☒QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

(Former name, former address, and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit such files). Yes☒No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐No☒

As of ~~June 14,~~September 15, 2023, there were ~~58,169,090~~58,661,090 shares of common stock, $0.001 par value, outstanding.

Certain statements and information included in this Quarterly Report on Form 10-Q for the quarter ended ~~April 30,~~July 31, 2023 (this “Report”) contain or may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995.

We generally use the words “may,” “should,” “believe,” “expect,” “intend,” “plan,” “anticipate,” “likely,” “estimate,” “potential,” “continue,” “will,” and similar expressions to identify forward-looking statements. Forward-looking statements are not statements of historical facts, but rather reflect our current expectations concerning future events and results, including, without limitation, statements related to:

Forward-looking statements, including those concerning our expectations, involve significant risks, uncertainties and other factors, some of which are beyond our control, which may cause our actual results, performance, or achievements, or industry results to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. See the “Management’s Discussion and Analysis of Financial Condition and Results of Operation” section contained in this Report and the section “Risk Factors” in our Annual Report on Form 10-K for the year ended October 31, 2022, for a listing of some of the factors that could cause the results anticipated by our forward-looking statements to differ from actual future results. Except as required by applicable law, including the securities laws of the United States, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. You are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in this Report.

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Kaival Brands Innovations Group, Inc.

Consolidated Statements of Operations

(Unaudited)

For the Three Months Ended April 30, For the Six Months Ended April 30,
2023 2022 2023 2022
Revenues
Revenues, net $ 3,046,657 $ 3,092,366 $ 5,482,492 $ 5,934,356
Revenues – related party 3,628 7,385 6,713 31,150
Royalty revenue — — 105,572 —
Excise tax on products (29,983 ) (39,727 ) (48,557 ) (63,599 )
Total revenues, net 3,020,302 3,060,024 5,546,220 5,901,907

Cost of revenues
Cost of revenue – related party 3,145,652 2,627,430 5,131,452 6,112,050
Cost of revenue – other — 44,925 — 93,097
Total cost of revenue 3,145,652 2,672,355 5,131,452 6,205,147

Gross profit (loss) (125,350 ) 387,669 414,768 (303,240 )

Operating expenses
Advertising and promotion 660,132 761,069 1,249,042 1,353,570
General and administrative expenses 3,176,666 4,644,567 6,134,735 6,143,121
Total operating expenses 3,836,798 5,405,636 7,383,777 7,496,691

Other income
Interest income — — 11,952 —
Total other income — — 11,952 —

Loss before income taxes provision (3,962,148 ) (5,017,967 ) (6,957,057 ) (7,799,931 )

Provision for income taxes — 5,807 — 5,807

Net loss $ (3,962,148 ) $ (5,012,160 ) $ (6,957,057 ) $ (7,794,124 )

Net loss per common share – basic and diluted $ (0.07 ) $ (0.16 ) $ (0.12 ) $ (0.25 )

Weighted average number of common shares outstanding – basic and diluted 56,169,090 30,701,393 56,169,090 30,680,701


	For the Three Months Ended July 31,						For the Nine Months Ended July 31,
	2023			2022			2023			2022
Revenues
Revenues, net	$	3,228,099		$	3,854,012		$	8,710,591		$	9,788,368
Revenues - related party		1,165			29,319			7,878			60,469
Royalty revenue		385,685			—			491,257			—
Excise tax on products		(31,356	)		(36,070	)		(79,913	)		(99,669	)
Total revenues, net		3,583,593			3,847,261			9,129,813			9,749,168

Cost of revenues
Cost of revenue - related party		2,282,601			3,365,010			7,414,053			9,477,060
Cost of revenue - other		—			40,186			—			133,283
Total cost of revenue		2,282,601			3,405,196			7,414,053			9,610,343

Gross profit		1,300,992			442,065			1,715,760			138,825

Operating expenses
Advertising and promotion		577,991			657,561			1,827,033			2,011,131
General and administrative expenses		2,376,057			3,641,495			8,510,792			9,784,616
Total operating expenses		2,954,048			4,299,056			10,337,825			11,795,747

Other income (expense)
Interest expense, net		(147,087	)		—			(135,135	)		—
Total other expense		(147,087	)		—			(135,135	)		—

Loss before income taxes provision		(1,800,143	)		(3,856,991	)		(8,757,200	)		(11,656,922	)

Provision for income taxes		—			—			—			5,807

Net loss		(1,800,143	)		(3,856,991	)		(8,757,200	)		(11,651,115	)
Preferred stock dividends		(45,000	)		—			(45,000	)		—
Net loss attributable to common shareholders	$	(1,845,143	)	$	(3,856,991	)	$	(8,802,200	)	$	(11,651,115	)

Net loss per common share - basic and diluted	$	(0.03	)	$	(0.09	)	$	(0.16	)	$	(0.34	)

Weighted average number of common shares outstanding - basic and diluted		57,578,916			41,493,644			56,645,943			34,259,009

The accompanying notes are an integral part of these unaudited consolidated financial statements.

F-2

Kaival Brands Innovations Group, Inc.

Consolidated Statement of Changes in Stockholders’ Equity

For the ~~Six~~Nine Months Ended ~~April 30,~~July 31, 2023

(Unaudited)


																	Convertible Preferred Shares		Par Value Convertible Preferred Shares		Convertible Preferred Shares		Par Value Convertible Preferred Shares		Common Shares		Par Value Common Shares		Additional Paid-in Capital		Accumulated Deficit			Total
	Convertible Preferred Shares (Series A)		Par Value Convertible Preferred Shares (Series A)		Common Shares		Par Value Common Shares		Additional Paid-in Capital		Accumulated Deficit			Total			(Series A)		(Series A)		(Series B)		(Series B)

Balances, October 31, 2022		—	$	—		56,169,090	$	56,169	$	29,375,787	$	(19,631,176	)	$	9,800,780			—	$	—		—	$	—		56,169,090	$	56,169	$	29,375,787	$	(19,631,176	)	$	9,800,780
Stock option expense		—		—		—		—		1,435,787		—			1,435,787			—		—		—		—		—		—		1,435,787		—			1,435,787
Net loss		—		—		—		—		—		(2,994,909	)		(2,994,909	)		—		—		—		—		—		—		—		(2,994,909	)		(2,994,909	)
Balances, January 31, 2023		—	$	—		56,169,090	$	56,169	$	30,811,574	$	(22,626,085	)	$	8,241,658			—		—		—		—		56,169,090		56,169		30,811,574		(22,626,085	)		8,241,658
Stock option expense		—		—		—		—		1,352,938		—			1,352,938			—		—		—		—		—		—		1,352,938		—			1,352,938
Net loss		—		—		—		—		—		(3,962,148	)		(3,962,148	)		—		—		—		—		—		—		—		(3,962,148	)		(3,962,148	)
Balances, April 30, 2023		—	$	—		56,169,090	$	56,169	$	32,164,512	$	(26,588,233	)	$	5,632,448			—		—		—		—		56,169,090		56,169		32,164,512		(26,588,233	)		5,632,448
Common shares issued for acquisition of intangible assets																		—		—		—		—		2,000,000		2,000		1,117,800		—			1,119,800
Series B preferred shares issued for acquisition of intangible assets																		—		—		900,000		900		—		—		9,047,080		—			9,047,980
Stock warrants issued for acquisition of intangible assets																		—		—		—		—		—		—		1,264,396		—			1,264,396
Common shares issued for services																		—		—		—		—		92,000		92		51,418		—			51,510
Stock option expense																		—		—		—		—		—		—		597,221		—			597,221
Stock warrant expense																		—		—		—		—		—		—		141,816		—			141,816
Preferred stock dividend																		—		—		—		—		—		—		(45,000)		—			(45,000	)
Net loss																		—		—		—		—		—		—		—		(1,800,143	)		(1,800,143	)
Balances, July 31, 2023																		—	$	—		900,000	$	900		58,261,090	$	58,261	$	44,339,243	$	(28,388,376	)	$	16,010,028

The accompanying notes are an integral part of these unaudited consolidated financial statements.

F-3

Kaival Brands Innovations Group, Inc.

Consolidated Statement of Changes in Stockholders’ Equity

For the ~~Six~~Nine Months Ended ~~April 30,~~July 31, 2022

(Unaudited)


																							Par Value
																				Convertible Preferred Shares			Convertible Preferred Shares			Common			Par Value Common			Additional Paid-in			Accumulated
	Convertible Preferred Shares (Series A)		Par Value Convertible Preferred Shares (Series A)		Common Shares			Par Value Common Shares			Additional Paid-in Capital			Accumulated Deficit			Total			(Series A)			(Series A)			Shares			Shares			Capital			Deficit			Total

Balances, October 31, 2021		3,000,000	$	3,000		30,195,312		$	30,195		$	21,551,959		$	(5,260,841	)	$	16,324,313			3,000,000		$	3,000			30,195,312		$	30,195		$	21,551,959		$	(5,260,841	)	$	16,324,313
Stock issued for services – RSUs		—		—		61,250			61			110,189			—			110,250			—			—			61,250			61			110,189			—			110,250
Common shares settled and cancelled		—		—		(19,866	)		(20	)		(35,739	)		—			(35,759	)		—			—			(19,866	)		(20	)		(35,739	)		—			(35,759	)
Stock option expense		—		—		—			—			309,700			—			309,700			—			—			—			—			309,700			—			309,700
Net loss		—		—		—			—			—			(2,781,964	)		(2,781,964	)		—			—			—			—			—			(2,781,964	)		(2,781,964	)
Balances, January 31, 2022		3,000,000	$	3,000		30,236,696		$	30,236		$	21,936,109		$	(8,042,805	)	$	13,926,540			3,000,000		$	3,000			30,236,696		$	30,236		$	21,936,109		$	(8,042,805	)	$	13,926,540
Stock issued for services – RSUs		—		—		80,166			80			80,086			—			80,166			—			—			80,166			80			80,086			—			80,166
Common shares settled and cancelled		—		—		(24,058	)		(24	)		(24,034	)		—			(24,058	)		—			—			(24,058	)		(24	)		(24,034	)		—			(24,058	)
Exercise of common stock warrants		—		—		873,286			874			1,565,316			—			1,566,190			—			—			873,286			874			1,565,316			—			1,566,190
Stock option expense		—		—		—			—			2,616,192			—			2,616,192			—			—			—			—			2,616,192			—			2,616,192
Net loss		—		—		—			—			—			(5,012,160	)		(5,012,160	)		—			—			—			—			—			(5,012,160	)		(5,012,160	)
Balances, April 30, 2022		3,000,000	$	3,000		31,166,090		$	31,166		$	26,173,669		$	(13,054,965	)	$	13,152,870			3,000,000		$	3,000			31,166,090		$	31,166		$	26,173,669		$	(13,054,965	)	$	13,152,870
Exercise of common stock warrants																					—			—			3,000			3			5,697			—			5,700
Converted Series A preferred stock to common Shares																					(3,000,000	)		(3,000	)		25,000,000			25,000			(22,000	)		—			—
Stock option expenses																					—			—			—			—			1,928,421			—			1,928,421
Net loss																					—			—			—			—			—			(3,856,991	)		(3,856,991	)
Balances, July 31, 2022																					—		$	—			56,169,090		$	56,169		$	28,085,787		$	(16,911,956	)	$	11,230,000

The accompanying notes are an integral part of these unaudited consolidated financial statements.

F-4

Kaival Brands Innovations Group, Inc.

Consolidated Statements of Cash Flows

(Unaudited)


	For the Six Months Ended			For the Six Months Ended			For the Nine Months Ended			For the Nine Months Ended
	April 30, 2023			April 30, 2022			July 31, 2023			July 31, 2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(6,957,057	)	$	(7,794,124	)	$	(8,757,200	)	$	(11,651,115	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock based compensation		—			190,416			—			190,416
Depreciation		290			—
Stock option expense		2,788,725			2,925,892
Stock options expense								3,385,946			4,854,313
Stock warrants expense								141,816			—
Depreciation and amortization								131,530			—
Bad debt expense		4,622			—			4,622			—
ROU operating lease expense		94,347			7,305			142,202			86,385
Writeoff of inventory		105,057			—

Write-off of inventory								105,057			—
Changes in current assets and liabilities:
Accounts receivable		(964,252	)		809,603			(140,624	)		536,888
Other receivable – related party		484,486			—
Other receivable - related party								727,205			—
Prepaid expenses		244,486			(56,360	)		253,806			(143,773	)
Inventory		(2,512,070	)		6,112,050			(2,457,323	)		9,477,060
Inventory deposit – related party		—			2,925,000
Inventory deposit - related party								—			2,925,000
Income tax receivable		1,607,302			—			1,607,302			—
Accounts payable		123,247			(18,055	)		84,988			(89,507	)
Accounts payable – related party		2,122,452			(9,273,010	)
Accounts payable - related party								2,308,373			(11,877,527	)
Accrued expenses		(402,281	)		(112,525	)		(603,641	)		(34,856	)
Deferred revenue		(105,572	)		—			(235,274	)		—
Customer deposits		(32,874	)		—			(44,973	)		143,620
Customer refunds due		921,078			(314,418	)		618,403			(316,800	)
Right of use liabilities – operating lease		(80,028	)		(6,345	)
Net cash used in Operating Activities		(2,558,042	)		(4,604,571	)
Right of use liabilities - operating lease								(122,205	)		(79,288	)
Net cash used in operating activities								(2,849,990	)		(5,979,184	)

CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for equipment		(3,480	)		—			(3,480	)		—
Transaction acquisition costs								(312,289	)		—
Net cash used in investing activities		(3,480	)		—			(315,769	)		—

CASH FLOWS FROM FINANCING ACTIVITIES
Stock warrant exercises		—			1,566,190			—			1,571,890
Settled RSU shares with cash		—			(59,817	)		—			(59,817	)
Proceeds from loans payable, net								751,030			—
Payments on loans payable								(267,952	)		—
Net cash provided by financing activities		—			1,506,373			483,078			1,512,073

Net change in cash and restricted cash	$	(2,561,522	)	$	(3,098,198	)	$	(2,682,681	)	$	(4,467,111	)
Beginning cash and restricted cash balance		3,685,893			7,825,235			3,685,893			7,825,235
Ending cash and restricted cash balance	$	1,124,371		$	4,727,037		$	1,003,212		$	3,358,124

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid	$	—		$	—		$	135,135		$	—
Income taxes paid	$	—		$	—		$	—		$	—

NON-CASH TRANSACTIONS
Common shares issued for acquisition intangible assets							$	1,119,800		$	—
Common shares issued for services-transaction cost							$	51,510		$	—
Series B preferred stock shares issued for acquisition intangible assets							$	9,047,980		$	—
Stock warrants issued for acquisition intangible assets							$	1,264,396		$	—
Preferred stock dividends							$	45,000		$	—
Conversion of Series A Preferred Stock to Common Stock Shares							$	—		$	25,000
ROU asset and operating lease obligation recognized under Topic 842.							$	—		$	1,276,255

The accompanying notes are an integral part of these unaudited consolidated financial statements.

F-5

KAIVAL BRANDS INNOVATIONS GROUP, INC.

Notes to Unaudited Consolidated Financial Statements

Note 1 – Organization and Description of Business

Kaival Brands Innovations Group, Inc. (the “Company,” the “Registrant,” “we,” “us,” “our” or similar terminology), formerly known as Quick Start Holdings, Inc., was incorporated on September 4, 2018, in the State of Delaware. Unless the context specifically requires otherwise, the terms “Company,” “we,” “us,” “our” or similar terminology refer to Kaival Brands Innovations Group, Inc. and its consolidated subsidiaries.

As used herein, the term “Common Stock” means the Company’s common stock, par value $$0~~0.001~~.001 per share.

Description of Business

In March 2020, the Company commenced business operations as a result of becoming the exclusive distributor of certain electronic nicotine delivery system (“ENDS”) and related components (the “Products”) manufactured by Bidi Vapor, LLC (“Bidi”), a related party company that is owned by Nirajkumar Patel, the Chief Science and Regulatory Officer and a director of the Company. Mr. Patel also controls Kaival Holdings, LLC, a Delaware limited liability company and the Company’s majority stockholder (“Kaival Holdings”).

On March 9, 2020, the Company entered into an exclusive distribution agreement (the “Distribution Agreement”) with Bidi, which was amended and restated on May 21, 2020, and again on April 20, 2021 (collectively, the “A&R Distribution Agreement”). Pursuant to the A&R Distribution Agreement, Bidi granted the Company an exclusive worldwide right to distribute the Products for sale and resale to both retail level customers and non-retail level customers. Currently, the Products consist entirely of the “BIDI^®Stick.” The Company ceased all direct-to-consumer sales in February 2021. On June 10, 2022, and again on November 17, 2022, the Company and Bidi entered into a third amended and restated exclusive distribution agreement (the “Third A&R Distribution Agreement”) which memorializes the Company’s current business relationship with Bidi.

On August 31, 2020, the Company formed Kaival Labs, Inc., a Delaware corporation (“Kaival Labs”), as a wholly owned subsidiary of the Company, for the purpose of developing Company-branded and white-label products and services. The Company has not yet launched any Kaival-branded products, nor has it begun to provide white label wholesale solutions for other product manufacturers. The Company may also utilize Kaival Labs to acquire or license complimentary businesses or assets. On May 30, 2023, the Company and Kaival Labs entered into an Asset Purchase Agreement (the “GoFire APA”) with GoFire, Inc. (“GoFire”) to purchase certain vaporizer and inhalation-related intellectual property assets of GoFire in exchange for equity securities of the Company and contingent cash consideration. For a detailed description of this asset acquisition, please refer to “Note ~~8 – Subsequent Events”~~4– Intangible Assets” below.

