Note 4 – Stockholder Equity

Preferred Shares Issued

The authorized preferred stock of the Company consists of 5,000,000 shares with a par value of $0.001 per share, of which 3,000,000 shares were designated as Series A Preferred Stock (the “Series A Preferred Stock”). Each share of the Series A Preferred Stock are initially convertible into 100 shares of common stock. All 3,000,000 shares of Series A Preferred Stock were issued and outstanding as of January 31, 2021.

Common Shares Issued

The authorized common stock of the Company consists of 1,000,000,000 shares with a par value of $0.001. There were 279,671,677 shares of common stock issued and outstanding as of January 31, 2021.

Restricted Stock Unit Awards

During the three months ended January 31, 2021, 535,000 shares of common stock were issued to seven employees of the Company under restricted stock unit (“RSU”) agreements, resulting in $76,700 of share-based compensation. Of the shares issued to employees, 211,500 shares were withheld by the Company to satisfy tax withholding obligations equal to $30,511.

During the three months ended January 31, 2021, 2,065,547 shares of common stock were issued to 6 non-employee vendors as compensation for professional services rendered to the Company. These shares were expensed to the Company using the closing share price on the share issue dates to compute a total of $1,034,596.

Note 5 – Related-Party Transactions

Revenue and Accounts Receivable

During the three months ended January 31, 2021, the Company recognized revenue of $50,300 from Contracts with Customers (Topic 606),three companies owned by Nirajkumar Patel, the Chief Executive Officer and Chief Financial Officer of the Company, and/or his wife. As of January 31, 2021, the Company has accounts receivable from this related party in the second quarteramount of fiscal year 2020, as this was$18,575.

Purchases and Accounts Payable

During the first quarter thatthree months ended January 31, 2021, the Company generated revenues. Under ASC 606, the Company recognizes revenue when a customer obtains controlpurchased Products 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. The Company excludes$32,479,100 from the transaction price sales taxes, excise taxes and value added taxes imported at the time of the sales. These taxes are not billed to customers by the Company. We use the term net revenues to refer to our operating revenues from the sale of our products, including shipping and handling charges billed to customers, net of sales and promotion incentives, and excise taxes.

Products Revenue

The Company generates products revenue from the sale of the Products (as defined above) to retail and 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’s sales arrangements for retail sales usually require full prepayment before delivery of the Products. The advance payment is not considered a significant financing component because the period between when the Company transfers a promised good to a customer and when the customer pays for that good is short. The Company offers credit sales arrangements to non-retail (or wholesale) customers and monitors the collectability of each credit sale periodically. There have not been significant credits or returns and as such no reserve for sales returns and allowances has been deemed necessary.

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. Therefore, no reserves for uncertain income tax positions have been recorded pursuant to ASC 740.

Recently Adopted Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board, or FASB, issued ASU 2014-09, “Revenue from Contracts with Customers (ASC 606),” and issued subsequent amendments to the initial guidance or implementation guidance between August 2015 and November 2017 within ASU 2015-04, ASU 2016-08, ASU 2016-10, ASU 2016-12, ASU 2016-20, ASU 2017-13, and ASU 2017-14 (collectively, including ASU 2014-09, “ASC 606”). Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The Company adopted the standard from the second quarter of fiscal year 2020. The adoption of ASC 606 did not have any impact on our previously reported consolidated financial statements in any prior period nor did it result in a cumulative effect adjustment to retained earnings.

Note 3 – Going Concern

The Company’s financial statements are prepared in accordance with generally accepted accounting principles applicable to a going concern that contemplates the realization of assets and liquidation of liabilities in the normal course of business.

Prior to March 2020, the Company demonstrated adverse conditions that raised substantial doubt about the Company’s ability to continue as a going concern. These adverse conditions were negative financial trends, specifically operating loss, working capital deficiency, and other adverse key financial ratios. Also, the Company had not established any source of revenue to cover its operating costs. The Company’s management funded operating expenses with related party contributions to capital.

However, on March 9, 2020, the Company commenced business operations upon entering into the A&R Distribution Agreement with Bidi, a related party company whereby Bidi granted the Company an exclusive worldwide right to distribute the Products for salethat is also owned by Nirajkumar Patel, our Chief Executive Officer and resale to both retail level customers and non-retail level customers.

In April, in connection with the A&R Distribution Agreement, the Company entered into the A&R Sub-Distribution Agreements with certain third-party counterparties, whereby the Company appointed such counterparties as non-exclusive sub-distributors. Pursuant to the A&R Sub-Distribution Agreements, the sub-distributors agreed to purchase for resale the Products in such quantities as they should need to properly service non-retail customers within the Territory.

With these agreements in effect, the Company has established sources of revenue to cover its operating costs and achieved net income of $3,721,069 during the nine months ended July 31, 2020.Chief Financial Officer. As of July 31, 2020, the Company has a positive working capital of $4,023,496.

Management plans to continue similar operations with increased marketing, which the Company believes will result in increased revenue and net income. However, there is no assurance that management’s plan will be successful due to the current economic climate in the United States and globally. At the time of filing this Quarterly Report, the previously reported going concern has been alleviated based on the reasons above, and management does not have substantial doubt of the Company’s ability to continue as a going concern. 

These financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event that the Company cannot continue as a going concern.

Note 4 – Commitments and Contingencies

On March 31, 2020, and as amended on June 2, 2020, the Company entered into the Amended Service Agreement with QuikfillRx, whereby QuikfillRx agreed to provide the Company with to the Services, consisting of sales management, website development and design, graphics, content, public communication, social media, management and analytics, and market and other research. The Services will be provided by QuikfillRx as requested from time to time by the Company.

