Cover
Cover - shares | 9 Months Ended | |
Jul. 31, 2021 | Sep. 09, 2021 | |
Cover [Abstract] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Quarterly Report | true | |
Document Transition Report | false | |
Document Period End Date | Jul. 31, 2021 | |
Document Fiscal Period Focus | Q3 | |
Document Fiscal Year Focus | 2021 | |
Current Fiscal Year End Date | --10-31 | |
Entity File Number | 000-56016 | |
Entity Registrant Name | KAIVAL BRANDS INNOVATIONS GROUP, INC. | |
Entity Central Index Key | 0001762239 | |
Entity Tax Identification Number | 83-3492907 | |
Entity Incorporation, State or Country Code | DE | |
Entity Address, Address Line One | 4460 Old Dixie Highway | |
Entity Address, City or Town | Grant | |
Entity Address, State or Province | FL | |
Entity Address, Postal Zip Code | 32949 | |
City Area Code | (833) | |
Local Phone Number | 452-4825 | |
Title of 12(b) Security | Common Stock, par value $0.001 per share | |
Trading Symbol | KAVL | |
Security Exchange Name | NASDAQ | |
Entity Current Reporting Status | Yes | |
Entity Interactive Data Current | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Small Business | true | |
Entity Emerging Growth Company | true | |
Elected Not To Use the Extended Transition Period | false | |
Entity Shell Company | false | |
Entity Common Stock, Shares Outstanding | 23,628,187 |
Consolidated Balance Sheets (Un
Consolidated Balance Sheets (Unaudited) - USD ($) | Jul. 31, 2021 | Dec. 31, 2020 |
CURRENT ASSETS: | ||
Cash | $ 938,435 | $ 7,421,701 |
Accounts receivable | 7,724,414 | 1,401,562 |
Accounts receivable – related parties | 15,360 | |
Prepaid expenses | 229,167 | |
Inventories | 14,947,200 | 6,383 |
Total current assets | 23,839,216 | 8,845,006 |
Right of use asset- operating lease | 59,246 | 70,133 |
TOTAL ASSETS | 23,898,462 | 8,915,139 |
LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: | ||
Accounts payable- related party | 16,813,962 | 1,409,561 |
Accounts payable- trade | 284,303 | |
Accrued expenses | 368,287 | 1,062,105 |
Income tax accrual | 1,331,856 | |
Deferred revenue | 623,096 | |
Operating lease obligation – short term | 12,691 | 11,709 |
Total current liabilities | 17,479,243 | 4,438,327 |
LONG TERM LIABILITIES | ||
Operating lease obligation, net of current portion | 49,675 | 59,204 |
TOTAL LIABILITIES | 17,528,918 | 4,497,531 |
STOCKHOLDERS’ EQUITY: | ||
Preferred stock 5,000,000 shares authorized; Series A Convertible Preferred stock ($.001 par value, 3,000,000 shares authorized, 3,000,000 issued and outstanding as of July 31, 2021 and October 31, 2020) | 3,000 | 3,000 |
Common stock ($.001 par value, 1,000,000,000 shares authorized, 23,600,597 and 23,106,886 issued and outstanding as of July 31, 2021 and October 31, 2020, respectively) | 23,600 | 23,107 |
Additional paid-in capital | 9,954,779 | 618,904 |
Retained (deficit) earnings | (3,611,835) | 3,772,597 |
Total Stockholders’ Equity | 6,369,544 | 4,417,608 |
TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY | $ 23,898,462 | $ 8,915,139 |
Consolidated Balance Sheets (_2
Consolidated Balance Sheets (Unaudited) (Parenthetical) - $ / shares | Jul. 31, 2021 | Oct. 31, 2020 |
Preferred stock, shares authorized | 5,000,000 | 5,000,000 |
Preferred stock, par value | $ 0.001 | |
Common stock, par value | $ 0.001 | $ 0.001 |
Common stock, shares authorized | 1,000,000,000 | 1,000,000,000 |
Common stock, shares issued | 23,600,597 | 23,106,886 |
Common stock, shares outstanding | 23,600,597 | 23,106,886 |
Series A Preferred Stock [Member] | ||
Preferred stock, shares authorized | 3,000,000 | 3,000,000 |
Preferred stock, par value | $ 0.001 | $ 0.001 |
Preferred stock, shares issued | 3,000,000 | 3,000,000 |
Preferred stock, shares outsanding | 3,000,000 | 3,000,000 |
Consolidated Statements of Oper
Consolidated Statements of Operations (Unaudited) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Jul. 31, 2021 | Jul. 31, 2020 | Jul. 31, 2021 | Jul. 31, 2020 | |
Revenues | ||||
Revenues | $ 3,368,065 | $ 32,422,993 | $ 59,490,118 | $ 54,923,896 |
Revenues - related parties | 70,600 | 54,040 | 132,145 | 86,520 |
Excise tax on products | 4,313 | (101,724) | (668,687) | (128,953) |
Total revenues | 3,442,978 | 32,375,309 | 58,953,576 | 54,881,463 |
Cost of revenue | ||||
Cost of revenue - related party | 3,426,998 | 27,860,145 | 47,698,451 | 47,771,211 |
Cost of revenue - other | 100,270 | 115,868 | 256,538 | 173,448 |
Total cost of revenue | 3,527,268 | 27,976,013 | 47,954,989 | 47,944,659 |
Gross (loss) profit | (84,290) | 4,399,296 | 10,998,587 | 6,936,804 |
Operating expenses | ||||
Advertising and Promotion | 710,832 | 769,134 | 2,472,019 | 1,029,132 |
General & Administrative expenses | 2,642,200 | 704,737 | 15,618,548 | 915,762 |
Total operating expenses | 3,353,032 | 1,473,871 | 18,090,567 | 1,944,894 |
Other Income | ||||
Interest income | 16 | 392 | ||
Total Other Income | 16 | 392 | ||
Income (loss) before income taxes provision | (3,437,306) | 2,925,425 | (7,091,588) | 4,991,910 |
Provision for income taxes | 300 | (320,410) | (292,844) | (1,270,841) |
Net income (loss) | $ (3,437,006) | $ 2,605,015 | $ (7,384,432) | $ 3,721,069 |
Net income (loss) per common share - basic and diluted | $ (0.15) | $ 0.05 | $ (0.32) | $ 0.08 |
Weighted average number of common shares outstanding - basic and diluted | 23,603,306 | 47,978,837 | 23,380,268 | 47,791,663 |
Consolidated Statements of Chan
Consolidated Statements of Changes in Stockholders' Equity (Unaudited) - USD ($) | Convertible Preferred Stock Series A [Member] | Common Stock [Member] | Additional Paid-in Capital [Member] | Retained Earnings [Member] | Total |
Beginning balance, value at Oct. 31, 2019 | $ 47,697 | $ (19,358) | $ (73,225) | $ (44,886) | |