On March 11, 2022, the Company formed Kaival Brands International, LLC, a Delaware limited liability company (herein referred to as “KBI”), as a wholly owned subsidiary of the Company, for the purpose of entering into an international licensing agreement with Philip Morris Products S.A. (“PMPSA”), a wholly owned affiliate of Philip Morris International Inc. (“PMI”).

Current Product Offerings

Pursuant to the A&R Distribution Agreement with Bidi, the Company sells and resells electronic nicotine delivery systems, which it may refer to herein as “ENDS Products”, or “e-cigarettes”, to non-retail level customers. The sole Product the Company resells is the “BIDI® Stick,” a disposable, tamper-resistant ENDS product that comes in a variety of flavor options for adult cigarette smokers. The Company does not manufacture any of the Products it resells. The BIDI® Stick is manufactured by Bidi. Pursuant to the terms of the A&R Distribution Agreement, Bidi provides the Company with all branding, logos, and marketing materials to be utilized by the Company in connection with its marketing and promotion of the Products.

F-6

COVID-19 Impact

In January 2020, the World Health Organization (the “WHO”) announced a global health emergency due to the emergence of a new strain of coronavirus (“COVID-19”) that originated in Wuhan, China. This novel strain of coronavirus posed risks to the international community as it spread globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic based on the rapid increase in global exposure.

During the Company’s fiscal year 2021 and the beginning of fiscal 2022, the Company was indirectly impacted by supply chain issues and regulatory oversight arising out of COVID-19. The Company believes that many retailers and distributers relaxed their ENDS compliance standards as an indirect result of COVID-19 for two reasons: (i) government enforcement of regulations was very limited due to imposed social restrictions, resulting in less in-person monitor enforcement by government officials and (ii) retail stores experienced light foot traffic from customers due to COVID-19 restrictions and fears, which resulted in relaxed compliance in an effort to generate additional revenue. While the impact of COVID-19 decreased during the Company’s fiscal 2022 year and ~~both~~ the first, second and ~~second~~third quarters of its fiscal 2023 year, outbreaks of COVID-19 or its variants, either locally, nationally or globally, as well as related supply chain issues, could adversely impact the Company’s business. During the Company’s fourth fiscal quarter, new variants of COVID-19 have emerged, but the impact on the Company’s sales activity is presently unknown and uncertain.

Impact of the FDA PMTA Decision and Subsequent Court Actions

As of ~~January 31, 2022,~~August 2023, the FDA announced that it has acted on over 99% of 26 million PMTAs it has received thus far, and issued Refuse or Accept letters and Refuse to File letters for the vast majority of these applications. For the very small percentage of applications that have made it through the acceptance and filing stages into scientific review, FDA has issued Marketing Denial Orders (“MDOs”) for more than 1,167,000 non-tobacco flavored ENDS products, while issuing zero marketing authorizations for such products. To date, only 23 tobacco products, including ENDS and ENDS components, have received marketing authorization from FDA, all of which are tobacco-flavored .

Bidi, along with nearly every other company in the ENDS industry, received a MDO for its non-tobacco flavored ENDS products. With respect to Bidi, the MDO covered all non-tobacco flavored BIDI® Sticks, including its Arctic (menthol) BIDI® Stick. As a result, beginning in September 2021, Bidi pursued multiple avenues to challenge the MDO. First, on September 21, 2021, separate from the judicial appeal of the MDO in its entirety, Bidi filed a 21 C.F.R. § 10.75 internal FDA supervisory review request specifically of the decision to include the Arctic (menthol) BIDI® Stick in the MDO. In May 2022, the FDA issued a determination that it views the Arctic BIDI® Stick as a non-tobacco flavored ENDS product, and not strictly a menthol flavored product.

On September 29, 2021, Bidi petitioned the U.S. Court of Appeals for the Eleventh Circuit (the “11^th Circuit”) to review the FDA’s denial of the comprehensive PMTAs for its non-tobacco flavored BIDI® Stick ENDS, arguing that it was arbitrary and capricious under the Administrative Procedure Act (“APA”), as well as ultra vires, for the FDA not to conduct any scientific review of Bidi’s comprehensive applications, as required by the Tobacco Control Act (“TCA”), to determine whether the BIDI® Sticks are “appropriate for the protection of the public health”. Bidi further argued that the FDA violated due process and the APA by failing to provide fair notice of the FDA’s new requirement for ENDS companies to conduct long-term comparative smoking cessation studies for their flavored products, and that the FDA should have gone through the notice and comment rulemaking process for this requirement.

On October 14, 2021, Bidi requested that the FDA re-review the MDO and reconsider its position that Bidi did not include certain scientific data in its applications sufficient to allow the PMTAs to proceed to scientific review. Considering this request, on October 22, 2021, pursuant to 21 C.F.R. § 10.35(a), the FDA issued an administrative stay of Bidi’s MDO pending its re-review, permitting the Company to continue sales. Subsequently, the FDA decided not to rescind the MDO and lifted its administrative stay on December 17, 2021. Following the lifting of the FDA’s administrative stay, Bidi filed a renewed motion to stay the MDO with the 11^th Circuit. On February 1, 2022, the appellate court granted Bidi’s motion to stay (i.e., put on hold) the MDO, again allowing the Company to continue sales pending the litigation on the merits. Oral arguments in the merits-based proceeding were held on May 17, 2022.

On August 23, 2022, the ~~U.S. Court of Appeals for the Eleventh~~11^th Circuit set aside the MDO issued to the non-tobacco flavored BIDI® Sticks and remanded Bidi’s back to the FDA for further review. Specifically, the Court held that the MDO was “arbitrary and capricious” in violation of the Administrative Procedure Act (“APA”) because the FDA failed to consider the relevant evidence before it, specifically Bidi’s aggressive and comprehensive marketing and sales-access-restrictions plans designed to prevent youth appeal and access.

F-7

The 11^th Circuit’s opinion further indicated that the FDA did not properly review the data and evidence that it has long made clear are critical to the appropriate for the protection of the public health (“APPH”) standard for PMTAs set forth in the Tobacco Control Act including, in Bidi’s case, “product information, scientific safety testing, literature reviews, consumer insight surveys, and details about the company’s youth access prevention measures, distribution channels, and adult-focused marketing practices,” which “target only existing adult vapor product users, including current adult smokers,” as well as our retailer monitoring program and state-of-the-art anti-counterfeit authentication system. Because a MDO must be based on a consideration of the relevant factors, such as the marketing and sales-access-restrictions plans, the denial order was deemed arbitrary and capricious, and vacated by the FDA.

The FDA did not appeal the 11th Circuit’s decision. The FDA had until October 7, 2022 (45 days from the August 23, 2022 decision) to either request a panel rehearing or a rehearing “en banc” (a review by the entire 11^th Circuit, not just the 3-judge panel that issued the decision), and until November 21, 2022 (90 days after the decision) to seek review of the decision by the U.S. Supreme Court. No request for a rehearing was filed, and no petition for a writ of certiorari was made to the Supreme Court. InAccordingly, the ~~meantime,~~11^th Circuit’s decision is now final, and the Company anticipates ~~continued ability~~continuing to be able to market and sell thenon-tobacco flavored BIDI® Sticks, subject to the FDA’s enforcement discretion, for the duration of the PMTA scientific review.

Separately, on or about May 13, 2022, the FDA placed the tobacco-flavored Classic BIDI® Stick into the final Phase III scientific review, and in September 2022 completed a remote regulatory assessment of Bidi and its contract manufacturer in China, SMISS Technology Co. LTD, in relation to the pending PMTA for the Classic BIDI® Stick.

On March 20, 2023 Bidi received its anticipated deficiency letter for the Classic BIDI® Stick PMTA, outlining FDA’s remaining scientific questions, and provided a response on June 18, 2023.

Risks and Uncertainties Regarding FDA Regulation

The FDA has indicated that it is prioritizing enforcement of unauthorized ENDS against companies (1) that never submitted PMTAs, (2) whose PMTAs have been refused acceptance or filing by the FDA, (3) whose PMTAs remain subject to MDOs, and (4) that are continuing to market unauthorized synthetic nicotine products after the July 13, 2022, cutoff. Subject to the FDA’s enforcement discretion, until the scientific review process is complete on each of Bidi’s PMTAs, the Company views the risk of FDA enforcement against Bidi as low. The Company ~~anticipates~~believes that the FDA ~~will move~~is moving forward with a review of Bidi’s PMTA on remand, as directed by the ~~Court; however, the Company cannot provide any assurances as to the timing or outcome.~~11^th Circuit.

Moreover, the Company believes that Bidi’s application is particularly comprehensive, and now includes, among other things, a randomized, crossover, clinical study to assess nicotine pharmacokinetics and subjective effects of the BIDI® Stick, several behavioral, perception and intention studies, as well as a nationally-representative population prevalence study. A complete scientific review of the PMTA would require the FDA to review all this information before making an APPH determination, and while the FDA could narrowly interpret the ~~Court’s~~11^th Circuit’s ruling as an order to review only Bidi’s marketing and sales-access restrictions plans, the 11^th Circuit’s opinion, in the Company’s view, makes clear that all “relevant evidence” in an application must be considered. For applications that are in scientific review, the FDA typically issues a deficiency letter identifying its questions before making a marketing authorization decision and gives the applicant at least 90 days to respond. This further solidifies the Company’s belief that the scientific review of Bidi’s non-tobacco flavored applications could take 1-2 years or longer. However, the Company cannot provide any assurances as to the timing or outcome.

Based on public statements by the FDA, the Company has reason to believe that a decision of the FDA regarding the BIDI® Stick PMTA could be rendered by December 31, 2023. However, there is a risk that this timing will not be achieved and a further risk that BIDI® Stick PMTA will be decided in a manner adverse to the Company. Therefore, the Company cannot provide any assurances as to the timing or outcome of the FDA’s review of the BIDI® Stick PMTA.

Note 2 – Basis of Presentation and Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the financial statements of the Company’s wholly-owned subsidiaries, Kaival Labs and KBI. Intercompany transactions are eliminated.

F-8

Basis of Presentation

The accompanying unaudited interim consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s most recent audited financial statements contained within the Company’s Annual Report on Form 10-K, filed with the SEC on January 30, 2023 (the “2022 Annual Report”). In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim period presented have been reflected herein. The results of operations for the interim period are not necessarily indicative of the results to be expected for the full fiscal year. Notes to the consolidated financial statements, which would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal period as reported in the 2022 Annual Report, have been omitted.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. In the opinion of management, all adjustments necessary in order to make the financial statements not misleading have been included. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. There were no cash equivalents ~~and~~or restricted cash as of ~~April 30,~~July 31, 2023, and October 31, 2022.

The Federal Deposit Insurance Corporation (“FDIC”) insures deposits according to the ownership category in which the funds are insured and how the accounts are titled. The standard deposit insurance coverage limit is $250,000per depositor, per FDIC-insured bank, per ownership category. The Company had uninsured cash ~~and cash equivalents~~ of $~~804,971~~473,650 and $2,912,793on ~~April 30,~~July 31, 2023, and October 31, 2022, respectively.

Advertising and Promotion

All advertising, promotion and marketing expenses, including commissions, are expensed when incurred.

F-9

Accounts Receivable and Allowance for Doubtful Accounts

Receivables are stated at cost, net of an allowance for doubtful accounts. The Company establishes an allowance for doubtful accounts based on management’s assessment of the collectability of accounts receivable. A considerable amount of judgment is required in assessing the amount of the allowance and the Company considers the historical level of credit losses and collection history and applies percentages to aged receivable categories. The Company makes judgments about the creditworthiness of debtors based on ongoing credit evaluations and monitors current economic trends that might impact the level of credit losses in the future. If the financial condition of the debtors were to deteriorate, resulting in their inability to make payments, a larger allowance may be required. As of ~~April 30,~~July 31, 2023, and October 31, 2022, based upon management’s assessment of the accounts receivable aging and the customers’ payment history, the Company has determined that no allowance for doubtful accounts is required.

Inventories

All product inventory is purchased from a related party, Bidi. Inventories are stated at the lower of cost and net realizable value. Cost includes all costs of purchase and other costs incurred in bringing the inventories to their present location and condition. The Company determines cost based on the first-in, first-out (“FIFO”) method. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. As of ~~April 30,~~July 31, 2023, and October 31, 2022, the inventories only consisted of finished goods and were located in three locations: the Company’s main warehouse located in Florida and two customer warehouses whose service agreements are on a consignment basis with the Company. Based upon fiscal year 2022 inventory management procedures, as well as those inventory management procedures performed during the ~~second~~ fiscal quarter ended ~~April 30,~~July 31, 2023, and their results for both periods of time, the Company has determined that no allowance for inventory was required as of ~~April 30,~~July 31, 2023 and October 31, 2022.

Intangible Assets

Intangible assets include patents and technology. Intangible assets with finite lives are amortized using the straight-line method over the estimated economic useful lifeused of 15 years.Long-lived assets, including intangible assets with finite lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable in accordance with FASB ASC Topic 360, "Property, Plant, and Equipment." The recoverability test of finite-lived assets is based on forecasts of undiscounted cash flows for each asset group. The recoverability test for finite-lived assets relies on cash flow models which include assumptions regarding revenue growth rates, projected earnings (excluding interest and taxes), technology expenses, capital expenditures, discount rates and terminal growth rates.

The estimated useful lives of intangible assets are based on many factors including assumptions regarding the effects of obsolescence, demand, competition and other economic factors, and expectations regarding the future use of the asset. The assumptions used to determine the estimated useful lives could change due to numerous factors including product demand, market conditions, technological developments, economic conditions and competition. As of July 31, 2023, and October 31, 2022, the outstanding balance for intangible assets was $11,664,909 and none, respectively.

Revenue Recognition

The Company adopted ASC 606, Revenue from Contracts with Customers (Topic 606) (“ASC 606”), in the second quarter of fiscal year 2020, as this was the first quarter that the Company generated revenues. Under ASC 606, the Company recognizes revenue when a customer obtains control of promised goods, in an amount that reflects the consideration that the Company expects to receive in exchange for the goods. To determine revenue recognition for arrangements within the scope of ASC 606, the Company performs the following five steps: (1) identify the contracts with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when or as the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods it transfers to the customer. Under ASC 606, disaggregated revenue from contracts with customers depicts the nature, amount, timing, and uncertainty of revenue and cash flows affected by economic factors.

Deferred Revenue

The Company accepts partial payments for orders from wholesale customers, which it holds as deposits or deferred revenue, until the Company has received full payment and orders are shipped to the customer. Revenue for these orders is recognized at the time of shipment to the customer. As of ~~April 30,~~July 31, 2023, and October 31, 2022, the Company ~~has~~had $~~12,099~~0 and $44,973 in deposits from customers, respectively, which is included with the Company’s current liabilities. As of ~~April 30,~~July 31, 2023, and October 31, 2022, the Company ~~has~~had $~~129,702~~0 and $235,274 in deferred income from PMI guaranteed royalty revenue prepayments, respectively, which is included with the Company’s current liabilities.

Customer Refunds

In the normal course of business, the Company issues credits for product returns and certain customer incentives related to rebates, discounts and promotions. When such credits exceed amounts receivable from customers, the Company recognizes such excess amounts as customer refunds which will be applied against future product purchases. As of ~~April 30,~~July 31, 2023, and October 31, 2022, the Company had customer refunds due in the amounts ~~equal to~~of $~~921,078~~618,403 and $0, respectively.

F-10

Products Revenue

The Company generates products revenue from the sale of the Products (as defined above) to non-retail customers. The Company recognizes revenue at a point in time based on management’s evaluation of when performance obligations under the terms of a contract with the customer are satisfied and control of the Products has been transferred to the customer. In most situations, transfer of control is considered complete when the products have been shipped to the customer. The Company determined that a customer obtains control of the Product upon shipment when title of such product and risk of loss transfer to the customer. However, when the Company enters a consignment agreement with a new customer, once it ships and delivers the requested amount of ordered Products to its distribution center for its retail sales locations, the Company retains ownership of the delivered Products until they are delivered to the actual retail stores (as opposed to the Company’s consignment customer). The Company’s shipping and handling costs are fulfillment costs, and such amounts are classified as part of ~~cost of sales.~~general and administrative. The Company offers credit sales arrangements to non-retail (or wholesale) customers and monitors the collectability of each credit sale routinely.

Revenue is measured by the transaction price, which is defined as the amount of consideration expected to be received in exchange for providing goods to customers. The transaction price is adjusted for estimates of known or expected variable consideration, which includes refunds and returns as well as incentive offers and promotional discounts on current orders. Estimates for sales returns are based on, among other things, an assessment of historical trends, information from customers, and anticipated returns related to current sales activity. These estimates are established in the period of sale and reduce revenue in the period of the sale. Variable consideration related to incentive offers and promotional programs are recorded as a reduction to revenue based on amounts the Company expects to collect. Estimates are regularly updated, and the impact of any adjustments are recognized in the period the adjustments are identified. In many cases, key sales terms such as pricing and quantities ordered are established at the time an order is placed and incentives have very short-term durations.

Amounts billed and due from customers are short term in nature and are classified as receivable since payments are unconditional and only the passage of time related to credit terms is required before payments are due. The Company does not grant payment financing terms greater than one year. Payments received in advance of revenue recognition are recorded as deferred revenue, as noted above.