As a result of the First Amendment, “General Compensation” consists of the following: (i) for the Services (as defined in the Service Agreement) 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 will pay QuikfillRx an amount equal to $125,000 per month for the Services to be performed during such calendar month; (iv) if the parties agree to extend the term of the Service Agreement beyond the original expiration date of October 31, 2020, then for the period between November 1, 2020 and OctoberJanuary 31, 2021, the Company will pay QuikfillRx $125,000 per monthhad accounts payable to Bidi of $6,247,882.

Office Space

On August 1, 2020, the Company began leasing office space for its main corporate office in Grant, Florida. The five-year lease agreement is with a related party, Just Pick, LLC (“Just Pick”). The Company’s Chief Executive Officer is an officer of Just Pick.

Prior to this, the ServicesCompany utilized the home office space and warehouse of its management at no cost through July 31, 2020.

Note 6 - Concentrations

Financial instruments, which potentially subject the Company to be performed during such calendar month;concentrations of credit risk, consist primarily of purchases of inventories, accounts payable, accounts receivable, and (iv) ifrevenue.

Concentration of Purchases and Accounts Payable- Related Party

For the parties agree to extend the termthree months ended January 31, 2021, 100% of the Service Agreement beyond October 31, 2021, then for the period between November 1, 2021 and October 31, 2022, the Company will pay QuikfillRx $150,000 per month for the Services to be performed during such calendar month.

In addition, pursuant to the Amended Service Agreement, the Company will pay QuikfilRx an amount equal to 0.9%inventories of products, primarily consisting of the Applicable Gross Quarterly Sales, which amount shall, at“Bidi Stick,” were purchased from Bidi, a related party company that is also owned by Nirajkumar Patel, 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, subject to certain conditions, and an amount equal to 0.27% of the Applicable Gross Quarterly Sales, which amount must be paid in cash.

Note 5 – Stockholders’ Equity

Additional Paid-In Capital

The Company’s Chief Executive Officer and Chief Financial Officer, Mr. Nirajkumar Patel, paid expenses on behalfin the amount of $32,479,100. It also accounted for 100% of the Company totaling $16,257 duringtotal accounts payable as of January 31, 2021.

Concentration of Revenues and Accounts Receivable

For the ninethree months ended JulyJanuary 31, 2020, which is considered a contribution to2021, approximately 37% of the Company with no expectationrevenue from the sale of repaymentProducts, primarily consisting of the “Bidi Stick,” was generated from Favs Business, LLC in the amount of $13,888,376, approximately 18% of the revenue from the sale of Products was generated from MMS Distro, Inc. in the amount of $6,708,752 and is recordedapproximately 13% of the revenue from the sale of Products was generated from Lakshmi Distributer Inc., doing business as additional paid-in capital.C Store Master (“C Store Master”), in the amount of $4,879,427.

The Company’s Chief Operating Officer, Mr. Eric Mosser, paid expenses on behalfFavs Business, LLC, with an outstanding balance of $8,601,200 and GPM Investment, LLC, with an outstanding balance of $1,262,985, accounted for approximately 68% and 10% of the Company totaling $10,900 during the nine months ended Julytotal accounts receivable from customers, respectively, as of January 31, 2020, which is considered a contribution to the Company with no expectation of repayment and is recorded as additional paid-in capital.2021.

Shares of Common Stock Issued

During the quarter ended July 31, 2020, 3,320,574 shares of common stock, valued and expensed at $202,555, were issued to QuikfillRx as compensation for the Services rendered to the Company.

During the quarter ended July 31, 2020, 9.5 million shares of common stock were granted to seven employees of the Company. 810,000 shares of common stock, valued and expensed at $117,600, were issued to these employees as bonus compensation. Unamortized shares granted to the seven employees at July 31, 2020 totaled 8,690,000 shares and are valued at $1,242,400.

Note 67 – Related-Party TransactionsCommitments and Contingencies

The Company follows ASC 450-20, RevenueLoss Contingencies, to report accounting for contingencies.  Liabilities for loss contingencies arising from claims, assessments, litigation, fines and Accounts Receivablepenalties 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 January 31, 2021 and January 31, 2020 other than the below:

During

On May 28, 2020, the nine months ended JulyBoard of Directors approved cash bonus awards to each of the Company’s Chief Executive Officer and its Chief Operating Officer. With respect to the Chief Executive Officer, the Board of Directors 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 of Directors 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 of Directors approved an award of 90,000 restricted shares of the Company’s 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 75,000 restricted shares of the Company’s 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. At October 31, 2020, the Company generated $65,000, $18,990, $2,420, and $110determined 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 from Cloud Nine 2012, Inc., JC Products of USA, LLC, Shree Maharaj, Inc., and Bhawani Krupa, Inc., respectively. All oftarget would be met. The Company issued these companies are owned by Nirajkumar Patel,shares to the Chief Executive Officer and Chief Financial OfficerOperating Office on January 1, 2021. During the three months ended January 31, 2021, the $75 million and $100 million revenue targets were both achieved and the Company determined that the fair market value of the Company, and/165,000 shares, or his wife. As of July$495,000, and the cash bonuses totaling $100,000 should be accrued at January 31, 2021.

On March 31, 2020, the Company has accounts receivableentered 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 Cloud Nine 2012, Inc.time to time by the Company. 

