2024, 21:14 ET
- Period: 2024-06-30
- Accession: 0001493152-24-031355
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1961847/000149315224031355/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1961847/000149315224031355/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-04-01 to 2024-06-30 | $45.7k | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-10-01 to 2024-06-30 | $395.5k | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Selling, general and administrative | 3 months, 2024-04-01 to 2024-06-30 | $1.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-10-01 to 2024-06-30 | $2.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-04-01 to 2024-06-30 | −$1.0m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-10-01 to 2024-06-30 | −$3.1m | us-gaap:OperatingIncomeLoss |
| Income tax | 9 months, 2023-10-01 to 2024-06-30 | $800 | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-04-01 to 2024-06-30 | −$1.1m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-10-01 to 2024-06-30 | −$2.9m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-04-01 to 2024-06-30 | −$0.05 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-10-01 to 2024-06-30 | −$0.15 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-04-01 to 2024-06-30 | −$0.05 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-10-01 to 2024-06-30 | −$0.15 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-04-01 to 2024-06-30 | 20,751,726 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-10-01 to 2024-06-30 | 20,030,923 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-10-01 to 2024-06-30 | −$4.9m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-10-01 to 2024-06-30 | $424.8k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2024-06-30 | $1.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-06-30 | $2.5m | us-gaap:AssetsCurrent |
| Total assets | at 2024-06-30 | $4.4m | us-gaap:Assets |
| Current liabilities | at 2024-06-30 | $1.3m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-06-30 | $1.4m | us-gaap:Liabilities |
| Current portion of debt | at 2024-06-30 | $51.3k | us-gaap:LongTermDebtCurrent |
| Short-term borrowings | at 2024-06-30 | $50.0k | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2024-06-30 | $3.0m | us-gaap:StockholdersEquityIncludingPortionAttributableToNoncontrollingInterest |

## Management's discussion and analysis

As filed, 22,840 characters.

*The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes that appear elsewhere in this Quarterly Report on Form 10-Q. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements as a result of various factors, including those set forth under the heading “Cautionary Note Regarding Forward-Looking Statements” in this Quarterly Report on Form 10-Q.*

### Cautionary Note Regarding Forward-Looking Statements

Some of the information in this document contains, or has incorporated by reference, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements typically are identified by the use of terms such as “may,” “believe,” “anticipate,” “expect,” “plan,” “predict,” “estimate,” will be,” or other similar words and phrases, although some forward-looking statements are expressed differently. You should be aware that our actual results could differ materially from results anticipated in the forward-looking statements due to a number of factors, including, but not limited to, our ability to effectively operate our business segments, our ability to manage our research, development, expansion, growth, and operating expenses, our ability to evaluate and measure our business, prospects, and performance metrics, our ability to complete, directly and indirectly, and succeed in a highly competitive and evolving industry, our ability to respond and adapt to changes in technology and customer behavior, our ability to protect our intellectual property and to develop, maintain, and enhance a strong brand, and other factors relating to our industry, operations, and results of operations. You should also consider carefully the statements under “Risk Factors,” as disclosed in our Form 10-K, which address additional factors that could cause our actual results to differ from those set forth in the forward-looking statements. Given these uncertainties, current or prospective investors are cautioned not to place undue reliance on any such forward-looking statements. We undertake no obligation to update any such factors or forward-looking statements to reflect future events or developments.

### Overview

We are a building technology company that primarily manufactures cold-formed-steel members and offers a full range of services required to transform raw materials into precise steel framing products and prefabricated homes. We transform raw material (coils of rolled steel of various gauges and other materials) through our proprietary technologies to cut, punch and bend the steel into members or other components. These work-in-process components are further processed into finished products which are used in a variety of building types, including residential, commercial, industrial, and infrastructure. At each stage of the process, we are adding value to the original rolled steel (and other materials) to its final assembled use by businesses or directly to customers.