Royalty Revenue

On June 13, 2022, KBI entered into a Deed of Licensing Agreement (the “PMI License Agreement”), by and between KBI and PMPSA, effective as of May 13, 2022 (the “PMI Commencement Date”). Pursuant to the PMI License Agreement, KBI granted PMPSA an exclusive irrevocable license to use its technology, documentation, and intellectual property to make, distribute, and sell disposable nicotine e-cigarette Products based on the intellectual property in certain international markets set forth in the PMI License Agreement (the “PMI Markets”). The Company has the exclusive international distribution rights to the Products and, in order to allow KBI to fulfill its obligations set forth in the PMI License Agreement, has contributed the international distribution rights for the PMI Markets to KBI as set forth in a Capital Contribution Agreement, dated June 10, 2022. The sublicense granted to PMPSA is exclusive in the PMI Markets and neither KBI nor any of its affiliates can sell, promote, use, or distribute any competing products in the PMI Markets for the duration of the term of the PMI License Agreement and any Sell-Out Period (as defined in the PMI License Agreement). PMSPA will be responsible for any regulatory filings necessary to sell the Products in the PMI Markets. Both KBI and PMPSA agree to work together in the registration and maintenance of the Intellectual Property, but KBI will bear all cost and expense to implement the registration strategy. Finally, PMPSA has agreed to potential future development services with KBI in the PMI Markets and has been granted certain rights with respect to potential future products.

The initial term of the PMI License Agreement is five (5) years and automatically renews for an additional five-year period unless PMPSA has failed to meet the agreed upon minimum key performance indicators set forth in the PMI License Agreement, in which case the PMI License Agreement will automatically terminate at the end of the initial license term.

In consideration for the grant of the licensed rights, PMPSA agreed to pay to KBI a royalty equal to a percentage of the base price of the first sale of each unit of Product manufactured. In addition, before the launch of the first product in a market and each anniversary of such launch, PMPSA agrees to pre-pay to KBI a guaranteed minimum royalty based on the estimated royalties payable by PMPSA to KBI in relation to all markets in the twelve (12)-month period following the first launch or each successive anniversary of the first launch, subject to an aggregate maximum guaranteed royalty payment for all markets for each applicable twelve (12)-month period. PMPSA may require modification of certain products to be sold under the PMI Licensing Agreement to be modified for a PMI Market. Pursuant to the PMI Licensing Agreement, PMPSA has absolute discretion over sales, marketing, product branding and packaging pertaining to sales in the PMI Markets, as well as the right to select the specific PMI Markets in which to launch commercialization and determine what product types are to be promoted in each market, subject to sales and marketing plans and annual business plans set by PMPSA and certain expansion criteria agreed between PMPSA and KBI. Royalty revenue earned from the PMI License Agreement is recognized in the period the sales of the Product manufactured occurs. As of July 31, 2023, there is an outstanding balance of $255,983 which is included in accounts receivable.

F-11

The PMI License Agreement contains customary representations, warranties, covenants, and indemnification provisions; however, KBI’s liability under the PMI License Agreement is capped at the greater of: (i) Ten Million Dollars ($~~10,000,000~~)10,000,000); or (ii) an amount equal to the total of the royalties due to KBI (but not yet paid) plus the royalties (including the guaranteed royalty payment) paid to KBI pursuant to the PMI License Agreement during the immediately preceding twelve (12) consecutive months, provided that such amount shall not exceed Thirty Million Dollars ($~~30,000,000~~30,000,000).~~). These royalties may be initially offset on a limited basis by jointly agreed upon costs such as development costs incurred for entry to specific international markets.~~

On June 10, 2022, Bidi entered into a License Agreement (the “KBI License Agreement”) with KBI, pursuant to which KBI has the exclusive irrevocable license to use Bidi’s licensed intellectual property to the extent necessary for KBI to fulfill its obligations set forth in the PMI Licensing Agreement. Such irrevocable license includes: (i) the right of KBI to grant sub-licenses to PMPSA under the PMI License Agreement for the express purposes set forth in the PMI License Agreement, but for no other purpose; (ii) the right of KBI to grant to PMPSA the right to grant sub-sub-licenses in the manner set forth in the PMI License Agreement, but for no other purpose; and (iii) certain branding rights to the extent (but only to the extent) necessary to permit KBI to perform its obligations to PMPSA as set forth in the PMI License Agreement.

1. Royalty Rate. The royalty paid by PMPSA to KBI will no longer be based on sales price of the Product being sold, but rather on the volume of liquid contained within Product being sold. The royalty will be on a sliding scale of between $0.08 to $0.10 per sale based on the volume of liquid contained in the Product, increasing to between $0.10 to $0.20 per sale upon meeting certain sales milestones. For purposes of determining aggregate sales threshold, all sales undertaken since commencement of the PMI Licensing Agreement will be counted.

2. Elimination of Certain Potential Royalty Adjustments. Certain potential adjustments to the royalties receivable by KBI as provided for in the PMI License Agreement have been eliminated.

3. Guaranteed Royalty. The guaranteed royalty payment owed to KBI under the PMI License Agreement has been eliminated. Instead, royalties will be paid on a quarterly basis going-forward based on actual sales. Any unpaid guaranteed royalty has been cancelled.

4. Insurance Tail Requirements. KBI’s requirement to keep certain tail insurance after the expiration or termination of the PMI Licensing Agreement was reduced from 6 years to 2 years.

5. Markets. The identification of the PMI Markets that PMI may enter has been expanded to cover certain additional territories.

6. Net Reconciliation Payment to KBI. As a result of the changes to the PMI License Agreement described in paragraphs 1 thought 3 above, the value of such changes was calculated and reconciled as of the date of commencement of the PMI Licensing Agreement through June 30, 2023. On September 8, 2023, the Company received both the Net Reconciliation Payment from PMPSA of $134,981 pursuant to this provision, and also received a royalty payment earned from July 1, 2023 through July 31, 2023, in the amount of $121,000.

The KBI License Agreement provides that KBI shall pay Bidi license fees equivalent to 50% of the adjusted earned royalty payments, after any offsets due to jointly agreed costs such development costs incurred for entry to specific international markets. While PMPSA announced the launch of a product ~~(called VEEBA)~~(now called VEEV NOW) under the PMI License Agreement in March 2023, the Company has determined that no ~~license fees~~adjusted earned royalty payments are owed to Bidi as of ~~April 30,~~July 31, 2023.

Concentration of Revenues and Accounts Receivable

For the ~~six~~nine months ended ~~April 30,~~July 31, 2023, (i) ~~21%~~17% or $~~1,169,310~~1,453,780 of the revenue from the sale of Products, solely consisting of the BIDI^® Stick, was generated from ~~FAVS Business (“FAVS”),~~GPM Investments, LLC, (ii) ~~19%~~15% or $~~1,054,646~~1,270,841 of the revenue from the sale of the Products was generated from ~~H.T. Hackney Co.,~~C Store Master, (iii) approximately ~~17%~~14% or $~~914,754~~1,169,310 of the revenue from the sale of Products, solely consisting of the BIDI Stick, was generated from ~~GPM Investments, LLC (“GPM”),~~FAVS Business, and (iv) approximately ~~11%~~12% or $~~596,171~~1,055,965 of the revenue from the sales of Products was generated from QuikTrip Corporation.

For the ~~six~~nine months ended ~~April 30,~~July 31, 2022, ~~40%~~approximately 37%, or $~~2,366,200~~3,628,691, of the revenue from the sale of Products was generated from ~~FAVS,~~Favs Business, and ~~15%~~approximately 14%, or $~~877,264~~1,399,106, of the revenue from the sale of Products was generated from The H.T. Hackney Company.

~~H.T. Hackney Co,~~

QuikTrip Corporation, with an outstanding balance of $~~545,215~~139,981, ~~FAVS,~~C Store Master, with an outstanding balance of $~~499,200~~134,740, ~~and KwikTrip~~H.T. Hackney Co., with an outstanding balance of $~~216,000~~101,633, and Coremark, with an outstanding balance of $47,467, accounted for 3631%, 3330%, 22%, and 1410% of the total accounts receivable from customers, respectively, as of ~~April 30,~~July 31, 2023. Favs Business ~~with an outstanding balance of $375,425~~ and QuikTrip Corporation ~~with an outstanding balance of $85,510~~, accounted for approximately 65% and 15% of the total accounts receivable from customers, respectively, as of October 31, ~~2022~~.2022.

F-12

Share-Based Compensation

The Company measures the cost of services received in exchange for an award of equity instruments (share-based payments, referred to herein as “SBP”) based on the grant-date fair value of the award. That cost is recognized over the period during which a recipient is required to provide service in exchange for the SBP award—the requisite service period (vesting period). For SBP awards subject to performance conditions, compensation is not recognized until the performance condition is probable of occurrence. The grant-date fair value of share options is estimated using the Black-Scholes-Merton option-pricing model based on certain assumptions which include the expected term, expected volatility and discount rate.

The expected term of options granted represents the period of time that options granted are expected to be outstanding. The expected volatility is based on the volatility in the trading of the Common Stock over the expected term of the award. The assumed discount rate is the default risk-free ten-year interest rate for U.S. Treasury bills.

Net Income (Loss) Per Share

Basic net income (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period, without consideration of potential common stock equivalents.

Diluted net income (loss) per share is calculated by dividing net income (loss) available to common stockholders by the weighted average number of common stock outstanding plus common share equivalents from conversion of dilutive stock options and warrants using the treasury method and preferred stock using the as-converted method, except when antidilutive. In the event of a net loss, the effects of all potentially dilutive shares are excluded from the diluted net loss per share calculation as their inclusion would be antidilutive.

Fair Value of Financial Instruments

The Company’s balance sheet includes certain financial instruments. The carrying amounts of current assets and current liabilities approximate their fair value because of the relatively short period of time between the origination of these instruments and their expected realization.

ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:

●	Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

●

Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

●	Level 3 – Inputs that are both significant to the fair value measurement and unobservable.

Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of ~~April 30,~~July 31, 2023. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments. These financial instruments include cash, accounts receivable, inventory, accounts payable, loans payable and accrued expenses. As of ~~April 30,~~July 31, 2023, and October 31, 2022, the Company did not have any financial assets or liabilities measured and recorded at fair value on a recurring basis.

F-13

Recent Accounting Pronouncements

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470- 20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). ASU 2020-06 simplified the accounting for certain financial instruments with characteristics of liabilities and equity. This ASU (1) simplified the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in ASC 470-20, Debt: Debt with Conversion and Other Options, that required entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock; (2) revised the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required for equity classification; and (3) revised the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings per share (“EPS”) for convertible instruments by using the if-converted method. In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares. ASU 2020-06 was effective for the Company for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption was permitted. The Company has elected to early adopt ASU 2020-06 effective beginning November 1, 2022. There was no impact on the consolidated financial statements as a result of adopting this standard.

The Company does not believe that any recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the accompanying financial statements. However, In March 2022, the FASB issued ASU 2022-02, “Financial Instruments-Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures.” ASU 2022-02 addresses areas identified by the FASB as part of its post-implementation review of the credit losses standard (ASU 2016-13) that introduced the ~~CECL~~current expected credit loss (“CECL”) model. The amendments eliminate the accounting guidance for ~~TDRs~~troubled debt restructurings (“TDRs”) by creditors that have adopted the CECL model and enhance the disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. In addition, the amendments require a public business entity to disclose current-period gross write-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures. The amendments in this ASU should be applied prospectively, except for the transition method related to the recognition and measurement of TDRs, where an entity has the option to apply a modified retrospective transition method resulting in a cumulative-effect adjustment to retained earnings in the period of adoption. This is not effective for the Company until November 1, 2023.

Note 3 – Going Concern

The Company’s financial statements are prepared in accordance with U.S. GAAP applicable to a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business within one year after the date the consolidated financial statements are issued.

In accordance with Financial Accounting Standards Board (the “FASB”), Accounting Standards Update (“ASU”) No. 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40), our management evaluates whether there are conditions or events, considered in aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the accompanying financial statements are issued. As shown in the accompanying consolidated financial statements, the Company has incurred significant recurring losses and negative cash flow from operations, which ~~raises~~ raisesubstantial doubt about the Company’s ability to continue as a going concern.

~~In response~~Management plans to ~~the above,~~continue similar operations with increased marketing, which the Company ~~assessed its management’s plans~~believes will result in increased revenue and net income to ~~alleviate that doubt. The Company has positive working capital as of April 30, 2023, of $3,714,959~~. The Company considered that its losses were due to various factors such as: (i) uncertainty surrounding the PMTA process with the FDA and (ii) the MDO that was issued to Bidi Vapor on its non-tobacco flavored ENDS products. However, the MDO was set aside and vacated by the 11^th Circuit in August 2022, and the ability to appeal such decision has passed, thereby facilitating the continued sales of the non-tobacco flavored BIDI® Sticks for sale in the United States (pending the FDA’s review of the pending PMTAs and subject to FDA enforcement). Concurrently, the PMTA for the tobacco-flavored (Classic) BIDI® Sticks for sale in the United States continues to move through the PMTA scientific review phase. Management’s assessment included the preparation ofimprove cash flow ~~forecasts which considered increases in revenues considering the favorable ruling obtained on the MDO as disclosed above.~~from operations.

The Company believes that its available cash and the cash to be provided by future operating activities should enable the Company to meet its estimated liquidity needs for the next 12 months after the date that the accompanying financial statements are issued. The Company believes that the above factors alleviate the substantial doubt regarding the Company’s ability to continue as a going concern.

However, there is no assurance that the Company’s plans will be able to generate expected or greater amounts of revenues or ever achieve profitability, due to the current economic climate in the United States and globally, the regulation and public perception of ENDS products and the various other risks faced by the Company. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of these or other risks or uncertainties.

Note 4 –Acquisition of GoFire Assets

On May 30, 2023 (the “Closing Date”), the Company and Kaival Labs entered into the GoFire APA with GoFire to purchase certain intellectual property assets of GoFire consisting of various patents concerning electronic vaporizers and related technologies (the “Purchased Assets”) in exchange for equity securities of the Company and certain contingent cash consideration. The Company participated in this transaction with the intent to diversify its product offerings and create both near and long-term revenue opportunities. The Purchased Assets consist of 12 existing and 46 pending patents with novel technologies related to vaporization and inhalation.

F-14

Pursuant to the terms of the GoFire APA, the Company paid to GoFire, in addition to certain contingent cash consideration described below, consideration in the form of equity securities of the Company consisting of (i) an aggregate of 2,000,000 shares of Common Stock (the “APA Shares”); (ii) 900,000 shares of newly-designated Series B Convertible Preferred Stock, par value $0.001 per share, (the “Series B Preferred Stock” and the shares of Common Stock underlying the Series B Preferred, the “Series B Conversion Shares”), the rights, preferences and terms of which are set forth in a Certificate of Designation of Rights and Preferences of the Series B Preferred Stock (the “Certificate of Designation”), and (iii) a common stock purchase warrant to purchase 2,000,000 shares of Common Stock (the “Warrant” and the shares of Common Stock underlying the Warrant, the “Warrant Shares”). As additional consideration for the Purchased Assets, any cannabis-specific (meaning cannabis, hemp or cannabinoid) royalties that are generated by Kaival Labs from or due to the Purchased Assets, from the Closing Date until January 1, 2027, will be subject to a contingent cash payment (“CCP”). Prior to the earlier of: (i) the Company achieving less than or equal to $15,000,000 in aggregate gross cannabis-specific royalties from any Kaival Labs licensing agreements, and (ii) January 1, 2027, the Company shall pay GoFire a CCP equal to 50% of the aggregate gross cannabis-specific royalties generated by the Purchased Assets. After the earlier of: (i) the Company achieving greater than $15,000,000 in aggregate gross cannabis-specific royalties, and (ii) January 1, 2027, the Company shall pay GoFire a CCP equal to 10% of the aggregate gross cannabis-specific royalties generated by the Purchased Assets until January 1, 2027. Pursuant to the GoFire APA, the Company is required to use commercially reasonable efforts to register the APA Shares and Warrant Shares with the SEC for distribution to GoFire’s stockholders and/or public resale by such stockholders within 180 days of the Closing Date. In addition, if any Series B Preferred Stock remains outstanding nineteen (19) months after the Closing Date, the Company shall use commercially reasonable efforts to file with the SEC a subsequent registration statement registering the distribution to GoFire’s stockholders and/or public resale Series B Conversion Shares by such stockholders. If such subsequent registration statement is required, the Company will use its commercially reasonable efforts to obtain effectiveness of such subsequent registration statement within nineteen (19) months of the Closing Date, and if the Company does not so register the Series B Conversion Shares within nineteen (19) months of the Closing Date, the Company will issue to GoFire or its designee an additional ten percent (10%) of all of the Series B Conversion Shares underlying the then-outstanding shares of Series B Preferred Stock. All of the securities issued as consideration for the Purchased Assets are subject to a lock-up agreement that terminates one hundred eighty (180) days from the Closing Date.

The Company has determined that the acquisition of the Purchased Assets constitutes an asset acquisition and has recorded the assets under a cost accumulation model. Assets acquired and liabilities assumed are recognized at cost, which is the consideration the acquirer transferred to the seller, as well as direct transaction costs, on the acquisition date. The cost of the acquisition is then allocated to the assets acquired based on their relative fair values. The cost of acquisition does not include any contingent consideration related to contingent cash payments as those obligations are contingent in future amount of royalties and will be recognized when the contingency is resolved, and the consideration is paid or becomes payable. Goodwill is not recognized in an asset acquisition. The Purchased Assets have been recorded at a cost of $11,795,975, and are included in Intangible Assets in the consolidated balance sheet.