On June 2, 2020, the Company entered into the First Amendment to the Service Agreement (the “First Amendment” and, Bhawani Krupa, Inc. incollectively with the Service Agreement, the “Amended Service Agreement”) with QuikfillRx. Pursuant to the terms of the First Amendment, the parties modified the amount of $19,800 and $110, respectively.

Purchases and Accounts Payable

DuringGeneral Compensation (as defined below) to be paid to QuikfillRx. “General Compensation” consists of the nine months ended July 31,following: (i) for the Services provided in March 2020, the Company purchased $47,771,211 of Products from Bidi and sold $55,010,416 of Productspaid QuikfillRx an amount equal to retail and non-retail customers. As of July 31,$86,000; (ii) for the Services provided in April 2020, the Company had accountspaid 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 $125,000 per month for the Services to be performed during such calendar month; (iv) if the parties agree to extend the term of the Amended Service Agreement beyond the original expiration date of October 31, 2020, then for the period between November 1, 2020 and October 31, 2021, the Company will pay QuikfillRx $125,000 per month for the Services to be performed during such calendar month; and (iv) if the parties agree to extend the term of the Amended Service Agreement beyond October 31, 2021, then for the period between November 1, 2021 and October 31, 2022, the Company will pay QuikfillRx $150,000 per month for the Services to be performed during such calendar month.  In October 2020, the parties agreed to extend the term of the Amended Service Agreement. In addition, the Company will pay the following quarterly bonuses:

The Company has accrued $437,817 for a quarterly bonus payable to BidiQuikfillRx, based on the Applicable Gross Quarterly Sales results of $4,286,852. Bidi is owned by Nirajkumar Patel, the Company’s Chief Executive Officer and Chief Financial Officer.

Contributed Capital

During the nine months ended July 31, 2020, Nirajkumar Patel, the Company’s Chief Executive Officer and Chief Financial Officer, and Eric Mosser, the Company’s Chief Operating Officer, contributed capital of $16,257 and $10,900, respectively, to the Company. For additional information, see Note 5, Stockholders’ Equity.

Office Space

We utilized the home office space and warehouse of our management at no cost through July 31, 2020.

Note 7 - Concentration

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of purchases of inventories, accounts payable, accounts receivable, and revenue.

Concentration of Purchases and Accounts Payable

For the nine months ended July 31, 2020, 100% of the inventories of Products, primarily consisting of the “Bidi Stick,” were purchased from Bidi, a related party, in the amount of $47,771,211. It also accounted for 100% of the total accounts payable - related party as of July 31, 2020.

Concentration of Revenues and Accounts Receivable

For the three months ended JulyJanuary 31, 2021.

On September 28, 2020, approximately 56%the Company, entered into a patent contribution agreement (the “Patent Contribution Agreement”) with Kaival Labs, the Company’s wholly-owned subsidiary, and Next Generation Labs, LLC, a California limited liability company (“Next Generation”), whereby Next Generation will contribute certain patents, patent applications, and patent data (collectively, the “Patents”) to the Company.

Pursuant to the Patent Contribution Agreement, the Company has agreed to pay Next Generation a purchase price of $3 million for the Patents (the “Purchase Price”), which is expected to be paid over-time upon two events. First, the Company expects to pay part of the revenuePurchase Price from proceeds generated from a future securities offering (the “Offering Payment”). Additionally, on the first date that Kaival Labs sells a product that was developed using any portion of the Patents or based on the Patents, the Company will pay Next Generation the difference between the Purchase Price and the Offering Payment.

Kaival Labs has also agreed to pay Next Generation a quarterly royalty equal to fifteen percent (15%) of the profits from sales of a product that was developed using any portion of the Patents or based on the Patents, on an accrued basis. Finally, the Company has agreed to pay all of the applicable costs associated with obtaining product approval(s) from the sale of Products, primarily consistingUnited States Food and Drug Administration. 

As of the “Bidi Stick”, was generated from Favs Business, LLC (“Favs Business”)date of issuance of these consolidated financial statements, none of the Patents have been transferred, no payments have been made to Next Generation, and none of the triggering events listed in the amount of $18,325,140.Patent Contribution Agreement have occurred.

For the nine months ended July 31, 2020, approximately 48% of the revenue from the sale of Products, primarily consisting of the “Bidi Stick,” was generated from Favs Business in the amount of $26,328,535.

Favs Business accounted for approximately 71% of the total accounts receivable as of July 31, 2020.

Note 8 – Income Tax

The Company is subject to federal income taxes and state income tax in the United States. 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 of the Products from Florida and, thus, it is subject to the state corporate income tax of Florida with a tax rate of 4.458%.

During the ninethree months ended JulyJanuary 31, 2020,2021, the Company generated taxable income of $4,991,910$417,887 and, thus, accrued $1,048,301$87,756 of federal income tax and $222,540 $18,629 of state income tax.

Significant components of the Company’s deferred tax assets and liabilities as of JulyJanuary 31, 20202021 and October 31, 20192020 after applying enacted corporate income tax rate, is net operating loss carryforward of $0 and $15,377, and a valuation allowance of $0 and $15,377, respectively,respectively, which is a total deferred tax asset of $0. The Company’s tax returns for 2018 and 2019 remain open to examination. 

Note 9 – Subsequent Events 

On August 1, 2020,February 5, 2021, 528,945 shares of common stock were issued to eight employees of the Company began leasing office space consistingunder RSU agreements, resulting in $708,786 of 1,595 square feet as its main corporate office in Grant, Florida for $1,000 per month. The five-year lease agreement is with related party, Just Pick, LLC (“Just Pick”). Nirajkumar Patel, our Chief Executive Officer and Chief Financial Officer, is also an officer of Just Pick.share-based compensation. Of the shares issued to employees, 246,055 shares were withheld by the Company to satisfy tax withholding obligations equal to $329,714.