Balance at beginning (in shares) at Oct. 31, 2019 | 47,697,048 | ||||
Expenses paid on behalf of the Company and contributed to capital | 26,457 | 26,457 | |||
Net income | (12,933) | (12,933) | |||
Ending balance, value at Jan. 31, 2020 | $ 47,697 | 7,099 | (86,158) | (31,362) | |
Balance at end (in shares) at Jan. 31, 2020 | 47,697,048 | ||||
Expenses paid on behalf of the Company and contributed to capital | 700 | 700 | |||
Net income | 1,128,987 | 1,128,987 | |||
Ending balance, value at Apr. 30, 2020 | $ 47,697 | 7,799 | 1,042,829 | 1,098,325 | |
Balance at end (in shares) at Apr. 30, 2020 | 47,697,048 | ||||
Issuance of common shares for compensation | $ 344 | 319,812 | 320,156 | ||
Issuance of common shares for employee compensation (in shares) | 344,215 | ||||
Net income | 2,605,015 | 2,605,015 | |||
Ending balance, value at Jul. 31, 2020 | $ 48,041 | 327,611 | 3,647,844 | 4,023,496 | |
Balance at end (in shares) at Jul. 31, 2020 | 48,041,263 | ||||
Beginning balance, value at Oct. 31, 2020 | $ 3,000 | $ 23,107 | 618,904 | 3,772,597 | 4,417,608 |
Balance at beginning (in shares) at Oct. 31, 2020 | 3,000,000 | 23,106,886 | |||
Issuance of common shares for compensation | $ 45 | 76,655 | 76,700 | ||
Issuance of common shares for employee compensation (in shares) | 44,583 | ||||
Common shares settled and cancelled | $ (18) | (30,493) | (30,511) | ||
Common shares settled and cancelled (in shares) | (17,625) | ||||
Issuance of common shares for compensation | $ 172 | 1,034,424 | 1,034,596 | ||
Issuance of common shares for compensation (in shares) | 172,129 | ||||
Net income | 311,501 | 311,501 | |||
Ending balance, value at Jan. 31, 2021 | $ 3,000 | $ 23,306 | 1,699,490 | 4,084,098 | 5,809,894 |
Balance at end (in shares) at Jan. 31, 2021 | 3,000,000 | 23,305,973 | |||
Issuance of common shares for compensation | $ 65 | 647,396 | 647,461 | ||
Issuance of common shares for employee compensation (in shares) | 64,583 | ||||
Common shares settled and cancelled | $ (21) | (47,443) | (47,464) | ||
Common shares settled and cancelled (in shares) | (20,505) | ||||
Issuance of common shares for compensation | $ 217 | 6,494,338 | 6,494,555 | ||
Issuance of common shares for compensation (in shares) | 216,924 | ||||
Net income | (4,258,927) | (4,258,927) | |||
Stock option expense | 579,699 | 579,699 | |||
Ending balance, value at Apr. 30, 2021 | $ 3,000 | $ 23,567 | 9,373,480 | (174,829) | 9,225,218 |
Balance at end (in shares) at Apr. 30, 2021 | 3,000,000 | 23,566,975 | |||
Issuance of common shares for compensation | $ 56 | 16,478 | 16,534 | ||
Issuance of common shares for employee compensation (in shares) | 56,250 | ||||
Common shares settled and cancelled | $ (23) | (123,690) | (123,713) | ||
Common shares settled and cancelled (in shares) | (22,628) | ||||
Net income | (3,437,006) | (3,437,006) | |||
Stock option expense | 688,511 | 688,511 | |||
Ending balance, value at Jul. 31, 2021 | $ 3,000 | $ 23,600 | $ 9,954,779 | $ (3,611,835) | $ 6,369,544 |
Balance at end (in shares) at Jul. 31, 2021 | 3,000,000 | 23,600,597 |
Consolidated Statements of Cash
Consolidated Statements of Cash Flows (Unaudited) - USD ($) | 9 Months Ended | |
Jul. 31, 2021 | Jul. 31, 2020 | |
CASH FLOWS FROM OPERATING ACTIVITIES | ||
Net (loss) income | $ (7,384,432) | $ 3,721,069 |
Adjustment to reconcile net (loss) income to net cash provided by operating activities: | ||
Stock based compensation | 8,269,846 | 320,156 |
Stock option expense | 1,268,210 | |
ROU operating lease expense | 10,887 | |
Expenses contributed to capital | 27,157 | |
Changes in current assets and liabilities: | ||
Accounts receivable | (6,322,852) | (7,033,361) |
Accounts receivable – related parties | 15,360 | (19,910) |
Inventories | (14,940,817) | (9,357) |
Prepaid expenses | (229,167) | |
Customer Deposits | (623,096) | |
Payments on operating lease liability | (8,547) | |
Accounts payable – related party | 15,404,401 | 4,283,852 |
Accounts payable | 284,303 | |
Accrued taxes | (1,331,856) | 1,396,919 |
Accrued expenses | (693,818) | (17,075) |
Net cash (used in) provided by operating activities | (6,281,578) | 2,669,450 |
CASH FLOWS FROM FINANCING ACTIVITIES: | ||
Settled RSU shares with cash | (201,688) | |
Cash flows used in financing activities | (201,688) | |
Net change in cash | (6,483,266) | 2,669,450 |
Beginning cash balance | 7,421,701 | 0 |
Ending cash balance | 938,435 | 2,669,450 |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||
Interest paid | ||
Income taxes paid |
Organization and Description of
Organization and Description of Business | 9 Months Ended |
Jul. 31, 2021 | |
Accounting Policies [Abstract] | |
Organization and Description of Business | Note 1 – Organization and Description of Business Kaival Brands Innovations Group, Inc. (the “Company,” the “Registrant,” “we,” “us,” or “our”), formerly known as Quick Start Holdings, Inc., was incorporated on September 4, 2018 in the State of Delaware. Description of Business The Company is focused on growing and incubating innovative and profitable products into mature, dominant brands. In March 2020, the Company commenced business operations as a result of becoming the exclusive distributor of certain electronic nicotine delivery systems (“ENDS”) and related components (the “Products”) manufactured by Bidi Vapor, LLC, a Florida limited liability company (“Bidi”), a related party company that is also owned by Nirajkumar Patel, the Chief Executive Officer of the Company. On March 9, 2020, the Company entered into an exclusive distribution agreement (the “Distribution Agreement”) with Bidi, a related party company, which Distribution Agreement was amended and restated on May 21, 2020 and again on April 20, 2021 (collectively the “A&R Distribution Agreement”) in order to clarify some of the provisions. 