The consideration paid for the GoFire APA was as follows (see Note 5):

Schedule of consideration paid
Common Stock	$	1,119,800
Series B Preferred Stock		9,047,980
Common Stock Warrants		1,059,523
Transaction Costs		568,672
Total consideration	$	11,795,975

The fair value of the common stock is based on the publicly-traded share price as of the acquisition date, and represents a Level 1 measurement.

The fair value of the Series B Preferred Stock and Common Stock Warrants were determined using the Black-Scholes Option Pricing model. The fair value measurements are based on significant unobservable inputs, including management estimates and assumptions, and thus represent Level 3 measurements.

Note 45 – Intangible Assets

The Company’s intangible assets include patents and technology that were acquired pursuant to the GoFire APA. The cost and accumulated amortization of the intangible assets amounted to $11,795,975 and $131,066 as of July 31, 2023, respectively. Amortizable patents and technology have a useful life of 15.0 years with a weighted average remaining useful life of 14.9 years.

F-15

The Company recognized amortization expense of $131,066 for the three months and nine months ended July 31, 2023.Amortization expense is included under general and administrative expenses in the consolidated statement of operations.

Future amortization expense of intangible assets is as follows:

Schedule of future amortization expense of intangible assets
2023 (remaining three months)	$	196,600
2024		786,398
2025		786,398
2026		786,398
2027		786,398
Thereafter		8,322,717
Total	$	11,664,909

Note 6 – Loans Payable

On May 9, 2023, the Company entered into two loan agreements which are collateralized by all assets of the Company until the loans are repaid in full and subject to interest rates of 15% and 25%. As illustrated in the following table, under the terms of these agreements, the Company received the disclosed Purchase Price and agreed to repay the disclosed Purchase Amount, which is collected by the lenders at the disclosed weekly payment rate. The Company’s Chief Executive Officer personally guarantees the performance of these loans.

The Company has accounted for these agreementsas loans under ASC 860 because while we provided rights to current and future receipts, we still had control over the receipts. The difference between the Purchase Amount and the Purchase Price is imputed interest that is recorded as interest expense when paid.

The following table shows our loan agreements as of July 31, 2023, and there were none as of October 31, 2022:

Schedule of loan agreements
Inception Date	Purchase Price		Purchased Amount		Outstanding Balance		Payment frequency	Payment Rate		Deferred Finance Fees
May 9, 2023	$	400,000	$	580,000	$	228,264	Weekly		20,714	$	14,593
May 9, 2023		400,000		580,000		254,814	Weekly		20,714		16,615
	$	800,000	$	1,160,000		483,078				$	31,208

Note 7 – Leases

The Company capitalizes all leased assets pursuant to ASU 2016-02, Leases (Topic 842) (“Topic 842”), which requires lessees to recognize right-of-use (“ROU”) assets and lease liability, initially measured at present value of the lease payments, on its balance sheet for leases with terms longer than 12 months and classified as either financing or operating leases. The Company excludes short-term leases having initial terms of 12 months or less from Topic 842 as an accounting policy election and recognizes rent expense on a straight-line basis over the lease term. The Company does not have financing leases and only one operating lease for office space and inventory storage space with Just Pick, LLC (“Just Pick”), a related party owned and controlled by Nirajkumar Patel, the Chief Science and Regulatory Officer and a director of the Company, as of ~~April 30,~~July 31, 2023, and October 31, 2022. Certain of the Company’s leases, have and may in the future, include renewal options, which have been and might be in the future, included in the calculation of the lease liabilities and right of use assets when the Company is reasonably certain to exercise the option.

F-16

Office and Storage Space

On November 1, 2021, the Company entered into a month-to-month lease agreement with Ranger Enterprises, LLC, located in Seymour, Indiana, to store product inventory at this satellite location. The Company made payments on this lease in the amount of $19,959. The lease was terminated in June 2022.

On November 11, 2021, the Company entered into a month-to-month lease agreement with FFE Solutions Group, located in Salt Lake City Utah, to store additional product inventory at this satellite location. The Company made payments on this lease in the amount of $19,108. This lease was terminated in April 2022.

On June 10, 2022, the Company entered into a Lease Agreement (the “2022 Lease”) with Just Pick for approximately 21,332 rentable square feet combined in the office building and warehouse located at 4460 Old Dixie Highway, Grant-Valkaria, Florida 32949 (the “Premises”), together with all improvements thereon. The Company must pay Just Pick base rent equal to $17,776.67 per month during the first year of the Lease Term with a five-year lease renewal option. Thereafter, the monthly base rent will be increased annually with a monthly base rent of $18,665.50 in the second year, $19,554.33 in the third year, $20,443.17 in the fourth year, $22,220.83 in the fifth year, $23,998.50 in the sixth year, and one twelfth (1/12^th) of the market annual rent for the seventh through eleventh years, if applicable. In addition to the base rent, the Company must pay one hundred percent (100%) of operating expenses, insurance costs, and taxes for each calendar year during the Lease term. For both the ROU asset and ROU liability, the lease renewal option was considered in the calculation with an incremental borrowing rate of 4.5%. The Company had $~~94,347~~ 142,202and $~~7,305~~ 86,385in operating lease expense for the ~~six~~nine months ended ~~April 30,~~July 31, 2023, and ~~April 30,~~July 31, 2022, respectively.

Cash flow information related to leases was as follows:

Schedule of cash flow information related to leases
	April 30, 2023			April 30, 2022			July 31, 2023			July 31, 2022
Other Lease Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	(94,347	)	$	(7,305	)	$	(142,202	)	$	(86,385	)

The following table summarizes the lease-related assets and liabilities recorded in the consolidated balance sheets as of ~~April 30,~~July 31, 2023, and October 31, 2022:

Schedule Of Condensed Balance Sheet
Schedule of condensed balance sheet
Lease Position	April 30, 2023		October 31, 2022		July 31, 2023		October 31, 2022
Operating Leases
Operating lease right-of-use assets	$	1,104,622	$	1,198,969	$	1,056,767	$	1,198,969
Right of use liability operating lease current portion	$	175,206	$	166,051	$	179,861	$	166,051
Right of use liability operating lease long term		961,593		1,050,776		914,761		1,050,776
Total operating lease liabilities	$	1,136,799	$	1,216,827	$	1,094,622	$	1,216,827

The following table provides the maturities of lease liabilities at ~~April 30,~~July 31, 2023:

Schedule of Lessee Operating Lease Liability Maturity
Schedule of lessee operating lease liability maturity
	Operating Leases			Operating Leases
Maturity of Lease Liabilities on April 30, 2023
Maturity of Lease Liabilities on July 31, 2023
2023	$	110,809		$	55,997
2024		228,134			228,134
2025		238,800			238,800
2026		253,614			253,614
2027 and thereafter		450,934			450,934
Total future undiscounted lease payments	$	1,282,291		$	1,227,479
Less: Interest		(145,492	)		(132,857	)
Present value of lease liabilities	$	1,136,799		$	1,094,622

F-17

At ~~April 30,~~July 31, 2023, the Company had no additional leases which had not yet commenced.

Note 58 – Stockholders’ Equity

Common Stock

During the nine months ended July 31, 2023, the Company issued No2,000,000 shares of Common Stock ~~were~~as consideration for the acquisition of the GoFire Purchased Assets. The Company also issued ~~during~~92,000 shares of Common Stock as compensation for advisory services rendered in connection with the ~~three and six months ended April 30, 2023.~~GoFire APA.

Series A Preferred Stock ~~Converted~~

~~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 Convertible Preferred Stock (the “Series A Preferred Stock”).~~ Each share of the Series A Preferred Stock was initially convertible into 100 shares of Common ~~Stock;~~Stock; however, as a result of the Reverse Stock Split, the conversion rate was adjusted such that each share of the Series A Preferred Stock is convertible into approximately 8.33 shares of Common Stock. On June 24, 2022, all 3,000,000 shares of Series A Preferred Stock were converted into shares of Common Stock by Kaival Holdings. The conversion of 3,000,000 shares of Series A Preferred Stock, at a conversion rate of 8.33, equaled 25,000,000 shares of Common Stock. As

Series B Convertible PreferredStock

The Company issued 900,000 shares of the Series B Preferred Stock as consideration for the acquisition of the GoFire Purchased Assets. The Series B Preferred Stock carries no voting rights except: (i) with respect to the ability of the holders of a ~~result,~~majority of the ~~authorized, preferred stock~~then outstanding Series B Preferred Stock (the “Majority Holders”), to nominate a director to the Company’s board of directors, and (ii) that the vote of the Majority Holders is necessary for effecting any amendment to the Company’s Certificate of Incorporation or Certificate of Designation that affects the Series B Preferred Stock. The Series B Preferred Stock is redeemable at the option of the Company ~~consists~~at a redemption price of $~~5,000,000~~15 ~~shares with a par value of $0.001~~ per share, subject to potential downward adjustments based on the trading price of the Common Stock. Subject to additional limitations in the GoFire APA, the Series B Preferred Stock holds seniority over the Common Stock and each other class of series of securities now existing or hereafter authorized with respect to dividend rights, the distribution of assets upon liquidation, and dissolution and redemption rights. Upon a liquidation and winding up of the Company, the holders of Series B Preferred Stock are entitled to a liquidation preference of $015 per share (the “Liquidation Preference”), though the redemption may be adjusted downward based on the trading price of the Common Stock at the time of liquidation. The holders of Series B Preferred Stock are entitled to receive a dividend equal to 2% of the Liquidation Preference, accruing from the Closing Date and payable on the eighteen-month anniversary of the Closing Date. No preemptive rights are granted to the holders of Series B Preferred Stock. The Majority Holders have the ability to cause a voluntary conversion of the Series B Preferred Stock into Common Stock at a conversion rate of 8.3333 shares of Common Stock per share of Series B Preferred Stock which may only occur on or after the following dates 18 month, 24 month, 36, month, 48 month, and 60 month anniversary of the original issuance date; and only up to 180,000 number of shares of Series B Preferred Stock on each of the these dates. All shares of ~~preferred stock issued or outstanding as~~Series B Preferred Stock will automatically convert to Common Stock upon the occurrence of ~~October 31, 2022.~~a Change of Control (as defined in the GoFire APA).

Stock Options

Summary of stock options information is as follows:

Schedule of stock options
Weighted
Aggregate Aggregate Exercise Price Average
Number Exercise Price Range Exercise Price
Outstanding, October 31, 2022 3,202,265 8,921,419 1.03-28.68 2.79
Granted 5,275,000 4,714,825 0.61-0.99 0.89
Exercised — — — —
Cancelled, forfeited, or expired (75,000 ) (154,500 ) 2.06 2.06
Outstanding, April 30, 2023 8,402,265 $ 13,481,744 $ 0.61-28.69 $ 1.60
Exercisable, April 30, 2023 3,477,265 $ 8,580,894 $ 0.99-28.69 $ 2.47

Schedule of stock options									Weighted
	Aggregate			Aggregate			Exercise Price		Average
	Number			Exercise Price			Range		Exercise Price
Outstanding, October 31, 2022	3,202,265			8,921,419			1.03-28.68		2.79
Granted	5,325,000			4,754,250			0.61-0.99		0.89
Exercised	—			—			—		—
Cancelled, forfeited, or expired	(75,000	)		(154,500	)		2.06		2.06
Outstanding, July 31, 2023	8,452,265		$	13,521,169		$	0.61-28.68	$	1.60
Exercisable, July 31, 2023	3,777,265		$	9,041,544		$	0.99-28.68	$	2.39

During the ~~three~~nine months ended ~~April 30,~~July 31, 2023, and 2022, the Company recognized $~~1,352,938~~3,385,946 and $~~2,616,192~~4,854,313, respectively of stock option expense related to outstanding stock options. ~~During the six months ended April 30, 2023, and 2022, the Company recognized $2,788,725~~ ~~and $2,824,892, respectively~~As of ~~stock option expense related to outstanding stock options. On April 30,~~July 31, 2023, the Company had $~~3,643,178~~3,086,204 of unrecognized expenses related to outstanding stock options. The weighted average remaining contractual life is approximately ~~9.41~~9.17 years for stock options outstanding ~~on April 30,~~as ofJuly 31, 2023. The aggregate intrinsic value of these outstanding options as of ~~April 30,~~July 31, 2023, was $0. Compensation expense related to performance-based options is recognized on a straight-line basis over the requisite service period, provided that it is probable that performance conditions will be achieved, with probability assessed on a quarterly basis and any changes in expectations recognized as an adjustment to earnings in the period of the change. Compensation cost is not recognized for service- and performance-based awards that do not vest because service or performance conditions are not satisfied, and any previously recognized compensation cost is reversed. If vesting occurs prior to the end of the requisite service period, expense is accelerated and fully recognized through the vesting date.

On November 9, 2022, non-qualified stock options exercisable for up to 250,000shares of Common Stock were awarded to one supplier of the Company. These stock options have an exercise price of $0.99 and a ten-year term from the grant date, with the shares fully vested on the issue date. The fair value of the options on the grant date was $246,747using a Black-Scholes option pricing model with the following assumptions: stock price $0.9869per share (based on the quoted trading price on the date of grant), a computed volatility of 275.68%, expected term of 10years, and a risk-free interest rate of 4.12%.

F-18

On November 9, 2022, non-qualified stock options exercisable for up to 3,000,000 shares of Common Stock were awarded to one supplier of the Company. These stock options have an exercise price of $0.99 and a ten-year term from the grant date, with the shares fully vesting based on the achievement of certain net revenue and profit margin targets up to $180,000,000 in total net revenues over a period of 3 years. The fair value of the options on the grant date was $2,960,968 using a Black-Scholes option pricing model with the following assumptions: stock price $0.9869 per share (based on the quoted trading price on the date of grant), a computed volatility of 275.68%, expected term of 10 years, and a risk-free interest rate of 4.12%. Management determined the performance conditions were deemed probable on the grant date.

On February 6, 2023, non-qualified stock options exercisable for up to 150,000 shares of Common Stock were awarded to five employees of the Company. These stock options have an exercise price of $0.73 and a ten-year term from the grant date, with the shares fully vesting on February 6, 2024. The fair value of the options on the grant date was $109,499 using a Black-Scholes option pricing model with the following assumptions: stock price $0.73 per share (based on the quoted trading price on the date of grant), a computed volatility of 270.98%, expected term of 10 years, and a risk-free interest rate of 3.63%.

On February 6, 2023, non-qualified stock options exercisable for up to 1,000,000 shares of Common Stock were awarded to two senior executives of the Company. These stock options have an exercise price of $0.73 and a ten-year term from the grant date, with the shares fully vesting on February 6, 2024. The fair value of the options on the grant date was $729,988 using a Black-Scholes option pricing model with the following assumptions: stock price $0.73 per share (based on the quoted trading price on the date of grant), a computed volatility of 270.98%, expected term of 10 years, and a risk-free interest rate of 3.63%.

On February 6, 2023, non-qualified stock options exercisable for up to 375,000shares of Common Stock were awarded to three independent board members of the Company. These stock options have an exercise price of $0.73 and a ten-year term from the grant date, with the shares fully vesting on February 6, 2024. The fair value of the options on the grant date was $273,747using a Black-Scholes option pricing model with the following assumptions: stock price $0.73per share (based on the quoted trading price on the date of grant), a computed volatility of 270.98%, expected term of 10years, and a risk-free interest rate of 3.63%.

On February 6, 2023, non-qualified stock options exercisable for up to 200,000shares of Common Stock were awarded to one consultant acting as a sales broker for the Company. These stock options have an exercise price of $0.73 and a ten-year term from the grant date, with the shares fully vesting based on the achievement of certain net revenue targets up to $100,000,000in total net revenues over time to be generated from certain customers as listed in the sales broker agreement. The fair value of the options on the grant date was $145,998using a Black-Scholes option pricing model with the following assumptions: stock price $0.73per share (based on the quoted trading price on the date of grant), a computed volatility of 270.98%, expected term of 10years, and a risk-free interest rate of 3.63%. Management determined the performance conditions were deemed not probable and as such no expense was recognized on these awards for the period ended ~~April 30,~~July 31, 2023.

On March 3, 2023, non-qualified stock options exercisable for up to 50,000shares of Common Stock were awarded to one interim senior executive of the Company. These stock options have an exercise price of $0.61 and a ten-year term from the grant date, with the shares fully vesting on June 30, 2023. The fair value of the options on the grant date was $30,650using a Black-Scholes option pricing model with the following assumptions: stock price $0.61per share (based on the quoted trading price on the date of grant), a computed volatility of 286.91%, expected term of 10years, and a risk-free interest rate of 3.97%.

On March 19, 2023, non-qualified stock options exercisable for up to 250,000shares of Common Stock were awarded to two independent board members of the Company. These stock options have an exercise price of $0.87 and a ten-year term from the grant date, with the shares fully vesting on March 19, 2024. The fair value of the options on the grant date was $217,498using a Black-Scholes option pricing model with the following assumptions: stock price $0.87per share (based on the quoted trading price on the date of grant), a computed volatility of 286.15%, expected term of 10years, and a risk-free interest rate of 3.47%.

On July 8, 2023, incentive stock options exercisable for up to 50,000 shares of Common Stock were awarded to one employee of the Company. These stock options have an exercise price of $0.79 and a ten-year term from the grant date, with the shares fully vesting on July 8, 2027. The fair value of the options on the grant date was $39,409 using a Black-Scholes option pricing model with the following assumptions: stock price $0.79 per share (based on the quoted trading price on the date of grant), a computed volatility of 280.34%, expected term of 10 years, and a risk-free interest rate of 4.01%.