On August 19, 2020, the Company entered intoFebruary 5, 2021, 597,136 shares of common stock were issued to 4 non-employee vendors as compensation for professional services rendered to the Share Cancellation and Exchange Agreement with KH, its majority stockholder, whereby KH returned the Cancellation SharesCompany. These shares were expensed to the Company for cancellation. Following such cancellation, KH owns 204,000,000using the closing share price on the share issue dates to compute a total of $1,074,845.

On February 28, 2021, 2,010,000 shares of common stock were issued to 2 non-employee vendors as compensation for professional services rendered to the Company’s common stock.

In connection therewith, and in exchange for the Cancellation Shares,Company. These shares were expensed to the Company issuedusing the Preferred Shares consistingclosing share price on the previous business day to the issue dates to compute a total of 3,000,000 shares of Series A Preferred Stock, to KH.

$5,427,000.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations is designed to provide a reader of the financial statements with a narrative report on our financial condition, results of operations, and liquidity. This discussion and analysis should be read in conjunction with the unaudited Financial Statements and notes thereto for the three and nine months ended JulyJanuary 31, 20202021 included under Item 1 – Financial Statements in this Quarterly Report and our audited Financial Statements and notes thereto for the year ended October 31, 20192020 contained in our Annual Report on Form 10-K. The following discussion contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations, and intentions. Our actual results could differ materially from those discussed in the forward-looking statements. Please also see the cautionary language at the beginning of this Quarterly Report regarding forward-looking statements.

The discussions of our results as presented in this Quarterly Report include use of the non-GAAP term “gross profit.” Gross profit is determined by deducting the cost of goods sold from operating revenue. Cost of goods sold includes direct and indirect labor, materials, services, fixed costs, and variable overhead. Gross profit should not be considered an alternative to operating income or net income, which are determined in accordance with GAAP. We believe that gross profit, although a non-GAAP financial measure, is useful and meaningful to investors as a basis for making investment decisions. It provides investors with information that demonstrates our cost structure and provides funds for our total costs and expenses. We use gross profit in measuring the performance of our business. Other companies may calculate gross profit in a different manner.

Potential Impact of COVID-19

In March 2020, the WHO declared the outbreak of COVID-19 as a pandemic based on the rapid increase in global exposure. COVID-19 continues to spread throughout the world, including the United States. Our business operations, which commenced during this pandemic, continue to be operational and, to date, we have not seen any significant direct negative impact of COVID-19 to our newly commenced business. However, the COVID-19 pandemic continues to impact economic conditions, which could impact the short-term and long-term demand from our customers and, therefore, has the potential to negatively impact our results of operations, cash flows, and financial position in the future. Management is actively monitoring this situation and any impact on our financial condition, liquidity, and results of operations. However, given the daily evolution of the COVID-19 pandemic and the global responses to curb its spread, we are not presently able to estimate the effects of the COVID-19 pandemic on our future results of operations, financial condition, or liquidity for the remainder of fiscal year 20202021 and, possibly, beyond.

Corporate History

We were incorporated on September 4, 2018 in the State of Delaware. We are focused on growing and incubating innovative and profitable products into mature, dominant brands.

USSE Corp. and USSE Delaware Merger

USSE Corp., a Nevada corporation (“USSE Nevada”) was incorporated with the Nevada Secretary of State on July 8, 1998 under the original name C&A Restaurants.Restaurants, Inc. (“C&A Restaurants”). On June 15, 2009, C&A Restaurants changed its name to USSE Corp.

Effective September 19, 2018, USSE Nevada re-domiciled from Nevada to Delaware pursuant to a merger of USSE Nevada with and into USSE Delaware, Inc. (“USSE Delaware”), with USSE Delaware as the surviving entity.

Holding Company Reorganization

On September 4, 2018, USSE Delaware acquired 1,000 shares of our common stock, which represented 100% of our then-outstanding shares of common stock, for no consideration, resulting in us becoming a wholly-owned subsidiary of USSE Delaware. Also, immediately prior to the Holding Company Reorganization (as defined below), USSE Merger Sub, Inc., a Delaware corporation (“USSE Merger Sub”), was our wholly-owned subsidiary.

At the Effective Time,On September 19, 2018, and in accordance with the provisions set forth in Section 251(g) of the DGCL,Delaware General Corporation Law, USSE Merger Sub, an indirect wholly-owned subsidiary of USSE Delaware and our direct wholly-owned subsidiary, merged with and into USSE Delaware, our then parent.then-parent. USSE Delaware was the surviving corporation and our wholly-owned subsidiary. USSE Delaware also changed its name to USSE Corp. following the Holding Company Reorganization.this holding company reorganization.

Upon completionChange of the Holding Company Reorganization, by virtue of the merger, and without any action on the part of the holder thereof, each share of USSE Delaware’s common stock issued and outstanding immediately prior to the Effective Time of the Holding Company Reorganization was automatically converted into one validly issued, fully paid, and non-assessable share of our common stock. Additionally, each share of USSE Delaware’s preferred stock issued and outstanding immediately prior to the Effective Time was converted into one validly issued, fully paid, and non-assessable share of our preferred stock, having the same designations, rights, powers, and preferences, and the qualifications, limitations, and restrictions thereof, as the corresponding share of USSE Delaware’s preferred stock. Each share of our common stock issued and outstanding and held by USSE Delaware immediately prior to the Effective Time was cancelled.