Our largest commodity expense is our primary raw material — rolled steel in various gauges and widths. Like any commodity, steel is subject to supply/demand-based price fluctuations which can have an impact on the profitability of our business if prices change between the time we enter into a contract with a customer to deliver finished goods and the time the steel is purchased from the mill. We seek to mitigate our exposure to steel price fluctuations in two ways:

- Entering fixed price forward contracts with steel mills/suppliers for delivery in the future so that our bids for customer contracts have known pricing for the steel. This is particularly useful in larger projects that involve delivery of product over many months.
- Maintaining an approximately three-month inventory of our most actively used rolled steel coils (defined by width and gauge). This inventory requires an active forward-looking assessment of steel needs to meet expected demand. Maintaining inventory is a real financial exposure especially during periods of pricing volatility.

### Key Performance Indicators (“KPIs”)

In addition to the measures presented in our consolidated financial statements, our management regularly monitors certain KPIs for our business. The KPIs used by the Company include:

#### The capital turnover rate of raw-material procurement

Our business is reliant on timely delivery of raw materials. At the same time, our primary raw material (steel) is expensive to warehouse. We strive to achieve roughly 1-3 months of raw materials inventory to balance our cost of inventory against the risk of not having raw materials when needed. We do this by setting up long-term cooperative relationship with multiple local and national suppliers, including steel mills, in order to obtain a better payment cycle to secure the raw materials and to maximize the use of funds. At the same time, to match the raw-material usage of the sales order each quarter, we make quarterly purchase plans, to ensure the efficiency of capital turnover is higher.

#### The collection period of accounts receivable

Timely payments from customers are essential to a successful business. Based on our historical collectability experience, we will target strategic relationships with large-scale homebuilders and professional companies to reduce the risk associated with accounts receivable and reduce the days outstanding for accounts receivable. Eventually, we expect to achieve the goal of receiving 100% of the payment before products leave the shop.

#### Lead time

Construction requires the coordination of many contractors, subcontractors, permitting, etc. that must be done on very exacting schedules where any delays will have a ripple effect down the chain. While there are many things we cannot control, we strive to communicate with the customers at a high frequency and make the best production arrangement to minimize storage period and shorten the lead time, which is one of the most important operating indicators of INNO.

#### The growth of total operating income

We maintain internal long-term targets for both gross profit and operating income, based partly on long-term revenue growth targets and partly on execution and internal controls. Ultimately, we strive to deliver profitable long-term growth.

#### Production capacity improvement

We are committed to investing in the improvement of production capacity and production efficiency to support larger orders and to meet the goal of increasing total operating income.

### Results of Operation

The following table presents certain Consolidated statement-of-operations information and presentation of that data as a percentage of change from year to year.

### For the Three and Nine Months Ended June 30, 2024, and 2023

|  | Three months ended June 30, 2024 | 2023 |  | Nine Months Ended June 30, 2024 | 2023 |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenues | $45,682 | $104,058 | -56% | $395,495 | $501,672 | -21% |
| Costs of materials and labor | 25,549 | 103,886 | -75% | 404,157 | 472,710 | -15% |
| Selling, general and administrative expenses (exclusive of items shown separately below) | 1,032,165 | 608,855 | 70% | 2,919,899 | 1,628,307 | 79% |
| Impairment loss | - | - | - | 23,911 | - | 100% |
| Depreciation | 22,405 | 17,764 | 26% | 65,728 | 50,547 | 30% |
| Bad debt expense | - | 867,360 | -100% | 59,935 | 1,267,960 | -95% |
| Operating loss | (1,034,437) | (1,493,807) | -31% | (3,078,135) | (2,917,852) | 5% |
| Other income (expenses) | (16,444) | (17,998) | -9% | 116,863 | (53,876) | -317% |
| Loss before income taxes | (1,050,881) | (1,511,805) | -30% | (2,961,272) | (2,971,728) | 0% |
| Income tax expense | - | - |  | 800 | - | 100% |
| Net loss | (1,050,881) | (1,511,805) | -30% | (2,962,072) | (2,971,728) | 0% |
| Non-controlling interest | 13,821 | (45,024) | -131% | (35,395) | (107,561) | -67% |
| Net loss attributable to INNO HOLDINGS INC. | $(1,064,702) | $(1,466,781) | -27% | $(2,926,677) | $(2,864,167) | 2% |