Warrants

Warrant information as of the periods indicated is as follows:

Schedule of warrant information															Weighted
							Weighted
	Aggregate		Aggregate		Exercise Price		Average		Aggregate		Aggregate		Exercise Price		Average
	Number		Exercise Price		Range		Exercise Price		Number		Exercise Price		Range		Exercise Price
Outstanding, October 31, 2022		2,318,317		4,404,802		1.90		1.90	2,318,317		4,404,802		1.90		1.90
Granted		—		—		—		—	2,608,000		9,432,800		0.70 - 6.00		3.62
Exercised		—		—		—		—	—		—		—		—
Cancelled, forfeited, or expired		—		—		—		—	—		—		—		—
Outstanding, April 30, 2023		2,318,317	$	4,404,802	$	1.90	$	1.90
Exercisable, April 30, 2023		2,318,317	$	4,404,802	$	1.90	$	1.90
Outstanding, July 31, 2023									4,926,317	$	13,837,602	$	0.70 - 6.00	$	2.81
Exercisable, July 31, 2023									4,926,317	$	13,837,602	$	0.70 - 6.00	$	2.81

The weighted average remaining contractual life is approximately ~~3.42~~3.64 years for Common Stock warrants outstanding as of ~~April 30,~~July 31, 2023. As of ~~April 30,~~July 31, 2023, there was no intrinsic value of outstanding stock warrants.

F-19

The Company issued a common stock purchase warrant to purchase an aggregate of 2,000,000 shares of Common Stock as consideration for the acquisition of the GoFire Purchased Assets. The Warrant is exercisable for a period of four (4) years from the Closing Date. The exercise price for the Warrant Shares is $3.00, $4.00, $5.00 and $6.00 per share, respectively, for each of four tranches of 500,000 Warrant Shares. The exercise prices of the Warrant are subject to customary stock-based (but not price-based) adjustments upon the occurrence of stock splits and the like involving the Common Stock. The Warrant is exercisable on a cash basis only, except that the Warrant may be exercised on a “cashless basis” if at the time of exercise there is not an effective registration statement under the Securities Act of 1933, as amended covering the public resale of the Warrant Shares.

The Company issued a common stock purchase warrant to purchase an aggregate of 368,000 shares of Common Stock as compensation for advisory services rendered directly related to the GoFire APA. The warrant is exercisable for a period of five (5) years from the Closing Date. The exercise price for the warrant shares is $0.70 per share. The warrant is non-exercisable or transferrable for six months after the date of the closing of APA other than as permitted by FINRA Rule 5110. The warrant may be exercised as to all or a lesser number of shares of Common Stock for a period of five (5) years after the Closing Date. The Company determined the fair value of the warrant as of the acquisition date and included it as part of the asset acquisition cost (see Note 4).

The Company entered into a financial advisor and placement agent agreement in April 2023 with an advisor. As part of the consideration for the advisor’s services, the Company will issue warrants to purchase an aggregate of 360,000 shares of Common Stock at an exercise price of $0.73 per share and a term of 5 years. During the twelve (12) month engagement period, the Company will grant the advisor warrants to purchase 30,000 shares of Common Stock each month. The Company issued the first six (6) months of warrants to purchase 180,000 shares of common stock upon the execution of the agreement and will issue monthly warrants each month at a rate of 30,000 warrants per month until 360,000 warrants have been issued in aggregate. For the three months ended July 31, 2023, the Company issued warrants to purchase a total of 240,000 shares of Common Stock. For the three months ended July 31, 2023, the Company recognized stock warrant expense of $141,816.

The Company determined the fair value of the warrants using the Black-Scholes option-pricing model with the following assumptions :

Schedule of fair value of the warrants
Expected term (years)			5
Expected volatility			243.20% - 247.90%
Risk-free interest rate			3.81% - 4.18%

The expected term represents the contractual term of the warrant. The expected volatility was based on the Company’s observed equity volatility over the period matching the term of the warrant. The assumed discount rate was the risk-free rate based on the rate of treasury securities with the same or similar term as warrant.

F-20

Note 69 – Related-Party Transactions

In March 2020, the Company commenced business operations as a result of becoming the exclusive distributor of certain ENDS and related components (the “Products”) manufactured by Bidi, a related party company that is also owned by Nirajkumar Patel, the Chief Science and Regulatory Officer and a director of the Company. Mr. Patel also controls Kaival Holdings, the Company’s majority stockholder.

Other Receivable

On August 1, 2022, the Company and Bidi agreed to a price credit for short-coded or expiring inventory against the related-party accounts payable balance due to Bidi. A credit of $2,924,655 was applied on August 1, 2022, resulting in a related-party ~~accounts~~ receivable balance due from Bidi of $2,134,413, to be applied on future orders of Product. On October 31, 2022, the Company and Bidi agreed to a return for short-coded or expiring inventory. An additional credit of $1,543,545 and $108,841 for recycling cost was applied on October 31, 2022, to the related-party receivable balance due from Bidi.

As of ~~April 30,~~July 31, 2023 and October 31, 2022, the Company has a related-party receivable balance due from Bidi of $~~3,219,646~~2,976,927 and $3,704,132, respectively. The receivable balance will be realized though Bidi applying 5% credits on all future orders of product purchased until the entire balance is extinguished.

Revenue and Accounts Receivable

During the ~~six~~nine months ended ~~April 30,~~July 31, 2023, the Company recognized revenue of $~~6,713~~7,878 from three companies owned by Nirajkumar Patel, the Chief Science and Regulatory Officer and a director of the Company, and/or his wife. There was no accounts receivable balance for these transactions as of ~~April 30,~~July 31, 2023.

During the ~~six~~nine months ended ~~April 30,~~July 31, 2022, the Company recognized revenue of approximately $~~31,150~~60,469 from ~~four~~five companies owned by Nirajkumar Patel, the Chief Science and Regulatory Officer of the Company, and/or his wife. There was no accounts receivable balance due as of ~~October~~July 31, 2022.

Concentration Purchases and Accounts Payable

During the ~~six~~nine months ended ~~April 30,~~July 31, 2023, 100% of the inventories of Products, consisting solely of the BIDI® Stick, were purchased from Bidi, a related party controlled by Nirajkumar Patel, in the amount of $~~6,355,234~~8,764,380. As of ~~April 30,~~July 31, 2023, the Company had accounts payable to Bidi of $~~2,122,452~~2,308,373 and Products valued at $~~3,646,738~~3,591,991 were held in inventory. In addition, as of ~~April 30,~~July 31, 2023, the Company had accrued freight in expense of $~~202,461~~120,993. As of October 31, 2022, the Company did not have an accounts payable balance to Bidi.

During the ~~six~~nine months ended ~~April 30,~~July 31, 2022, the Company did not purchase Products from Bidi, a related party. Sales of Products during the first ~~six~~nine months of fiscal year 2022 were drawn from the inventory purchase made on September 6, 2021. Inventory quality control expenses were paid by the Company on behalf of Bidi during the nine months ended July 31, 2022 in the amount of approximately $654,500, and were offset as a credit against the existing accounts payable balance-related party as of July 31, 2022. As of ~~April 30,~~July 31, 2022, the Company had accounts payable to Bidi of approximately $~~3,394,759~~790,242 and Products valued at approximately $~~9,214,320~~5,849,310 were held in inventory.

The KBI License Agreement provides that KBI shall pay Bidi license fees equivalent to 50% of the adjusted earned royalty payments, after any offsets due to jointly agreed costs such development costs incurred for entry to specific international markets. Consequently, the Company has determined that no license fees are owed to Bidi as of ~~April 30,~~July 31, 2023, and October 31, 2022. As of July 31, 2023, the Company had accounts payable to Bidi of $466,150 for NRE.

Leased Office Space and Storage Space

The Company capitalizes all leased assets pursuant to ASU 2016-02, Leases (Topic 842) (“Topic 842”), which requires lessees to recognize right-of-use (“ROU”) assets and lease liability, initially measured at present value of the lease payments, on its balance sheet for leases with terms longer than 12 months and classified as either financing or operating leases. The Company excludes short-term leases having initial terms of 12 months or less from Topic 842 as an accounting policy election and recognizes rent expense on a straight-line basis over the lease term. On June 10, 2022, the Company entered into the 2022 Lease with Just Pick for approximately 21,332 rentable square feet combined in the office building and warehouse located at the Premises, together with all improvements thereon. Just Pick is considered a related party to the Company because the Company’s Chief Science and Regulatory Officer and director, Mr. Nirajkumar Patel, owns and controls Just Pick.

F-21

Note 710 – Commitments and Contingencies

The Company follows ASC 450-20, Loss Contingencies, to report accounting for contingencies. Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated. There were no commitments or contingencies as of ~~April 30,~~July 31, 2023, and October 31, 2022, other than the below:

QuikfillRx Service Agreement Amendment

Effective as of November 9, 2022, the Company entered into its latest amendment to the Service Agreement with QuikfillRx (collectively with prior amendments, the “Amended Service Agreement”). The November 9, 2022 amendment to the Service Agreement was captioned as the “Fourth Amendment” although it was the fifth amendment to the Service Agreement. Pursuant to the Amended Service Agreement:

(a) the term of the Amended Service Agreement was extended (unless earlier terminated pursuant to the terms of the Amended Service Agreement) from November 1, 2022 (the “Effective Date”) until October 31, 2025, following which the term shall automatically renew for successive one (1) year periods beginning November 1, 2025;

(b) QuikfillRx agreed to change its “doing business as” name to “Kaival Marketing Services” within thirty (30) days following the Effective Date;

(c) It was provided that either party may terminate the Amended Service Agreement without cause upon not less than ninety (90) days prior written notice to the other party;

(d) QuikfillRx was granted a one-time, fully vested, ten-year non-qualified option award to purchase up to 250,000 shares of Company common stock with an exercise price of $0.9869 per share (the closing price of the Company’s common stock on November 9, 2022)”)., which option grant was memorialized pursuant to a Nonqualified Option Agreement, dated November 9, 2022, between the Company and QuikfillRx; and

(e) the parties agreed to revise the compensation for services as follows: (i) payment of $125,000 per month; (ii) bonus equivalent to 0.27% of the applicable gross quarterly sales and (iii) a grant of 3,000,000 nonqualified stock options to purchase shares of Company common stock which shall vest based on achievement of certain net revenue and profit margin targets up to $180,000,000 in total net revenues over a period of 3 years.

The Company accrued $~~35,338~~37,416 for a quarterly bonus payable to QuikfillRx, based on the Applicable Gross Quarterly Sales results of the three months ended ~~April 30,~~July 31, 2023. The Company accrued $~~33,871~~45,013 for a quarterly bonus payable to QuikfillRx, based on the Applicable Gross Quarterly Sales results for the three months ended ~~October~~July 31, 2022.

Effective February 6, 2023, the Company and Futura, LLC (“Broker”) entered into an agreement for the sale of the Company’s BIDI vapor sticks to certain retail customers. The term of the agreement is one year, which shall automatically renew for successive terms of one year each, if only the minimum net sales required for each covered retail customer, as set forth in the sales broker agreement, is met. As compensation, the Company shall pay to the broker a 5% commission on all eligible products sold under the ~~agreement.~~

agreement as well as stock options that vest when certain events are met up to 200,000 shares.

F-22

Note 811 – Subsequent Events

Stock Option Grant

On ~~May 30,~~August 1, 2023, ~~(the “Closing Date”), the Company and Kaival Labs entered into the GoFire APA with GoFire. Pursuant~~incentive stock options exercisable for up to ~~the terms of the GoFire APA, the Company and Kaival Labs purchased certain intellectual property assets of GoFire consisting of various patents, patent applications and trademarks~~820,996 ~~(the “Purchased Assets”) in exchange for equity securities of the Company and certain contingent cash consideration. The Purchased Assets consist of 12 existing patents and 46 pending patents with novel technologies related to vaporization and inhalation technologies~~. The patents and patent applications cover the U.S. and several international territories. The Purchased Assets also include four registered and two pending trademarks. The Company has determined that the acquisition of the Purchased Assets does not constitute the acquisition of a “business” (as defined in Rule 11-01(d) of Regulation S-X).

On August 22, 2023, incentive stock options exercisable for up to 158,000 shares of Common Stock ~~underlying the Series B Preferred, the “Series B Conversion Shares”), the rights, preferences and terms of which are set forth in a Certificate of Designation of Rights and Preferences~~were awarded to one senior executive of the ~~Series B Preferred Stock (the “Certificate~~Company. These stock options have an exercise price of ~~Designation”)~~$0.48 and a ten-year term from the grant date with the options fully vesting on August 22, 2027.

AJB Promissory Note

On August 9, 2023, AJB Capital Investments, LLC., (“AJB Capital”) issued an unsecured promissory note for $650,000, with an original issue discount of $65,000 which will be amortized over the term of the note. The precomputed interest is being accounted for as a debt discount and ~~(iii)~~amortized through the maturity date of the note. The note bears interest of 10% per year and the interest shall be payable on a monthly basis. In an event of default, the holder of the note shall have the right to convert the outstanding and unpaid principal, interest, penalties, and all other amounts under this note into non-assessable shares of Common Stock. The conversion price shall be the greater of: i) the minimum price which is $0.10 per share (however if closing price of the common stock ~~purchase warrant to purchase~~on the trading market is greater than $1 for ten consecutive trading days then the minimum price shall be $0.40 per share) and ii) the average VWAP over the ten trading day period ending on the conversion date. The note is due and payable on February 9, 2024. The Company issued ~~2,000,000~~400,000 shares of ~~Common Stock (the “Warrant” and~~common stock as commitment fee shares. If the note payable has been repaid in full on or prior to within six months of issue, the Company has the right to redeem 200,000 of the commitment fee shares ~~of Common Stock underlying~~which were originally issued for an amount payable by the Warrant, the “Warrant Shares”). As additional consideration for the Purchased Assets, any cannabis-specific (meaning cannabis, hemp or cannabinoid) royalties that are generated by Kaival Labs from or dueCompany to the ~~Purchased Assets, from the Closing Date until January 1, 2027, will be subject to a contingent~~Buyer in cash ~~payment as described~~of one dollar ($1.00) in the ~~GoFire APA and subject to the terms of the GoFire APA.~~aggregate.

PMI Amendment

On August 12, 2023, the Company executed and entered into a Deed of Amendment (the “PMI License Amendment”) with PMPSA, Bidi and KBI. Pursuant to the ~~GoFire APA,~~PMI License Amendment (which has an effective date of June 30, 2023), the ~~Company is required~~following material changes have been made to ~~use commercially reasonable efforts~~the PMI License Agreement:

1 Royalty Rate. The royalty paid by PMPSA to ~~register the APA Shares and Warrant Shares with the SEC for distribution to GoFire’s stockholders and/or public resale by such stockholders within 180 days~~KBI will no longer be based on sales price of the ~~Closing Date. In addition, if any Series B Preferred Stock remains outstanding nineteen (19) months after~~Product being sold, but rather on the Closing Date, the Company shall use commercially reasonable efforts to file with the SEC a subsequent registration statement registering the distribution to GoFire’s stockholders and/or public resale Series B Conversion Shares by such stockholders. If such subsequent registration statement is required, the Company will use its commercially reasonable efforts to obtain effectivenessvolume of ~~such subsequent registration statement~~liquid contained within nineteen (19) months of the Closing Date, and if the Company does not so register the Series B Conversion Shares within nineteen (19) months of the Closing Date, the Company will issue to GoFire or its designee an additional ten percent (10%) of all of the Series B Conversion Shares underlying the then-outstanding shares of Series B Preferred Stock.

~~All of the securities issued as consideration for the Purchased Assets are subject to a lock-up agreement that terminates one hundred eighty (180) days from the Closing Date;~~ ~~provided~~, ~~however~~~~, that it is anticipated that the Company’s securities issued in consideration of the purchase of the Purchased Assets~~Product being sold. The royalty will be ~~assigned by GoFire~~on a sliding scale of between $0.08 to a trust for the benefit of GoFire’s stockholders. It is anticipated that the agreement governing such trust would require the trust to hold the Company’s securities subject to such lock-up agreement.

~~Terms of the Series B Convertible Preferred Stock~~

~~The Series B Convertible Preferred~~Stock carries no voting rights except: (i) with respect to the ability of the holders of a majority of the then outstanding Series B Preferred Stock (the “Majority Holders”), to nominate a director to the Company’s board of directors, and (ii) that the vote of the Majority Holders is necessary for effecting any amendment to the Company’s Certificate of Incorporation or Certificate of Designation that affects the Series B Preferred Stock. The Series B Convertible Preferred~~Stock is redeemable at the option of the~~ ~~Company at a redemption price~~ of $15 0.10per ~~share, subject to potential downward adjustments~~sale based on the ~~trading price~~volume of liquid contained in the Product, increasing to between $0.10 to $0.20 per sale upon meeting certain sales milestones. For purposes of determining aggregate sales threshold, all sales undertaken since commencement of the ~~Common Stock. Subject~~PMI Licensing Agreement will be counted.

2. Elimination of Certain Potential Royalty Adjustments. Certain potential adjustments to ~~additional limitations~~the royalties receivable by KBI as provided for in the ~~GoFire APA,~~PMI License Agreement have been eliminated.

3. Guaranteed Royalty. The guaranteed royalty payment owed to KBI under the ~~Series B Convertible Preferred Stock holds seniority over~~PMI License Agreement has been eliminated. Instead, royalties will be paid on a quarterly basis going-forward based on actual sales. Any unpaid guaranteed royalty has been cancelled.