This resulted in us being authorized to issue up to 1,005,000,000 shares, which consisted of: (i) 1,000,000,000 shares of common stock, par value $0.001 per share of which 66,397,574 shares were then issued and outstanding; (ii) 5,000,000 shares of preferred stock, par value $0.001 per share, of which (a) 1,000,000 shares were designated as Convertible Series A, all of which were then issued and outstanding; and (b) 500,000 shares were designated as Convertible Series B, of which 71,700 shares of Convertible Series B preferred stock were then issued and outstanding.

Post-Holding Company ReorganizationControl

On October 19, 2018, we issued 500,000,000 shares of restricted common stock and 400,000 shares of Convertible Series B Preferred Stock to GMRZ for services rendered to us.

Commensurate with the filing of our Amended and Restated Certificate of Incorporation with the Delaware Secretary of State on October 22, 2018, every issued and outstanding share of Convertible Series A preferred stock was converted into 1.25 shares of common stock with stockholders’ economic rights preserved. Additionally, at the same time, every share of Convertible Series B preferred stock, issued and outstanding was converted into ten shares of common stock with stockholders’ economic rights adversely affected in the conversion. Immediately following the conversion of the aforementioned shares, and upon filing of the Amended and Restated Certificate of Incorporation, the authorized and unissued shares of Convertible Series A and Convertible Series B preferred stock were cancelled. As of October 22, 2018, Convertible Series A and Series B preferred stock were removed from the status of authorized but unissued preferred stock.

On February 6, 2019, we entered into thea Share Purchase Agreement (the “Share Purchase Agreement”), by and among us, GMRZ Holdings LLC, a Nevada limited liability company (“GMRZ”), our then-controlling stockholder, and KH,Kaival Holdings, LLC, a Delaware limited liability company (“KH”), pursuant to which, on February 20, 2019, GMRZ sold 504,000,000 shares of our restricted common stock, representing approximately 88.06 percent of our then issued and outstanding shares of common stock, to KH, and KH paid GMRZ consideration in the amount set forth in the Share Purchase Price.Agreement. The consummation of the transactions contemplated by the Share Purchase Agreement resulted in a change in control, with KH becoming our largest controlling stockholder. Nirajkumar Patel and Eric Mosser are the sole voting members of KH. The Purchase Price was paid with personal funds of the members of KH.

Name Change

Effective July 12, 2019, we changed our corporate name from Quick Start Holdings, Inc. to Kaival Brands Innovations Group, Inc. The name change was effected through a parent/subsidiary short-form merger of Kaival Brands Innovations Group, Inc., the Company’sour wholly-owned Delaware subsidiary formed solely for the purpose of the name change, with and into us. We were the surviving entity.

On the effective date of the merger, our name was changed to “Kaival Brands Innovations Group, Inc.” and the Charter, was further amended to reflect our new legal name. There were no other changes to its Charter.

Share Cancellation and Exchange Agreement

On August 19, 2020, we entered into a Share Cancellation and Exchange Agreement (the “Exchange Agreement”) with our controlling stockholder, KH. Nirajkumar Patel and Eric Mosser, our current officers and directors, are the only voting members of KH.

Pursuant to the Exchange Agreement, KH returned to us the Cancellation Shares, consisting of 300,000,000 shares of our common stock (the “Cancellation Shares”), which Cancellation Shares have now beenwere cancelled and retired by us.

On August 19, 2020, we filed thea Certificate of Designation of Preferences, Rights, and Limitations of the Series A Preferred Stock (the “Series A Certificate of Designation”) with the Secretary of State of the State of Delaware, which authorizesauthorized a total of 3,000,000 shares of Series A Preferred Stock.

In exchange for the Cancellation Shares, we issued the Preferred Shares, consisting of 3,000,000 shares (the “Preferred Shares”) of our newly designated Series A Preferred Stock to KH. The exchange of the Cancellation Shares and the issuance of the Preferred Shares is intended to comply with Section 3(a)(9) of the Securities Act of 1933, as amended (the “Act”), in that the issuance is exempt from the registration requirements of the Act because the exchange of the Cancellation Shares for the Preferred Shares was an exchange between us, as issuer, with an existing stockholder, and no commission or other remuneration was paid or given directly for the exchange.

Our Business

Currently, we market and place the Products into national distribution channels through long-standing industry relationships in accordance with the A&R Distribution Agreement entered into with Bidi, a related party, in March 2020 (and subsequently amended and restated in May 2020.2020). Pursuant to the A&R Distribution Agreement, we sell and resell the Products to both retail level customers and non-retail level customers. Bidi’s primary product is the “Bidi Stick.Stick” and, most recently, the “Bidi Pouch.” Bidi is considered a related party to us because our Chief Executive Officer, Chief Financial Officer, and director, Mr. Nirajkumar Patel, owns and controls Bidi. Mr. Patel is also a beneficial owner of KH, the entity that is our largest controlling stockholder. Thus, Bidi and we are under common control.

Pursuant to the terms of the A&R Distribution Agreement, Bidi provides us with all branding, logos, and marketing materials to be utilized by us in connection with our marketing and promotion of the Products. We engaged QuikfillRx in March 2020 and, pursuant to the Amended Service Agreement, QuikfillRx agreed to provide us with the Services, as we may request from time to time.