#### Revenues

Revenue for the three months ended June 30, 2024 decreased 56% to $45,682 in comparison to $104,058 for the three months ended June 30, 2023. The decrease was due to the completion of one project during the three months ended June 30, 2024 compared to two projects during the same period in 2023. Revenue for the nine months ended June 30, 2024 decreased 21% to $395,495 in comparison to $501,672 for the nine months ended June 30, 2023. The decrease was primarily due to the various statuses and stages of projects. To mitigate collection issues, the Company has focused on developing relationships with larger customers. During the three and nine months ended June 30, 2024, the Company has been working on obtaining permits for large projects and exploring new business opportunities with larger customers.

Our backlog as of June 30, 2024 was approximately $14,000,000 to $19,000,000. The range of backlog amount is comprised of all remaining payments related to our signed customer contracts and estimation of order adjustments. The timing of revenue recognition from these contracts is subject to variation based on each project’s permit status and construction progress. These signed contracts included an agreement, amount of $15,875,800, with Vision Opportunity Fund LP, assigned to Vision 101 partially owned by one of our shareholders. None of the contract amount has been delivered to Vision 101 or recognized as revenue as of June 30, 2024.

Our revenues are significantly impacted by demand for residential and commercial buildings, economic conditions including interest rates and costs of labor, materials and other variables that impact the cost of our finished goods. We cannot ensure that growth will continue, and our business may be adversely affected by the negative overall economic conditions currently being experienced.

#### Costs of Materials and Labor

Costs of materials and labor include raw materials (primarily rolled steel) and direct labor in the processing of raw materials through the manufacturing process. Costs of materials and labor for the three months ended June 30, 2024, decreased to $25,549 in comparison to $103,886 for the three months ended June 30, 2023. The decrease in the Cost of Goods Sold (COGS), pertaining to materials and labor, is predominantly due to the decrease in sales volume.

Costs of materials and labor for the nine months ended June 30, 2024 was $404,157 compared to $472,710 for the nine months ended June 30, 2023. The decrease in the Cost of Goods Sold (COGS), pertaining to materials and labor, is predominantly due to the decrease in sales volume. A discount granted to one of our customers, as a remedy for a deferred timeline, has led to a situation where the increase in costs has outpaced the revenue changes.

#### Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended June 30, 2024, increased 70% to $1,032,165 in comparison to $608,855 for the comparable period in 2023. Selling, general and administrative expenses for the nine months ended June 30, 2024, increased 79% to $2,919,899 in comparison to $1,628,307 for the comparable period in 2023. The main reason for the increase was the additional overhead costs, such as rent, payroll, insurance, consulting and professional fees, as well as marketing and promotional expenses to support our future expansion and meet the regulatory standards of a public company.

#### Bad debt expense

Bad debt expense decreased by $867,360 for the three months ended June 30, 2024 compared to the same period in 2023. Bad debt expense decreased by $1,208,025 for the nine months ended June 30, 2024 compared to the same period in 2023. We estimated the credit losses based on each customer’s financial situation, project status and the outstanding days of the accounts receivable balance. Started prior year, we strengthen our risk control of accounts receivable and reduce the days outstanding for accounts receivable by discontinuing business with smaller customers with high credit risk. Most of our current customers adhere to a 30-day payment term. For the current periods’ transactions, we have maintained a high collection rate.

#### Operating Loss

Operating loss was $1,034,437 for the three months ended June 30, 2024, in comparison to an operating loss of $1,493,807 for the comparable period in 2023. The decrease in operating loss was primarily attributed to the decrease in bad debt expense offset by an increase in selling, general and administrative expenses, as discussed above.