4. Insurance Tail Requirements. KBI’s requirement to keep certain tail insurance after the ~~Common Stock and each other class of series of securities now existing~~expiration or ~~hereafter authorized with respect to dividend rights, the distribution of assets upon liquidation, and dissolution and redemption rights. Upon a liquidation and winding up~~termination of the ~~Company, the holders of Series B Convertible Preferred Stock are entitled~~PMI Licensing Agreement was reduced from 6 years to ~~a liquidation preference of~~2 years.

15 5. Markets~~per share (the “Liquidation Preference”), though this price may be adjusted downward based on the trading price~~. The identification of the ~~Common Stock at the time of liquidation. The holders of Series B Convertible Preferred Stock are entitled~~PMI Markets that PMI may enter has been expanded to ~~receive~~cover certain additional territories.

6. Net Reconciliation Payment to KBI. As a ~~dividend equal to~~ 2%result of the ~~Liquidation Preference, accruing from~~changes to the ~~Closing Date~~PMI License Agreement described in paragraphs 1 thought 3 above, the value of such changes was calculated and ~~payable on the eighteen-month anniversary~~reconciled as of the ~~Closing Date. No preemptive rights are granted to the holders~~date of ~~Series B Convertible Preferred Stock.~~

~~The Majority Holders have the ability to cause a voluntary conversion~~commencement of the ~~Series B Convertible Preferred Stock into Common Stock at~~PMI Licensing Agreement through June 30, 2023. On September 8, 2023, the Company received both the Net Reconciliation Payment from PMPSA of $134,981pursuant to this provision, and also received a ~~conversion rate of~~ ~~8.3333~~ shares of Common Stock per share of Series B Convertible Preferred Stock. All shares of Series B Convertible Preferred Stock will automatically convert to Common Stock upon the occurrence of a Change of Control (as definedroyalty payment earned from July 1, 2023 through July 31, 2023, in the ~~GoFire APA)~~amount of$121,000.

~~Terms of the Warrant~~

~~The Warrant is exercisable for an aggregate of~~ ~~2,000,000~~ ~~Warrant Shares for a period of four (4) years from the Closing Date. The exercise price for the Warrant Shares is $3.00, $4.00, $5.00~~ ~~and $6.00~~ ~~per share, respectively, for each of four tranches of five hundred thousand (500,000~~) Warrant Shares. The exercise prices of the Warrant are subject to customary stock-based (but not price-based) adjustments upon the occurrence of stock splits and the like involving the Common Stock. The Warrant is exercisable on a cash basis only, except that the Warrant may be exercised on a “cashless basis” if at the time of exercise there is not an effective registration statement under the Securities Act of 1933, as amended covering the public resale of the Warrant Shares.

F-23

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

This 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 ~~six~~nine months ended ~~April 30,~~July 31, 2023 included under Item 1 – Financial Statements in this Report and our audited financial statements and notes thereto for the year ended October 31, 2022 contained in the 2022 Annual Report. 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 Report regarding forward-looking statements.

Capitalized terms used but not defined in this discussion have the meanings ascribed to them in the notes to the accompanying unaudited financial statements.

Overview

We are focused on growing and incubating innovative and profitable products into mature, dominant brands, with a current focus on the distribution of electronic nicotine delivery systems (“ENDS”), also known as “e-cigarettes.” Our business plan is to seek to diversify into distributing other nicotine and non-nicotine delivery system products (including those related to hemp-derived cannabidiol (known as CBD) products.

Pursuant to the A&R Distribution Agreement, Bidi granted us an exclusive worldwide right to distribute Bidi’s ENDS as well as non-electronic nicotine delivery systems and related components (as more particularly set forth in the A&R Distribution Agreement, the “Products”) for sale and resale to both retail level customers and non-retail level customers. Currently, the Products consist solely of the “BIDI^® Stick”, Bidi’s disposable, tamper resistant ENDS product made with medical-grade components, a UL-certified battery and technology designed to deliver a consistent vaping experience for adult smokers 21 and over. We presently distribute Products to wholesalers and retailers of ENDS products, having ceased all direct-to-consumer sales in February 2021. Nirajkumar Patel, our Chief Science and Regulatory Officer and director and an indirect controlling stockholder of our company, owns Bidi.

BIDI^® Stick comes in a variety of flavor options for adult cigarette smokers. We do not manufacture any of the Products we resell. The BIDI® Stick is manufactured by Bidi. Pursuant to the terms of the A&R Distribution Agreement, Bidi provides us with all branding, logos, and marketing materials to use with our commercial partners use in connection with our marketing and promotion of the Products.

We process all sales made only to non-retail customers, with all sales to non-retail customers made through Bidi’s age-restricted website, www.wholesale.bidivapor.com. We ceased all direct-to-consumer sales in February 2021 in order to better ensure youth access prevention and to comply with the Prevent All Cigarette Trafficking (“PACT”) Act. We provide all customer service and support at our own expense. We set the minimum prices for all sales made by us. We maintain adequate inventory levels of the Products in order to meet the demands of our non-retail customers, and deliver the Products sold to these customers.

A key third party collaborator of ours is QuikfillRx, LLC, (“QuikfillRx”) a Florida limited liability company which recently began doing business as “Kaival Marketing Services” to better reflect its contributions to our company. QuikfillRx provides us 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. QuikfillRx provides these services to us pursuant to a Services Agreement, most recently amended on November 9, 2022, which has a current term ending on October 31, 2025 (subject to potential one-year extensions) and pursuant to which QuikfillRx receives monthly cash compensation and was granted certain equity compensation in the form of options.

We have also entered into key international licensing agreements with Philip Morris Products S.A. (“PMPSA”), a wholly owned affiliate of Philip Morris International Inc. (“PMI”).

On August 31, 2020, we formed Kaival Labs, Inc., a Delaware corporation (herein referred to as “Kaival Labs”), as a wholly owned subsidiary for the purpose of developing our own branded and white-label products and services, of which none has commenced as of the date of this Report. On March 11, 2022, we formed Kaival Brands International, LLC, a Delaware limited liability company (herein referred to as “KBI”), as a wholly owned subsidiary for the purpose of entering into an international licensing agreement with PMPSA.

Philip Morris Agreement and Royalty Revenues

On August 12, 2023, the Company executed and entered into a Deed of Amendment No. 1 (the “PMI License Amendment”) with PMPSA, Bidi and KBI. Pursuant to the PMI License Amendment (which has an effective date of June 30, 2023), resulting in a Net Reconciliation Payment to KBI. On September 8, 2023, the Company received both a reconciliation payment from PMPSA of $134,981 pursuant to this provision, and also received a royalty payment earned from July 1, 2023 through July 31, 2023, in the amount of $121,000.

The Company anticipates a progressively upward trajectory of increasing royalty payments earned through the PMI License Agreement. No assurances can be given, however, that the earned royalties will generate revenue for us in the future or otherwise create the value for our company that we anticipate.

GoFire Asset Acquisition

On May 30, 2023, we and Kaival Labs entered into the GoFire APA with GoFire. Pursuant to the terms of the GoFire APA, we purchased certain intellectual property assets of GoFire consisting of various patents and patent applications (the “Purchased Assets”) in exchange for equity securities of our company and certain contingent cash ~~consideration~~.consideration. The Purchased Assets will be housed in Kaival Labs and consist of 12 existing and 46 pending patents with novel technologies related to vaporization and inhalation technologies. The patents and patent applications cover the U.S. and several international territories. The Purchased Assets also include four registered and two pending trademarks. The goal of this acquisition is to diversify our product offerings and create near and ~~longer term~~longer-term revenue opportunities in the form of potential licenses of the acquired technology and our development of new products based on the Purchased Assets. In the near term, we expect to seek third-party licensing opportunities in the cannabis, hemp/CBD, nicotine and nutraceutical markets. Longer term, we believe we can utilize the Purchased Assets to create innovative and market-disruptive products, including patent protected vaporizer devices and related hardware and software applications. No assurances can be given, however, that the Purchased Assets will generate revenue for us in the future or otherwise create the value for our company that we anticipate.

FDA PMTA Determinations, 11^th Circuit Decision and Impact on Our Business

In September 2021, in connection with the Bidi’s Premarket Tobacco Product Application (“PMTA”) process for BIDI^® Stick, the U.S. Food and Drug Administration’s (the “FDA”) effectively “banned” non-tobacco flavored ENDS by denying nearly all then-pending PMTAs for such products (including Bidi’s). Following the issuance of by the FDA of a related Marketing Denial Order (“MDO”) regarding these ENDS products, manufacturers were required to stop selling non-tobacco flavored ENDS products. Bidi, along with nearly every other company in the ENDS industry, received a MDO for its non-tobacco flavored ENDS products. With respect to Bidi, the MDO covered all non-tobacco flavored BIDI® Sticks, including its Arctic (menthol) BIDI® Stick. As a result, beginning in September 2021, Bidi pursued multiple avenues to challenge the MDO. First, on September 21, 2021, separate from the judicial appeal of the MDO in its entirety, Bidi filed a 21 C.F.R. §10.75 internal FDA supervisory review request specifically of the decision to include the Arctic (menthol) BIDI® Stick in the MDO. In May 2022, the FDA issued a determination that it views the Arctic BIDI® Stick as a non-tobacco flavored ENDS product, and not strictly a menthol flavored product.

On September 29, 2021, Bidi petitioned the U.S. Court of Appeals for the Eleventh Circuit (the “11th Circuit”) to review the FDA’s denial of the PMTAs for its non-tobacco flavored BIDI® Stick ENDS (including the Arctic BIDI® Stick), arguing that it was arbitrary and capricious under the Administrative Procedure Act (“APA”), as well as ultra vires, for the FDA not to conduct any scientific review of Bidi’s comprehensive applications, as required by the Tobacco Control Act (“TCA”), to determine whether the BIDI® Sticks are “appropriate for the protection of the public health”. Bidi further argued that the FDA violated due process and the APA by failing to provide fair notice of the FDA’s new requirement for ENDS companies to conduct long-term comparative smoking cessation studies for their non-tobacco flavored products compared to tobacco-flavored ENDS products, and that the FDA should have gone through the notice and comment rulemaking process for this requirement.

On August 23, 2022, the 11^th Circuit set aside (i.e., vacated) the MDO issued to the non-tobacco flavored BIDI® Sticks and remanded Bidi’s PMTA back to the FDA for further review. Specifically, the 11^th Circuit held that the MDO was “arbitrary and capricious” in violation of the APA because the FDA failed to consider the relevant evidence before it, specifically Bidi’s aggressive and comprehensive marketing and sales-access-restrictions plans designed to prevent youth appeal and access.

The FDA did not appeal to the 11th Circuit’s decision. The FDA had until October 7, 2022 (45 days from the August 23, 2022 decision) to either request a panel rehearing or a rehearing “en banc” (a review by the entire 11th Circuit, not just the 3-judge panel that issued the decision), and until November 21, 2022 (90 days after the decision) to seek review of the decision by the U.S. Supreme Court. No request for a rehearing was filed, and no petition for a writ of certiorari was made to the Supreme Court.

~~In light of~~

Accordingly, the ~~11th Circuit~~11^th Circuit’s decision ~~we anticipate having~~is now final, and the ~~continued ability~~Company anticipates continuing to be able to market and sell the non-tobacco flavored BIDI® Sticks, subject to the FDA’s enforcementdiscretion, for the duration of the PMTA scientific review. The FDA has indicated that it is prioritizing enforcement of unauthorized ENDS against companies (1) that never submitted PMTAs, (2) whose PMTAs have been refused acceptance or filing by the FDA, (3) whose PMTAs remain subject to MDOs, and (4) that are continuing to market unauthorized synthetic nicotine products after the July 13, 2022 cutoff. As none of these scenarios apply to Bidi, we believe the current risk of FDA enforcement is low.

Since the PMTA was remanded, Bidi has continued to update its application with the results of new studies, including a nationwide population prevalence study on the BIDI® Stick that is currently undergoing peer review for publication.

On March 20, 2023 Bidi received its anticipated deficiency letter for the Classic BIDI® Stick PMTA, outlining FDA’s remaining scientific questions, and provided a timely, comprehensive response on June 18, 2023 .

In response to a separate court order from the Federal District Court in Maryland, the FDA has recently provided a timeline on anticipated reviews of certain “covered” PMTAs to be completed. Covered PMTAs are limited only to applications: 1) for new tobacco products that were on the market by Aug. 8, 2016; 2) that were timely-submitted by the Sept. 9, 2020 court-established deadline; and 3) for products sold under the brand names Vuse, Juul, NJOY, Logic, SMOK, Blu, Puff Bar or Suorin, or that reach 2% of total retail dollar sales as reported in the Total E-Cig Market and Players report or the Disposable E-Cig Market and Players report, as produced by Chicago-based NielsenIQ.

BIDI® Stick: 1) was on the market prior to August 8, 2016; 2) are subject to PMTAs that were timely submitted by the September 9, 2020 deadline, and have now entered scientific review (in particular the ClassicBIDI® Stick); and 3) has consistently been the number one disposable vape product for more than twenty-four months since 2021 and has consistently reached 2% of total retail dollar sales as reported in the Total E-Cig Market and Players report or the Disposable E-Cig Market and Players report, as produced by Chicago-based NielsenIQ.

The FDA anticipates action on:

52% of covered PMTAs by March 31;

53% of covered PMTAs by June 30;

55% of covered PMTAs by Sept. 30;

100% of covered PMTAs by Dec. 31.

Accordingly, the Company anticipates the PMTA for the Classic BIDI® Stick to be completed by December 31, 2023. No assurances can be given, however, that the FDA will issue a Marketing Grant Order for any product.

Material Items, Trends and Risks Impacting Our Business

We believe that the following items and trends may be useful in better understanding ~~our~~the results of our operations.

Dependence on Bidi and Nirajkumar Patel

We are wholly dependent on Bidi to supply the BIDI® Sticks to us for distribution. Accordingly, any supply or other issues that impact Bidi indirectly impact us and our ability to operate our business. Moreover, and while we are seeking to diversify our product offerings, the loss of our relationship with Bidi would substantially harm the viability of our business, which constitutes an on-going risk factor to our business.

Bidi is controlled by Nirajkumar Patel, our Chief Science and Regulatory Officer and a director of the Company. Moreover, Kaival Holdings, an entity controlled by Mr. Patel, is our majority stockholder. In addition, our corporate headquarters is leased to us by an affiliate of Mr. Patel. Therefore, Mr. Patel has the power and ability to control or influence our business.

Dependence on QuikfillRx, LLC and Distributors

We are substantially dependent on QuikfillRx, LLC (d/b/a Kaival Marketing Services, or KMS) to provide key marketing, sales and other support services to us. In addition, we rely on third-party brokers and distributors to introduce and place our products into our historic foundation of convenience-stores and more recently into new retail channels, including dollar, grocery and mass-merchandisers. The loss of one or more of these key relationships would have a material adverse effect on our business.

Ability to Develop and Monetize the GoFire Intellectual Property

We purchased certain vaporizer and inhalation-related technology from GoFire in May 2023 with the goal of diversifying our business and lessening our dependence on BIDI Vapor. We do not expect that the acquired assets will generate immediate revenue for us, and while we believe this to be a transformative acquisition for us and we are already seeking to develop and monetize the acquired assets, we can give no assurances at this time that either (i) the patent applications we acquired will eventuate in issued patents or (ii) we will be able to enter into successful monetizing arrangements with respect to these assets.

Nature of our Products and Regulation

Competition in the market for e-cigarettes from illicit sources may have an adverse effect on our overall sales volume, restricting our ability to increase selling prices and damaging our brand equity and reputation. Illicit trade and tobacco trafficking in the form of counterfeit products, smuggled genuine products, and locally manufactured products on which applicable taxes or regulatory requirements are evaded, represent a significant and growing threat to the legitimate tobacco industry, including the products we sell.

Although we combat counterfeiting of our Products by engaging in certain tactics, such as requiring all sales force personnel to randomly collect our Products from retailers in order to be tested by our quality control team, maintaining a quality control group that is responsible for identifying counterfeit products and surveillance of retailers we suspect are selling counterfeit Products through our own secret shopper force, no assurance can be given that we will be able to detect or stop sales of all counterfeit products. In addition, while we may bring suits against retailers and distributors that sell certain counterfeit products, no assurance can be given that we will be successful in any such suits or that such suits will be successful in stopping other retailers or distributors from selling counterfeit products.

Our Products (included in this context any products that we may develop from the GoFire Purchased Assets) are and will be heavily regulated by the FDA, which has broad regulatory powers. The market for ENDS products is subject to a great deal of uncertainty and is still evolving. ENDS products, having recently been introduced to market over the past 10 to 15 years, are at a relatively early stage of development, and represent core components of a market that is evolving rapidly, highly regulated, and characterized by a number of market participants. Rapid growth in the use of, and interest in, ENDS products is recent, and may not continue on a lasting basis. With respect to the GoFire Purchase Assets, the underlying technology touches on hemp/cannabis, nutraceutical and healthcare applications in addition to nicotine, all of which are heavily regulated by the FDA and other federal and state agencies. The demand and market acceptance for all of these products is subject to a high level of uncertainty. Therefore, we are subject to all the business risks associated with a new enterprise in an evolving market.

Some of our Product offerings through Bidi are subject to developing and unpredictable regulation. Our Products are sold through our distribution network and may be subject to uncertain and evolving federal, state, and local regulations, including hemp, non-THC cannabidiol (CBD) and other non-tobacco consumable products. Enforcement initiatives by those authorities are therefore unpredictable and impossible to anticipate. We anticipate that all levels of government, which have not already done so, are likely to seek in some way to regulate these products, but the type, timing, and impact of such regulations remains uncertain. With respect to CBD in particular, on January 26, 2023, the FDA announced that it would not initiate rulemaking to regulate CBD as a dietary food ingredient. Rather, after careful review, the FDA has concluded that a new regulatory pathway for CBD is needed and has further indicated that it is prepared to work with Congress to create a new regulatory pathway for CBD through legislation.