We process all sales made to retail customers and non-retail customers, with all sales to retail customers to behistorically made through the website, www.bidivapor.com.www.bidivapor.com; however, we recently engaged goPuff who will handle sales to retail customers going forward. We provide all customer service and support at our own expense. Bidi sets the minimum prices for all sales made by us. With respect to sales to non-retail customers, we submit purchase orders to Bidi, Bidi delivers the Products to us, and we ship the Products directly to these non-retail customers. In the case of retail customers, we maintain adequate inventory levels of the Products in order to meet these customers’ demand, and deliver the Products sold to these retail customers. Pursuant to the terms of the A&R Distribution Agreement, Bidi provides us with all branding, logos, and marketing materials to be utilized by us in connection with our marketing and promotion of the Products.

In connection with the A&R Distribution Agreement, we entered into the A&R Sub-Distribution Agreements with certain counterparties, pursuant to which we appointed such counterparties as non-exclusive sub-distributors of the Products to non-retail customers within the Territory. Each of the A&R Sub-Distribution Agreements set forth certain minimum purchase obligations.

We believe that over the course of the next twelve months, our business operations will generate the capital needed to achieve our business objectives; however, because we recently commenced business operations, there can be no assurance that our business operations will continue to generate the cash flows required for us to achieve our business objectives. If we require additional capital, there can be no assurance that we will be able to raise any required capital or that capital will be available to us at acceptable terms, or at all. We believe that our cash provided by operations will be sufficient for the next twelve months.

As a result of the commencement of business operations, in March 2020, we began hiring employees and intend to hire additional independent contractors and/or employees in the future. We cannot provide any assurance as to the timing of the hiring of any additional independent contractors or employees, the number of independent contractors or employees that we may hire, and whether acceptable independent contractors or employees will be available to us at that time.

Going Concern

Prior to March 2020, we demonstrated adverse conditions that raised substantial doubt about our ability to continue as a going concern. These adverse conditions were negative financial trends, specifically operating loss, working capital deficiency, and other adverse key financial ratios. Also, we had not established any source of revenue to cover its operating costs. Our management funded operating expenses with related party contributions to capital.

However, on March 9, 2020, we commenced business operations upon entering into the A&R Distribution Agreement with Bidi, a related party company, whereby Bidi granted us an exclusive worldwide right to distribute the Products for sale and resale to both retail level customers and non-retail level customers. 

In April, in connection with the A&R Distribution Agreement, we entered into the A&R Sub-Distribution Agreements with certain third-party counterparties, whereby we appointed such counterparties as non-exclusive sub-distributors. Pursuant to the A&R Sub-Distribution Agreements, the sub-distributors agreed to purchase for resale the Products in such quantities as they should need to properly service non-retail customers within the Territory.

With these agreements in effect, we have established sources of revenue to cover our operating costs and achieved net income of $3,721,069 during the nine months ended July 31, 2020. As of July 31, 2020, we had a positive working capital of $4,023,496.

Management plans to continue similar operations with increased marketing, which we believe will result in increased revenue and net income. However, there is no assurance that management’s plan will be successful due to the current economic climate in the United States and globally. At the time of filing this Quarterly Report, the previously reported going concern has been alleviated based on the reasons above, and management does not have substantial doubt our ability to continue as a going concern.

These financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event that we cannot continue as a going concern. 

The unaudited financial statements filed as part of this Quarterly Report do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event that we cannot continue as a going concern.

Liquidity and Capital Resources

We have no known demands or commitments and are not aware of any events or uncertainties as of JulyJanuary 31, 20202021 that will result in or that are reasonably likely to materially increase or decrease our current liquidity.

At JulyJanuary 31, 2020,2021, we had working capital of approximately $4.0$5.8 million and total cash of approximately $2.7$2.0 million.

Now that we have commenced business operations, we intend to generally rely on cash from operations and equity and debt offerings, to the extent necessary and available, to satisfy our liquidity needs. There are a number of factors that could result in the need to raise additional funds, including a decline in revenue or a lack of anticipated sales growth and increased costs. Our efforts are directed toward generating positive cash flow and profitability. If these efforts are not successful, we may need to raise additional capital. Should capital not be available to us at reasonable terms, other actions may become necessary in addition to cost control measures and continued efforts to increase sales. These actions may include exploring strategic options for the sale of the Company, the creation of joint ventures or strategic alliances under which we will pursue business opportunities, or other alternatives. We believe we have the financial resources to weather any short-term impacts of COVID-19; however, we are unable to presently estimate any potential future impacts from COVID-19 and an extended impact could have a material and adverse effect on our sales, earnings, and liquidity.

Cash Flows:

Cash flow provided byused in operations was approximately $2.7$5.4 million for the first ninethree months of fiscal year 2020,2021, compared to $0$285 provided by operations for the first ninethree months of fiscal year 2019.2020. The increasedecrease in cash flow from operations for the first ninethree months of fiscal year 20202021 was mainly due to the increase in net income.accounts receivable. We anticipate continued improvement in our cash flows provided by operations in future years based on the minimum purchase obligations set forth in the A&R Sub-Distribution Agreements, partially offset by increases in costs as we ramp up our sales and marketing efforts. Cash flow used in financing activities was approximately $30,500 for the first three months of fiscal year 2021, compared to $0 for the first three months of fiscal year 2020. The cash used in financing activities for the first quarter of fiscal year of 2021 consisted of the settlement of RSUs for cash.

Results of Operations

Three months ended JulyJanuary 31, 2020,2021, compared to three months ended JulyJanuary 31, 20192020

Revenues:

Revenues for the thirdfirst quarter of fiscal year 20202021 were approximately $32.4$37.4 million, compared to $0 in the same period of the prior fiscal year. During the second quarter of fiscal year 2020, we entered into the A&R Distribution Agreement, pursuant to which we were granted the exclusive, worldwide right to distribute the Products. In connection therewith, we entered into the A&R Sub-Distribution Agreements and other agreements with counterparties and granted such sub-distributors the right to distribute the Products to non-retail customers within the Territory.