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 primarily of the “BIDI ® ® In connection with the A&R Distribution Agreement, the Company entered into non-exclusive sub-distribution agreements, some of which were subsequently amended and restated by the parties in order to clarify certain provisions (all such agreements, as amended and restated, are collectively referred to as the “A&R Sub-Distribution Agreements”), whereby the Company appointed the counterparties as non-exclusive sub-distributors. Pursuant to the A&R Sub-Distribution Agreements, the sub-distributors agreed to purchase for resale the Products in such quantities as they should need to properly service non-retail customers within the continental United States (the “Territory”). On August 31, 2020, the Company formed Kaival Labs, Inc., a Delaware corporation (herein referred to as “Kaival Labs”), as a wholly owned subsidiary of the Company. On July 16, 2021, the Company filed a Certificate of Amendment to the Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware to effect a 1-for-12 0.001 COVID-19 Impact In January 2020, the World Health Organization (the “WHO”) announced a global health emergency because of a new strain of coronavirus (“COVID-19”) originating in Wuhan, China and the risks to the international community as the virus spread globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic based on the rapid increase in global exposure. The Company’s operations have not been significantly impacted. No impairments have been recorded and no triggering events or changes in circumstances had occurred. While the spread of COVID-19 has begun to slow and social restrictions have begun to ease, the full impact of the COVID-19 pandemic continues to evolve and remains uncertain. As such, the full magnitude of the COVID-19 pandemic, and the resulting impact, if any, on the Company’s financial condition, liquidity, and future results of operations is uncertain. Management is actively monitoring the global situation on the Company’s financial condition, liquidity, operations, suppliers, industry, and customers. Reduced demand for products or impaired ability to meet customer demand (including as a result of disruptions at the Company’s suppliers) could have a material adverse effect on its business operations and financial performance. Given the daily evolution of the COVID-19 pandemic and the global responses to curb its spread, the Company is not presently able to estimate the effects of the COVID-19 pandemic on its results of operations, financial condition, or liquidity for the current fiscal year. As of the date of this filing, the Company’s recently commenced business operations have not been materially impacted, however, we have encountered some logistical delays related to product launches and distribution in international markets. The Company was also indirectly impacted by supply chain issues and regulatory oversight. |
Basis of Presentation and Signi
Basis of Presentation and Significant Accounting Policies | 9 Months Ended |
Jul. 31, 2021 | |
Accounting Policies [Abstract] | |
Basis of Presentation and Significant Accounting Policies | 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 subsidiary, Kaival Labs. Intercompany transactions are eliminated. 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 Annual Financial Statements filed with the SEC on Annual Report on Form 10-K on February 12, 2021 (the “2020 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 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 2020 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. Share-Based Compensation The Company measures the cost of services received in exchange for an award of equity instruments (share-based payments, or 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 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. Compensation expense for SBP awards granted to nonemployees is remeasured each period as the underlying options vest. The fair value of each option granted during the period ended July 31, 2021 and 2020 was estimated on the date of grant using the Black-Scholes-Merton option-pricing model with the weighted average assumptions in the following table: Schedule of assumptions used 2021 2020 Expected dividend yield 0 % — Expected option term (years) 10 — Expected volatility 294.57 301.53 % — Risk-free interest rate 1.19 1.63 % — The expected term of options granted represents the period of time that options granted are expected to be outstanding. The expected volatility was based on the volatility in the trading of the Common Stock. The assumed discount rate was the default risk-free five-year interest rate for US Treasury bills. Revenue Recognition The Company adopted ASC 606, Revenue from Contracts with Customers Products Revenue The Company generates products revenue from the sale of the Products (as defined above) to non-retail customers. The Company recognizes revenue at a point in time based on management’s evaluation of when performance obligations under the terms of a contract with the customer are satisfied and control of the Products has been transferred to the customer. In most situations, transfer of control is considered complete when the products have been shipped to the customer. The Company determined that a customer obtains control of the Product upon shipment when title of such product and risk of loss transfer to the customer. The Company’s shipping and handling costs are fulfillment costs and such amounts are classified as part of cost of sales. The Company offers credit sales arrangements to non-retail (or wholesale) customers and monitors the collectability of each credit sales periodically. |