In addition to the de facto FDA flavor ban that has resulted from the denial of nearly all PMTAs for flavored ENDS, ENDS products that are non-tobacco flavored continue to face the threat of prohibition at the local level, as many state and local authorities and attorneys general push for bans or request the FDA to deny PMTAs for flavored ENDS. In addition, a number of states and localities have banned the sale of non-tobacco flavored tobacco products. Recently, for example, California passed Proposition 31, which prohibits the sale of non-tobacco flavored tobacco products, including e-cigarettes, in retail locations. Thus, the non-tobacco flavored BIDI® Sticks are not permitted to be sold in California retail locations. We anticipate more states and localities will take this approach. Several other states and localities have banned flavored ENDS, including New York, (and New York City), New Jersey, Rhode Island, Illinois(and Chicago) and Massachusetts, with several more considering similar bans ~~(e.g.~~(e.g., Maryland, and Connecticut).

Ability to Meet Demand for our Products

We believe that the matters described under “FDA PMTA Determinations, 11^th Circuit Decision and Impact on Our Business” have increased demand for our Products and has opened new distribution channels for us through which we can sell our Products. However, a sharp increase in demand for the Products will require us to use cash and/or obtain financing in order to purchase Products from Bidi for resale in the marketplace. As a result, we are faced with the risk that such cash or financing will not be available in sufficient amounts or on terms acceptable to us (or at all) to meet the market demand for the Products. Our inability to fulfill this demand will damage our reputation and could materially impact our ability to increase sales of the Products which, in turn, would adversely impact our results of operations.

Inflation

Consumer purchases of tobacco products are historically affected by economic conditions, such as changes in employment, salary and wage levels, the availability of consumer credit, inflation, interest rates, fuel prices, sales taxes, and the level of consumer confidence in prevailing and future economic conditions. The U.S. has been experiencing an environment of material inflation in recent quarters, and this condition may impact discretionary consumer purchases, such as the BIDI® Stick. Demand for our Products may also decline during recessionary periods or at other times when disposable income is lower, and taxes may be higher.

Supply Chain

The spread of COVID-19 throughout the world as well as increasing tensions with China over the past several years and Russia’s February 2022 invasion of Ukraine has created global economic uncertainty, which may cause partners, suppliers, and potential customers to closely monitor their costs and reduce activities. Any of the foregoing could materially adversely affect the supply chain for Bidi and our Products, and any supply chain distribution for the Products could have a materially adverse effect on our results of operations.

Corporate History

We were incorporated on September 4, 2018, in the State of Delaware. 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., our wholly-owned Delaware subsidiary formed solely for the purpose of the name change, with and into us. We were the surviving entity.

Change of Control

On February 6, 2019, we entered into a 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 Kaival Holdings, pursuant to which, on February 20, 2019, GMRZ sold 504,000,000 shares of our restricted common stock, representing approximately 88.06% of our then issued and outstanding shares of common stock, to Kaival Holdings, and Kaival Holdings paid GMRZ consideration in the amount set forth in the Share Purchase Agreement. The consummation of the transactions contemplated by the Share Purchase Agreement resulted in a change in control, with Kaival Holdings becoming our majority stockholder. Nirajkumar Patel and Eric Mosser members of Kaival Holdings, and Mr. Patel controls Kaival Holdings.

Current Product Offerings

Pursuant to the A&R Distribution Agreement, The Company sells and resells electronic nicotine delivery systems, which it may refer to herein as “ENDS Products”, or “e-cigarettes”, to non-retail level customers. The sole Product the Company resells is the “BIDI® Stick,” a disposable, tamper-resistant ENDS product that comes in a variety of flavor options for adult cigarette smokers. The Company does not manufacture any of the Products it resells. The BIDI® Stick is manufactured by Bidi. Pursuant to the terms of the A&R Distribution Agreement, Bidi provides the Company with all branding, logos, and marketing materials to be utilized by the Company in connection with its marketing and promotion of the Products.

Other Potential Product Offerings

In addition to the BIDI® Stick, we anticipated launching distribution of the “BIDI® Pouch,” initially outside of the United States. The initial planned February 2021 roll-out of the BIDI® Pouch was delayed due to COVID-19 based manufacturing and supply chain constraints. Due to these complications, and in an effort to prevent future bottlenecks, Bidi decided to move manufacturing in-house. In 2021, Bidi modified the planned formulation of the BIDI® Pouch. The original BIDI® Pouch formulation (which never came to market) intended to utilize a tobacco-free (synthetic) nicotine formulation, along with natural fibers and a chew-base filler in six different flavors. However, production of the BIDI® Pouch was placed on hold domestically due to concerns about the safety of synthetic nicotine and the likelihood of the FDA enforcement of synthetic nicotine products either as unapproved drugs or unauthorized tobacco products. Subsequently, the Consolidated Appropriations Act of 2022, signed by President Biden on March 15, 2022, amended the definition of a “tobacco product” in the Food, Drug and Cosmetic Act and gave the FDA authority to regulate products containing nicotine from any source, including synthetic nicotine. The legislation also gave manufacturers of synthetic nicotine products 60 days to prepare and submit PMTAs by May 14, 2022. Synthetic nicotine products subject to timely submitted PMTAs were allowed to remain on the market without the threat of enforcement for another 60 days, until July 13, 2022. After July 13, 2022, all synthetic nicotine products, regardless of PMTA status, are illegal and subject to FDA enforcement (unless the product has been authorized and is subject to a PMTA Marketing Grant Order).

Also, on July 14, 2021, we announced plans to launch its first Kaival-branded product, a hemp CBD vaping product. In addition to our branded formulation, we anticipate that we will also provide white label, wholesale solutions for other product manufacturers through its subsidiary, Kaival Labs. We have not yet launched any branded product, nor has have begun to provide white label wholesale solutions for other product manufacturers, but the diversification of the types of products we distribute is an important part of our growth strategy.

Assuming we launch a hemp CBD product, of which there can be no assurances, we intend that all CBD products will be produced and distributed strictly in compliance under the Agriculture Improvement Act of 2018 (known as the 2018 Farm Bill), which defines hemp as the plant cannabis sativa and any part of the plant with a delta-9 THC concentration of not more than 0.3 percent by dry weight. According to the 2018 Farm Bill, hemp-derived products can be offered for retail sale in many forms: smoke, pouch, tinctures, topicals, capsules, vape oil and gummies/edibles. We plan to utilize Bidi’s patented BIDI® Stick delivery mechanism in order to provide a similar, premium experience in the initial CBD product line. We expect our industrial-grade hemp CBD formula to provide greater bioavailability than many market peers, resulting in a better consumer experience in less usage. On January 26, 2023, the FDA announced that it would not initiate rulemaking to regulate CBD as a dietary food ingredient. Rather, after careful review, the FDA has concluded that a new regulatory pathway for CBD is needed that balances individuals’ desire for access to CBD products with the regulatory oversight needed to manage risks. The FDA further indicated that it is prepared to work with Congress on this matter.

In addition, in May 2023 we acquired 12 existing and 46 pending patents with novel technologies related to vaporization and inhalation technologies from GoFire and related trademarks and trademark applications. As described above, we hope to generate revenue from this acquired intellectual property via licensing and product development activities. However, there can be no assurance that we will be able to implement this ~~strategy~~strategy..

PMI Licensing Agreement and International Distribution

On June 13, 2022, we, through our wholly owned subsidiary, KBI, entered into the PMI License Agreement with PMPSA, a wholly owned affiliate of PMI, for the development and distribution of ENDS products in certain markets outside of the United States, subject to market (or regulatory assessment). The PMI License Agreement grants to PMPSA a license of certain intellectual property rights relating to Bidi’s ENDS device, known as the BIDI® Stick in the United States, as well as potentially newly developed devices, to permit PMPSA to manufacture, promote, sell, and distribute such ENDS device and newly developed devices, in international markets, outside of the United States.

On July 25, 2022, we announced the launch of PMPSA’s custom-branded self-contained e-vapor product, pursuant to the licensing agreement. The product, a self-contained e-vapor device, VEEBA, has been custom developed and ~~is now being~~was initially distributed in Canada. VEEBA was then commercially launched by PMPSA in Europe in February 2023, ~~and we expect to generate royalty revenues pursuant to the licensing agreement beginning in our fiscal fourth quarter of 2023 (quarter ending October 31, 2023),~~ with additional market launches planned this year. VEEBA was recently rebranded VEEV NOW.

Going Concern

Our financial statements are prepared in accordance with U.S. GAAP applicable to a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business within one year after the date the consolidated financial statements are issued.

In accordance with Financial Accounting Standards Board (the “FASB”), Accounting Standards Update (“ASU”) No. 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40), our management evaluates whether there are conditions or events, considered in aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the financial statements are issued. As shown in the accompanying consolidated financial statements, the Company has incurred significant recurring losses, which raises substantial doubt about the Company’s ability to continue as a going concern.

~~In response to the above, our management assessed our~~

Management plans to ~~alleviate that doubt. We had positive working capital as of April 30, 2023, of $3,714,959. Management considered that~~continue similar operations with increased marketing, which the ~~Company’s losses were due~~Company believes will result in increased revenue and net income to various factors such as: (i) uncertainty surrounding the PMTA process with the FDA and (ii) the MDO that was issued to Bidi Vapor on its non-tobacco flavored ENDS products. However, the MDO was set aside and vacated by the 11^th Circuit in August 2022, and the ability to appeal such decision has passed, thereby facilitating the continued sales of the non-tobacco flavored BIDI® Sticks for sale in the United States (pending the FDA’s review of the pending PMTAs and subject to FDA enforcement). Concurrently, the PMTA for the tobacco-flavored (Classic) BIDI® Sticks for sale in the United States continues to move through the PMTA scientific review phase (pending the FDA’s review of that PMTA). Management’s assessment included the preparation ofimprove cash flow ~~forecasts which considered increases in revenues considering the favorable ruling obtained on the MDO as disclosed above.~~from operations.

We believe that our available cash and the cash to be provided by future operating activities (including anticipated sales of BIDI® Sticks and royalty revenue under the PMI License Agreement), should enable the Company to meet its estimated liquidity needs for the next 12 months after the date that the financial statements included within this Report are issued. We believe that the above factors alleviate the substantial doubt regarding our ability to continue as a going concern.

However, there is no assurance that the Company’s plans will be able to generate expected or greater amounts of revenues or ever achieve profitability, due to the current economic climate in the United States and globally, the regulation and public perception of ENDS products and the various other risks faced by the Company. The accompanying consolidated financial statements ~~included in this Report~~ do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of these or other risks or uncertainties.

Liquidity and Capital Resources

We believe we will not have sufficient cash on hand as of the date of this Report to support our operations for at least 12 months. As of ~~April 30,~~July 31, 2023, we had working capital of approximately ~~$3.7~~$2.4 million and total cash of approximately ~~$1.1~~$1.0 million.

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~~make it highly likely that we will need to raise additional funds, including a ~~decline in revenue,~~continuing inability to generate sufficient revenues to pay for our costs and expenses, a lack of previously anticipated sales growth, increased costs (including costs necessary to develop our GoFire assets), the need to satisfy our current outstanding indebtedness and our potential plan to redeem for cash the shares of our Series B Preferred Stock issued in connection with our GoFire asset purchase in May 2023. Our efforts are directed toward generating positive cash flow and, ultimately, profitability. ~~If these efforts are not successful,~~However, we have been unable to generate sufficient revenue or achieve cash flow positive operations during 2023, making it highly likely that we will ~~very likely~~ 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 the FDA’s PMTA process and Bidi’s receipt of a MDO from the FDA, which has now been set aside and remanded by the 11th Circuit. At this time, we do foresee the likely need for further ~~strategic~~ financing for the next twelve months, given ~~the financing we completed in September 2021~~ ~~and~~ our continual sales growth efforts and our negative operating cash results.

Cash Flows:

~~Cash flow~~

Net cash flows used in operations was approximately ~~$(2.6)~~$(2.8) million for the ~~six~~nine months of fiscal year 2023, compared to ~~$(4.6)~~$(6.0) million used in operations for the ~~six~~nine months of fiscal year 2022. The decrease in cash flow used by operations for the ~~six~~nine months of fiscal year 2023 compared to the ~~six~~nine months of fiscal 2022 was primarily due to ~~build up of planned inventory for anticipated sales,~~ changes in related party accounts payable, and income tax receivable.

~~Cash flow~~Net cash flows used in investing activities ofwas approximately ~~$3,400~~ $315,769 for the ~~six~~nine months of fiscal year 2023, compared to nozero cash ~~flow~~ used in investing activities for the ~~six~~nine months of fiscal year 2022. The cash used in investing activities for the ~~six~~nine months of fiscal year 2023 consisted of cash used for the purchase of warehouse ~~equipment.~~equipment and used for transaction acquisition costs associated with the purchase of the GoFire, LLC patents.

~~The Company had no~~Net cash ~~flow from~~flows provided by financing activities was approximately $483,078 for the ~~six~~nine months of fiscal year 2023, compared to ~~cash flow~~$1.5 million provided by financing activities ~~of approximately $1.5 million~~ for the ~~six~~nine months of fiscal year 2022. The cash provided by financing activities for the ~~six~~nine months of fiscal year of ~~2022~~2023 consisted of ~~cash provided for the exercise of stock warrants.~~short-term financing activities.

Results of Operations

Three months ended ~~April 30,~~July 31, 2023, compared to three months ended ~~April 30,~~July 31, 2022

Revenues:

Revenues for the ~~second~~third quarter of fiscal year 2023 were approximately ~~$3.0~~$3.6 million, compared to approximately ~~$3.1~~$3.8 million in the same period of the prior fiscal year. Revenues were essentially flat in the ~~second~~third quarter of 2023, primarily due to ~~credits/discounts/~~credits, discounts and rebates issued to customers. We ~~do not anticipate this trend~~will continue to ~~continue as renewed distribution ramps up and~~work diligently to increase our sales of both tobacco and non-tobacco flavored BIDI^® ~~Sticks increase, and even more so now that the MDO has been vacated, which allows us to continue marketing and selling the Products, subject to the FDA’s enforcement discretion.~~Sticks.

Cost of Revenue, Net and Gross ~~Profit (Loss):~~Profit:

Gross ~~(loss)~~ profit in the ~~second~~third quarter of fiscal year 2023 was approximately ~~($0.1)~~$1.3 million, or approximately ~~(4.2%)~~36.3% of revenues, net, compared to approximately $0.4 million gross profit or approximately ~~12.7%~~11.5%, of revenues, net, for the ~~second~~third quarter of fiscal year 2022. Total cost of revenue, net was approximately ~~$3.1~~$2.3 million, or approximately ~~104.2%~~63.7% of revenue, net for the ~~second~~third quarter of fiscal year 2023, compared to approximately ~~$2.7~~$3.4 million, or approximately ~~87.3%~~88.5% of revenue, net for the ~~second~~third quarter of fiscal year 2022. The ~~decrease~~increase in gross profit is primarily driven by ~~the credits/discounts/rebates issued to customers, totaling approximately $1.4 million,~~improved cost per sticks during the ~~second~~third quarter of fiscal year 2023.

Operating Expenses:

Total operating expenses were approximately ~~$3.8~~ $3.0 million for the ~~second~~third quarter of fiscal year 2023, compared to approximately ~~$5.4~~$4.3 million for the ~~second~~third quarter of fiscal year 2022. For the ~~second~~third quarter of fiscal year 2023, operating expenses consisted primarily of advertising and promotion fees of approximately ~~$0.7~~$0.6 million, stock option expense of approximately ~~$1.4~~$0.6 million, professional fees of approximately ~~$0.8~~$0.7 million, and all other general and administrative expenses of approximately ~~$1.0~~ $1.1 million. General and administrative expenses in the ~~second~~third quarter of fiscal year 2023 consisted primarily of salaries and wages, stock option expense, insurance, lease expense, project expenses, banking fees, business fees and state and franchise taxes. For the ~~second~~third quarter of fiscal year 2022, operating expenses were approximately ~~$5.4~~$4.3 million, consisting primarily of advertising and promotion fees of approximately ~~$0.8~~$0.7 million, stock option expense of ~~2.5~~1.9 million, professional fees totaling approximately ~~$0.2~~$0.9 million, and all other general and administrative expenses of approximately ~~$1.9~~$0.8 million. General and administrative expenses consisted primarily of salaries and wages, insurance, banking fees, business fees, and other service fees. We expect future operating expenses to increase while we increase the footprint of our business and generate increased sales growth.

Income Taxes:

During the three months ended ~~April 30,~~July 31, 2023, we did not accrue a tax provision for income taxes, due to the pre-tax loss of approximately ($~~4.0)~~1.8) million, similarly we did not accrue a tax provision for income taxes, due to the pre-tax loss of approximately ($~~5.0)~~3.9) million for the three months ended ~~April 30,~~July 31, 2022.

Net Loss:

As a result of the items noted above, the net loss for the ~~second~~third quarter of fiscal year 2023 was approximately ~~$4.0~~$1.8 million, or ~~$0.07~~$0.03 basic and diluted net loss per share, compared to a net loss of approximately ~~$5.0~~$3.9 million, or ~~$0.16~~$0.09 basic and diluted net loss per share, for the ~~second~~third quarter of fiscal year 2022. The decrease in the net loss for the ~~second~~third quarter of fiscal year 2023, as compared to the ~~second~~third quarter of fiscal year 2022, is primarily attributable to ~~the increase revenues~~increased gross margins on sold products and ~~decrease in customer credits/discounts/rebates,~~reduction to general & administrative expenses, as noted above.