Operating loss was $3,078,135 for the nine months ended June 30,2024, in comparison to an operating loss of $2,917,852 for the comparable period in 2023. The increase in operating loss was primarily attributed to the lower revenue and increased expenses offset by the decrease in bad debt expense, as discussed above.

#### Other Income (Expense)

Other expense for the three months ended June 30, 2024, was $16,444, in comparison to other expenses of $17,998 for the comparable period in 2023. Other expenses for the three months ended June 30, 2024, primarily consisted of a $73,000 loss from a settlement with a subcontractor’s customer, partially offset by a $44,204 gain from a liability settlement with the landlord and $17,784 interest income from bank deposits. In contrast, other expenses for the three months ended June 30, 2023, were primarily attributable to loan interest.

Other income for the nine months ended June 30, 2024, was $116,863, in comparison to other expenses of $53,876 for the comparable period in 2023. The increase in other income was primarily related to the recognition of supporting services provided to one of its customers and the interest earned from the bank deposit. Other expenses for the nine months ended June 30, 2023, were primarily attributable to loan interest.

#### Net Loss

Net loss for the three months ended June 30, 2024 was $1,050,881, in comparison to net loss of $1,511,805 for the three months ended June 30, 2023. Net loss for the nine months ended June 30, 2024 was $2,962,072, in comparison to a net loss of $2,971,728 for the nine months ended June 30, 2023. The decrease in net loss was primarily due to changes in revenue, costs and expenses as outlined above.

### Liquidity and Capital Resources

#### Sources of Liquidity

During the three and nine months ended June 30, 2024 and 2023, we primarily funded our operations with cash generated from operations, private and public shares offering, as well as through borrowing under our revolving line of credit, a long term promissory note, and related parties. We had cash of $1,890,903 as of June 30, 2024 compared to $4,898 of cash as of September 30, 2023. The cash increase was primarily due to the proceeds from the initial public offering closed in December 2023 and offset by the cash usage in operating and investing activities during the periods ended June 30, 2024.

The Company has participated in several private-placement offerings. On December 3, 2022, we closed on a private-placement offering pursuant to which we sold to an accredited investor an aggregate of $500,000 in common stock, at a purchase price of $3.50 per share. On March 13, 2023, we closed on a private-placement offering pursuant to which we sold to an accredited investor an aggregate of $100,000 in common stock, at a purchase price of $3.70 per share. On March 29, 2023, we closed on a private-placement offering pursuant to which we sold to an accredited investor an aggregate of $300,000 in common stock, at a purchase price of $3.80 per share. The offerings were completed pursuant to an exemption from registration under Rule 506(b) of the Securities Act of 1933, as amended.

On December 18, 2023, the Company successfully closed the initial public offering with net proceeds of $8 million.

We do not believe the cash and cash equivalents on hand as of June 30, 2024 of $1,890,903 will be sufficient to fund our operations and capital expenditure requirements for the next twelve months from the date the consolidated financial statements are issued. We will be required to raise additional capital to continue to fund operations and capital expenditure. The uncertainties surrounding our ability to access capital when needed creates substantial doubt about our ability to continue as a going concern. Based on our need to raise additional funds to implement our business plans for the next twelve months, we have included a discussion concerning the presentation of our financial statements on a going concern basis in the notes to our consolidated financial statements. We will be required in the near future to issue debt or sell our Company’s equity securities in order to raise additional cash, although there are no firm arrangements in place for any such financing at this time. We cannot provide any assurances as to whether we will be able to secure the necessary financing, or the terms of any such financing transaction if one were to occur. The failure to secure such financing could severely curtail our plans for future growth or in more severe scenarios, the continued operations of our Company.

#### Working Capital

As of June 30, 2024 and September 30, 2023, our working capital (deficit) was $1,266,609 and $(2,913,827), respectively. The historical seasonality in our business during the year can cause cash and cash equivalents, inventory, and accounts payable to fluctuate, resulting in changes in our working capital.