Leases
Leases | 9 Months Ended |
Jul. 31, 2021 | |
Leases | |
Leases | Note 3 – Leases The Company capitalizes all leased assets pursuant to ASU 2016-02, “Leases (Topic 842),” which requires lessees to recognize right-of-use 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 does not have financing leases and only one operating lease for office space. The operating lease is for a term of five 5 1,000 4.5 59,246 73,749 3,616 2,836 10,887 8,547 12,691 49,675 62,366 11,000 Schedule of Future Minimum Rental Payments for Operating Leases 2020 2021 2022 2023 2024 Total Lease payments $ 12,300 $ 13,500 $ 15,300 $ 18,000 $ 13,500 $ 72,600 Less discount (10,887 ) Present value of future payments 62,336 Less current obligations (12,691 ) Long term lease obligations $ 49,675 |
Stockholder Equity
Stockholder Equity | 9 Months Ended |
Jul. 31, 2021 | |
Equity [Abstract] | |
Stockholder Equity | Note 4 – Stockholder Equity Preferred Shares Issued The authorized preferred stock of the Company consists of 5,000,000 .001 3,000,000 As a result of the Reverse Stock Split, the conversion rate was adjusted such that each share of the Series A Preferred Stock are convertible into approximately 8.33 shares of Common Stock. 3,000,000 Common Shares Issued The Company implemented the Reverse Stock Split, effective prior to the opening of the market on Tuesday, July 20, 2021. The Reverse Stock Split was implemented by the Company in support of its application to list on the Nasdaq Capital Market (“Nasdaq”). As a result of the Reverse Stock Split at the 1-for-12 The authorized Common Stock of the Company consists of 1,000,000,000 .001 23,600,597 Restricted Stock Unit Awards During the nine months ended July 31, 2021, 165,416 740,695 60,758 201,688 During the nine months ended July 31, 2021, 389,053 7,529,151 Stock Options During the nine months July 31, 2021, the Company granted options exercisable for up to 150,000 Common Stock of which 41,667 fully vested on December 1, 2021, 15,000 fully vested on March 17, 2021, 7,500 fully vested on June 30, 2021, 68,333 vest over the next 2 years on March 17, 2022, and 2023, and 17,500 vest over the next 2 years on June 30, 2022 and 2023. 9.12 28.68 9.62 50,000 0 The Company fair valued the options on the grant date at $ 3,088,002 9.12 27.36 294.57 301.53 10 1.19 1.63 1,268,210 1,819,792 |
Related-Party Transactions
Related-Party Transactions | 9 Months Ended |
Jul. 31, 2021 | |
Related Party Transactions [Abstract] | |
Related-Party Transactions | Note 5 – Related-Party Transactions Revenue and Accounts Receivable During the nine months ended July 31, 2021, the Company recognized revenue of $ 132,145 During the nine months ended July 31, 2021, Lakshmi Distributors Inc., doing business as C Store Master (“C Store Master”), a large customer of the Company, elected to return the inventory associated with the consignment order placed on April 1, 2021, which was located at the staging warehouse in California, to the Company at no cost. The Company then returned this same inventory to Bidi’s warehouse in Florida at no cost. This reduced the Company’s inventory and reduced the related-party amount due to Bidi Vapor by $13,846,950. Purchases and Accounts Payable During the nine months ended July 31, 2021, the Company purchased Products equal to $ 62,394,093 16,813,962 14,947,200 Office Space On August 1, 2020, the Company began leasing office space for its main corporate office in Grant, Florida. The five-year lease agreement is with a related party, Just Pick, LLC (“Just Pick”). The Company’s Chief Executive Officer is an officer of Just Pick. Prior to this, the Company utilized the home office space and warehouse of its management at no cost through July 31, 2020. |
Concentrations
Concentrations | 9 Months Ended |
Jul. 31, 2021 | |
Risks and Uncertainties [Abstract] | |
Concentrations | Note 6 - Concentrations Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of purchases of inventories, accounts payable, accounts receivable, and revenue. Concentration of Purchases and Accounts Payable- Related Party For the nine months ended July 31, 2021, 100 ® 62,394,093 100 99.3 14,947,200 Concentration of Revenues and Accounts Receivable For the nine months ended July 31, 2021, approximately 30 18,435,648 ® 16 9,598,426 13 7,663,490 8 4,648,659 Favs Business, C Store Master, MMS Distro and GPM Investment had outstanding balances of $ 6,641,912 545,879 255,620 178,756 85 7 3 2 |
Commitments and Contingencies
Commitments and Contingencies | 9 Months Ended |
Jul. 31, 2021 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | Note 7 – Commitments and Contingencies The Company follows ASC 450-20, Los Contingencies, Patent Contribution Agreement On May 4, 2021, Next Generation Labs, LLC (“Next Generation”) notified the Company that a “reversion event” had occurred under that certain Patent Contribution Agreement, dated September 28, 2020 (the “Patent Contribution Agreement”). Pursuant to the Patent Contribution Agreement, Next Generation agreed to contribute certain patents, patent applications, and patent data, described on Exhibit “A” of the Patent Contribution Agreement (the “Patents”), to the Company and the Company would subsequently transfer the Patents to Kaival Labs. Pursuant to the Patent Contribution Agreement, the Company agreed to pay Next Generation a purchase price of $3 million for the Patents (the “Purchase Price”), which was expected to be paid over-time upon two events. First, the Company expected to pay part of the Purchase Price from proceeds