Cost of Revenue and Gross Profit:

Gross profit in the thirdfirst quarter of fiscal year 20202021 was approximately $4.4$4.8 million, compared to $0 for the thirdfirst quarter of fiscal year 2019.2020. Total cost of revenue was approximately $27.9$32.6 million for the thirdfirst quarter of fiscal year 2020,2021, compared to $0 for the thirdfirst quarter of fiscal year 2019.2020. The increase in gross profit is entirely driven by the sales of the Products during the thirdfirst quarter of fiscal year 2020.2021.

Operating Expenses:

Total operating expenses were approximately $1.5$4.4 million for the thirdfirst quarter of fiscal year 2020,2021, compared to $27,135approximately $12,900 for the thirdfirst quarter of fiscal year 2019.2020. For the thirdfirst quarter of fiscal year 2020,2021, operating expenses consisted of commissions paid pursuant to the Amended Service Agreement of approximately $769,000$960,500 and general and administrative expenses of approximately $705,000.$3,400,000. General and administrative expenses in the thirdfirst quarter of fiscal year 20202021 consisted primarily of legal fees, salaries, other professional fees, merchant fees, and other service fees. Total operating expenses for the thirdfirst quarter of fiscal 20192020 were approximately $12,900 and consisted solely of general and administrative expenses, which were primarily from legalprofessional fees incurred. We expect future operating expenses to continue to increase while we generate increased sales growth.

Income Taxes:

During the thirdfirst quarter of fiscal year 2020,2021, we accrued approximately $320,000$106,400 for income taxes, compared to $0 for the thirdfirst quarter of fiscal year 2019.2020. Please refer to Note 8,9, Income Tax, in the Notes to the Financial Statements in this Quarterly Report for additional information related to our income taxes.

Net Income (Loss):

Net income for the thirdfirst quarter of fiscal year 20202021 was approximately $2.6 million,$311,500, or $0.00 basic and diluted earnings per share, compared to net loss of approximately $27,000,$13,000, or $0.00 basic and diluted loss per share, for the thirdfirst quarter of fiscal year 2019.2020. The increase in net income for the thirdfirst quarter of fiscal year 2020,2021, as compared to the thirdfirst quarter of fiscal year 2019,2020, is attributable to the commencement of sales of the Products.

Weighted-average common stock shares outstanding were 575,746,039278,250,733 in the thirdfirst quarter of fiscal year 2020 and 572,364,574 for the third quarter of fiscal year 2019. 

Nine months ended July 31, 2020, compared to nine months ended July 31, 2019

Revenues:

Revenues for the first nine months of fiscal year 2020 was approximately $54.9 million, compared to $0 in the same period of the prior fiscal year. During our second fiscal quarter for 2020, we entered into the A&R Distribution Agreement, pursuant to which we were granted the exclusive, worldwide right to distribute the Products. In connection therewith, we entered into the A&R Sub-Distribution Agreements and other agreements with counterparties and granted such sub-distributors the right to distribute the Products to non-retail customers within the Territory.

Cost of Revenue and Gross Profit:

Gross profit in the first nine months of fiscal year 2020 was approximately $6.9 million, compared to $0 for the first nine months of fiscal year 2019. Total cost of revenue was approximately $47.9 million for the first nine months of fiscal year 2020, compared to $0 for the first nine months of fiscal year 2019. The increase in gross profit is entirely driven by the commencement of sales of the Products during the first nine months of fiscal year 2020.

Operating Expenses:

Total operating expenses were approximately $1.9 million for the first nine months of fiscal year 2020, compared to approximately $45,000 for the first nine months of fiscal year 2019. For the first nine months of fiscal year 2020, operating expenses consisted of commissions of approximately $1.0 million and general and administrative expenses of approximately $916,000. General and administrative expenses in the first nine months of fiscal year 2020 consisted primarily of legal fees, salaries, bonuses, professional fees, merchant fees, and other service fees. Total operating expenses for the first nine months of fiscal year 2019 consisted solely of general and administrative expenses, which were primarily from legal fees incurred. We expect future operating expenses to continue to increase while we generate increased sales growth.

Income Taxes:

During the first nine months of fiscal year 2020, we accrued approximately $1.3 million for income taxes, compared to $0 for the first nine months of fiscal year 2019. Please refer to Note 8, Income Tax, in the Notes to the Financial Statements in this Quarterly Report for additional information related to our income taxes.

Net Income (Loss):

Net income for the first nine months of fiscal year 2020 was approximately $3.7 million, or $0.01 basic and diluted earnings per share, compared to net loss of approximately $45,000, $0.00 basic and diluted loss per share, for the first nine months of fiscal year 2019. The increase in net income for the first nine months of fiscal year 2020, as compared to the first nine months of fiscal year 2019, is attributable to the commencement of sales of the Products.

Weighted-average common stock shares outstanding were 573,499,956 in the first nine months of fiscal year 20202021 and 572,364,574 for the first nine monthsquarter of the fiscal year 2019.

2020. 

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.

Critical Accounting Policies and Estimates

Other than the policy changes disclosed in Note 2, Basis of Presentation and Significant Accounting Policies, to the unaudited Financial Statements in Item 1 of Part I of this Quarterly Report, there have been no material changes to our critical accounting policies and estimates during the ninethree months ended JulyJanuary 31, 20202021 from those disclosed in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended October 31, 2019.2020.