#### Cash Flows

#### Operating Activities

Net cash used in operating activities for the nine months ended June 30, 2024 was $4,859,567 compared to $1,066,467 of net cash used in operating activities for the nine months ended June 30, 2023. The increase of net cash usage in operating activities was mainly due to a $950,115 increase of loss with non-cash reconciling items adjustment and a $2,842,985 increase of working capital outflow.

For the nine months ended June 30, 2024, net cash used in operating activities was $4,859,567, primarily driven by the net loss of $2,962,072, partially offset by non-cash items of $454,301 and working capital used cash of $2,351,796, which was primarily driven by a $219,214 increase of prepayments and other current assets, including prepaid insurance and prepayments to service suppliers, and a $ 2,147,244 decrease in accounts payable, accounts payable - related party, unearned revenue, operating lease liabilities and other current liabilities.

For the nine months ended June 30, 2023, net cash used in operating activities was $1,066,467, primarily driven by the net loss of $2,971,728, partially offset by non-cash items of $1,414,072, which mainly included bad debt expense of $1,267,960. Working capital provided cash of $491,189, which was primarily driven by a $953,671 increase in accounts payable, accounts payable - related party, unearned revenue, operating lease liabilities and other current liabilities , a $443,600 decrease in account receivable, a $129,413 decrease of prepayments and other current assets, and partially offset by a $636,190 increase in inventories and a $399,305 increase in deferred offering costs.

#### Investing Activities

For the nine months ended June 30, 2024 and 2023, net cash used in investing activities was primarily the result of additions to property and equipment of $424,800 and $226,900 , respectively, which are mainly related to the additions of machinery, tools, motor vehicles, and leasehold improvements.

#### Financing Activities

Net cash provided by financing activities was $7,157,803 and $1,356,096, respectively, for the nine months ended June 30, 2024 and 2023.

For the nine months ended June 30, 2024, net cash provided by financing activities was primarily due to the $ 8,450,000 net cash from the initial public offering, offset by $740,000 payment of short-term loans and $502,372 repayment to related parties.

For the nine months ended June 30, 2023, net cash provided by financing activities was primarily due to the $ 900,000 proceeds from stock issuance, $740,000 proceeds from related parties, and offset by $150,000 payment of short-term loans and $98,861 repayment to related parties.

### Critical Accounting Policies and Estimate

The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires us to make judgments, assumptions, and estimates that affect the amounts reported in the Condensed Consolidated Financial Statements and accompanying notes. Note 2 — Basis of Presentation and Summary of significant accounting policies in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of our most recently filed Form 10-K, describes the significant accounting policies and methods used in the preparation of the Consolidated Financial Statements. Our critical accounting estimates, identified in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our most recently filed Form 10-K, include the discussion of estimates used for revenue recognition, inventory valuation, going concern assessment, and our provision for income taxes. Such accounting estimates require significant judgments and assumptions to be used in the preparation of the Condensed Consolidated Financial Statements included in this Form 10-Q, and actual results could differ materially from the amounts reported.

New Accounting Standards

From time to time, the FASB or other standards-setting bodies issue new accounting pronouncements. Updates to the FASB Accounting Standards Codification are communicated through issuance of an Accounting Standards Update. To understand the impact of recently issued guidance, whether adopted or to be adopted, please review the information provided in Note 2 — Basis of Presentation and Summary of significant accounting policies, “Recently issued but not yet adopted accounting pronouncements”, in the Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q. Unless otherwise discussed, we believe that the impact of recently issued guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on our Condensed Consolidated Financial Statements upon adoption.

## Controls and procedures

As filed, 3,647 characters.

### Disclosure Controls and Procedures

An evaluation was performed under the supervision of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report. Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that, as of June 30, 2024, our disclosure controls and procedures were not effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms due to material weaknesses in our internal controls described below.

- Lack of sufficient personnel commensurate with our accounting and reporting requirements and insufficient segregation of duties within accounting functions.
- Lack of adequate policies and procedures in internal control function to ensure that proper control and procedures have been designed and implemented over key business cycles.