generated from a future securities offering (the “Offering Payment”). Additionally, on the first date that Kaival Labs sold a product that was developed using any portion of the Patents or based on the Patents, the Company agreed to pay Next Generation the difference between the Purchase Price and the Offering Payment. Pursuant to the terms of the Patent Contribution Agreement, the parties agreed that the Company would file a Form 1-A offering statement no later than January 31, 2021, unless extended in writing by the Company in good faith to no later than March 15, 2021 (the “Filing Date”). The Patent Contribution Agreement further provided that in the event the Company or Kaival Labs materially breached the terms of the Patent Contribution Agreement and the material breach is not cured within fifteen (15) business days after Next Generation provides written notice of such material breach, then a reversion event would occur, and the Patents would revert from Kaival Labs to Next Generation. The Company did not undertake a securities offering by filing a Form 1-A offering statement by the Filing Date. The Company attempted to negotiate an amendment to the Patent Contribution Agreement, which would allow the Company additional time to undertake a securities offering. However, on April 8, 2021, Next Generation notified the Company that it was in material breach of the Patent Contribution Agreement and that the Company would have fifteen (15) business days, or April 30, 2021, to cure such breach. Ultimately, the Company decided not to cure such breach within the requisite time and, on May 4, 2021, Next Generation notified the Company that a reversion event occurred. The Company has completed the process of completing the necessary documentation to transfer the Patents from Kaival Labs to Next Generation. Neither the Company, nor Kaival Labs, has developed or otherwise relied on the Patents to date and does not expect the reversion of the Patents to materially affect the Company’s business. On May 28, 2020, the Board approved cash bonus awards to each of the Company’s Chief Executive Officer and its Chief Operating Officer. With respect to the Chief Executive Officer, the Board approved a cash bonus award equal to $30,000 for every $25 million in gross revenues generated by the Company. During the quarter ended January 31, 2021, the $75 million and $100 million accumulated revenue targets were both achieved and the Company determined that the fair market value of the 13,750 During the three and nine months ended July 31, 2021 additional revenue targets were not achieved and no related bonuses were accrued. On March 31, 2020, the Company entered into a service agreement (the “Service Agreement”) with QuikfillRx LLC, a Florida limited liability company (“QuikfillRx”), whereby QuikfillRx provides the Company with certain services and support relating to sales management, website development and design, graphics, content, public communication, social media, management and analytics, and market and other research (collectively, the “Services”). The Services are provided by QuikfillRx as requested from time to time by the Company. On June 2, 2020, the Company entered into the First Amendment to the Service Agreement (the “First Amendment” and, collectively with the Service Agreement, the “Amended Service Agreement”) with QuikfillRx. Effective as of March 16, 2021, the Company entered into the Second Amendment to Service Agreement (the “Second Amendment” and, collectively with the Amended Service Agreement, the “Further Amended Service Agreement”) with QuikfillRx. Pursuant to the terms of the Further Amended Service Agreement, the parties agreed to the following “General Compensation” payments: (i) for the Services provided in March 2020, the Company paid QuikfillRx an amount equal to $86,000; (ii) for the Services provided in April 2020, the Company paid QuikfillRx an amount equal to $100,000; (iii) each calendar month commencing May 2020 through October 2020, the Company paid QuikfillRx an amount equal to $125,000 per month for the Services to be performed during such calendar month; (iv) for each calendar month between November 1, 2020 and October 31, 2021, the Company will pay QuikfillRx $125,000 per month for the Services to be performed during such calendar month; (iv) if the parties agree to extend the term of the Further Amended Service Agreement beyond October 31, 2021, then for the period between November 1, 2021 and October 31, 2022, the Company will pay QuikfillRx $150,000 per month for the Services to be performed during such calendar month; and (v) if the parties agree to extend the term of the Further Amended Service Agreement beyond October 31, 2022, then for the period between November 1, 2022 and October 31, 2021, the Company will pay QuikfillRx $150,000 per month for the Services to be performed during such calendar month. ● An amount equal to 0.9% of the Applicable Gross Quarterly Sales (as defined in the Amended Service Agreement), which amount shall, at the Company’s option be paid in (a) cash or (b) shares of the Company’s common stock, or (c) a combination of cash and Common Stock. ● An amount equal to 0.27% of the Applicable Gross Quarterly Sales, which amount must be paid in cash. The Company has accrued $ 40,283 On March 17, 2021 the Company entered into a consulting agreement with Russell Quick which granted stock options to purchase 41,667 shares of the Company’s common stock in exchange for consulting services. Mr. Quick may exercise the option right on December 1, 2021 when the shares are fully vested. The exercise price per share is $28.68. The Company recognized $190,000 in expense to account for the stock options. Russell Quick is the Chief Executive Officer of QuikfillRx. |