Recently Adopted Accounting Pronouncements

See Note 2, Basis of Presentation and Significant Accounting Policies, to the unaudited Financial Statements in Item 1 of Part I of this Quarterly Report for a description of recent accounting pronouncements and accounting changes.

Emerging Growth Company

We are an “emerging growth company,” that is exempt from certain financial disclosure and governance requirements for up to five years as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). The JOBS Act eases restrictions on the sale of securities and increases the number of stockholders a company must have before becoming subject to the SEC’s reporting and disclosure rules. We have not elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(2) of the JOBS Act, that allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide the information required by this Item.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of JulyJanuary 31, 2020,2021, the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that because of material weakness in our internal control over financial reporting, our disclosure controls and procedures were not effective as of JulyJanuary 31, 2020.2021.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitations, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

During the quarter ended JulyJanuary 31, 2020,2021, there was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II OTHER INFORMATION

Item 1. Legal Proceedings

There are no material pending legal proceedings as defined by Item 103 of Regulation S-K, to which we are a party or of which any of our property is the subject, other than ordinary routine litigation incidental to the Company’s business.

Item 1A. Risk Factors

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide the information required by this Item.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.On November 5, 2020, we issued an aggregate of 475,000 shares of our common stock to six employees as equity compensation pursuant to RSU agreements entered into with each employee. These shares had a fair market value at the date of grant of $0.14, which was the closing price of our common stock as reported by the OTC Markets Group, Inc. (“OTCM”) on the grant date . On the vesting and issuance date, the shares were valued at $0.316 per share, which was the highest closing price of our common stock during the three days prior to the issuance date as reported by the OTCM. We issued the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) (in that the issuance of shares of our common stock issued did not involve any public offering).

On November 5, 2020, we issued 60,000 shares of our common stock to an employee as equity compensation pursuant to an RSU Agreement. These shares had a fair market value at the date of grant of $0.17, which was the closing price of our common stock as reported by the OTCM on the grant date. On the vesting and issuance date, the shares were valued at $0.316 per share, which was the highest closing price of our common stock during the three days prior to the issuance date as reported by the OTCM. We issued the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the issuance of shares of our common stock issued did not involve any public offering).

On December 31, 2020, we issued 1,400,547 shares of our common stock as payment to various vendors for an aggregate of $602,235 in services. The shares were issued pursuant to agreements or other arrangements with such vendors. These shares had a fair market value at the date of issuance of $0.43, which was the closing price on the issuance date as reported by the OTCM. We issued the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the issuance of shares of our common stock issued did not involve any public offering).

On January 1, 2021, we issued an aggregate of 165,000 shares of our common stock to our Chief Executive Officer and Chief Financial Officer as compensation earned under certain equity awards after we hit revenue targets. These shares had a fair market value at the date of issue of $0.43, which was the closing price on the trading day prior to the issuance date as reported by the OTCM. We issued the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the issuance of shares of our common stock issued did not involve any public offering).

On January 11, 2021, we issued 500,000 shares of our common stock as payment to a vendor for services in accordance with an agreement entered into with such vendor. These shares had a fair market value at the date of issue of $0.76, which was the closing price on the trading day prior to the issuance date as reported by the OTCM. We issued the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the issuance of shares of our common stock issued did not involve any public offering).

On February 5, 2021, we issued an aggregate of 575,000 shares of our common stock to six employees as equity compensation pursuant to certain RSU agreements entered into with each employee. These shares had a fair market value at the date of grant of $0.14, which was closing price on the grant date as reported by the OTCM. On the vesting and issuance date, the shares were valued at $1.34 per share, which was the highest closing price of our common stock during the three days prior to the issuance date as reported by the OTCM. We issued the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the issuance of shares of our common stock issued did not involve any public offering).

On February 5, 2021, we issued 60,000 shares of our common stock to an employee as equity compensation pursuant to a RSU agreement. These shares had a fair market value at the date of grant of $0.17, which was closing price on the grant date as reported by the OTCM. On the vesting and issuance date, the shares were valued at $1.34 per share, which was the highest closing price of our common stock during the three days prior to the issuance date as reported by the OTCM. We issued the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the issuance of shares of our common stock issued did not involve any public offering).

On February 5, 2021, we issued 140,000 shares of our common stock to an employee as equity compensation pursuant to a RSU agreement. These shares had a fair market value at the date of grant of $0.43, which was closing price on the grant date as reported by the OTCM. On the vesting and issuance date, the shares were valued at $1.34 per share, which was the highest closing price of our common stock during the three days prior to the issuance date as reported by the OTCM. We issued the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the issuance of shares of our common stock issued did not involve any public offering).

On February 5, 2021, we issued an aggregate of 597,136 shares of our common stock as payment to four vendors for an aggregate of $1,074,845 in services. The shares were issued pursuant to agreements or other arrangements with such vendors. These shares had a fair market value at the date of issuance of $1.80, which was the closing price on the trading day prior to the issuance date as reported by the OTCM. We issued the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the issuance of shares of our common stock issued did not involve any public offering).

On February 28, 2021, we issued an aggregate of 2,010,000 shares of our common stock as payment to two vendors in accordance with certain agreements or other arrangements with such vendors. These shares had a fair market value at the date of issuance of $2.70 per share, which was the closing price on the trading day prior to the issuance date as reported by the OTCM. We issued the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the issuance of shares of our common stock issued did not involve any public offering).

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

Item 6. Exhibits

The following exhibits are filed herewith as a part of this Quarterly Report.

*filed herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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