We plan to hire additional qualified personnel with relevant experience and qualifications to strengthen the financial reporting function and to set up a financial and system control framework. However, we cannot assure you that we will remediate our material weaknesses in a timely manner.

### Inherent Limitations Over Internal Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Our control systems are designed to provide such reasonable assurance of achieving their objectives. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

### Changes in Internal Control over Financial Reporting

There have not been any changes in our internal controls over financial reporting during the period ended June 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

### PART II

### OTHER INFORMATION

## Risk factors

As filed, 4,511 characters.

***Our failure to meet the continued listing requirements of the Nasdaq Capital Market could result in a delisting of our common stock, which could negatively impact the market price and liquidity of our common stock and our ability to access the capital markets.***

On April 12, 2024, we received a letter from the Nasdaq notifying us that the minimum bid price per share for our common stock fell below $1.00 for a period of 30 consecutive business days. Therefore, the Company did not meet the minimum bid price requirement set forth in the Nasdaq Listing Rules.

The letter also states that pursuant to Nasdaq Listing Rules 5810(c)(3)(A), we will be provided 180 calendar days to regain compliance with the minimum bid price requirement, or until October 9, 2024.

We can regain compliance if, at any time during the Tolling Period or such 180-day period, the closing bid price of our common stock is at least $1.00 for a minimum period of 10 consecutive business days. If by October 9, 2024, we do not regain compliance with the Nasdaq Listing Rules, we may be eligible for additional time to regain compliance pursuant to Nasdaq Listing Rule 5810(c)(3)(A)(ii). We would also need to provide written notice to Nasdaq of our intention to cure the minimum bid price deficiency during the second compliance period by effecting a reverse stock split, if necessary. As part of its review process, the Nasdaq staff will make a determination of whether it believes we will be able to cure this deficiency. Should the Nasdaq staff conclude that we will not be able to cure the deficiency, or should we determine not to submit a transfer application or make the required representation, Nasdaq will provide notice that our shares of common stock will be subject to delisting.

If we do not regain compliance within the allotted compliance period, including any extensions that may be granted by Nasdaq, Nasdaq will provide notice that our shares of common stock will be subject to delisting from the Nasdaq Capital Market. At such time, we may appeal the delisting determination to a hearings panel.

We intend to monitor our common stock closing bid price between now and October 9, 2024 and will consider available options to resolve the Company’s noncompliance with the minimum bid price requirement, as may be necessary. There can be no assurance that the Company will be able to regain compliance with the minimum bid price requirement or will otherwise be in compliance with other Nasdaq listing criteria.

***Our common stock may be subject to the penny stock rules adopted by the SEC that require brokers to provide extensive disclosure to their customers prior to executing trades in penny stocks. These disclosure requirements may cause a reduction in the trading activity of our common stock, which could make it more difficult for our stockholders to sell their securities.***

Rule 3a51-1 of the Exchange Act establishes the definition of a “penny stock,” for purposes relevant to us, as any equity security that has a minimum bid price of less than $5.00 per share, subject to a limited number of exceptions, including for having securities registered on certain national securities exchanges. If our common stock were delisted from the Nasdaq, market liquidity for our common stock could be severely and adversely affected.

For any transaction involving a penny stock, unless exempt, the penny stock rules require that a broker or dealer approve a person’s account for transactions in penny stocks and the broker or dealer receive from the investor a written agreement to the transaction setting forth the identity and quantity of the penny stock to be purchased. In order to approve a person’s account for transactions in penny stocks, the broker or dealer must obtain financial information and investment experience and objectives of the person and make a reasonable determination that the transactions in penny stocks are suitable for that person and that that person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prepared by the SEC relating to the penny stock market, which, in highlight form, sets forth:

- the basis on which the broker or dealer made the suitability determination; and
- that the broker or dealer received a signed, written agreement from the investor prior to the transaction.

25

Filed Aug 12, 2024.
Source: SEC EDGAR, the filing index for accession 0001493152-24-031355. Last ingested by Listed: Oct 24, 2026, 15:16 ET. No prices; not investment advice.