Income Tax
Income Tax | 9 Months Ended |
Jul. 31, 2021 | |
Income Tax Disclosure [Abstract] | |
Income Tax | Note 8 – Income Tax The Company is subject to federal income taxes and state income tax in the United States. Significant judgment is required in determining the provision for income taxes and income tax assets and liabilities, including evaluating uncertainties in the application of accounting principles and complex tax laws. The Tax Cuts and Jobs Act (the “Tax Act”) was enacted on December 22, 2017, and reduced the U.S. federal corporate tax rate from 35 21 4.458 During the nine months ended July 31, 2021, the Company generated no taxable income and, thus no Significant components of the Company’s deferred tax assets and liabilities as of July 31, 2021 and October 31, 2020 after applying enacted corporate income tax rate, is net operating loss carryforward of $ 721,771 15,377 721,771 15,377 737,148 |
Subsequent Events
Subsequent Events | 9 Months Ended |
Jul. 31, 2021 | |
Subsequent Events [Abstract] | |
Subsequent Events | Note 9 – Subsequent Events Share-based Compensation On August 8, 2021, the Company issued 56,250 352,137 28,660 179,412 |
Basis of Presentation and Sig_2
Basis of Presentation and Significant Accounting Policies (Policies) | 9 Months Ended |
Jul. 31, 2021 | |
Accounting Policies [Abstract] | |
Principles of Consolidation | Principles of Consolidation The consolidated financial statements include the financial statements of the Company’s wholly-owned subsidiary, Kaival Labs. Intercompany transactions are eliminated. |
Basis of Presentation | 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 Annual Financial Statements filed with the SEC on Annual Report on Form 10-K on February 12, 2021 (the “2020 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 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 2020 Annual Report have been omitted. |
Use of Estimates | 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. |
Share-Based Compensation | Share-Based Compensation The Company measures the cost of services received in exchange for an award of equity instruments (share-based payments, or 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 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. Compensation expense for SBP awards granted to nonemployees is remeasured each period as the underlying options vest. The fair value of each option granted during the period ended July 31, 2021 and 2020 was estimated on the date of grant using the Black-Scholes-Merton option-pricing model with the weighted average assumptions in the following table: Schedule of assumptions used 2021 2020 Expected dividend yield 0 % — Expected option term (years) 10 — Expected volatility 294.57 301.53 % — Risk-free interest rate 1.19 1.63 % — The expected term of options granted represents the period of time that options granted are expected to be outstanding. The expected volatility was based on the volatility in the trading of the Common Stock. The assumed discount rate was the default risk-free five-year interest rate for US Treasury bills. |
Revenue Recognition | Revenue Recognition The Company adopted ASC 606, Revenue from Contracts with Customers Products Revenue The Company generates products revenue from the sale of the Products (as defined above) to non-retail customers. The Company recognizes revenue at a point in time based on management’s evaluation of when performance obligations under the terms of a contract with the customer are satisfied and control of the Products has been transferred to the customer. In most situations, transfer of control is considered complete when the products have been shipped to the customer. The Company determined that a customer obtains control of the Product upon shipment when title of such product and risk of loss transfer to the customer. The Company’s shipping and handling costs are fulfillment costs and such amounts are classified as part of cost of sales. The Company offers credit sales arrangements to non-retail (or wholesale) customers and monitors the collectability of each credit sales periodically. |
Basis of Presentation and Sig_3
Basis of Presentation and Significant Accounting Policies (Tables) | 9 Months Ended |
Jul. 31, 2021 | |
Accounting Policies [Abstract] | |
Schedule of assumptions used | Schedule of assumptions used 2021 2020 Expected dividend yield 0 % — Expected option term (years) 10 — Expected volatility 294.57 301.53 % — Risk-free interest rate 1.19 1.63 % — |
Leases (Tables)
Leases (Tables) | 9 Months Ended |
Jul. 31, 2021 | |
Leases | |
Schedule of Future Minimum Rental Payments for Operating Leases | Schedule of Future Minimum Rental Payments for Operating Leases 2020 2021 2022 2023 2024 Total Lease payments $ 12,300 $ 13,500 $ 15,300 $ 18,000 $ 13,500 $ 72,600 Less discount (10,887 ) Present value of future payments 62,336 Less current obligations (12,691 ) Long term lease obligations $ 49,675 |
Basis of Presentation and Sig_4
Basis of Presentation and Significant Accounting Policies (Details) | 9 Months Ended | |
Jul. 31, 2021 | Jul. 31, 2020 | |
Property, Plant and Equipment [Line Items] | ||
Expected dividend yield | 0.00% | |
Expected option term (years) | 10 years | |
Expected volatility | ||
Risk-free interest rate | ||
Minimum [Member] | ||
Property, Plant and Equipment [Line Items] | ||
Expected volatility | 294.57% | |
Risk-free interest rate | 1.19% | |
Maximum [Member] | ||
Property, Plant and Equipment [Line Items] | ||
Expected volatility | 301.53% | |
Risk-free interest rate | 1.63% |
Organization and Description _2