~~Six~~Nine months ended ~~April 30,~~July 31, 2023, compared to ~~six~~nine months ended ~~April 30,~~July 31, 2022

Revenues:

Revenues for the ~~six~~nine months of fiscal year 2023 were approximately ~~$5.5~~$9.1 million, compared to ~~$6.0~~$9.7 million in the same period of the prior fiscal year.

Revenues decreased in the ~~six~~nine months of fiscal year 2023 compared to fiscal year 2022, generally dodue to ~~credits/discounts/~~credits, discounts and rebates issued to customers. We ~~do not anticipate this trend~~will continue to ~~continue as renewed distribution ramps up and~~work diligently to increase our sales of both tobacco and non-tobacco flavored ~~BIDI® Sticks increase, and even more so now that the MDO has been vacated, which allows us to continue marketing and selling the Products, subject to the FDA’s enforcement discretion.~~BIDI^® Sticks.

Cost of Revenue and Gross Profit ~~(Loss)~~:

Gross profit in the ~~six~~nine months of fiscal year 2023 was approximately ~~$0.4~~$1.7 million, compared to gross ~~loss~~profit of approximately ~~($0.3)~~$0.1 million for the ~~six~~nine months of fiscal year 2022. Total cost of revenue was approximately ~~$5.1~~$7.4 million for the ~~six~~nine months of fiscal year 2023, compared to ~~$6.2~~$9.6 million for the ~~six~~nine months of fiscal year 2022. Therefore, the increase in gross profit of approximately ~~$0.7~~$1.7 million, compared to gross profit of approximately $0.1 million for the ~~six-month periods~~nine-month period of fiscal ~~years 2023 and~~year 2022 is primarily driven by ~~the decrease in overall sales of approximately $0.4 million and~~ the decrease in the cost of revenue, totaling approximately ~~$1.1~~$2.0 million,, resulting in an increase in gross profit of approximately ~~$0.7~~$1.6 million during the ~~six~~nine months ended ~~April 30,~~July 31, 2023.

Operating Expenses:

Total operating expenses were approximately ~~$7.4~~$10.3 million for the first ~~six~~nine months of fiscal year 2023, compared to approximately ~~$7.5~~$11.8 million for the first ~~six~~nine months of fiscal year 2022. For the first ~~six~~nine months of fiscal year 2023, operating expenses consisted of advertising and promotion fees of approximately ~~$1.2~~$1.8 million, stock option expense of approximately ~~$2.8~~$3.4 million, professional fees of approximately ~~$1.4~~$2.3 million, and all other general and administrative expenses of approximately ~~$2.0~~$2.8 million. General and administrative expenses in the ~~second~~third quarter of fiscal year 2023 consisted primarily of salaries and wages, ~~stock option expense,~~ insurance, lease expense, project expenses, banking fees, business fees and state and franchise taxes. For the first ~~six~~nine months of fiscal year 2022, operating expenses were approximately ~~$7.5~~$11.8 million, consisting primarily of advertising and promotion fees of approximately ~~$1.4~~$2.0 million, stock option expense of ~~$2.8~~$4.8 million, professional fees totaling approximately ~~$1.4~~$2.4 million, and all other general and administrative expenses of approximately ~~$1.9~~$2.6 million. General and administrative expenses consisted primarily of salaries and wages, insurance, banking fees, business fees, and other service fees. We expect future operating expenses to increase while we increase the footprint of our business and generate increased sales growth.

Income Taxes:

During the ~~six~~nine months ended ~~April 30,~~July 31, 2023, we did not accrue a tax provision for income taxes, due to the pre-tax loss of approximately ($~~7.0)~~8.8) million, similarly we did not accrue a tax provision for income taxes, due to the pre-tax loss of approximately ($~~7.8)~~11.7) million for the ~~six~~nine months ended ~~April 30,~~July 31, 2022.

Net Income (Loss):

Net loss for the first ~~six~~nine months of fiscal year 2023 was approximately ~~$7.0~~$8.8 million, or ~~$0.12~~$0.16 basic and diluted earnings per share, compared to net loss for the first ~~six~~nine months of fiscal year 2022, which was approximately ~~$7.8~~$11.7 million, or ~~$0.25~~$0.34 basic and diluted earnings per share. The decrease in the net loss for the first ~~six~~nine months of fiscal year 2023, as compared to the first ~~six~~nine months of fiscal year 2022, is primarily attributable to the ~~decreased revenues~~decrease in operating expenses and the decrease in cost of sales.

Critical Accounting Policies and Estimates

There have been no material changes to our critical accounting policies and estimates during the ~~six~~nine months ended ~~April 30,~~July 31, 2023 from those disclosed in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our 2022 Annual Report for the year ended October 31, 2022.

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.

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

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.

Under the supervision and with the participation of our management, including our President and Chief ~~Operating~~Executive Officer and ~~Interim~~ 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 ~~April 30,~~July 31, 2023, the end of the period covered by this Quarterly Report. Based on that evaluation, the President and Chief ~~Operating~~Executive Officer and ~~Interim~~ Chief Financial Officer concluded that because of material weaknesses in our internal control over financial reporting, our disclosure controls and procedures were not effective as of ~~April 30,~~July 31, 2023. ~~Some of those internal controls include multiple levels of review of the accounting and reporting procedures and processes,~~Management determined that there was a lack of ~~proper~~resources to provide segregation of duties consistent with control objectives, the lack of sufficient and consistent real time remote communications, ~~as well as certain accounting~~and the lack of a fully developed formal review process that includes multiple levels of review over financial disclosure and reporting ~~issues.~~processes.

Remediation of Material Weaknesses

We are committed to maintaining a strong internal control environment and implementing measures designed to help ensure that all material weaknesses are remediated as soon as possible. Management will continue to work to improve its disclosure controls and procedures during fiscal 2023 with the goal of improvement in the effectiveness of its systems in our internal controls during the next 12 months. We intend to hire additional staff and to take such other actions as may be necessary to address its material weaknesses. The Company did add additional financial and accounting personnel during its fiscal year ended October 31, 2022, and as such, we believe we have made progress in the implementation of certain internal controls, such as multiple levels of review and analysis of the accounting and reporting procedures and processes, and of journal entries and general ledger account reconciliations.

Changes in Internal Control over Financial Reporting

Due to the identification of certain material weaknesses, we continue to work on strengthening our internal control structure. We made no other changes in internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during the quarter ended ~~April 30,~~July 31, 2023, that have 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.

Our business, operations, and financial condition are subject to various risks and uncertainties. The risk factors described in Part I, “Item 1A. Risk Factors” in the 2022 Annual Report, for the year ended October 31, 2022, should be carefully considered, together with the other information contained or incorporated by reference in this Quarterly Report and in our other filings with the SEC in connection with evaluating us, our business, and the forward-looking statements contained in this Quarterly Report. Other than as disclosed under Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations in this Report, during the ~~six~~nine months ended ~~April 30,~~July 31, 2023, there have been no material changes from the risk factors previously disclosed under Part I, “Item 1A. Risk Factors” in the 2022 Annual Report, for the year ended October 31, 2022.

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

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

~~None.~~

Item 6. Exhibits

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

Exhibit Number		Description
~~3.1~~10.1		~~Certificate~~Deed of ~~Designation~~Amendment to Deed of ~~Preferences, Rights~~License Agreement, executed and ~~Limitations of~~entered into by the Series B Convertible Preferred Stock, dated May 30, 2023*

~~4.1~~		~~Common Stock Purchase Warrant issued to GoFire, Inc~~Company on May 30, 2023*

~~10.1~~		~~Asset Purchase Agreement~~August 12, 2023, by and among Philip Morris Products S.A., Kaival Brands ~~Innovations Group, Inc., Kaival Labs, Inc.,~~International, LLC, Bidi Vapor, LLC and GoFire, Inc., dated May 30, 2023the Company.+

31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934*

31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934*

32.1		Chief Executive Officer pursuant to 18 U.S.C. Section 1350 of Chapter 63 of Title 18 of the United States Code*

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 of Chapter 63 of Title 18 of the United States Code*

101.INS		Inline XBRL Instance Document*

101.SCH		Inline XBRL Taxonomy Extension Schema Document*

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document*

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document*

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document*

101.PRE		Inline XBRL Taxonomy Presentation Linkbase Document*

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)*

*filed herewith

+ ~~Schedules~~Certain portions of this exhibit (indicated by “[***]”) have been omitted pursuant to Regulation S-K, Item ~~601(a)(5) of Regulation S-K. The~~601(b)(10).as the Company ~~agrees to supplementally furnish to the staff~~has determined they are both not material and are of the ~~Securities and Exchange Commission a copy of any omitted schedule~~type that the Company treats as private or ~~exhibit upon request.~~confidential.

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.

	KAIVAL BRANDS INNOVATIONS GROUP, INC.

Date: ~~June 14,~~September 19, 2023	A	/s/ Eric Mosser
		Eric Mosser
		~~President and~~	Chief ~~Operating~~Executive Officer

Date: ~~June 14,~~September 19, 2023	By:	/s/ ~~Mark Thoenes~~Thomas Metzler
		~~Mark Thoenes~~	Thomas Metzler
		~~Interim~~	Chief Financial Officer

1215

Delaware		83-3492907
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.001 per share		KAVL		The Nasdaq Stock Market, LLC


	April 30, 2023			October 31, 2022			July 31, 2023			October 31, 2022
ASSETS
CURRENT ASSETS:
Cash	$	1,124,371		$	3,685,893		$	1,003,212		$	3,685,893
Accounts receivable, net		1,534,236			574,606			710,608			574,606
Other receivable – related party – short term		1,448,376			1,539,486
Other receivable - related party - current portion								1,136,452			1,539,486
Inventories		3,646,738			1,239,725			3,591,991			1,239,725
Prepaid expenses		181,921			426,407			172,601			426,407
Income tax receivable		—			1,607,302			—			1,607,302
Total current assets		7,935,642			9,073,419			6,614,864			9,073,419
Fixed assets, net		3,190			—			3,016			—
Other receivable – related party – net of current portion		1,771,270			2,164,646
Right of use asset- operating lease		1,104,622			1,198,969
Intangible assets, net								11,664,909			—
Other receivable - related party - net of current portion								1,840,475			2,164,646
Right of use asset - operating lease								1,056,767			1,198,969
TOTAL ASSETS	$	10,814,724		$	12,437,034		$	21,180,031		$	12,437,034

LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES AND STOCKHOLDER EQUITY
CURRENT LIABILITIES:
Accounts payable	$	163,270		$	40,023		$	125,011		$	40,023
Other payable- related party		2,122,452			—
Accounts payable - related party								2,308,373			—
Accrued expenses		696,876			1,099,157			540,516			1,099,157
Customer deposits		12,099			44,973			—			44,973
Customer refund due		921,078			—			618,403			—
Deferred revenue		129,702			235,274			—			235,274
Operating lease obligation – short term		175,206			166,051
Loans payable, net								483,078			—
Operating lease obligation - short term								179,861			166,051
Total current liabilities		4,220,683			1,585,478			4,255,242			1,585,478

LONG TERM LIABILITIES
LONG TERM LIABILITIES:

Operating lease obligation, net of current portion		961,593			1,050,776			914,761			1,050,776

TOTAL LIABILITIES		5,182,276			2,636,254			5,170,003			2,636,254

STOCKHOLDERS’ EQUITY:
STOCKHOLDERS' EQUITY:

Preferred stock, 5,000,000 shares authorized: Series A Convertible Preferred stock ($0.001 par value, 3,000,000 shares authorized, none issued and outstanding as of April 30, 2023 and October 31, 2022, respectively)		—			—
Preferred stock; 5,000,000 shares authorized
Series A Convertible Preferred stock ($0.001 par value, 3,000,000 shares authorized, none issued and outstanding as of July 31, 2023, and October 31, 2022, respectively)								—			—
Series B Convertible Preferred stock ($0.001 par value, 900,000 shares authorized, 900,000 and none issued and outstanding as of July 31, 2023, and October 31, 2022, respectively)								900			—

Common stock ($0.001 par value, 1,000,000,000 shares authorized, 56,169,090 and 56,169,090 issued and outstanding as of April 30, 2023, and October 31, 2022, respectively)		56,169			56,169
Common stock
($.001 par value, 1,000,000,000 shares authorized, 58,261,090 and 56,169,090 shares issued and outstanding as of July 31, 2023, and October 31, 2022, respectively)								58,261			56,169

Additional paid-in capital		32,164,512			29,375,787			44,339,243			29,375,787

Accumulated deficit		(26,588,233	)		(19,631,176	)		(28,388,376	)		(19,631,176	)
Total Stockholders’ Equity		5,632,448			9,800,780
TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY	$	10,814,724		$	12,437,034
Total Stockholders' Equity								16,010,028			9,800,780
TOTAL LIABILITIES & EQUITY							$	21,180,031		$	12,437,034

Large Accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒

Item		Page

Cautionary Note Concerning Forward-Looking Statements		ii

PART I	Financial Information	F-1

Item 1.	Financial Statements	~~F-1~~
	~~Unaudited Consolidated Balance Sheets~~	F-1
	Unaudited Consolidated Balance Sheets	F-1
	Unaudited Consolidated Statements of Operations	F-2
	Unaudited Consolidated Statements of Changes in Stockholders’ Equity	F-3
	Unaudited Consolidated Statements of Cash Flows	F-5
	Notes to Unaudited Consolidated Financial Statements	F-6
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1
	Liquidity and Capital Resources	68
	Results of Operations	79
	Emerging Growth Company	811
Item 3	Quantitative and Qualitative Disclosures About Market Risk	811
Item 4	Controls and Procedures	912

PART II	Other Information	1013

Item 1.	Legal Proceedings	1013
Item 1A.	Risk Factors	1013
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	1013
Item 3	Defaults Upon Senior Securities	1013
Item 4	Mine Safety Disclosures	1013
Item 5	Other Information	1013
Item 6	Exhibits	1114

Signatures		1215


	●	our ability to raise required funding in the form of debt or equity both in the near and longer term;

	●	our ability to obtain from, and pay for, the products we distribute for Bidi;


	●	our ability to integrate and ultimately enter into licenses for or create products relating to the intellectual property assets we acquired from GoFire, Inc. inon May 30, 2023;


	●	the impact of the August 2022 11^thCircuit Court of Appeals decision overturning the U.S. Food and Drug Administration’s (the “FDA”) previous denial of Bidi’s Premarket Tobacco Product Application (“PMTA”) for its non-tobacco flavored BIDI® Stick electronic nicotine delivery system (“ENDS”), which we are permitted to distribute in the U.S. subject to FDA enforcement and maintenance of all state licenses and permits;


	●	our substantial reliance on QuikfillRx, LLC (now known as Kaival Marketing Services) to provide key sales, marketing and other support services to us;


	●	our relationship with, and the results of marketing and sales activity by, Phillip Morris International, to whom we have licensed international rights to distribute Bidi products and from who we are entitled to receive royalty payments;

	●	our relationships with, and reliance on, third ~~parties~~distributors and brokers to ~~broker and distribute~~arrange for sales of our products;


	●	the scope of future FDA enforcement of regulations in the ENDS products generally;


	●	the market perception of the products we distribute and related impacts on our reputation;


	●	the FDA’s approach to the regulation and enforcement of synthetic nicotine and our competitors’ use of the substance in their products to avoid the PMTA requirements;


	●	anticipated product performance, and our market and industry expectations;


	●	changes in government regulation or laws that affect our business; and


	●	circumstances or developments that may make us unable to implement or realize the anticipated benefits, or that may increase the costs of, our current and planned business initiatives, including matters over which we have little or no control such as the COVID-19 pandemic.


	For the Three Months Ended April 30,						For the Six Months Ended April 30,
	2023			2022			2023			2022
Revenues
Revenues, net	$	3,046,657		$	3,092,366		$	5,482,492		$	5,934,356
Revenues – related party		3,628			7,385			6,713			31,150
Royalty revenue		—			—			105,572			—
Excise tax on products		(29,983	)		(39,727	)		(48,557	)		(63,599	)
Total revenues, net		3,020,302			3,060,024			5,546,220			5,901,907

Cost of revenues
Cost of revenue – related party		3,145,652			2,627,430			5,131,452			6,112,050
Cost of revenue – other		—			44,925			—			93,097
Total cost of revenue		3,145,652			2,672,355			5,131,452			6,205,147

Gross profit (loss)		(125,350	)		387,669			414,768			(303,240	)

Operating expenses
Advertising and promotion		660,132			761,069			1,249,042			1,353,570
General and administrative expenses		3,176,666			4,644,567			6,134,735			6,143,121
Total operating expenses		3,836,798			5,405,636			7,383,777			7,496,691

Other income
Interest income		—			—			11,952			—
Total other income		—			—			11,952			—

Loss before income taxes provision		(3,962,148	)		(5,017,967	)		(6,957,057	)		(7,799,931	)

Provision for income taxes		—			5,807			—			5,807

Net loss	$	(3,962,148	)	$	(5,012,160	)	$	(6,957,057	)	$	(7,794,124	)

Net loss per common share – basic and diluted	$	(0.07	)	$	(0.16	)	$	(0.12	)	$	(0.25	)

Weighted average number of common shares outstanding – basic and diluted		56,169,090			30,701,393			56,169,090			30,680,701