Organization and Description of Business (Details Narrative) - $ / shares | 1 Months Ended | ||
Jul. 16, 2021 | Jul. 31, 2021 | Oct. 31, 2020 | |
Accounting Policies [Abstract] | |||
Reverse stock split | 1-for-12 | ||
Common stock, par value | $ 0.001 | $ 0.001 | $ 0.001 |
Leases (Details)
Leases (Details) | Jul. 31, 2021USD ($) |
Leases | |
2020 | $ 12,300 |
2021 | 13,500 |
2022 | 15,300 |
2023 | 18,000 |
2024 | 13,500 |
Total | 72,600 |
Less discount | (10,887) |
Present value of future payments | 62,336 |
Less current obligations | (12,691) |
Long term lease obligations | $ 49,675 |
Leases (Details Narrative)
Leases (Details Narrative) - USD ($) | 9 Months Ended | 12 Months Ended | |
Jul. 31, 2021 | Oct. 31, 2020 | Dec. 31, 2020 | |
Leases | |||
Lease term | 5 years | ||
Rent per month | $ 1,000 | ||
Current borrowing rate | 4.50% | ||
Right to use lease asset | $ 59,246 | $ 70,133 | |
Recognition of ROU operating lease | 73,749 | ||
Recognition of ROU liability | 73,749 | ||
Amortization expense for right to use asset | 10,887 | $ 3,616 | |
Payment of ROU liability | 8,547 | $ 2,836 | |
Short-term ROU lease liability | 12,691 | 11,709 | |
Long term lease liability | 49,675 | $ 59,204 | |
Lease liability | 62,366 | ||
Operating lease expense | $ 11,000 |
Stockholder Equity (Details Nar
Stockholder Equity (Details Narrative) - USD ($) | 1 Months Ended | 9 Months Ended | |||
Jul. 19, 2021 | Jul. 16, 2021 | Jul. 31, 2021 | Jul. 31, 2020 | Oct. 31, 2020 | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||
Preferred stock, shares authorized | 5,000,000 | 5,000,000 | |||
Preferred stock, par value | $ 0.001 | ||||
Reverse stock split description | As a result of the Reverse Stock Split, the conversion rate was adjusted such that each share of the Series A Preferred Stock are convertible into approximately 8.33 shares of Common Stock. | ||||
Reverse stock split | 1-for-12 | ||||
Common stock shares, authorized | 1,000,000,000 | 1,000,000,000 | |||
Common stock, par value | $ 0.001 | $ 0.001 | $ 0.001 | ||
Common stock shares, issued | 23,600,597 | 23,106,886 | |||
Common stock shares, outstanding | 23,600,597 | 23,106,886 | |||
Common stock vested description | Common Stock of which 41,667 fully vested on December 1, 2021, 15,000 fully vested on March 17, 2021, 7,500 fully vested on June 30, 2021, 68,333 vest over the next 2 years on March 17, 2022, and 2023, and 17,500 vest over the next 2 years on June 30, 2022 and 2023. | ||||
Options Vested | 50,000 | ||||
Intrinsic value of outstanding options | $ 0 | ||||
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Volatility Rate | |||||
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Term | 10 years | ||||
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Risk Free Interest Rate | |||||
Stock or Unit Option Plan Expense | $ 1,268,210 | ||||
Minimum [Member] | |||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||
Options exercises price | $ 9.12 | ||||
Share Price | $ 9.12 | ||||
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Volatility Rate | 294.57% | ||||
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Risk Free Interest Rate | 1.19% | ||||
Maximum [Member] | |||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||
Options exercises price | $ 28.68 | ||||
Share Price | $ 27.36 | ||||
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Volatility Rate | 301.53% | ||||
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Risk Free Interest Rate | 1.63% | ||||
Seven Non Employees [Member] | |||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||
Stock Issued During Period, Shares, Issued for Services | 389,053 | ||||
Stock Issued During Period, Value, Issued for Services | $ 7,529,151 | ||||
Series A Preferred Stock [Member] | |||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||
Preferred stock, shares authorized | 3,000,000 | ||||
Preferred stock, shares issued | 3,000,000 | ||||
Preferred stock shares, outstanding | 3,000,000 | ||||
Restricted Stock Units (RSUs) [Member] | Seven Employees [Member] | |||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||
Restricted common stock issued | 165,416 | ||||
Share based compensation | $ 740,695 | ||||
Shares Withheld for Tax Withholding Obligation | 60,758 | ||||
Restricted Stock, Value, Shares Issued Net of Tax Withholdings | $ 201,688 | ||||
Equity Option [Member] | |||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||
Options exercisable | 150,000 | ||||
Weighted average remaining life of options | 9 years 7 months 13 days | ||||
[custom:FairValueOfOptionsGrant] | $ 3,088,002 | ||||
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Term | 10 years | ||||
Stock or Unit Option Plan Expense | $ 1,268,210 | ||||
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount | $ 1,819,792 | ||||
Equity Option [Member] | Minimum [Member] | |||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Volatility Rate | 294.57% | ||||
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Risk Free Interest Rate | 1.19% | ||||
Equity Option [Member] | Maximum [Member] | |||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Volatility Rate | 301.53% | ||||
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Risk Free Interest Rate | 1.63% |
Related-Party Transactions (Det
Related-Party Transactions (Details Narrative) - USD ($) | 3 Months Ended | 9 Months Ended | |||
Jul. 31, 2021 | Jul. 31, 2020 | Jul. 31, 2021 | Jul. 31, 2020 | Dec. 31, 2020 | |
Related Party Transactions [Abstract] | |||||
Revenue from related parties | $ 70,600 | $ 54,040 | $ 132,145 | $ 86,520 | |
Purchases of products | 62,394,093 | ||||
Accounts payable to related paties | 16,813,962 | 16,813,962 | $ 1,409,561 | ||
Inventory | $ 14,947,200 | $ 14,947,200 | $ 6,383 |
Concentrations (Details Narrati
Concentrations (Details Narrative) - USD ($) | 3 Months Ended | 9 Months Ended | |||
Jul. 31, 2021 | Jul. 31, 2020 | Jul. 31, 2021 | Jul. 31, 2020 | Dec. 31, 2020 | |
Concentration Risk [Line Items] | |||||
Purchases of products | $ 62,394,093 | ||||
Inventory | $ 14,947,200 | 14,947,200 | $ 6,383 | ||
Revenue from Related Parties | 70,600 | $ 54,040 | 132,145 | $ 86,520 | |
Accounts Receivable | $ 15,360 | ||||
Bidi Stick [Member] | |||||
Concentration Risk [Line Items] | |||||
Purchases of products | $ 62,394,093 | ||||
Inventories Of Products [Member] | |||||
Concentration Risk [Line Items] | |||||
Concentration percentage | 100.00% | ||||
Accounts Payable Related Party [Member] | |||||
Concentration Risk [Line Items] | |||||
Concentration percentage | 100.00% | ||||
Accounts Payable [Member] | |||||
Concentration Risk [Line Items] | |||||
Concentration percentage | 99.30% | ||||
Revenue Benchmark [Member] | Favs Business [Member] | |||||
Concentration Risk [Line Items] | |||||
Concentration percentage | 30.00% | ||||
Revenue from Related Parties | $ 18,435,648 | ||||
Revenue Benchmark [Member] | M M S Distro [Member] | |||||
Concentration Risk [Line Items] | |||||
Concentration percentage | 16.00% | ||||
Revenue from Related Parties | $ 9,598,426 | ||||
Revenue Benchmark [Member] | C Store Master [Member] | |||||
Concentration Risk [Line Items] | |||||
Concentration percentage | 13.00% | ||||
Revenue from Related Parties | $ 7,663,490 | ||||
Revenue Benchmark [Member] | G P M Investment [Member] | |||||
Concentration Risk [Line Items] | |||||
Concentration percentage | 8.00% | ||||
Revenue from Related Parties | $ 4,648,659 | ||||
Accounts Receivable [Member] | Favs Business [Member] | |||||
Concentration Risk [Line Items] | |||||
Concentration percentage | 85.00% | ||||
Accounts Receivable | 6,641,912 | $ 6,641,912 | |||
Accounts Receivable [Member] | M M S Distro [Member] | |||||
Concentration Risk [Line Items] | |||||
Concentration percentage | 3.00% | ||||
Accounts Receivable | 255,620 | $ 255,620 | |||
Accounts Receivable [Member] | C Store Master [Member] | |||||
Concentration Risk [Line Items] | |||||
Concentration percentage | 7.00% | ||||
Accounts Receivable | 545,879 | $ 545,879 | |||
Accounts Receivable [Member] | G P M Investment [Member] | |||||
Concentration Risk [Line Items] | |||||
Concentration percentage | 2.00% | ||||
Accounts Receivable | $ 178,756 | $ 178,756 |
Commitments and Contingencies (
Commitments and Contingencies (Details Narrative) - USD ($) | 9 Months Ended | 12 Months Ended |
Jul. 31, 2021 | Oct. 31, 2020 | |
Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves [Line Items] | ||
Bonus description | cash bonus awards to each of the Company’s Chief Executive Officer and its Chief Operating Officer. With respect to the Chief Executive Officer, the Board approved a cash bonus award equal to $30,000 for every $25 million in gross revenues generated by the Company. | |
Revenue description | During the quarter ended January 31, 2021, the $75 million and $100 million accumulated revenue targets were both achieved and the Company determined that the fair market value of the 13,750 shares, or $70,785, and the cash bonuses totaling $100,000 should be accrued at January 31, 2021. | |
Fair value of bonus shares | $ 13,750 | |
General Compensation | “General Compensation” payments: (i) for the Services provided in March 2020, the Company paid QuikfillRx an amount equal to $86,000; (ii) for the Services provided in April 2020, the Company paid QuikfillRx an amount equal to $100,000; (iii) each calendar month commencing May 2020 through October 2020, the Company paid QuikfillRx an amount equal to $125,000 per month for the Services to be performed during such calendar month; (iv) for each calendar month between November 1, 2020 and October 31, 2021, the Company will pay QuikfillRx $125,000 per month for the Services to be performed during such calendar month; (iv) if the parties agree to extend the term of the Further Amended Service Agreement beyond October 31, 2021, then for the period between November 1, 2021 and October 31, 2022, the Company will pay QuikfillRx $150,000 per month for the Services to be performed during such calendar month; and (v) if the parties agree to extend the term of the Further Amended Service Agreement beyond October 31, 2022, then for the period between November 1, 2022 and October 31, 2021, the Company will pay QuikfillRx $150,000 per month for the Services to be performed during such calendar month. | |
Quickfillrx [Member] | ||
Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves [Line Items] | ||
Accrued Bonus payable | $ 40,283 |
Income Tax (Details Narrative)
Income Tax (Details Narrative) - USD ($) | 9 Months Ended | ||
Jul. 31, 2021 | Jul. 31, 2020 | Oct. 31, 2020 | |
Income Tax Disclosure [Abstract] | |||
U.S. federal and state income tax rate | 21.00% | 35.00% | |
Statutory corporate income tax rate | 4.458% | ||
Accrued of federal income tax | $ 0 | ||
Accrued of state income tax | 0 | ||
Net operating loss carryforward | 721,771 | $ 15,377 | |
Valuation allowance | 721,771 | 15,377 | |
Deferred tax asset | $ 737,148 | $ 737,148 |
Subsequent Events (Details Narr
Subsequent Events (Details Narrative) - Subsequent Event [Member] - R S U Agreement [Member] - Eight Employees [Member] | Aug. 08, 2021USD ($)shares |
Subsequent Event [Line Items] | |
Restricted stock issued | shares | 56,250 |
Share based compensation | $ | $ 352,137 |
Shares Withheld for Tax Withholding Obligation | shares | 28,660 |
Restricted Stock, Value, Shares Issued Net of Tax Withholdings | $ | $ 179,412 |